Life is unpredictable. You never know when and how something tragic might happen to you or your spouse. While divorce might consume your present, it’s crucial to consider the future and how your family’s life will look after death. Neglecting these considerations can have lasting consequences. JC Law understands the importance of planning for the future, even amidst the complexities of a divorce.
This article explores the necessary steps to take during a divorce to safeguard your family’s future in the event of a death, covering:
- Divorce and Wills: How Inheritance Splits During a Divorce
- The Use of a Trust and How It Might Hurt or Help You
- Finding a Way for Life Insurance Policies to Help the People Who Matter Most
The Way of the Will: Knowing Where Inheritance Goes Post-Divorce
Maryland law (and similar laws in VA, PA, and DC) addresses inheritance in property distribution with two key principles, making it vital to consult with an attorney like James E. Crawford, Jr., to navigate these complexities.
On one hand, Maryland, Virginia, Pennsylvania, and the District of Columbia are all “equitable distribution” jurisdictions. This means that marital assets are divided fairly between spouses based on the specific facts presented by both sides. Marital property, generally defined as property acquired during the marriage, falls under this principle. However, inheritance is treated differently.
If you received a monetary inheritance and deposited it into your individual bank account, without using it for any marital purpose, it may remain your separate property and not be subject to division in the divorce. It’s essential to maintain clear records to prove the origin and handling of the inheritance.
On the other hand, commingling an inheritance occurs when you deposit it into a shared account with your spouse, or otherwise utilize it for marital purposes (such as buying a family home). Commingling can occur in various ways, but the general principle is that if you use inheritance to purchase what becomes marital property, you’ve essentially integrated it into the marital estate.
However, there are situations where you may be able to trace commingled funds or property and argue that they should be deemed separate property. It’s important to bring up any assets of note with your lawyer during the Discovery phase of the divorce process. A knowledgeable family law attorney understands the importance of protecting your separate property rights.
Regarding your own will, you can modify it at any time with legal assistance. Many people choose to exclude their former spouses and instead allocate their assets to their children. This is a crucial consideration as you navigate the divorce process. If you prefer to designate beneficiaries who align with your current wishes, make the necessary changes as soon as possible.
What Are Trusts and How Can I Secure Them?
Trusts are arrangements where property is transferred from one party to another for the benefit of a third party. Typically, trusts offer more robust protections for assets compared to wills. For example, a couple might establish a trust for their children, including assets like real estate, vehicles, bank accounts, investments, or even businesses. Some trusts stipulate that the assets will be held until the children reach a certain age. Often, the couple who establishes the trust retains some control by acting as co-trustees.
However, when a couple enters the divorce process, they must re-evaluate the trust’s setup.
First and foremost: do not attempt to conceal assets within a trust. Hiding assets negatively impacts your credibility during the divorce. Your spouse may claim that any commingled assets held in your trust constitute marital property, rather than separate assets. Furthermore, establishing a trust in your name with assets acquired during the divorce does not magically transform them into separate property.
However, your personal trusts containing your separate, non-marital property are not subject to distribution in the divorce.
Irrevocable trusts transfer ownership of the property to the trust itself, rather than the individual who contributed it. This property remains in the trust until the grantor’s death, at which point it is distributed to the beneficiaries. While limited modifications to the agreement may be possible, the term “irrevocable” generally holds true.
“Planning for unforeseen circumstances, like death after divorce, is a critical component of protecting your family’s future. Don’t leave these crucial decisions to chance.”
That means that if you designate your spouse as a beneficiary of an irrevocable trust, they will generally remain the beneficiary even after the divorce.
Life Insurance Benefits: Who Sees What?
Alongside your will, you should also review your life insurance policy.
Similar to your will, you may prefer to direct your life insurance benefits to your children rather than your former spouse. Several factors come into play when you separate.
Every life insurance policy requires you to designate a primary beneficiary. If your spouse is the current primary beneficiary and your policy is revocable, consider changing it. Designating a child as the primary beneficiary might be your preferred option.
At the same time, ensure your children have adequate financial support if you pass away. If your divorce results in your former spouse being completely out of the picture, your insurance policy should ideally provide for your children until they reach adulthood (typically 18 years of age).
Alternatively, if your ex-spouse remains involved in your children’s lives, you might consider maintaining the policy to assist with raising them until they reach adulthood. Depending on the policy’s value, life insurance benefits could supplement alimony or child support in the event of your ex-spouse’s death.
Furthermore, you have the option to “cash out” your life insurance policy and split the cash value with your spouse. The cash value of the policy is considered part of your net worth as a couple and will be divided accordingly during asset division.
Additional considerations include paying premiums, the desired coverage amount, and whether a stepparent should also have a life insurance policy. Discuss these points with your spouse (if your divorce is amicable) or consult with your attorney for advice on separating benefits.
Asset Protection Table:
| Asset Type | Considerations During Divorce | Potential Outcomes |
|---|---|---|
| Inheritance | Was it commingled? Can you trace the funds? | Separate property, marital property, or a hybrid of both. |
| Trusts | Type of trust (revocable vs. irrevocable), beneficiaries, asset ownership. | Assets may be protected, subject to division, or require modification of the trust agreement. |
| Life Insurance | Beneficiary designations, cash value, premium payments. | Policy can be cashed out and divided, beneficiaries can be changed, or a new policy can be established. |
| Will | Does your will need to be updated | Assets will be distributed as outlined in the will |
If you have questions about securing assets for your family post-divorce, contact the office of JC Law for a free initial consultation. James E. Crawford, Jr. and his team are committed to providing personalized representation that prioritizes both your assets and your family’s future. We serve clients in Maryland, Virginia, Pennsylvania, and Washington, DC.
