Death During Divorce: How To Prepare Your Estate Plan for the Unexpected

lolostock / Getty Images/iStockphoto

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

If you’re a high-net-worth individual with a lot of assets to divvy up, the divorce process can take a while. And while you might not want to consider the possibility, there is a chance you could die unexpectedly during the process.

According to Benjamin Sunshine, a member of Brinkley Morgan’s Estate and Trust Litigation practice group, this is more common than you might think. He warned that if one spouse dies before the divorce is finalized, the surviving spouse may receive more than what they would have been awarded if the divorce were finalized. This is especially true if the deceased spouse died without an estate plan. Having an out-of-date estate plan or none at all can disrupt your wishes for wealth distribution, especially when children from a previous relationship, charitable donations or other beneficiaries are involved.

Here’s what Sunshine recommended to prevent this from happening.

Create an Estate Plan ASAP

If you’re going through a divorce, it’s vital to create an estate plan as soon as possible.

“When you’re going through a divorce, the division of assets and liabilities is typically handled by a judge, but if you or your spouse passes away before the divorce is finalized, the situation suddenly falls under probate and trust law instead,” Sunshine said. “Without an estate plan, intestacy laws determine who inherits the assets, and a surviving spouse could be entitled to as much as 100% of the estate, depending on the family structure.”

Having an estate plans allows you to control who inherits your assets.

Update Your Estate Plan If You Already Have One

If you have an estate plan that you created predivorce, you will likely need to update it.

“Your estate plan will determine who inherits your assets, which naturally would include your spouse, as your estate plan was probably prepared before you filed for divorce when your marriage was intact,” Sunshine said.

If this is the case, your plan should be updated to include the beneficiaries you desire.

“There’s always a risk that something tragic could happen before your divorce is finalized,” Sunshine said. “If you or your spouse passes away mid-process and your estate plan hasn’t been updated, your original documents could leave everything to a spouse you intended to divorce. Even if you’ve mentally moved on, your legal documents may still reflect a very different reality.”

Ideally, you should update your plan prior to filing for divorce.

“By reviewing your estate plan before filing for divorce, you have an opportunity to minimize what passes to your spouse and structure your affairs in a way that reflects your current intentions,” Sunshine said. “This step is essential in protecting your wishes for your estate.”

Be sure to update all of the documents that comprise your estate plan.

“Updating documents like your living will, healthcare surrogate, power of attorney, last will and testaments, and revocable trust is critical to preserving your intentions and ensuring the right people are making decisions on your behalf if something happens,” Sunshine said.

Be Sure To Update Beneficiaries on Commonly Overlooked Assets

Two of the most commonly overlooked assets are pensions and old 401(k) accounts, Sunshine said.

“Many individuals have pensions or retirement plans from former employers, often established years or even decades ago,” he said. “It’s easy to forget who was named as the original beneficiary. Unlike assets that pass through probate, these accounts go directly to the named beneficiary, regardless of your current intentions.

“That’s why it’s so important to review and update these designations as soon as you begin contemplating divorce.”

Take Advantage of the Legal Tools Available To You

There are certain legal tools high-net-worth individuals should use to preserve control and protect their legacies while navigating a divorce, one of which is an elective share trust.

“High-net-worth individuals should strongly consider using an elective share trust to manage what a spouse might receive if one party dies before the divorce is final,” Sunshine said.

In certain states, including Florida, the surviving spouse is entitled to what’s called the elective share, which is, at minimum, 30% of the elective share estate.

“This tool allows you to satisfy Florida’s 30% elective share requirement without giving your spouse a lump sum,” Sunshine said. “If prepared correctly, you can place the required amount into a trust and distribute only the income generated, significantly reducing what they receive during their lifetime.”

Sources

• Benjamin Sunshine, Brinkley Morgan

Share This Article: