Estate Planning Considerations in Divorce
by Carol P. Dabner and Laurel Arnold Clement
As a marriage ends, it is critical to address spouses’ estate planning needs. The basic estate planning needs are:
(2) Durable Power of Attorney for finances;
(3) Medical Power of Attorney;
(4) Advanced Directive;
(5) HIPAA Release; and
(6) Declaration of Guardianship.
This article is too brief to go into each of these needs in great detail but will address the most critical needs of each phase of divorce—pre-divorce, mid-divorce and post-divorce.
The first phase is pre-divorce. The spouses have determined to dissolve the marriage but have not implemented formal legal proceedings. If the couple is conciliatory, all estate planning needs/issues can be addressed jointly. Although these needs could be addressed jointly, it is not recommended because of the potential conflict. Each individual will need to address and/or protect his/her estate planning needs. In short, certain steps need to be taken immediately to protect his/her respective interests in the event there is a death or temporary or permanent incapacitating injury or illness pre-final divorce.
First, both spouses should determine who will serve as executor under their respective Wills and how they will dispose of their separate and community property (and create Wills if they have not already). Next, it is critical to select an individual to make health care decisions through a Medical Power of Attorney (MPOA), because without one a spouse generally may make health care decisions. Financial accounts should also be changed to limit access by the spouse and/or grant access to third parties in the event one becomes incapacitated. It may also be advisable to have a Declaration of Guardianship, which nominates a guardian in the event of incapacity. The Declaration places the nominated person before all others, including the spouse, who would otherwise have highest priority.
The second phase is mid-divorce, which is after legal proceedings have been implemented, but before finalization of the divorce. The same considerations discussed above apply; however, the spouses’ ability to make changes may be limited by the Court. For instance, while there is no automatic restriction concerning the making of or amending a Will during divorce, such restrictions may be placed in court orders. Court orders may also impose a restriction/prohibition on the changing or amending of beneficiary designations on a life insurance policy on the life of either party or the life of the parties’ children.
If they have not already, an MPOA should be created or amended during the mid-divorce phase. A surrogate decision-maker has authority to make health care decisions for a person who is incapacitated or cannot communicate unless an MPOA exists. A spouse has first priority as the surrogate decision-maker, so it is critical to have a named agent under the MPOA by this phase. Depending on the circumstances, a probate can be cheaper than a divorce, so make sure your client has the necessary agent to make healthcare decisions should a problem or accident occur during this phase. Individuals should also address minor and/or incapacitated distributees under the Will by creating testamentary trusts. Although a parent is the natural guardian of the person for a minor child, the court will appoint a guardian of the estate to manage the child’s property.
At this stage, the Durable Power of Attorney (DPOA) must also be addressed. Temporary orders in a divorce may or may not protect a party from the other party’s or his/her own incapacity, and a DPOA can be most effective for this purpose. The Family Code provides for payment of lifetime alimony, called “spousal maintenance” in Texas, for substantial physical or mental disability of a spouse before finalization of divorce. If the recipient of lifetime spousal maintenance becomes incapacitated, the recipient would need a guardian of the estate to manage his/her funds. Future incapacity can be addressed through a Declaration of Guardianship or DPOA.
It is not legally necessary to amend the Declaration of Guardianship during divorce. Although under a Declaration the nominee has first priority over any other proposed guardian, if a spouse is the proposed guardian, he/she would likely be disqualified because his/her interest is adverse to the proposed ward.
The post-divorce phase begins when a divorce is final. If they have not already, the former spouse should be removed as executor or beneficiary under the Will. The beneficiary designations on any life insurance policies should also be altered to reflect any present desires or final decrees. All powers of attorney should be reevaluated to ensure that agents reflect the party’s choice, and notice sent to all third-party providers. A party should also complete a notice of declination of appointment/agent to prevent the former spouse from seeking to act.
Whenever a person enters the pre-divorce phase, he/she should coordinate with an estate planning attorney to address all the necessary and imminent estate planning considerations.