There are a lot of issues to deal with in the case of divorce. It is often a very emotional and trying time, and some may compare it to the death of a loved one. After all, it is the end of a relationship. In either of these situations, it can be difficult to think clearly or to realize all the legal and financial aspects that are involved.
Updating the Designated Beneficiary Forms
One item that can be overlooked is designated beneficiaries. These can be the beneficiaries of life insurance policies or retirement plans. Estate plans are usually re-written in the case of a remarriage. The Will may be changed to say that all assets go to the new spouse or the new spouse and kids, including the life insurance and retirement accounts. You’re good to go, correct? No! The controlling documents that determine who gets the life insurance and retirement funds are the designated beneficiary forms, regardless of what the Will says or what your intentions were. If you forget to change these, either because you didn’t know or you figured there is plenty of time, your current and ex-spouse will be surprised at who inherits a portion of your estate assets.
For example, say your retirement accounts are worth $1,000,000 and you have another $1,000,000 life insurance policy when you die. Your Will says that everything goes to your current spouse, but the designated beneficiary forms still show your ex-spouse as the sole beneficiary. Imagine your current spouse’s disbelief when he/she goes to collect on the life insurance or ask for a withdrawal from the retirement account, only to find that he/she is not entitled to either.
A review of your designated beneficiary forms is always a good idea to make sure they align with your current estate plan. It’s extremely important in case of remarriage, either as a result of divorce or a death of a spouse.