Anyone who has been through a divorce – even an amicable one – will tell you that it can be among the most challenging, and emotionally chaotic experiences you will ever live through. You need to make countless weighty decisions that will lay the groundwork for this new phase in your life. Don’t let estate-planning matters get lost in the shuffle.
In most cases, your spouse is listed as your successor trustee, executor, agent designated in powers of attorney and primary beneficiary. Do you still want that? Now is the time to be proactive about making those changes.
Protect Asset Distribution
While it’s an unpleasant thought, what happens if you die before the divorce is final? If you’ve done no estate planning (i.e. a will, trust, etc.), in Illinois, your spouse will receive one-half of your probate estate if you have children and all of your estate if you do not.
There are ways to limit the assets your spouse would receive, but Illinois has what is called an “elective share” statute entitling your spouse to one-third of assets distributed through a will if you have children and one-half if you do not.
Under Illinois law, once your spouse is an ex, they are considered to have predeceased you for purposes of your will and your revocable trust. That’s important and something you must discuss with your estate planning and divorce attorneys to be certain that your assets will be protected should you pass away before the divorce is final.
Review Wills and Trusts
Married individuals typically designate their spouse as executor of their estate in their will and the successor trustee of their trusts. They often name in-laws to important positions as well. Depending on how your assets are titled and whether you have a pre-nuptial agreement or any court orders restricting transfers or revisions to estate planning documents, updating wills and trusts can be challenging during the divorce process. At the very least, get good legal advice and understand your options.
Change Beneficiary Designations
While in Illinois once your spouse is an ex they are considered to have predeceased you for purposes of your will and your revocable trust, that is not true for beneficiary designations.
Proceeds of life insurance and retirement plans are distributed according to beneficiary designations and always override your will and trust. Beneficiaries are easy to change for insurance and IRAs, but spousal consent is required for 401ks and other “qualified plans.” There is no statute in Illinois prohibiting your ex-spouse from receiving your retirement assets or life insurance proceeds if you do not change the beneficiary designations after the divorce is final.
Revoke Powers of Attorney
If you have durable powers of attorney for property and health care designating your spouse as your agent, you may want to revoke them immediately. Otherwise, your estranged spouse will have unlimited access to your bank accounts, financial assets and making health-care decisions on your behalf if you are incapacitated. These forms are very easy to update.
Name Alternate Guardians of Minor Children
An alternate guardian should be designated under your will. The law automatically deems a surviving parent the guardian, but the court must consider what is in the best interest of your children. If your ex-spouse dies after you but while your children are still minors, he or she may not have designated guardians. A court will then look to your will for guidance.
As you work to create your next chapter, it’s important to make changes in your financial and estate documents to match your evolving family dynamics. The BDF team is available to support you. Our experts can help you navigate the complex legal, tax and financial issues along with the emotional components of divorce. Please read our blog “When I do Becomes I Don’t: Five Strategies for a Financially Responsible Divorce” and call us if we can help your family or someone you care about.
Heather L. Locus, CPA, CFP®, CDFA® is a BDF Owner, founder of our Women’s Service Team and leads our Divorce Practice Group. She loves solving complex problems by balancing the financial and emotional components with tax and legal issues. Heather frequently presents “The Financially Responsible Woman: Five Strategies for a Full Life” and “When I do Becomes I Don’t: Five Strategies for a Financially Responsible Divorce”. She educates parents on instilling their values and work ethic through her presentation, “Raising Financially Intelligent Children”. Heather has contributed to various publications including The Wall Street Journal, Crain’s Chicago Business, the AARP Bulletin and Divorce Magazine.