Divorce is one of the most significant legal events in a person's life. It changes your financial life, your family structure, and your legal obligations. It also changes, or should change, virtually your entire estate plan.
The problem is that estate planning is often the last thing on anyone's mind during and immediately after a divorce. You're dealing with custody, property division, child support, and the emotional weight of everything that goes with it. Updating your living trust and beneficiary designations feels like it can wait.
It can't. And here's why.
California law provides that a dissolution of marriage or legal separation automatically revokes certain transfers and appointments in a living trust in favor of a former spouse. Similarly, under California law, a divorce automatically revokes gifts to a former spouse in a Will and revokes the appointment of the former spouse as executor.
This sounds helpful. But here's the catch: these automatic revocations apply to your Will and living trust. They do not apply to beneficiary designations on retirement accounts, life insurance policies, IRAs, 401(k)s, bank accounts with payable-on-death designations, or brokerage accounts with transfer-on-death designations.
Those designations are governed by the specific plan documents or account agreements, not by California probate law. If your ex-spouse is still named as the beneficiary on your 401(k), they may still receive it when you die, even years after your divorce is final.
There have been enough court cases on this exact issue to fill a book. Don't be the cautionary tale.
After your divorce is finalized in California, here's everything you need to review and update:
Your Living Trust. If you had a joint living trust with your ex-spouse, it needs to be completely rewritten as a single-person living trust. The trustees, successor trustees, beneficiaries, distribution provisions, and virtually everything else in the document needs to be redesigned for your new life. A simple amendment won't do. A joint trust needs to become a single trust.
Your Will. Even with the automatic revocation protections California provides, you need a new Will that reflects your current intentions: who you want to receive your assets, who you want as executor, and if you have minor children, who you nominate as their guardian.
Retirement Account Beneficiary Designations. Contact every retirement account custodian: 401(k) plan administrator, IRA custodian, pension plan, and update the beneficiary designations. The designation on file controls, period. Your Will and trust don't override it.
Life Insurance. Update the beneficiary designations on every life insurance policy you own. This includes employer-provided group life insurance, which is easy to forget.
Durable Power of Attorney. Your ex-spouse is almost certainly named as your agent under your durable power of attorney, the person who manages your finances if you're incapacitated. Update this to someone you trust completely.
Advance Health Care Directive. Similarly, your ex-spouse is likely your named healthcare agent. Update this immediately. You don't want your ex-spouse making medical decisions for you.
Bank and Investment Account Payable-on-Death and Transfer-on-Death Designations. Review every account and update the designations.
Annuities and Other Financial Products. Any financial product with a beneficiary designation needs to be reviewed.
Digital Assets. If you and your ex-spouse shared password managers, digital accounts, or had access to each other's accounts, review and update your digital asset inventory.
If you have minor children with your ex-spouse, your post-divorce estate plan needs to address a question that doesn't have a single right answer: what happens to your assets if you die while the children are young?
Under California law, the surviving parent, your ex-spouse, is generally the guardian of your minor children's person. That's typically not something you can change through your estate plan.
But you can control who manages your children's financial inheritance. You don't have to leave that money directly in the hands of your ex-spouse to manage. A trust for your children's benefit, with a trustee you choose, a sibling, a trusted friend, or a professional trustee, can manage the assets for the children's benefit until they reach an age you specify.
This is one of the most important planning decisions a divorced parent can make. Without a new estate plan, your children's inheritance could end up in your ex-spouse's hands as their legal guardian. With a well-drafted living trust, you control how and when your children receive the money, regardless of your ex-spouse's involvement.
Post-divorce, your beneficiary structure needs to be rebuilt from scratch. Some questions to think through:
Who do you want to receive your estate if you die before your children are adults? Leaving everything directly to minor children doesn't work - minors can't legally own significant assets. A trust for their benefit is typically the answer.
At what age should your children receive their inheritance outright? 18 is often too young. Many parents choose 25 or 30, or distribute in stages, a portion at 25, a portion at 30, the balance at 35. Hoever, we recommend a better way: writing your living trust so your children receive their inheritance in asset protection trusts, which allow them to be their own trustee at an age you choose (typically 25-30) but significantly protects their inheritance from a divorcing spouse or lawsuit.
Who is your backup beneficiary if something happens to both you and your children? Your siblings? Your parents? A charity? This needs to be spelled out.
Who do you trust as trustee of a children's trust? A sibling is common. A professional trustee is worth considering if the estate is large or the family dynamics are complicated.
We understand that the period after a divorce is chaotic. You're rebuilding your financial life, adjusting to a new family structure, and processing a lot. Estate planning feels like it can be pushed to the back burner.
But consider what's at stake. An outdated estate plan after a divorce can result in your ex-spouse receiving assets you intended for your children. It can leave your children's inheritance in the wrong hands. It can leave someone you no longer trust in charge of your healthcare decisions if you're incapacitated.
The good news: updating your estate plan after a divorce doesn't have to be a long or painful process. At Clark Allison, we can typically get a new single-person estate plan designed and completed in about two weeks. You've already been through the hard part. This is the part where you take care of yourself and your kids. Let's get it done.
We serve families in person in our El Dorado Hills, Roseville, San Diego, and San Luis Obispo offices, and virtually from anywhere in California.