How to Navigate Estate Planning After a Divorce

One important aspect that many people overlook during a divorce is estate planning. Divorce significantly impacts your estate plan, requiring immediate attention to confirm your assets are distributed according to your wishes. The process of dividing assets, determining child custody, and adjusting to a new life can be overwhelming.

At the Law Offices Of Julie A. Schejbal, CHTD, we serve clients in Dunkirk, Maryland, and the surrounding areas with professional estate planning services. We understand that going through a divorce can be an emotionally and financially challenging experience. We’ll explore how to handle estate planning after divorce under Maryland law and why it’s important to update your plan promptly.

The Importance of Estate Planning After a Divorce

When a couple gets divorced, it often involves a reassessment of financial and personal matters, including the division of property and determining how assets will be passed on in the event of death. 

If you’ve already created an estate plan before your divorce, you might need to revise it to reflect your new circumstances. Divorce fundamentally alters your familial structure and your priorities, and it’s essential to update your estate plan to account for these changes.

In Maryland, estate planning is crucial to making sure your wishes are carried out after your death, but it’s also important for matters like medical decisions or guardianship for minor children. When a divorce occurs, what you once intended for your spouse may no longer be relevant, and the beneficiaries of your assets may need to be updated.

Updating Wills and Trusts

The most common component of estate planning is a will. A will is a legal document that details how your assets will be distributed after your death. If you’re going through a divorce or have recently finalized one, it’s essential to revise your will to reflect your new wishes.

In Maryland, after a divorce, any provisions in your will that name your ex-spouse as a beneficiary are automatically revoked. This is true unless the will specifically states otherwise. 

However, other provisions in the will, such as those naming your spouse as an executor or a guardian for your children, might remain in place unless you explicitly change them. The law essentially assumes that you don’t want your ex-spouse to benefit from your estate, but it’s important to confirm that your wishes are accurately documented.

It’s also wise to reassess any trust arrangements you may have made. If you had established a revocable living trust that included your spouse as a beneficiary, the divorce would likely change your intentions. 

You’ll need to update the trust’s terms, remove your ex-spouse, and possibly name new beneficiaries, such as your children or other loved ones.

Revising Beneficiary Designations

After a divorce, it’s important to review all beneficiary designations for life insurance policies, retirement accounts, bank accounts, and other assets that pass directly to a beneficiary outside of your will. 

While your will may name your ex-spouse as the beneficiary, it’s the beneficiary designations on these accounts that will ultimately control who inherits the assets in the event of your death.

In Maryland, divorce doesn’t automatically revoke the beneficiary designation on your life insurance or retirement accounts. If you fail to update these designations, your ex-spouse could still inherit these assets, even if they aren’t included in your will. 

To prevent this from happening, it’s critical to review and revise all beneficiary designations promptly after your divorce is finalized.

This is also true for retirement accounts like 401(k)s, IRAs, and pension plans. If you fail to update these accounts, the unintended beneficiary could claim the assets, which may be contrary to your current intentions.

Child Custody and Guardianship Considerations

If you have minor children, your divorce will likely involve a determination of custody and support. However, your estate plan will also need to reflect your new parental situation. If you’re a custodial parent, it’s essential to name a guardian for your children in the event of your untimely death.

Without a proper guardianship designation, the courts will decide who will care for your children, and the process may not align with your wishes. 

You can make a formal request for a specific individual, such as a relative or close friend, to take on the role of guardian should you pass away. It’s important to address this matter in your will to avoid potential confusion and legal disputes.

If you have named your ex-spouse as the guardian in the past, you’ll likely want to revise this decision. While Maryland law generally gives parents priority in guardianship cases, it’s a good idea to have a clear, legally binding document that names your desired guardian.

It’s also important to remember that estate planning after a divorce involves more than just the distribution of assets. In some cases, you may need to appoint a financial or medical power of attorney for your children if you’re unable to make decisions for them.

Special Considerations for Family Businesses and Assets

If you and your ex-spouse were involved in a family business or owned significant joint assets, you must address how these will be handled in your estate plan. Family businesses require careful planning in the event of an owner’s death, and divorce complicates this process even further. 

Maryland law provides specific regulations around the division of marital property, but if a business is involved, you may need to set up a buyout agreement or other mechanisms to protect the future of the business.

If you or your ex-spouse holds ownership in a business or real estate, your estate plan will need to reflect these assets. You should consider revising operating agreements, establishing a trust, or reassigning business ownership to clarify what happens to these assets after your passing.

If the division of the family business hasn’t yet been finalized in your divorce, estate planning will need to take into account how the business interests will be distributed. The process may involve valuing the business, setting terms for buyout, or addressing how future profits or losses will be handled by the remaining business partners.

Updating Health Care Directives

Another important aspect of estate planning after a divorce is updating your healthcare directives. These directives include documents such as living wills and medical powers of attorney, which allow someone to make decisions on your behalf if you’re incapacitated.

In many cases, spouses are named as the person to make medical decisions if one partner is unable to do so themselves. After a divorce, you may wish to update this designation to a trusted friend or family member. 

Maryland law allows you to assign a new medical power of attorney, and it’s important to reflect these changes in your estate planning documents.

Additionally, if you had previously set up a living will, which outlines your preferences for medical care should you be in a terminal condition, you’ll need to revise this document to remove your ex-spouse from any decision-making capacity.

Considering Tax Implications

Estate planning after divorce also involves evaluating the potential tax implications for both you and your beneficiaries. Divorce can result in the division of assets, and it’s important to assess how this division will affect your estate tax liability. Maryland has an estate tax that may apply to the value of your estate if it exceeds a certain threshold.

If your estate is large enough to trigger estate taxes, you may need to restructure your estate planning to minimize the tax burden. This could involve establishing trusts or other strategies to reduce the taxable estate and provide your beneficiaries with more of the assets you intend to leave behind.

It’s advisable to work with a financial planner or an estate planning lawyer to assess these potential issues and adjust your plan accordingly.

Revisiting Your Financial Plan

Divorce often has significant financial implications that go beyond just dividing property. As you reevaluate your estate plan, you should also revisit your overall financial plan. This includes addressing matters like retirement savings, insurance coverage, and other assets that may be affected by your divorce.

Consider how your financial circumstances have changed post-divorce and whether you need to revise your estate plan to reflect new financial goals. It may be necessary to reallocate your assets, update your insurance policies, or even reassess your retirement plans based on your new situation.

Reach Out Today

The Law Offices Of Julie A. Schejbal, CHTD are here to help you through the estate planning process during this challenging time. We’re proud to serve Dunkirk, Maryland, and the surrounding areas of Calvert County, Prince George’s County, Charles County, and St. Mary's County. Call us today.