Can your ex inherit your assets? We all know divorce can be emotionally and financially challenging. But many of us don’t know how to protect ourselves from financial disaster that can occur long after divorce.
What if a tragedy takes place post-divorce and you suddenly pass away? You expected your children or other designated loved ones to inherit your assets. But instead, your ex and their new partner walk away with it all.
How is that possible, you ask? If you didn’t update your beneficiaries when your divorce was finalized, that can be the consequence.
And the courts are not likely to rule in your favor. In one Supreme Court case (Egelhoff v. Egelhoff), the husband hadn’t changed beneficiaries on his pension and life insurance policies. His children from a previous marriage challenged the outcome, spending hundreds of thousands in legal fees. They lost to his ex-wife who inherited all those assets.
When another divorced man remarried (Hillman v. Maretta), he forgot to change the name of his beneficiary. Upon his passing, his previous spouse’s name on his retirement account superseded state property laws. The Supreme Court awarded the inheritance to his ex-wife. His present wife received nothing!
Here’s How to Ensure That Your Ex Doesn’t Inherit Your Assets
The lesson here: divorce does not automatically update your beneficiaries. Nor does remarrying authorize your new spouse as your beneficiary.
Once you initially file for divorce you cannot change beneficiaries without court approval. In community property states like California, the spouse is 100% primary beneficiary on retirement and pension accounts unless they waive that right with a notary witness.
Based on Federal and State laws, it is imperative that once your divorce is final, you change all beneficiaries on all accounts where a former spouse was named or entitled. Twenty three states, including California, have laws that may revote a former spouse as beneficiary for non-probate assets—assets that are not distributed by will or trust. However, it excludes life insurance. So don’t take needless risks with your assets!
During the divorce process, you have a fiduciary responsibility to manage those assets appropriately. If you suspect your spouse has changed beneficiaries on any account or is managing the assets inappropriately, you can request a financial restraining order. Consult your attorney.
Protection That Needs Your Attention
It is always wise to create a new trust with you as trustee along with any named successors. At the same time, update your will and named power of attorney over your finances and health.
Unless a beneficiary is mandated by your divorce decree, you are responsible to contact your HR department to change employment benefits. This may include:
- 401k, 403b, 457, deferred comp, pensions
- Group life insurance, group critical illness insurance, disability insurance
- Health savings account
In addition, be sure to contact your banks to update beneficiaries on:
- Checking and Savings accounts
- CD accounts
- TOD (transfer on death) accounts
Do the same with your broker/dealers and financial advisors to change:
- Brokerage accounts – joint and TOD
- Retirement accounts (IRA’s)
- Annuities
Some additional reminders:
- Update beneficiaries on private life insurance policies
- Update car/home insurance information
- Update emergency contacts
- Change passwords for all financial and social media websites
Here’s the bottom line: not updating your beneficiaries after divorce or other significant life changes can be a costly mistake. Your Certified Divorce Financial Analyst (CDFA®) can help you identify which documents and accounts need to be changed. Then talk to your estate attorney and tax specialist for guidance on who would be most appropriate and tax-beneficial to name as your new beneficiaries.
Taking these steps will not only protect those who matter in your life, it will give you peace of mind in the months and years ahead!
Jennifer Napper, CFP®, CDFA® is Vice President, Investments with Napper Wealth Planning of Raymond James in Walnut Creek, CA. She is a Certified Divorce Financial Analyst (CDFA®), specializing in helping anyone facing divorce to protect their assets as well as plan for a brighter future. www.JenniferNapper.com.
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