Creating a legal life legacy plan can be daunting. Excuses like “I don’t really have anything”, “I’m young and healthy”, or “I’ve just never gotten around to it” can lead to heartbreak, stress, and costly court proceedings for our loved ones, should the unexpected happen. This is even more challenging if you are legally separated or divorced. Everything you worked to preserve can be turned over to your spouse or former spouse, if you don’t create a legal plan detailing your wishes. There are some common misconceptions and complications if you are legally separated compared with divorced. But, in either case, with some work, you can get your plan in order to protect yourself and your loved ones.
Estate Planning when you are Legally Separated (still married)
A legal separation differs from a divorce in that it does not end the marriage. While property like homes, cars, and financial accounts and certain legal obligations are resolved, the marriage stays in place. Whereas at the end of a divorce, each spouse is legally single. This is an important distinction when creating legal instructions if you become unable to make financial and health care decisions (incapacity) and for what happens to your home and financial accounts after you die. Such instructions take the form of a Will and, most often, a Revocable Living Trust, together called an “estate plan”. A Health Care Power of Attorney and a Financial Power of Attorney give clear instructions when you can’t. These legal documents identify who is to take on these roles while you are incapacitated and can put limits on what can be done by your Power of Attorney. Without these documents, the state will assume you intend your spouse to be that decision-maker. Also, in California, spouses have a legal right to inherit from each other. While a divorce ends this right, a legal separation does not. There is case law suggesting that a legally separated widow is not eligible to inherit from the decedent spouse, but your heirs may still have to deal with the probate court, and all of the frustration, fees, and costs that go with it, should your spouse challenge your estate plan. If you have a retirement account, life insurance, and/or investments, you may be limited on your ability to change your designated beneficiaries from your legally separated spouse unless they sign a waiver. And even with a waiver, there may be other related benefits (specifically as to certain pension plans) that cannot be waived. For those who are legally separated and in a new committed relationship, your romantic partner will have no legal right to inherit from you unless you provide for that person in your estate plan, regardless of how committed or how long you’ve been together. This applies even if you are divorced (if you’ve not married your new romantic partner).
Estate Planning when you are Divorced
Planning for your future is typically easier when you are divorced. But there are still some concerns. If you have “reserved” (delayed final orders) on certain assets in your divorce, you will not be able to control what happens to those community assets upon your death through a Will and Trust. This happens when people resolve only their marital status (called a “bifurcation”). Your executor will have to step in, in your place after your death, to complete the division of those assets in the family court. If you have not created an estate plan, the probate court will have to appoint someone for you – yup, your loved ones end up in probate court. If you have remarried, without an estate plan, the state of California will assume that you want your new spouse to take your share of any community property you hold with that person and all or a portion of your separate property (depending on whether you have children from another relationship). Whether you are legally separated or divorced, you can create a plan to make sure your wishes are honored, and your loved ones are taken care of and can move forward without delays, conflict, or expense.
Important steps to take:
- Most important: create a Will.
- Set up a Trust. A Trust is the vehicle that holds your assets and gives instructions to get them where you want them to go, in the way you want them to get there. It also keeps you out of probate court (a Will alone does not).
- Update your Designated Beneficiaries. If your partner/former partner is still named as a beneficiary on your life insurance policies or retirement accounts, they will automatically inherit those funds upon your death, regardless of what you have instructed in your Will and regardless of your Legal Separation or Divorce Judgment. You must change your beneficiaries if you wish to avoid this.
- Complete your property division and update how title is held. Surprisingly, many people think once their legal separation or divorce is completed, they can sit back and relax – the hard part is over. There is a lot of work to do to complete the re-titling of financial accounts, real property, vehicles, insurance plans, and other assets and debts. This can take time and is probably the most important part of your separation or divorce to secure your ability to control those items and to make sure you are not responsible for those items assigned to your spouse or former spouse.
- Update your Estate Plan. Things change over time. You may inherit real estate, have a new grandbaby, or your executor may move out of the country. Review and update your existing plan every couple of years, at least, to make any necessary updates.
With proper planning and a knowledgeable, experienced professional you can create a life plan that honors your wishes, both during your lifetime and after.