The Connection Between Prince's Death and Your Divorce

Every time a celebrity dies without a will in place — as the musician Prince evidently did — it sets tongues wagging and estate attorneys running to do business.

Given the taxes due on unprotected estates, the likelihood that family members will wrangle over assets, and the potential wealth the estate might generate, it’s hard to believe that proper financial planning was not in place.

But as much as a case like Prince’s highlights the importance of estate planning, it carries some valuable lessons about divorce planning as well. Just as you’d want your will and other estate planning documents to direct your assets to the people and places you wish, you need to make sure that all the paperwork associated with your divorce will implement agreed-upon terms.

So if you are in the process of divorcing, here are some important questions to ask yourself.

Have you completed the necessary paperwork to transfer any qualified retirement assets via a Qualified Domestic Relations Order?

The separation of assets in divorce does not automatically extend to retirement assets. A QDRO is a critical legal document you need to divvy up retirement plans.

You should prepare a QDRO during the divorce process so it can be certified and implemented with your judgment. If a divorce is allowed to become final before a QDRO is approved, the employee ex-spouse can defeat the other spouse’s rights to pension benefits. Rule of thumb: The sooner the better.

Problems easily rise when:

A dependent spouse does not get a share of the pension at divorce and later seeks one if his or her ex-spouse falls behind or defaults on alimony

The pension is divided at divorce, but the divorce becomes final before the QDRO is approved by the employer

The employee spouse dies between the time the divorce is finalized and the QDRO is completed. The employer of the deceased employee may deem that person single, meaning that upon death, all pension payments cease.

The employee ex-spouse remarries, and the new spouse automatically becomes the survivor on a pension if no QDRO exists.

Have you properly designated and updated beneficiaries of your financial accounts and personal items after your divorce?

If you die without instructing how your assets and property will be divided, it means you die “intestate.” Each state has its own intestacy laws, and where you reside will determine how your estate is shared among heirs and the state. It takes a long time, subjects your heirs to a stressful situation, and involves exhaustive accounting tasks.

If your ex dies intestate, it could mean your ex’s new spouse—and not the children you had with your ex—receives all or a substantial piece of the estate. A good way around the possible changing of your ex-spouse’s will post-divorce (which, by the way, you can’t prohibit in divorce) is to require a life insurance policy be put in place which you own (and maybe pay for) on your soon-to-be-ex-spouse’s life. This policy provides you with control over inheritance and beneficiary. As for personal items, it would be a shame if it comes down to squabbling over heirlooms and meaningful items, but it happens all the time with blended families.

Have you put in place someone to handle your minor children’s finances in case you don’t want your ex-spouse to manage their newly acquired wealth upon your death?

If you are concerned that your ex-spouse may be spendthrift or careless with finances, it might be a good idea to appoint a guardian or conservator of financial affairs for your minor children in the event of your death.

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Have you updated all your other estate documents to be sure your intentions are known, people you trust execute your instructions, and nothing is left to chance?

These documents include your power of attorney, health care proxy, and living will. Unlike the case with life insurance policies and retirement assets, in most states, if you get divorced, any gifts the will may make to your former spouse are automatically revoked. The divorce may also revoke the appointment of the ex-spouse to serve as executor of your will. The rest of the will remains valid.

You can always appoint your ex-spouse as executor post-divorce if you wish and have good reasons to do so. Just be careful you notify any adult children or new spouse of your decision since they might challenge it.

If death occurred while still married but going through divorce, in most states the will is unaffected—even though that may not be what the deceased had wished.

The moral of the story is to update your important legal documents in divorce and identify beneficiaries on all accounts, deeds, and titles. In doing so, you can make sure all your intentions are carried out once your marriage has been dissolved.