The emotional trauma of going through a divorce is bad enough. But think
about how your family would feel if your ex-spouse collected on a life
insurance policy you had with your job--because you forgot to change the
beneficiary! Concern about “estate” plans is not just for
the “rich.” Many employees sign up for various insurance plans
and products that are provided as a benefit of the job—and then
promptly forget about those financial products, especially if they have
been employed for many years at the same firm.
Life Insurance Proceeds Awarded to Ex-Wife, Not the Widow
Consider the case of the wife of a man who died leaving a $124,558 life
insurance policy to his ex-wife rather than to his then wife because he
didn’t change the beneficiary on the policy after his divorce from
his first wife. In 2013 the U.S. Supreme Court sided with the ex-wife
and awarded her the proceeds of the life insurance policy because her
ex-husband had not changed the beneficiary “in writing” and
had not provided that written direction to the insurance company.
Beneficiaries have to be changed in writing by filling out a form provided
by the insurance company and sending it to the insurance company that
wrote the policy, or in the case of a financial account, to the financial
institution handling the account.
Don't Forget to Update Your Will After Divorce
Consider, too, a New York case where the former in-laws of a woman have
been awarded her home, even though she and her husband divorced years
ago. It turns out that the woman had executed a will 20 years before that
named her husband to receive the house, which had been in her family for
generations, in the event of her death. The will provided that if her
husband was not able to inherit the house, his father (her father-in-law)
would receive the house. Relatives of the deceased woman knew that she
had changed her will after the divorce—but no one had a copy and
no one could find the updated will. Although New York law automatically
cuts out an ex-spouse from receiving property under a will in the event
of a divorce, the New York law does not cut out the former in-laws! The
New York appeals court awarded the house to the ex-father-in-law because
no one could present a different will.
Legal Documents You Need to Update During and After Divorce
Experts offer this advice to parties going through a divorce:
- Draft a new will as soon as the property settlement is decided and make
sure that appropriate people have copies of the document and know where
to find it.
- Make sure all legal documents reflect your new status and intentions such
as your durable power of attorney and your health care directives.
- If you and your spouse had used the same estate planner to draw up your
“estate” documents, each of you should individually seek out
new advisors to draw up new documents to avoid any conflict of interest.
- Tear up the old estate documents even during the divorce and prepare new
ones, affirming at the beginning of each new document that it “revokes
and replaces” the old documents.
- As soon as possible after the dissolution proceeding is commenced, if not
before, make a careful inventory of all financial records to identify
all bank and brokerage accounts, retirement accounts and annuities that
name beneficiaries or individuals to whom ownership will transfer at death.
It is not unusual to overlook accounts, especially ones through your,
or your spouse’s, employment.
- Contact the financial institution, bank or annuity company to obtain the
appropriate forms to change the beneficiaries on the accounts—and
make that change and send it to the banks and institutions (keep a copy).
- Review with your HR department all job-related benefits that may include
life insurance policies that you had forgotten about. (Most group health
insurance offers a small life insurance policy as part of the health insurance
package.) Notify the insurance company in writing of the new beneficiaries.
Often retirement accounts are part of the property settlement in dissolution
proceedings. In order for these accounts to be legally transferred, in
whole or in part, a Qualified Domestic Relations Order must be obtained
from the court.
The financial impact of divorce can be far-reaching and your dissolution
may not be one that should be a “do-it-yourself” project.
Consider consulting with experienced family law attorneys to learn if
your dissolution proceeding is one that may contain financial potholes.
Experienced family law attorneys, such as Clawson & Clawson LLP, can
guide you through the financial landmines of a dissolution proceeding
in Colorado and make sure your “estate” is in order during,
and after, the dissolution.