Nearly half of all American marriages end in divorce. Accordingly, it is important to consider that possibility when doing your planning.
Impact of Estate Planning on Divorce
Moving assets between spouses can be advantageous for tax planning. For example, often a couple will transmute separate property to community property in order to get a step-up in basis at the death of either spouse. Also, spouses in separate property states often will equalize assets to fund a family trust at the first death (portability notwithstanding). These can be great strategies. However, it is important to advise clients that doing so could change how assets would be divided upon a divorce.
Impact of Divorce on the Estate Plan
In every state I know, the divorced spouse is removed as a beneficiary of a will and trust upon divorce. Typically, this is what the person would want. However, the person and his or her spouse sometimes share a special bond, even if they are divorcing. Thus, sometimes the person will want to keep his or her spouse in the estate plan. Accomplishing this is not as simple as leaving things alone, however. After the divorce, the person should do a new trust reaffirming the bequests to the ex-spouse.
Of course, after the divorce, the person should do new powers of attorney for both financial and health care matters. While some states revoke these designations upon divorce, others do not. The person should also do a new HIPAA form, removing their ex-spouse as a person having access to protected health information.
One item which is often overlooked is beneficiary designations. The person should do new beneficiary designations for all items with such designations. While state law may revoke some designations of the ex-spouse, it cannot revoke the designation on ERISA plans, such as a 401k. It is best to redo all beneficiary designations post-divorce.
Bob