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How a Divorce Alters Your Estate Planning in New Mexico and Arizona

By January 14, 2013Estate Planning

We don’t like it when our clients have to go through a divorce and wish that all marriages could stay happy, but we haven’t found a way to keep divorces from happening. Since we are estate planning attorneys and not divorce attorneys, you might be asking yourself what divorce has to do with estate planning. The short answer is, “A lot!”

Arizona and New Mexico, like most states, have laws which automatically change a person’s estate plan as soon as the judge signs the divorce decree. While Arizona’s and New Mexico’s laws don’t automatically invalidate your entire estate plan—some states do—the laws do make changes to your plan. For example, as soon as the judge lifts her pen from your divorce decree, any revocable bequest to your former spouse is eliminated, and vice versa. This applies not only to your will or trust, but to your life insurance and some (but not all—more on that later) of your retirement plans.

I think we can agree that most divorcees don’t want a former spouse to be a beneficiary when the divorcee dies, but we know that is not always the case. We have seen several instances where two people decide they just can’t be married to each other, but are still friends and would like a former spouse to be beneficiary of a will or trust. If that is your situation and you are relying on a will or trust created before you were divorced, you might be shocked to find out your former spouse cannot be a beneficiary without updating your estate plan, even if your former spouse’s name actually appears in the will or trust.

And what about those retirement plans? For many retirement plans, like IRAs and tax-deferred annuities, a divorce will automatically eliminate your former spouse as a beneficiary without you having to do anything. But what happens then? Do you have an alternate beneficiary named? If not, these assets that you thought wouldn’t be subject to probate suddenly are part of the probate process, sometimes with devastating tax consequences. If you named your minor children as beneficiaries after your former spouse, your ex will likely still be in control of the funds as the guardian for your children. Probably not what you had in mind.

And one final note about retirement plans—a divorce doesn’t eliminate your ex-spouse as beneficiary of all of your retirement plans. For example, if you have a 401(k), 403(b) or any of the many other plans with a mix of letters and numbers, your ex-spouse will still be your beneficiary after you get divorced. How is that? These plan are governed by federal law, not state law, and federal law doesn’t have the similar kind of provisions that Arizona and New Mexico law has. When that happens, don’t count on your ex sharing with the other family members. Our experience shows us that that rarely, if ever, happens.

So what is the lesson from all of this? The most important lesson is that any time there is a major life change, you must review your estate plan. You might have noticed that I didn’t say you should review your estate plan—I said you MUST. Divorce is one of the major life changes, along with the birth or death of a child or close loved one, marriage, retirement or receiving an inheritance. I’m sure you can think of many others, but the point is that any time your life changes, your estate plan needs to be reviewed and updated, if necessary, to deal with the changes in life.

What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down.  The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits.  Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead.  Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe.  Contact us today at 888.222.1328 to schedule an appointment!

This blog should be used for informational purposes only.  It does not create an attorney-client relationship with any reader and should not be construed as legal advice.  If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.

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