Why You Need a New Will and Trust After Divorce: 3 Nightmare Stories

will and trust after divorce

By Stephanie M. Sexauer and Katie Pancewicz, Estate Planning attorneys

Most divorce cases are complicated. They involve decisions that can include the splitting of assets, decisions about the home, a possible maintenance agreement, and more.  If the couple has children, divorce gets even more complicated because of parenting agreements and child support.

 

Because divorcing couples are so caught up in the present, they oftentimes forget about the importance of their wishes in regards to their assets when they pass away. That is why every divorcing person needs a new will and trust after divorce.

 

What happens if you don’t have a will and trust after divorce and you pass? Probate.

That means your estate goes to court and a judge makes decisions in regards to who gets your assets. It also involves costly legal fees.

Here are 3 nightmare stories involving divorced people who did not have a will and trust after divorce, which caused probate after their death:

 

1. Ignoring Your Marital Settlement Agreement.

 

Every divorce ends with a Marital Settlement Agreement, also known as an “MSA,” which outlines exactly how your assets will be split with your ex-spouse. Many terms in the MSA will be immediately addressed after divorce, such as what happens to the house and the assets, child support, maintenance, and other things happening now. As a result of being so focused on today, you might easily forget about the MSA and the pending terms that are pertinent to later in life.

 

Imagine in your divorce settlement, you agreed that your children you had with your ex-spouse will receive 50% of your estate upon your death. Years later, you’re in a new marriage and at least one child is born as a result. Maybe you forgot about your MSA or maybe you thought no terms would be affected, but you go ahead and execute a new estate plan giving 50% of your estate to your new spouse and 50% of your estate to ALL of your children. Well, you just contradicted your MSA.

 

Your two children from the previous marriage are no longer getting 50% of the entire estate per the MSA; your estate plans says all three children will split 50%. Every family is different, but I’m sure you can guess this will cause some fighting between the family members and likely an order from the Court on which document controls. This is just additional tension, time, and money that no one wants when also dealing with a loved one’s passing.

 

There are countless other scenarios that can arise if you ignore your MSA, from a contradictory estate plan, to designating incorrect beneficiary on accounts, to bequeathing specific property to the wrong people.

Keep these tips in mind to avoid these issues:

 

1. Thoroughly review your MSA prior to signing and after your divorce is finalized.
2. Make a list of any MSA terms that won’t take effect until later, so you have an easy to review list (MSAs can span several pages).
3. If you ever execute or amend an estate plan, change beneficiaries on accounts, etc., first review your MSA or the condensed list – even if you’re positive nothing will be affected.
4. You can change your MSA to fit your future needs, but it will involve an additional agreement, agreement from your ex-spouse, likely an attorney, and potential an order from the Court.
5. Make sure to tell your estate planning attorney that you’re divorced, and ask them to review your MSA to make sure it doesn’t contradict the terms of your estate plan.

 

2. Failing to Amend or get a new Will and Trust After Divorce.

 

Failing to amend your Estate Plan

 

Let’s imagine a new scenario. You have a child with your first spouse and your divorce was just finalized. Fast forward ten years, you remarried and have two new children. Sometime later, you pass away still being married to your new spouse. You also pass away never having created an estate plan. In Illinois, this means ½ of your assets pass to your new spouse and ½ of your assets pass to your three children in equal parts (for assets not jointly owned or that name a beneficiary).

 

The child from the first marriage may see this as unfair; maybe you wanted your first child to receive more from your estate. Your first child and your new family will often find themselves fighting over who was closer to you and what were your intentions for your estate.

 

To avoid this, create an estate plan after you’ve remarried, and especially if you have more children. Maybe you don’t see the point because your estate plan will still follow the law – 50% to your spouse and 50% to your children. However, writing it down in black and white and signing off on it creates the clearest picture of your intentions. There is a lot less wiggle room for your family to argue about your intentions or disregard your wishes.

 

Perhaps you wanted your first child to receive 30% of your entire estate, with the rest being split between your new family. Maybe you wanted your younger children to receive more, especially if they haven’t yet gone to college. With an estate plan, you have this choice. Your family might not be too happy with your decisions, but again, they will have a much harder time fighting your estate plan.

 

Another story

 

Now, let’s take a different scenario. You executed a Will during your marriage with your ex-spouse. Your ex-spouse is listed in this estate plan as a legatee, i.e. someone who receives a share of your estate pursuant to your Will. You didn’t get around to changing your Will after the divorce, and you pass away with your ex-spouse still named as a legatee.

 

Now, under Illinois law, your ex-spouse is effectively removed from your estate plan regardless of if you formally amended it. The law treats your ex-spouse as if he or she predeceased you. However, be wary that not all states have this law. Further, even if your ex-spouse cannot take under your Will, his or her portion must pass to someone, right?

 

Your Will may specify what happens to a legatee’s gift when that legatee predeceases you, or your Will contains a residuary clause for any asset not going to a specific legatee. However, not all Wills are this comprehensive. In these cases, the portion of your estate may pass to according to the law and not your estate plan, and it may pass against your wishes as a result.

 

The easiest fix it to amend your will and trust after divorce. It may take a little extra work from you, but you can be sure your ex-spouse is removed from your estate plan and his or her previously guaranteed portion passes to the right people.

 

3. Leaving an Ex-Spouse as a Beneficiary on Accounts.

 

As you’ve probably gathered by now, an ex-spouse is not an heir of your estate and is not entitled to receive anything from your estate, at least in Illinois. Chances are, you are happy with this result. However, you likely added your ex-spouse as a beneficiary on several bank accounts, investment accounts, life insurance policies, retirement accounts, etc. during your marriage. Your MSA will specify how each of these accounts are split between you and your ex-spouse.

 

Accounts Promised to Your Ex-Spouse in the MSA.

 

Let’s say you had a life insurance policy that is supposed to pass entirely to your ex-spouse upon your death pursuant to your MSA. Let’s also say that you added your ex-spouse as a beneficiary to your life insurance policy during your marriage. You finalize your divorce, and you don’t change the beneficiary designations on your life insurance policy, fully expecting it to pass to your ex-spouse after you pass away.

 

If you remarry or have children, one of them will likely reach out to the life insurance company after you pass away. But the beneficiary designation should prevent the life insurance company from paying the proceeds to anyone but your ex-spouse, right? Unfortunately, no. If your new spouse or children show documentation of the divorce and there are no other beneficiaries listed, the life insurance company will often pay it automatically to your surviving spouse and/or children.

Many financial institutions will have guidelines for an automatic payout when no beneficiaries are listed (may apply to retirement plans, bank accounts, and investment accounts), and remember a spouse will be effectively removed due to the divorce. This means, the proceeds may be gone by the time your ex-spouse gets around to claiming the proceeds.

 

To avoid this, make sure to take these additional steps after your divorce (any qualified divorce attorney should already know to take these steps):

 

1. Receive a qualified domestic relations order from the court, which will specifically state that your ex-spouse is to receive the life insurance policy after your passing.
2. Provide the qualified domestic relations order, along with a copy of your MSA, to the life insurance company immediately. These will be on file and put the company on notice to only pay out the proceeds to your ex-spouse, regardless of the divorce.

 

One last tip – be careful on what you promise to your ex-spouse in the MSA. Every so often, a qualified domestic relations order will not be accepted by the financial institution because it conflicts with its own policies. It might mean extra work for you, but the best way to avoid this is to review policies for all your accounts before promising something to your ex-spouse. You don’t want to promise something that you aren’t able to provide.

 

Accounts Promised to You Under the MSA, but with Your Ex-Spouse Listed as the Beneficiary.

 

Now, let’s take the reverse situation with a retirement account. You added your ex-spouse as a beneficiary to your retirement account during your marriage, but the MSA states your ex-spouse is to be removed as a beneficiary and/or the account is to go solely to you. You get busy and you never reach out to the company to formally remove your ex-spouse as a beneficiary. You pass away before the retirement account has been paid out to anyone.

 

Maybe you’re thinking that there is no problem because your new spouse and/or children simply need to show proof of the divorce to avoid the funds being paid to your ex-spouse. Well, what if your ex-spouse reaches out to the company first and never tells them about the divorce? All the company will see is that your ex-spouse is listed as a beneficiary and has matching identification.

 

The company won’t realize the retirement account should have been paid to your new spouse and/or children or to your estate, depending on the company’s policies. Your new spouse and/or children will likely reach out to your ex-spouse for the funds. If your ex-spouse won’t willingly hand over the funds, though, the only option is to initiate litigation. This will only cost everyone additional time, money, and headaches. Also, if your ex-spouse has already spent the money, good luck; you can’t squeeze blood out of a turnip.

 

To avoid this, remove your ex-spouse as a beneficiary and add new beneficiaries as soon as your divorce is finalized. Your ex-spouse won’t have grounds to contest this and won’t be able to trick the company. You can be confident that the funds will be paid out specifically according to your intentions.

If you have any questions or you’d like a consultation with me, I am here to help you.

Stephanie Sexauer

Stephanie M. Sexauer is a wills and estate planning attorney and the founder of Sexauer Law. Stephanie has worked exclusively handling probate, estate, and adult guardianship matters since she first started practicing law in 2013. She began her studies at the University of Illinois, Urbana-Champaign where she earned a BFA before pursuing legal studies at the John Marshall Law School in Chicago.

Stephanie has helped hundreds of Chicago families handle the murky waters of probate. She is frequently appointed by Cook County judges as a “Guardian ad Litem” to observe and make recommendations as to the best interests of senior citizens.

When she’s not at work, Stephanie serves on the board of the Red Shoe Society, a group that works to financially benefit and bring awareness to the families living at the Ronald McDonald houses of Chicago. Learn more by visiting her website.

Like this article? Check out, “What You Need to Know about Your Will and Trust Documents after Divorce”

 

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