Navigating the effects of Divorce on Estate Planning

Have you ever thought about how a divorce might impact your estate plan? This issue is crucial, as divorce undoubtedly affects several aspects of your financial and estate arrangements. Let’s take a deep dive into this topic to understand the implications and necessary steps to ensure your estate plan remains robust and reflective of your new circumstances.

Did You Know?

A divorce doesn’t automatically remove your ex-spouse from your estate plan! This means your Will, CPF nominations, and life insurance beneficiaries might still include them. Let’s avoid any unwanted surprises and make sure your estate plan is up-to-date.

Key Areas to Review and Update:

1. CPF Nominations: Divorce does not void your CPF nominations. If your ex-spouse is still listed as a nominee, they remain entitled to your CPF savings unless you update your nominations.

2. Wills: Similarly, a divorce does not automatically revoke your Will. If your Will leaves assets to your ex-spouse, those provisions will stand unless you create a new Will. Consider also updating guardianship provisions if your Will includes arrangements for minor or special needs children.

3. Insurance Nominations: Life insurance policies often list beneficiaries who will receive the policy proceeds upon your death. Divorce does not affect these nominations, so it's essential to review and update them as necessary. Unfortunately, whether you can update you insurance nominations will depend on when did you purchase your insurance plans and what nominations you have made. Also, special considerations have to be made if the nomination was to your minor child, since the Ex will still be the natural guardian and may access the insurance proceeds.

4. Lasting Power of Attorney (LPA): If your ex-spouse is appointed as your attorney under an LPA, you might want to reconsider this decision. Revoking the LPA and appointing a new attorney could be wise.

5. Advance Care Planning (ACP): Review this document to ensure your medical wishes and decisions align with your current situation and trusted individuals.

Important Considerations:

- Sever Joint Tenancy and Joint Accounts: During a divorce, it’s advisable to sever joint tenancy ownership of properties and cancel joint accounts. If possible, try to reclaim assets that you bought in your spouse name to prevent potential disputes or complications. While these actions do no change the value of the Matrimonial pooled assets, it will prevent the unintended consequences if death were to occur before the divorce is finalised.

- Children’s Inheritance: Updating your Will is crucial. Especially, if you have provisions in your Will to leave assets to them. If they are minor, the money might revert back to your ex-spouse control. If your child is an adult already, while they can hold on their inheritance, we still need to consider the possibility that if they pass away without offspring, your inheritance might revert to your ex-spouse as their natural parent. Imagine leaving everything to your child, only for them to tragically pass away without children. If your estate plan isn’t updated, that inheritance could flow right back to your ex-spouse. Ensuring your estate plan reflects your current wishes can prevent such unintended outcomes.

Here, a conditional gift or delayed distribution in your Will may be helpful in order for the child to make arrangements in his or her own Will first before receiving your inheritance.

For special needs children, appoint a guardian in your Will and state your preference for the guardian to apply for Deputyship once the child reaches adulthood.

- Planning for Guardian vs Trustee

Guardian is to take care of the welfare of the children while Trustee will manage the money. For minor children, appointing Guardian is a must. The selected guardian must be appropriate or it may lead to a lot of unnecessary conflict in the unfortunate event of premature death. Similarly, the role of the Trustee must be carefully considered

- Planning for Alimony: If you receive alimony, consider using the Net Present Value (NPV) of expected future alimony payments to buy a Universal Life (UL) insurance policy on your ex-spouse. This could provide a financial safety net for your children if anything happens to your ex.

Planning for the Future:

Divorce is tough, but your estate plan doesn’t have to be. By proactively updating your documents and making thoughtful adjustments, you can protect your assets and secure the future of your loved ones. Don’t let divorce throw your plans into disarray.

If you have any concern, talk to a divorce lawyer or a qualified Estate Planner.

Here for you,

Thomas Tan

With over 25 years of experience in the financial advisory landscape, specializing in retirement and estate planning, I'm dedicated to helping you secure your financial future. Whether you're an executive, business owner, or a mass affluent individual, my team and I are here to provide tailored strategies that create sustainable passive retirement income and fortify your estate.

Rest assured, your financial well-being is at the heart of everything we do. If you have questions, concerns, or simply want to explore further, please don't hesitate to reach out. Remember, your financial journey is unique, and together, we'll navigate it with expertise and care.

Thank you for being a part of our community. Until next time, here's to prosperous planning and a future filled with financial peace of mind.

Warm Regards

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P/S: Disclaimer - All info shared are for general consumption and based on best effort basis and opinions are mine only. This article does not constitute any legal or financial advice.

Everybody situation is different.