Getting Divorced? You May Not Want Your Spouse In Your Life, But They Will Stay In Your Estate Plan Unless You Act
Divorce isn’t a moment; it is a process. While you may consider your marriage over well before you or your spouse file a complaint for dissolution of marriage, the law won’t consider it over until a judge enters a final divorce decree. That could be months or years after you begin your divorce journey. During this time, you may have mentally, emotionally, and physically moved on, but legally, it is still “Til death do us part.” And if you do, in fact, pass away while your divorce is pending, you could leave behind a disaster if your estate plan and financial accounts haven’t moved on as well.
Updating your estate planning documents and modifying the beneficiaries on things like your retirement accounts, insurance policies, and other assets during your divorce are essential steps that you need to take during your divorce. That doesn’t mean trying to play financial games or hide the ball in your divorce proceedings. What it does mean is preparing for the impending reality of your divorce by ensuring that your soon-to-be former spouse doesn’t retain rights or receive assets that you don’t want them to have and which the law does not require.
Think about it. If you die or become incapacitated during your divorce, do you still want your spouse:
- To be the executor of your estate?
- To be the trustee of your trust?
- To be entitled to some or all of your assets regardless of your wishes?
- To be in charge of making financial decisions for you?
- To be making life-and-death healthcare decisions on your behalf?
Updating Your Will Won’t Cut It If You Want to Cut Your Spouse Out of Your Estate
If the answer to any or all of the above questions is “no,” you need to act now. The steps you need to take go far beyond just updating your will. Even if you change your will to exclude your spouse, during the pendancy of your divorce, he or she can reject that change and still get a portion of your estate under Illinois law should you die before your divorce is final.
Like most states, Illinois has what is called an “elective share” law designed to protect surviving spouses from being disinherited and left with nothing. A spouse left out of a will, or who would receive less under the will than they would have if there had been no will at all, can reject the will and instead “elect” to receive:
- One-third of your entire probate estate if you are also survived by a descendant, or;
- One-half of your entire probate estate if you have no surviving descendant.
Additionally, your spouse is entitled to receive an amoun which is no less than $20,000 from your probate estate to support them for nine months after your death. If you have one or more minor children together with your spouse, he or she could also receive no less than $10,000 for each minor child.
Note that your spouse’s rights under Illinois law only apply to assets in your probate estate. But assets in a revocable trust are not part of your probate estate. Neither are 401(k)s, IRAs, insurance policy proceeds, pension benefits, and other such accounts. This means that if you take the right steps, beyond updating your will, you can indeed exclude your spouse from inheriting any of your assets if you die during your divorce.
Some of these changes may require approval by the family court before any changes can be implemented. Consider taking some or all of the following actions, but only in consultation with your divorce lawyer, estate planning attorney, accountant and financial advisor.
Changing the trustee and beneficiaries of an existing trust.
Many trust agreements automatically treat a spouse named in the document as a beneficiary or trustee as having predeceased, after a divorce has been finalized. However, these trust agreements may not remove your spouse as a beneficiary or trustee should you pass away during the divorce. If you already have a revocable trust, you may want to amend your document to remove your spouse as a beneficiary or trustee.
If you don’t have a trust, then you should consider creating one to hold your assets during the divorce and beyond. If you have minor children, you should make sure your Will names guardians in the event that both you and your spouse pass away during the divorce.
Changing the beneficiaries of your IRA and insurance policies.
The amounts you contributed to retirement plans such as 401(k)’s, IRAs, and pension plans may be some of the most sizable assets in your portfolio. You’ve already named beneficiaries on all of these accounts who will receive the proceeds when you die, and your spouse is likely that person on some or all of these accounts. Spouses are also often named as beneficiaries under life insurance policies.
When it comes to your 401(k) and qualified pension plans, your spouse will receive the assets in that account pursuant to federal law unless they sign a written waiver in which they consent to you naming another beneficiary. IRAs and life insurance policies do not necessarily have these restrictions. Family courts often look to divide these assets under a qualified domestic order for 401(k) and pension plans or under the divorce decree for an IRA.
During the divorce, you should consider changing the beneficiary designations on such retirement accounts and life insurance policies (with court approval, if necessary). Death during the pendency of the divorce does not extinguish your spouse’s rights to these assets. Even after divorce, with the exception of life insurance policies, the beneficiary designations under your 401(k), pensions plan and retirement accounts control the distribution of those assets, not your divorce decree. It is critical to make sure all such accounts remove your ex-spouse as a beneficiary.
Revoking or revising your financial power of attorney.
Death is not the only tragedy that could strike during your divorce. An accident or illness could leave you incapacitated and unable to make decisions or communicate your wishes as to your financial or economic affairs. That is why you may have already prepared a financial power of attorney to give your spouse the ability to handle such matters in the event you cannot. That means your spouse could withdraw money from your bank accounts, enter into contracts for you, or buy or sell property in your name.
Unless you want your spouse retaining that power, you should revoke and change your power of attorney so that he or she will no longer be able to act on your behalf. Execute a new financial power of attorney designating someone else as your agent.
Revoking or revising your power of attorney for health care.
As with a financial power of attorney, a power of attorney for health care gives a designated agent the ability to make decisions about your health care decisions if you become incapacitated, consistent with your intentions and wishes set forth in the document.
If you have an existing power of attorney for health care that names your spouse as your agent, and you don’t want to put your life in his or her hands anymore, revoke the document and execute a new one designating someone other than your spouse as agent. Make sure you follow all statutory requirements for the execution of a power of attorney and give a copy to your physician and your new agent.
Again, you should not make any decisions about these matters and other estate planning issues without first discussing them with your attorneys and advisors. But making the necessary changes to your estate plan can be an essential part of a divorce that proceeds smoothly and leaves you with clarity and security as you begin the next chapter of your life.
Please contact the estate planning and wealth transfer attorneys at Latimer LeVay Fyock to discuss your pre-divorce estate planning strategy.