A divorce decree may end a marriage, but it does not necessarily update your beneficiary designations, retirement accounts, trusts or health care directives. And missing those details can leave assets passing to an ex-spouse long after the relationship ends, Harry Margolis, an elder law attorney and author of Get Your Ducks in a Row, said in a recent interview.Many people – especially those in what are referred to as modern families – update their wills after a divorce but overlook the documents that often control where money ultimately goes.The issue, he said, affects divorcing couples, former spouses, blended families, same-sex couples and anyone ending a long-term relationship with shared assets. The decisions made in the months following a divorce can determine who inherits retirement accounts, receives life insurance proceeds or gains authority to make health care decisions.In the interview, Margolis, focused on wills, trusts, beneficiary designations, health care proxies, powers of attorney, retirement accounts and Qualified Domestic Relations Orders (QDROs).Below is a transcript of the interview with Margolis, edited for brevity and clarity.Beneficiary designations often matter more than the willBob Powell: For folks in modern families who are untying the knot, walk us through the financial and estate planning issues they need to think about.Harry Margolis: They need to review their entire estate plan. A divorce can effectively change a will. If your will leaves everything, or something, to your spouse, that provision may be modified or eliminated when you get divorced.That may be what you want, but you also need to think about what happens to everything else. In some cases, people still want to provide for an ex-spouse or former partner. If so, those wishes need to be put in place intentionally.Many state laws that revoke provisions for a former spouse in a will may not revoke provisions in a trust. You need to understand the rules in your state and review all of your planning documents.A lot of people update their wills and estate plans after a divorce, but they often miss other estate planning substitutes. Joint accounts pass to the surviving joint owner. More commonly, people have beneficiary designations on retirement accounts, investment accounts and life insurance policies.Those beneficiary designations generally do not change automatically after a divorce. You need to go through each account and benefit and decide whether changes are needed.Some people may still want to provide for an ex-spouse because they shared a long life together and want to ensure that person remains financially secure. But if you do not want that outcome, you need to make those changes.
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The family home is usually addressed during the divorce processBob Powell: What about home ownership? Is that another issue that may change for a modern family?Harry Margolis: Usually that’s handled during the divorce process because, for many people, the home is their largest asset.The parties have to determine how to divide what they own and decide what happens to the house. Sometimes the solution is to keep the house until the children finish high school, leave for college or otherwise become independent. At that point, the house may be sold and the proceeds divided.Some people are more cooperative than others in carrying out those arrangements. That’s generally less of an estate planning issue and more a matter of implementing the terms of the divorce agreement.Health care proxies and powers of attorney deserve a second lookBob Powell: What about documents such as health care proxies? If an ex-spouse has been named to make health care decisions, should those documents be reviewed as well?Harry Margolis: Absolutely. Whether those documents are automatically revoked upon divorce depends on state law.If you still want your former spouse to serve in that role, it’s wise to reaffirm the health care proxy, power of attorney or other documents so there is no question about your intentions.If you do not want your former spouse serving in those roles, you should update those documents as soon as possible.QDROs help divide retirement assets without triggering taxesBob Powell: What about QDROs? Is that something people in same-sex couples or blended families should think about?Harry Margolis: A QDRO, or Qualified Domestic Relations Order, is a court order that allows retirement assets to be divided as part of a divorce.Normally, changing ownership of a retirement account can trigger taxes because the assets would have to be withdrawn. A QDRO creates an exception that allows retirement assets to be split without creating an immediate taxable event.That process is generally handled as part of the divorce itself. Once the retirement assets have been divided properly, there is usually no additional estate planning concern related to the QDRO.Ending a long-term relationship can be complicated even without marriageBob Powell: Is there anything unique about modern families that differs from traditional married couples when relationships end?Harry Margolis: One issue is that untying the knot does not always mean divorce. Some long-term relationships never involved marriage.When those relationships end, the process can still be complicated because people may own assets together and have intertwined financial lives.With a divorce, there is a legal framework for dividing assets. Without a marriage, matters often stay out of court. In many cases, people simply leave with what they own individually, but jointly owned assets still have to be divided.Creating a checklist can prevent costly mistakesBob Powell: We’ve covered a lot of ground. Anything we missed or that bears reemphasizing?Harry Margolis: Think everything through and follow through.Related: What Advisors Owe their Clients: Fiduciary Responsibility, Facts, Integrity and Trust