The emotional trauma of going through a divorce is bad enough. But think about how your family would feel if your ex-spouse collected on a life insurance policy you had with your job--because you forgot to change the beneficiary! Concern about “estate” plans is not just for the “rich.” Many employees sign up for various insurance plans and products that are provided as a benefit of the job—and then promptly forget about those financial products, especially if they have been employed for many years at the same firm.

Life Insurance Proceeds Awarded to Ex-Wife, Not the Widow

Consider the case of the wife of a man who died leaving a $124,558 life insurance policy to his ex-wife rather than to his then-wife because he didn’t change the beneficiary on the policy after his divorce from his first wife. In 2013 the U.S. Supreme Court sided with the ex-wife and awarded her the proceeds of the life insurance policy because her ex-husband had not changed the beneficiary “in writing” and had not provided that written direction to the insurance company.

Beneficiaries have to be changed in writing by filling out a form provided by the insurance company and sending it to the insurance company that wrote the policy, or in the case of a financial account, to the financial institution handling the account.

Don't Forget to Update Your Will After Divorce

Consider, too, a New York case where the former in-laws of a woman have been awarded her home, even though she and her husband divorced years ago. It turns out that the woman had executed a will 20 years before that named her husband to receive the house, which had been in her family for generations, in the event of her death. The will provided that if her husband was not able to inherit the house, his father (her father-in-law) would receive the house. Relatives of the deceased woman knew that she had changed her will after the divorce—but no one had a copy and no one could find the updated will. Although New York law automatically cuts out an ex-spouse from receiving property under a will in the event of a divorce, the New York law does not cut out the former in-laws! The New York appeals court awarded the house to the ex-father-in-law because no one could present a different will.

Legal Documents You Need to Update During and After Divorce

Experts offer this advice to parties going through a divorce:

• Draft a new will as soon as the property settlement is decided and make sure that appropriate people have copies of the document and know where to find it.

• Make sure all legal documents reflect your new status and intentions such as your durable power of attorney and your health care directives.

• If you and your spouse had used the same estate planner to draw up your “estate” documents, each of you should individually seek out new advisors to draw up new documents to avoid any conflict of interest.

• Tear up the old estate documents even during the divorce and prepare new ones, affirming at the beginning of each new document that it “revokes and replaces” the old documents.

• As soon as possible after the dissolution proceeding is commenced, if not before, make a careful inventory of all financial records to identify all bank and brokerage accounts, retirement accounts and annuities that name beneficiaries or individuals to whom ownership will transfer at death. It is not unusual to overlook accounts, especially ones through your, or your spouse’s, employment.

• Contact the financial institution, bank or annuity company to obtain the appropriate forms to change the beneficiaries on the accounts—and make that change and send it to the banks and institutions (keep a copy).

• Review with your HR department all job-related benefits that may include life insurance policies that you had forgotten about. (Most group health insurance offers a small life insurance policy as part of the health insurance package.) Notify the insurance company in writing of the new beneficiaries.

Often retirement accounts are part of the property settlement in dissolution proceedings. In order for these accounts to be legally transferred, in whole or in part, a Qualified Domestic Relations Order must be obtained from the court.

The financial impact of divorce can be far-reaching and your dissolution may not be one that should be a “do-it-yourself” project. Consider consulting with experienced family law attorneys to learn if your dissolution proceeding is one that may contain financial potholes. Experienced family law attorneys, such as Clawson & Clawson LLP, can guide you through the financial landmines of a dissolution proceeding in Colorado and make sure your “estate” is in order during, and after, the dissolution.