Couples considering divorce have much to deal with without considering the effect on their individual estate plans. Still, in the same way that divorce affects other aspects of their lives it also affects inheritances, handling of funds for minor children, beneficiary designations on death, and titling of assets during life to name a few. As you can imagine, sometimes mistakes are made. Here are some considerations.
Titling of Assets. For couples represented by competent divorce attorneys the question of titling of the family residence is seriously considered and, if one spouse receives the residence, that property needs to be retitled from tenants by the entireties into the individual name of the spouse receiving the property. In our “do it yourself” culture where spouses might try to handle their own divorce, it can happen they forget. Suppose nothing is done, then what? On divorce if the property was jointly titled as tenants by the entireties, an ownership form only available to spouses, the property becomes owned as tenants in common. This means that each person can sell his or her individual share. It also means that if one of them dies, his or her name is still on the title. This can get awkward. We have had a few situations where former spouses neglected to take care of the title and then want to resell at a later date. Titling of other assets such as bank accounts needs to be reviewed also since joint titling of bank accounts leaves everything to the survivor.
Wills. If you, like most married couples, named each other as mutual beneficiaries under your Wills and then, on the death of both of you, to the children equally, then you need to review your Will to make certain your assets on your death go as you want them to. Also, note that not all assets pass by Will.
Pensions and Retirement Funds. If you named your Wife or Husband as beneficiary under your pension especially if it was done years ago you might have forgotten. Have you updated your forms? Also check beneficiaries of your IRA’s, 401(k)’s, SEP’s and similar retirement funds.
Trusts. This might be time either to consider a Trust or to review, modify or revoke a Trust. If you have minor children you could consider a brother, sister or parent to manage funds going to your children instead of your former spouse. This is one area where serious review is needed and an elder law or trusts and estates attorney can help.
Powers of Attorney and Health Care Powers of Attorney. Is your Husband or Wife your agent under Power of Attorney to handle your financial affairs? That is an obvious area to consider for correction. Less obvious perhaps but extremely important would be your Health Care Power/Advance Directive/Living Will. Do you really want your former spouse making life and death decisions affecting you?
Life Insurance. Life insurance is often made a planning tool in divorces. This can be especially important where there are younger children involved. Your divorce lawyer probably has covered this with you but also remember this can be the time to examine beneficiaries or to purchase life insurance for planning purposes.
Pre-Nuptual and Post-Nuptual Agreements. If you had a pre-nuptual or post-nuptual agreement take it out and review it carefully. Be sure you know your rights.
Tax Considerations. When you are no longer a couple but are filing individually are you ready for the change? It might be time to talk to an accountant. Effective January 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse i.e. he or she cannot take credit for the payment and they are not includable in the income of the receiving spouse. This affects divorce and separation agreements executed after (or in some circumstances modified after) December 31, 2018. As with any tax related issue you should check with your accountant or tax professional for details to see how this affects you. Child support is never deductible and is not considered income. https//www.irs.gov taxtopics, Topic No. 452.
After Divorce and If You Remarry. Remarriage after divorce raises similar issues. Whether you remarry or not, you should review all of the above both before the final Decree and after your divorce to be certain the disposition of assets follows your wishes.
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.