There are a couple of different issues when you are talking about divorce and its effect on estate planning.
The first issue is what effect does divorce have on an estate plan. Say you and your spouse created an estate plan that left everything to each other and then to your minor kids. Now you are getting a divorce and wondering if the estate plan is still valid. The answer is yes, the estate plan is still valid, but with a caveat. First, once divorced, your existing estate plan will treat your spouse as if they predeceased you. So, for example, let’s say you create a will in 2007 that leaves everything to your spouse then your kids equally. In 2013, your divorce is finalized but a couple of years later you pass away and you are unmarried. Under this scenario, the provision giving everything to spouse will be void and everything will pass directly to your kids equally. So do you need a new estate plan? Well technically no, but here’s the problem. If your kids are minors, everything will end up in probate and this can avoided by creating either a testamentary trust or a living trust. Thus, just because your spouse is now omitted from your estate plan doesn’t mean it is still the right plan.
Further, your other estate planning documents, such as your powers of attorney might mention your ex-spouse as your first power of attorney. This can create a weird situation if you become incapacitated. Technically, the document is not effective but what if the bank or the hospital doesn’t know that? Based on the above, most of my clients opt to create a fresh estate plan. There is something soothing knowing your ex-spouse’s name does not appear in the documents. .
Now, the other issue when you are getting divorced that sometimes pops up is whether an inheritance from your family remains your separate property, even if you commingled funds. First, you should avoid the issue completely and, if possible, always keep a separate inheritance separate. In any event, under Missouri law “marital property” includes all property acquired by either spouse after the marriage except property acquired by “gift, bequest, devise or descent” (RSMo. 452.330.2(1).
This would also include property acquired in exchange for property acquired by gift, bequest, devise or descent. For example, wife inherits $50,000 from her grandmother after her marriage to husband. She buys a luxurious diamond necklace with the $50,000. Under Missouri law, the diamond necklace, since it was purchased with inherited money, should be deemed non-marital property. The practical effect of this is that husband can make no valid claim of this property during the divorce.
Finally under Missouri law, inherited property does not become marital property because it may have been commingled with marital property. Example: Husband inherits $250,000 from his mother and puts the money in his joint checking account (marital property) with wife. A few years later, husband and wife divorce. If the $250,000 still remains in the account, it will be deemed husband’s separate property. But this brings up the difficult issue of tracing. Chances are that some of that money was used, so husband may have to trace what funds were used for what and that it is where the issue gets complex and expensive. This might require a forensic accounting or an examination of each transaction made after the depositing of the inheritance money into the account.
Therefore, as a practical matter, the best practice is to keep your separate property inheritance as just that, separate property and held in a non-marital account. Other factors to be considered are asset protection and the financial position of the parties. But remember, if you keep the money separate and then use some of it for a marital purpose (family vacation, for example), the funds are still available for that purpose but much easier to track.
Finally, one issue that I see on occasion is a person who had an acrimonious divorce and has a hostile relationship with their former spouse. Often, there may be some doubt as to whether this spouse is a responsible parent. To be clear, with respect to estate planning, if you pass away, the other parent of your children has first rights to be the guardian of your children. However, that still does not prevent you from expressing your wishes as to guardian(s) in case the other parent is not willing or is not qualified to act as guardian. Thus, if you’re gone, you should still name your choices for guardians in case the other parent cannot qualify to act as guardian. This may be for a variety of reasons or maybe they have little interest in being a parent in the first place.
There are many issues to consider before and after a divorce in relation to estate planning. Always consult with a qualified and experienced estate planning attorney to get the best advice possible for your specific circumstances.
