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Roll with the Changes After a Divorce…Including Beneficiary Designations - John M. Lane Law, PLLC

“What happens if you don’t make changes?”

While you don’t plan ahead for a divorce, you should immediately take steps to ensure your interests are protected and your estate plan reflects your new marital status if your marriage ends.

What should you change? Forbes’ article, “The First Thing You Must Do When Your Divorce Is Final,” says, in a word: “Everything.”

Once your divorce is final—that is, the divorce decree has been approved by a judge—and a judgment rendered, you should begin to review and revise, if necessary, the following legal and estate planning documents:

• Trusts
• Powers of Attorney (property, healthcare, HIPAA, etc.)
• Your will
• Life insurance policies
• Retirement accounts

Let’s say your ex-spouse is the beneficiary of your life insurance policy and you die.

Guess what!

The proceeds are going to go straight to your ex-spouse and not your children. It doesn’t matter if your estate planning documents stipulate that the proceeds should go to your children. Still, if the plan all along was to keep the ex as beneficiary, you’re fine. Otherwise, the kids get zero.

What happens if you don’t even have a valid will in place? The divorce cuts the ex-spouse out as a legal heir, and that person won’t be in line to receive anything from your estate—but they still get the insurance proceeds if you don’t make the beneficiary change.

One final thought: when you make changes to estate planning documents, be certain that the changes are in accordance with the terms of your divorce decree. The divorce judgment is legally binding, and if you agreed that your ex-spouse would remain the beneficiary of a life insurance policy as a part of your divorce, you can’t change the beneficiary designation on the policy.

If you do, you’ll create a significant headache for your heirs if you pass away while the policy is in force.  Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Forbes (August 14, 2016) “The First Thing You Must Do When Your Divorce Is Final”

Financial Tips for After the Split

"If you're going through a split, here are a few things to keep in mind."

Divorce can take a toll financially on both spouses, with this immediate financial burden resulting directly from the separation of the household. When a couple splits, they end up doubling their housing, utility and other regular costs. After this, there is the property division. This can stifle each spouse's progress toward long-term goals like retirement or the children's education.

Money's recent article, "Keep a Divorce From Killing Your Finances," offers several important tips for those going through or recently completing the divorce process.

Monitor assets in your divorce settlement: If you're in the midst of a divorce, examine the type of assets that you receive as part of your divorce property settlement. The reason for this is your cash flow. Even in cases where the math demonstrates an equal split between the two parties, one spouse could get stuck with a non-liquid asset, which might end up being difficult to liquidate if cash flow becomes a problem.

Factor in an asset's taxable status: For many couples, a $100,000 brokerage account—for which you'll only pay tax on capital gains or dividends—might be of greater value than a $100,000 tax-deferred retirement account because you'd have to pay income tax on withdrawals from that type of account.

Keep an eye on taxes and their effects: Taxation influences continuing income. For example, the payment of alimony is tax deductible, but the receipt of alimony is treated as ordinary income. However, child support is not taxable to the recipient, which may change the way you prepare your annual tax return and the amount you owe the IRS. Make sure you keep this in mind the next time you file your taxes.

Review and update paperwork: Once the divorce is final, both ex-spouses need to make sure to update all aspects of their financial lives. This includes beneficiary designations on pensions, 401(k)s, and life insurance (if not part of the settlement terms), as well as all estate planning documents—like your will, powers of attorney and trusts.

Contact John M. Lane Law, PLLC to discover the Simplified Solution to your estate planning needs. Everyone has an estate, no matter how large or small, complex or simple.  For more information about how we can help you, visit our website at www.JohnLaneLaw.com.

Reference: Money (March 1, 2016) "Keep a Divorce From Killing Your Finances"