Divorce can be one of life’s most difficult and transformative experiences. Beyond the emotional toll, the legal and financial ramifications of divorce are significant and often far-reaching. People can become so focused on finalizing the divorce that they overlook how it affects other crucial areas of their life, such as their estate plans. Failing to revise your estate planning documents after a divorce, however, can lead to serious and unintended outcomes. To help ensure that you and your estate are protected, an attorney at Thompson Law discusses how divorce affects your North Dakota estate plan.
Estate Planning Basics
An estate plan is designed to accomplish a wide range of goals. While asset distribution after death is an important component, a well-crafted estate plan can also protect your assets during your lifetime, guide medical decisions if you become incapacitated, and ensure the financial and emotional welfare of minor children, individuals with disabilities, and other vulnerable beneficiaries. These goals are achieved through a combination of legal documents that are interconnected and tailored to your life circumstances. When those circumstances change significantly, such as through a divorce, your estate plan must be re-evaluated and revised.
Key Estate Planning Changes Following a Divorce
Because a divorce settlement does not automatically update or revoke estate planning documents, it is your responsibility to review and modify your plan to reflect your new situation following the court’s issuance of a divorce decree. While North Dakota law does provide for some automatic revocations of spousal roles and rights upon divorce, these laws may not apply uniformly or to all estate planning tools. Therefore, proactive review and revision are necessary to safeguard your wishes and avoid unintended consequences. Estate plan elements that commonly need to be reviewed following a divorce include:
- Power of Attorney and Healthcare Directives. If you named your former spouse as your Agent under a Durable Power of Attorney or healthcare directive, those appointments must be revoked and replaced. These documents grant significant authority, including the power to manage your finances, access medical records, and make life-or-death healthcare decisions and leaving your ex-spouse in that role is rarely advisable. New documents should be drafted naming someone you trust to make financial and medical decisions on your behalf should you become incapacitated.
- Last Will and Testament and Trusts. After a divorce, your Last Will and Testament should be carefully reviewed and amended. If your former spouse is listed as a beneficiary, fiduciary, or guardian, those provisions will likely need to be updated. Likewise, any existing trust agreements that include your ex-spouse as the Trustee or a beneficiary should be revised. If you have not created a Will or trust, now is the time to do so. Naming new beneficiaries and selecting trusted individuals to serve as Executor or Trustee can ensure your assets are managed and distributed in accordance with your post-divorce intentions.
- Estate Tax Considerations. Divorce may also affect how your estate is taxed. If your combined estate was once eligible for certain deductions or exemptions based on marital status, those benefits may no longer be available after divorce. In North Dakota, there is no state-level estate tax; however, federal estate tax rules still apply. Without the benefit of the unlimited marital deduction, more of your estate may be subject to federal taxation. Revising your estate plan post-divorce can help incorporate tax-saving strategies that take your new marital status into account.
- Beneficiary Designations. Accounts that pass outside the probate process, such as life insurance policies, retirement accounts, and payable-on-death (POD) or transfer-on-death (TOD) accounts, should be reviewed after a divorce. Many people designate their spouse as the primary beneficiary of these accounts during marriage but following a divorce, this can result in the unintended transfer of significant assets to an ex-spouse. While North Dakota does have statutes that may revoke spousal beneficiary designations upon divorce, not all financial institutions or plan administrators will automatically implement those revocations. As such, it is prudent to update each account directly and obtain confirmation of the changes. Be aware, however, that in some divorce settlements you may be legally required to maintain your ex-spouse as a beneficiary on a life insurance policy. Always consult with your estate planning attorney before making beneficiary changes.
- Guardianship for Minor Children. Divorce proceedings usually include a custody and parenting plan, but your estate plan should still address guardianship issues. Should you die while your children are minors, the surviving parent will likely assume full legal and physical custody; however, there are situations wherein the other parent may be unwilling or unable to serve as guardian. Your Will provides the opportunity to nominate a guardian for your children. This nomination does not guarantee that your designated guardian will be appointed, but it signals your wishes to the court and can influence the decision. Revising your choice of guardian after a divorce is often necessary, particularly if your original nomination was based on your former spouse’s family or associates.
- Property Division and Asset Reallocation. In North Dakota, property acquired during marriage is subject to equitable distribution during a divorce. This division may significantly alter your wealth and the composition of your estate. As a result, your estate plan should be revised to reflect the changes in asset ownership. If you had a joint estate plan created during the marriage, that plan is no longer appropriate. Post-divorce planning requires a fresh evaluation of your goals and the creation of a plan that distributes your revised estate according to your current priorities and obligations.
- Support Obligations and Insurance Requirements. Child support and spousal maintenance (alimony) may be required by your divorce decree. The court may order you to carry a life insurance policy with your former spouse or children named as beneficiaries to ensure that you can continue to provide financial support to your former spouse and/or children if something happens to you. If you are required to carry life insurance, that requirement must be coordinated with your broader estate plan. Make sure the coverage is sufficient and that your estate plan accounts for these obligations, so your other beneficiaries are not negatively impacted by the need to satisfy court-ordered support.
Because you will experience numerous changes over the course of your lifetime, estate planning should not be a one-time event. Divorce is one of the most significant changes you can experience, and the impact it has on your estate plan is too important to ignore. Failing to revise your documents can create confusion, conflict, and litigation among your heirs. Even worse, it may result in your ex-spouse receiving control over your estate or making decisions that no longer align with your wishes. By consulting with a North Dakota estate planning attorney promptly after your divorce is finalized, you can ensure that your revised estate plan reflects your new priorities and obligations.
We Can Help You With Your Estate Plan After Going Through a Divorce in North Dakota
Please join us for an upcoming FREE seminar or webinar. If you have additional questions or concerns about what you need to do after your divorce with your North Dakota estate plan, contact a North Dakota and Minnesota estate planning attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.
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