During a divorce, your attention is on things like alimony, custody, child support and property division. You’re wondering what will happen to your marital home and vacation property, where the kids will live, and other challenges that come with the dissolution of a high asset marriage.
But it’s important that you protect your estate plan along with the other issues you are dealing with. If you created an estate plan prior to problems in the marriage, there are likely a variety of ways that your divorce can affect this carefully crafted plan.
Many couples believe that they can simply revisit their estate plan after the divorce and make some changes then. This is certainly an option, but not your best one. It’s possible that the way your assets are divided in a divorce can detrimentally impact your estate plan, along with other potential hazards.
Community property and separate property are treated differently in a California divorce. Experience and knowledge of how ownership and division of your assets impacts your estate plan is imperative when negotiating your settlement. For example, if you’re the parent who retains physical custody of the children, you might opt to keep the marital home, as many in this situation do. On its face, this appears to be a beneficial arrangement. But in these situations, your spouse will then typically receive additional assets to offset the share of the marital home. The house comes with a hefty ongoing price tag for maintenance, insurance coverage and repair. Meanwhile, the stocks that your spouse receives in lieu of the home equity may grow in value and cost nothing to maintain.
A well-designed estate plan addresses all conceivable tax liabilities. A divorce settlement can completely upset this delicate balance. It’s smart to have your estate planning attorneys weigh in here when you negotiate your divorce settlement.
Life Insurance and Trusts
In a divorce involving minor children, it’s common to include a provision for life insurance. If you are ordered to pay child support, you will likely be required to maintain a policy with your former spouse as the beneficiary for the benefit of the children should you die. On its own, this arrangement provides no oversight on how your former spouse uses the funds. Creating a living trust with specific instructions for how the funds should be used to support your children can address this problem.
These are just a few of the estate plan-related issues that can crop up during a dissolution. Don’t neglect them when you are going through a divorce. Be proactive, and at least consult with your estate planning attorney to ensure that you don’t make any truly costly mistakes that can impact your finances and heirs for many years to come.
Sources: http://www.bdibblelaw.com/Practice-Areas/Trusts/, http://www.bdibblelaw.com/Practice-Areas/Estate-Tax-Planning.shtml