Patti Handy, host of Money Rules 101, interviewed me about starting over after a divorce. Patti went through a divorce herself when her son was 18 months old, and one of the first things she did afterward was set up a plan to protect him and keep her ex from having any claim on her funds. Below are her questions and my answers. Thanks to Patti (www.PattiHandy.com) for the interview.
When should someone do estate planning around a divorce?
It is easier after the divorce, when things are final and the dust has settled. California law basically puts a hold on estate planning while a divorce is going on. You cannot change wills, beneficiaries, executors or trustees during the case. So it is often better to wait until the divorce is done.
What is the first thing you ask a client after a divorce?
What do you own? The divorce is final, he has his things and you have yours. Where are your bank accounts? Do you own real estate? Do you have retirement accounts? The advice I give depends on the assets the client has at the end of the day. We might find that a simple will is good enough, or that a living trust is more appropriate.
Why does it matter how title to each asset is held?
Because title decides who gets the asset. Suppose a client named Sally comes in after her divorce and her sister is on all of her accounts. When Sally dies, her sister gets those accounts, which may not be what Sally has in mind. Some people put their children on all their accounts, which is also not a wise idea. We examine title to every asset first, and then I can make recommendations.
What if the person has never had an estate plan?
Then they should get one, if only to protect themselves and their children. Patti saw the wisdom in putting her house in order to protect herself and her son, especially because she did not want everything controlled by her ex-spouse.
Does the divorce decree affect the estate plan?
It can. At the end of a divorce there is a court order signed by a judge. I look at the divorce agreement to make sure whatever we do with your estate plan does not run afoul of what your divorce papers say.
What about powers of attorney and health care directives?
Ask who has the legal authority to act for you now. If you had an estate plan before, your ex-husband may still be named on those documents and may still have authority to make health care decisions for you under your advance health care directive. That is probably not what you want. Revoke the old documents and sign new ones naming the people you want.
What about retirement accounts and life insurance?
Revisit every account that has a beneficiary and make sure your ex-spouse is not the beneficiary of your life insurance policy or retirement accounts. I had a client pass away recently whose workplace retirement account still named her husband as beneficiary. They were divorced. He got all the money, about $20,000, even though she had wanted it to go to her children. She never revisited her beneficiary designations.
What happens to minor children if the parent does nothing?
A client named Tim once asked, "What if I do nothing?" I told him that if he stayed unmarried, everything would go to his child. He was happy to hear it until I asked how old his daughter was. She was eight. A life insurance company will not pay $500,000 to an eight-year-old. It pays the guardian of that child, and in his case that was his ex-spouse. That was obviously not what he wanted, so we set up something so that somebody else controls the money for his child.
Why nominate a guardian for your children?
Depending on the custody arrangement, you may not want your child going to your ex-spouse for one reason or another. You can nominate who you want to care for your children in your will or in a separate nomination of guardian, so that you have a voice in the matter if you pass away. This matters most for very young children, who cannot speak up for themselves.
Can you explain why you do not want the ex-spouse to be guardian?
Yes. It is sometimes called an "anti-nomination." In your nomination you can say, "I want my sister Mary to be the guardian of my minor children, and I do not want the guardian to be my ex-spouse for the following reasons," and then list them. He was abusive, he was demeaning to the children, he was arrested several times, whatever the case may be. You do your best, and it gives you peace of mind as a parent.
How can people reach you?
My website is always available at www.MansourLaw.com (Mansour is spelled M-A-N-S-O-U-R), or call the office at 661-414-7100.
For a checklist of what to update after a divorce, read Updating Your Estate Plan After Divorce.