CDA CDA Estate Planning & Post-Divorce Financial Transition 1 — Questions and Answers
Question 1: After a divorce is finalized, what is the most critical estate planning action a client should take immediately?
- Draft an entirely new will from scratch with an estate planning attorney
- Update all beneficiary designations on retirement accounts, life insurance, and financial accounts (Correct answer)
- Transfer all individually held assets into a revocable living trust
- File a new tax return using single filing status to update federal records
Correct answer: Update all beneficiary designations on retirement accounts, life insurance, and financial accounts
Beneficiary designations supersede a will, so failing to update them after divorce can result in an ex-spouse receiving account assets.
Question 2: In many U.S. states, what happens to testamentary provisions in a will that name an ex-spouse after divorce is finalized?
- The entire will is voided and the estate passes under state intestacy laws
- Many states automatically revoke bequests to an ex-spouse by statute upon divorce (Correct answer)
- The ex-spouse retains all bequests named in the will unless the will is rewritten
- A probate court must approve any post-divorce changes to an existing will
Correct answer: Many states automatically revoke bequests to an ex-spouse by statute upon divorce
Many states have 'revocation upon divorce' statutes that automatically void will provisions benefiting an ex-spouse after the divorce is finalized.
Question 3: Why do beneficiary designations on retirement accounts and life insurance policies override a divorce decree?
- Because ERISA and insurance contract law make beneficiary designations contractual obligations that supersede court orders (Correct answer)
- Because state divorce courts lack jurisdiction over any federally regulated financial accounts
- Because beneficiary designations are recorded with the IRS and take priority under federal tax law
- Because insurance contracts are not considered marital property under any state law
Correct answer: Because ERISA and insurance contract law make beneficiary designations contractual obligations that supersede court orders
Beneficiary designations are governed by plan documents and insurance contracts, which are contractual arrangements that pass assets outside of probate and outside the reach of a divorce decree.
Question 4: A client named their ex-spouse as primary beneficiary on a $500,000 life insurance policy and died before updating it. What is the likely outcome?
- The divorce decree would automatically redirect the proceeds to the client's children or estate
- The ex-spouse would likely receive the proceeds because the beneficiary designation controls (Correct answer)
- The state would distribute the proceeds under intestacy laws since the marriage ended
- The proceeds would be frozen by the court pending litigation among potential claimants
Correct answer: The ex-spouse would likely receive the proceeds because the beneficiary designation controls
Without a state revocation-on-divorce statute covering insurance contracts, the named beneficiary — the ex-spouse — would typically receive the proceeds.
Question 5: What is a 'transfer on death' (TOD) or 'payable on death' (POD) designation and why must it be updated after divorce?
- A court order that transfers assets to heirs as part of the probate process
- A designation on financial and brokerage accounts that passes assets directly to named beneficiaries outside of probate (Correct answer)
- A type of irrevocable trust used specifically in post-divorce estate planning
- A deed that transfers ownership of real estate to named heirs at the owner's death
Correct answer: A designation on financial and brokerage accounts that passes assets directly to named beneficiaries outside of probate
TOD/POD designations pass financial account assets directly to the named beneficiary and must be updated after divorce just like life insurance and retirement accounts.
Question 6: Which legal document gives someone authority to make financial decisions on your behalf if you become incapacitated, and why must it be updated after divorce?
- A living will, which directs end-of-life medical treatment preferences
- A durable power of attorney, which grants financial decision-making authority and must be updated to remove an ex-spouse (Correct answer)
- A revocable living trust, which holds and manages assets during incapacity
- A healthcare proxy, which authorizes someone to direct medical treatment decisions
Correct answer: A durable power of attorney, which grants financial decision-making authority and must be updated to remove an ex-spouse
A durable power of attorney must be updated after divorce to prevent an ex-spouse from retaining authority over your financial affairs if you become incapacitated.
CDA CDA Estate Planning & Post-Divorce Financial Transition 1
After a divorce is finalized, what is the most critical estate planning action a client should take immediately?