Divorce touches upon every aspect of a person’s life. Two lives that were once united now must go their separate ways physically, emotionally, and financially. Not only does it impact your present-day circumstances, divorce impacts estate planning.
Perhaps you drew up a will naming your soon-to-be ex-spouse or gave them power of attorney should you become incapacitated. You may be wondering, How does divorce impact your estate planning? Texas law treats certain estate planning documents differently if they name a former spouse.
The impact of divorce on estate planning begins with one of the most common estate planning documents: the will. In a will, a person (testator) expresses their wishes regarding how they want their property distributed when they die. Typically, the testator names their spouse and children, if any, as the primary beneficiaries of their will. The beneficiaries have the right to inherit the testator’s estate. When a person divorces, typically, they’ll alter their will so that it no longer names their ex-spouse.
But what if a person dies before they get the chance to change their will after their divorce? Texas law recognizes that when spouses divorce, it’s unlikely that they’ll want their former spouse to retain their inheritance rights. If a person names their ex-spouse or the ex-spouse’s relatives as a beneficiary, Texas law acts as if the ex-spouse and their relatives died before the person who wrote the will. This means that none of them will receive any inheritance. Instead, that portion of the estate will pass to the decedent’s other heirs.
Often, people set up trusts as a part of their estate plan. A trust is an arrangement where a third party (the trustee) holds another person’s (the settlor’s) assets for the benefit of the trust beneficiaries. People sometimes set up either revocable or irrevocable trusts so that their assets can be more easily distributed to their beneficiaries when they die.
Texas law treats trusts like wills after a divorce. As with a will, if a settlor names a former spouse as a beneficiary or trustee for a trust, Texas law treats the former spouse as though they died before the settlor. This is one of the many reasons it’s important to name an alternate trustee or alternate beneficiary when you create a trust.
Life Insurance Policies
The purpose of life insurance is to help your closest relatives and family financially when you die. They could use it to pay rent, mortgage, or funeral expenses. In any event, you likely want the people closest to you or those who financially rely upon you to benefit from the life insurance. Thus, spouses typically name each other as life insurance beneficiaries.
When you divorce, it’s unlikely that you want your ex-spouse to remain your life insurance beneficiary. Thus, if you’ve not changed your primary life insurance beneficiary after divorce, Texas law ignores this designation. Instead, your life insurance will be distributed to your alternative beneficiary or your estate if there are no alternative beneficiaries.
However, a life insurance policy or retirement account governed by the Employee Retirement Income Security Act of 1974 (ERISA) is regulated by federal, not Texas, law. An ERISA policy does not automatically remove a former spouse as a beneficiary when you divorce. You will have to take specific steps to remove them as a beneficiary.
Powers of Attorney
Typically, medical and financial powers of attorney are a part of your estate planning package. These designate a person who will make medical and financial decisions on your behalf if you become incapacitated. A divorce terminates an ex-spouse’s designation under these documents as well.
Revise Your Estate Planning Documents After Divorce
As you can see, the effect of divorce on estate planning is significant. Even if you have designated alternative beneficiaries or heirs, you should discuss your estate plan with an attorney and make alterations as necessary when you divorce. The purpose of estate planning documents is to clearly and accurately reflect your wishes. It’s important to update these documents when you have a significant life change, such as a divorce, so your family is clear on your desires.
And what if you want to keep your former spouse as a beneficiary to your estate or life insurance policy? In that case, you must take specific steps after the divorce to ensure they’re not automatically disinherited. An attorney can guide you through this process so that your wishes are clear and upheld after you’ve passed.
Speak with an Attorney About the Impact of Divorce on Estate Planning
If you’re in the process of divorcing, you should speak with your attorney about how your divorce impacts estate planning. You want to make sure that your wishes are clear as you go through major life changes. Fortunately, the lawyers at The Larson Law Office can guide you through the Texas divorce process and advise you on your post-divorce estate planning options. We can help you properly provide for your family’s future. Contact us today.