Divorce doesn’t just alter your marital status; it’s a serious legal process that affects important things like your will and estate plans.
After any major life event, such as getting married, having a child, or going through a separation or divorce, reviewing and updating your will and estate plans is crucial.
Splitting Assets in Divorce
When getting a divorce, dividing assets can be challenging, especially for couples who have acquired many joint or separate assets. Sometimes, couples may have a family heirloom that both parties have a claim to, which further complicates the fair distribution of assets.
Financial assets are also subject to division, including life insurance policies, retirement accounts, and pensions.
It’s important to avoid acting out of spite or hastily removing the other person as the beneficiary without understanding the potential consequences for your taxes and finances.
Seeking help from an expert estate planning attorney can be beneficial in these situations.
Divorces can be expensive and often exhaust financial resources, so carefully considering asset division is crucial.
How you handle your separation can affect your taxes, and there are a few key things to remember.
First, after getting divorced, you will need to file your taxes separately instead of jointly. This change in filing status can impact your options for tax planning.
One relevant consideration is the marital home. Typically, it is the most valuable asset that both parties care about. If the ownership of the home is transferred from both individuals to just one spouse, it could affect the capital gains tax when the property is sold.
This is because the home’s value will likely increase over the years. It’s worth noting that the personal residence exclusion, which allows for the exclusion of a certain amount of profit from the sale of a primary residence, is generally lower for individuals compared to couples.
Therefore, it’s essential to be aware of the tax implications of your uncoupling and consider consulting a tax professional who can guide you through the process and help you make informed decisions.
Divorce Impact on Will
Divorce significantly affects your will and estate plans, changing how things were set up. When you first create a will, the law assumes your spouse is your partner for life. But if you get divorced, this changes.
If you don’t update your will after a divorce, your ex-spouse could continue to play roles they were assigned earlier, like the executor (person responsible for giving out your estate). This could cause problems, especially if the divorce were unfriendly.
Your ex-spouse might also continue to get your assets if they were listed as a beneficiary in your original will. So, it’s critical to update your will to keep up with changes in your life.
Making a new will or updating the old one after divorce ensures that your current wishes are correctly shown. This helps ensure your assets are given out in a way that matches your current situation because these things can be complicated.
Updating Beneficiaries After Divorce
After a divorce, review and update the beneficiaries listed on your various accounts and policies, such as life insurance, retirement plans, and bank accounts. This ensures that the desired individuals receive your assets and stops your ex-spouse from gaining inheritance.
It’s a good idea to ask for help from a trusted wills attorney or estate planning professional when going through a divorce. They can help ensure things are done correctly, which gives peace of mind and ensures that your estate will be managed and given out based on your current wishes.
It’s important to remember, when going through a divorce, to look over and update your legal documents to fit your new life.
Divorce Impact to Estate Plan
Divorce can greatly influence your estate plan. Estate planning involves more than just dealing with property division during this situation. Here are some critical areas where your estate plan could be impacted due to divorce:
Health Care Decisions
Suppose you had previously designated your ex-spouse as your healthcare proxy or granted them power of attorney for healthcare decisions. In that case, you must revoke these designations and appoint someone else you trust.
If you have minor children, your divorce may impact the guardianship provisions in your estate plan. You may need to reconsider and update your designated guardian to reflect your new circumstances.
If you created a revocable living trust during your marriage, it may need to be modified to remove your ex-spouse as a beneficiary or trustee. Additionally, you should establish new provisions for managing and distributing your assets based on your post-divorce situation.
Executors and Trustees
Divorce often necessitates revisiting your choice of executor or trustee. You may want to appoint a new person or entity to fulfill these roles, ensuring your wishes are carried out effectively.
It is advisable to consult with an experienced estate planning attorney to navigate the impact of divorce on your estate plan. They can help you review, update, and draft legal documents that align with your post-divorce goals and protect your assets and loved ones.
Regularly reviewing and revising your estate plan after a significant life event like divorce is key to maintaining its effectiveness and reflecting on your current circumstances.
Different Rules in Different Places
Note that Australian jurisdictions may treat divorce differently regarding wills. Some areas automatically invalidate wills upon divorce, while others remove the former spouse as executor and disregard any gifts to them.
To understand the rules in your state or territory, check with local laws and consult with a financial adviser.
Your Checklist for Estate Planning After Divorce
When going through a divorce, pay attention to specific details regarding your will and estate plan, regardless of whether you have a comprehensive plan or just a retirement account.
It’s important to meet your obligations to your ex-spouse while also ensuring your own financial security. Here’s a step-by-step list of tasks you should undertake:
Update your Will
If you want to remove designations mentioned in your previous will, you must inform the individuals involved about the changes.
Prepare new documents
As soon as you are separated, create new materials to prevent your spouse from making financial or medical decisions on your behalf.
Change passwords and notify service providers
Secure your online accounts by changing passwords and informing relevant service providers that your former spouse can no longer access your records.
Update life insurance beneficiaries
Don’t assume that your divorce documents take care of details like insurance beneficiaries. Clearly state your wishes to ensure your desired beneficiaries are included.
Prepare a power of attorney
Designate someone to manage your finances if you become incapacitated. Inform your bank if the previous power of attorney is being replaced.
Discuss the benefits of creating a trust
Consult your solicitor and financial adviser about establishing a trust to protect your assets from potential legal challenges related to divorce.
Given the changing dynamics of your family, evaluate whether the current trustees are still the most suitable choice. If changes are needed, complete the necessary paperwork.
Consider re-titling joint assets
Evaluate whether it’s necessary to change ownership of joint assets, such as cars and properties.
Review your advance care directive
Assess whether any amendments are needed in your advance care directive.
Plan for your small business
If your spouse has been involved in the operations of your small business, create a contingency plan for someone else to take control if you become unable to do so.
Seek professional help to review your assets
Engage a solicitor or financial adviser to review your list of assets and suggest any necessary changes to protect your interests.
Review your superannuation account
Check the death benefit nomination on your superannuation account. Remember that it doesn’t fall under the terms of your will.
Update your binding death benefit nomination
If you and your spouse share a self-managed superannuation fund (SMSF), ensure that your binding death benefit nomination is updated. Your partner may become the fund’s sole trustee in the event of your death.
Although the list might feel overwhelming, we at Men’s Legal Center are here to guide you through each step. We can also assist you in reviewing and adjusting your estate plan to align with your new goals. Consult and learn more about how divorce affects your will and estate plan.
California Divorce and Expert Advice
Divorce is not merely a change in marital status; it carries significant legal implications that extend to essential matters such as your will and estate planning. It becomes vital to reassess and review your will and estate plans when going through significant life events like marriage, parenthood, separation, or divorce.
When considering divorce in California, people often have concerns beyond the emotional aspects. The fear of high costs, lengthy conflicts, and overwhelming stress can discourage individuals from pursuing a divorce.
Fortunately, an attorney-supervised uncontested divorce is an alternative option for couples willing to work together to dissolve their marriage. It’s great to consult San Diego divorce lawyers with experience in the field to explore this possibility.
If you and your spouse are looking to end your marriage peacefully and cooperatively without getting involved in lengthy court battles, consider contacting San Diego divorce attorneys. These experienced professionals have helped numerous couples navigate their separation civilly and amicably. To schedule an initial consultation, contact Men’s Legal Center today.