Was 2018 the year you finalized your divorce? Many people did all they could to finalize their divorces before New Year’s Eve, because there are new tax rules that will impact ex-spouses in 2019.
There’s bad news for those who did not get their divorce finalized by the end of 2018. Among the new tax laws are changes to alimony and taxes. Paying alimony is no longer deductible to the person who is making the payment. It’s also no longer taxable by the person who is receiving it. This doesn’t work well for anyone – the payor loses a deduction and it’s likely the receiver will get less in alimony because there’s less money available to the payor.
Forbes’ recent article, “9 Things You Need To Know About Estate Planning After Divorce” suggests that if you were one of those whose divorce was finalized last year, it’s time to revise your estate plan. It’s also good idea for those people who divorced in prior years and never updated their estate plans. Let’s look at some of the issues about which you should be thinking.
See your estate planning attorney. Right off the bat, send your divorce agreement to your estate planning attorney, so he or she can see what obligations you have to your ex-spouse in the event of your death.
Health care proxy. This document lets you designate someone to make health care decisions for you, if you were incapacitated and not able to communicate.
Power of attorney. If you had an old POA that named your ex-spouse, it should be revoked, and you should execute a new POA naming a friend, relative, or trusted advisor to act as your agent regarding your finances and assets.
Your will and trust. Ask your attorney to remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee.
Guardianship. If you have minor children, you can still name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will probably be appointed guardian if you pass away, unless he or she is determined by a judge to be unfit.
A trust for your minor children. If you don’t have a trust set up for your minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. You may ask your estate planning attorney about a revocable trust that will name someone else you select as the trustee to access and control these funds for your children, if you pass away.
Life insurance. You may have an obligation to maintain life insurance under the divorce agreement. Review this with your estate planning attorney and with your divorce attorney.
Beneficiary designations. Be certain that your 401(k) and IRA beneficiary designations are consistent with the terms of your divorce agreement. Have the beneficiary designations been updated? If you still want to name your ex-spouse as the beneficiary, execute a new beneficiary designation dated after the divorce. It’s also wise to leave a letter of intent with your attorney, so your intentions are clear.
Prenuptial agreement. Talk about this with your intended long before the wedding. If you both come to the marriage with assets, children, etc., having this document done can help you work through financial issues. Ideally, you’ll toss it in a drawer and never need it. However, if you need it, you’ll be glad you planned things out in a calm state of mind.
Make this the year you get your divorce and your estate plan all tidied up, so you can move on to a great year.
Reference: Forbes (January 8, 2019) “9 Things You Need To Know About Estate Planning After Divorce”