16th Feb 2018
Divorce is one of the most difficult things people go through, but the divorce of a long-married couple can be especially hard, particularly when it comes to retirement and estate plans. Assets, such as retirement accounts, can be difficult to divide, and if children are involved, it can require the wholesale revision of existing estate plans.
If you’re going through a divorce, it’s important to work toward the fair and accurate division of assets, including retirement funds, so you don’t wind up facing a shortfall later in life.
It’s important that you update estate plans to make sure your wishes—no matter what your marital status—will be honored when you pass.
So while it may seem that divorce could derail your retirement plans, everything depends on what was set before, during and of course now after the marriage.
These four steps are key while deciding how to move forward with your estate planning during and after a divorce:
1. Know what’s yours. Marriage takes the assets of 2 people and intertwines them into joint assets, making things specially difficult to untangle in the event of divorce. What’s considered separate property? What’s considered joint? Definitions vary by state, but in general:
- Separate property: This is any property owned by either spouse prior to the marriage and any inheritances or gifts received by either spouse, before or after the marriage. The status of separate property can change, though, if it commingles with marital assets—say, an inheritance is deposited in a joint bank account.
- Marital property is typically any property that is acquired during the marriage, regardless of which spouse owns or holds title to the property.
It’s important to remember that marital property isn’t just houses and cars. It includes things like pension plans, 401(k)s, IRAs, stock options, annuities, life insurance, brokerage accounts and closely held businesses. And, again, that’s regardless of which spouse holds ownership of those items.
However, interpretations of separate and marital property vary by state and pre-existing contracts—like prenuptial agreements—can change things, so it’s important to speak with your attorney.
2. Update beneficiaries. Beneficiary designation forms govern the distribution of assets from life insurance and pension plans to annuities and 401(k)s, and they often override wills. While some states have laws that automatically terminate a former spouse as a beneficiary, you should never rely on those laws alone. To make sure that your estate plans are executed the way you want, make sure all your beneficiary forms are updated following marriage, divorce, or re-marriage.
3. Consider trusts. When it comes to estate planning, a trust can make a lot of sense for divorced individuals and those in their second marriage. Trusts can ensure that second spouses are unable to disinherit children from a previous marriage, for example.
When you set up a trust, especially any irrevocable trusts, it’s very important to have property agreements—prenuptial or post-nuptial agreements—in place. These should clearly divide joint property into separate property, and then identify that property going into the trust.
4. Keep good records. Go through your retirement and estate planning documents at least every 2 years, ideally with an estate planning attorney, to make sure designations are up to date and all assets are accounted for.
If you’re age range is in the 40 or 50 range, you’ve likely accumulated multiple retirement accounts and insurance policies, and it’s easy for an account to go overlooked, especially in the event of a divorce or new relationship. Information that is outdated on wills, trusts and beneficiary forms can cause estate planning complications that could have otherwise been easily avoided.
To contact an Estate Planning Attorney in Santa Ana, California, call Dwight Edward Tompkins at (714) 385-0044.