How can divorce impact your estate plans?
A few of my lawyer friends have recently told me that the pandemic has brought an increased volume of calls inquiring about separations and divorce. At first, I took away this little nugget of information about failing marriages as another one of the pandemic's victims. But then I started to think about how divorce impacts estates and the previous plans that couples had laid out for one another.
I was married once before…..when I was relatively young (nineteen to be exact), it was of no surprise when the marriage did not work out, and I was divorced young as well. When I reflect on that divorce, I realized that I did a few things that would have negatively impacted my children and plans for my estate. I simply did not know what I needed to know at that time, and I realize that many Canadians may also not be aware of their divorce's impact on their estate.
To better understand considerations we should make upon a recent separation or divorce, I reached out to Melissa Stewardson. She is a financial advisor with Desjardins, offering life, health group benefits, and investments, based in Southwestern Ontario. In 2016, she separated and realized that the financial reality as a single person, especially as a single mother, is vastly different from that of a family unit. Melissa enjoys working with separating/divorcing parties to help them take stock of where they are and where they want to go. "Many people immediately speak with a family lawyer when they are separating, but don't think to engage the services of a Financial Advisor during this time of upheaval in their lives. As someone who has been through the process – financial and emotionally - I can empathize with clients and work with them through the emotions that will inevitably bubble to the surface during the process while putting a solid plan for their future in place."
Melissa has provided me with her top three tips for those going through a separation/divorce:
1)Review Life Insurance Needs: A person's financial needs and family requirements can change drastically upon a marital breakdown. If you are a support payor, make sure that you have life insurance as the estate can be on the hook for spousal and child support owed. There can be a claim laid against the estate if there isn't proper life insurance to cover support payments. If you are a support receiver, sometimes it is a good idea to pay the life insurance premium on the former spouse so that the policy does not get canceled without the other spouse knowing. Also, work with your financial advisors to ensure that you have the correct amount of insurance with a proper income replacement upon your death for your beneficiaries.
Ensure that you update the beneficiary designation on insurance policies (i.e., remove the ex-spouse). It is wise to discuss these changes with your family lawyer during the divorce process (irrevocable beneficiary has implications). The receiving beneficiary does not have to return insurance proceeds if the policy was never updated to reflect the actual beneficiaries you wanted.
2)Update your Power of Attorney documents and Will: See a lawyer to update these essential documents. Consider this, do you want your ex to make choices for your personal care decisions? Melissa recommends having the Power of Attorney's and Will updated within the first six months of the separation. Put meeting with your lawyer about the breakup and updating of the Will high on the list of priorities. Advice from a lawyer is vital as you don't want to take financial steps that look like you are depleting any assets. Do not make changes without a solicitor's guidance and open communication with all professionals helping you through the process. Keep an open dialogue with them by having a list of assets prepared. Knowing the value of these assets helps with estate planning, and you are doing it for the separation anyway.
3) Review investments: Risk tolerance may have changed; perhaps with two incomes, you could be riskier, but now that you are one person, losses could be a more significant risk to you and your new family. There are options for different types of investments, such as the benefit of segregated funds, as they can directly pass through to the beneficiary, therefore avoiding the estate. Meeting with a Financial Planner to review your new family situation and tolerances is a good step.
Lastly, Melissa had this final piece of advice if you are going through a separation and divorce. "Find professionals that you trust and that you like working with. When you are going through a relationship breakdown, you are dealing with gross emotions and feelings. If you are working with people you like and trust, it makes the process a little less "yucky." Don't be afraid to interview the professionals you are working with, as you have the right to choose the correct person for you.”