The recent changes in the tax laws created increased year-end activity for those trying to finalize their divorces by December 31—prior to the effective date of the new rules.
The new tax laws stipulate that alimony is no longer deductible by the payor, and it’s no longer taxable by the receiver—this creates a negative impact on both parties. The payor no longer receives a tax deduction, and the receiver will most likely wind up with less alimony because the payor has more taxes to pay.
Forbes’ recent article, “9 Things You Need To Know About Estate Planning After Divorce” suggests that if you were one of those whose divorce was finalized last year, it’s time to revise your estate plan. It’s also good idea for those people who divorced in prior years and never updated their estate plans. Let’s look at some of the issues about which you should be thinking.
See your estate planning attorney. Right off the bat, send your divorce agreement to your estate planning attorney, so he or she can see what obligations you have to your ex-spouse in the event of your death.
Health care proxy. This document lets you designate someone to make health care decisions for you, if you were incapacitated and not able to communicate.
Power of attorney. If you had an old POA that named your ex-spouse, it should be revoked, and you should execute a new POA naming a friend, relative, or trusted advisor to act as your agent regarding your finances and assets.
Your will and trust. Ask your attorney to remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee.
Guardianship. If you have minor children, you can still name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will probably be appointed guardian if you pass away, unless he or she is determined by the judge to be unfit. While you can select another responsible person, be sure to leave enough cash in a joint bank account (with the trusted guardian you name) to fund the litigation that will be necessary to prove your ex-spouse is unfit.
A trust for your minor children. If you don’t have a trust set up for your minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. You may ask your estate planning attorney about a revocable trust that will name someone else you select as the trustee to access and control these funds for your children, if you pass away.
Life insurance. You may have an obligation to maintain life insurance under the divorce agreement. Review this with your estate planning attorney and with your divorce attorney.
Beneficiary designations. Be certain that your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. Have the beneficiary designations updated. If you still want to name your ex-spouse as the beneficiary, execute a new beneficiary designation dated after the divorce. It’s also wise to leave a letter of intent with your attorney, so your intentions are clear.
Prenuptial agreement. If you’re thinking about getting remarried, be certain you have a prenuptial agreement.
It’s a great time to settle these outstanding issues from your divorce and get your estate plan in order.
Reference: Forbes (January 8, 2019) “9 Things You Need To Know About Estate Planning After Divorce”