Experts Advise Updating Estate Plans During Divorce

Divorce settlements focus on spousal maintenance, child support and asset division, but many soon-to-be ex-spouses forget to change the beneficiaries' names on financial documents. Tax attorneys and estate planning experts say divorcing spouses, fraught with turbulent emotions, often neglect to update wills or other accounts that have a designated beneficiary.

Estate planning experts advise checking beneficiary designations periodically to reflect any changes of heart. Experts say the most critical time to review beneficiaries is when life-altering events like marriage, parenthood and divorce occur.

Re-designating beneficiaries listed on bank, brokerage, pensions, college accounts and insurance policies can prevent unwanted and unstoppable consequences. Advisors warn that wills are often no protection against a beneficiary designation, even if the creator's wishes are contradictory.

Many divorcing couples or newly single individuals unintentionally wait to remove an ex-spouse's name from an account or insurance policy. Waiting until the divorce is over to rethink who will inherit benefits from a pension, investment or savings plan can happen too late and result in negative consequences. A divorced person may truly want those benefits to go to a child or another relative, but the ex-spouse may still have a right to them, unless the beneficiary designation mirrors the real desires of the account holder.

In one U.S. Supreme Court case, monies from pension and insurance plans were awarded to an ex-spouse rather than the man's children. The court ruled that the former wife could not be disinherited because her name was the last one submitted on the beneficiary forms, even though she stated no interest in the company in the divorce settlement.

Different accounts require different types of forms to change beneficiaries. For bank accounts, a "payable on death" or "transfer on death" form is used. Annuities, 529 college accounts, insurances and many retirement plans have standard beneficiary change forms. Many forms may be submitted online.

Source: Smart Money, "Make This Estate Planning Move Now," Bill Bischoff, Aug. 10, 2011