What a Divorce Means for Estate Planning
It can be difficult to go through a divorce. The process is emotionally and mentally draining. There are many factors to consider that may also change over time. For younger couples, children are likely a top concern. For older couples, a long-term home, inherited assets, retirement plans, trusts, and estate plans may be significant concerns. Here are some things to consider if you are ending a long-term marriage.
Dividing assets during any divorce is challenging, but it is especially difficult when a couple has accumulated a lot of assets together as well as separately. Older couples are likely to have family heirlooms from each of their families that have become commingled property. This can make it hard to separate it legally.
It is important to consider how a divorce affects a couple’s financial assets, such as retirement accounts, pensions, and life insurance policies. The natural inclination would be to drop a former spouse as a beneficiary of these accounts; however, doing so could have negative financial and tax implications. It is a good idea to consult a knowledgeable financial or legal professional before removing beneficiaries from accounts and policies.
Additionally, divorces are often expensive and can deplete financial resources. This can be especially tough for older couples whose future earning capacity is limited.
After a couple divorces, they will each have to file their taxes individually instead of jointly. This could affect their tax planning options, especially if they have a large estate.
Usually, a couple’s home is their most valuable shared asset. In the case of older couples, they may have owned their home for decades. The value of their home may have increased significantly over the years. Transferring ownership of the home from the couple to one spouse could negatively affect that spouse’s capital gains tax when the property is sold. This is because the individual personal residence exclusion is less than what it would be for a couple.
Long-term Care Planning
Older couples who are thinking about getting a divorce should consider how the divorce will affect their long-term care planning. They may be in the process of transferring assets out of their names and into trusts. How assets are divided could affect each person’s eligibility for Medicaid benefits.
In some states, when a divorce is final, all provisions and bequests to the former spouse in the other spouse’s last will and testament are revoked. If either had their former spouse named as an agent in a power of attorney document or an advance health care directive, then that is also revoked. During the divorce process, the divorcing spouses will want to redo any estate planning documents that name the other as an agent.
In some cases, however, divorcing couples may want the other to still act as an agent for them. If this is the case, they may need to redo their affected estate planning documents if the state has nullified them.
If you are considering getting a divorce, especially if you have accrued assets together over many years and did your estate planning together, you should seek the help of an experienced estate planning attorney to navigate the process. Contact our office to get answers to your estate planning questions.
This article offers a summary of aspects of estate planning law. It is not legal advice and does not create an attorney-client relationship. For legal advice, you should contact an attorney.
We hope you found this article helpful. Contact our office at 978-319-6009 and schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.