It can seem like all your life’s plans go right out the window when you go through a divorce. The life that you had thought you were going to lead suddenly took a turn. Now you are left with a situation where you need to adjust your plans and chart a new course for your life. One of the most important events that you may become involved with as far as life changes are concerned is a divorce. No longer being married means that your relationship status is about to need an update. On top of that, much of your financial and estate planning will need to be changed, as well.
The keys to estate planning are based on intentionality. When you go through a divorce or an estate planning process it means that you need to have a plan in mind. That plan should center around doing what is best for you, your potential beneficiaries like your children, and anyone else in your life who could be affected by a divorce or probate case. No matter where you are in the estate planning process or a divorce case, stick around and look through today's blog post from the Law Office of Bryan Fagan.
If you have any questions about the material contained in today’s blog post please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law and estate planning attorneys offer free-of-charge consultations six days a week in person, over the phone, and in our Houston area office location. A consultation with one of our attorneys means that you will be speaking with an experienced attorney who has the heart of a teacher. We can answer questions and provide information to the questions that are most pressing in your life.
Transitioning from the end of a divorce to planning your estate
It is only at the end of a divorce that estate planning matters are touched on. The beginning stage of a divorce, known as the temporary orders stage, deals mostly with matters related to your life at this very moment like household bills, child custody schedules, sorting out personal property, and determining where you and your family are going to live. It is not until the end of a divorce that property division becomes finalized. This is where matters which impact your estate planning can start to occur.
One of the big regrets that people tend to have at this stage of a divorce is that they did not start their estate planning sooner. I will hear from clients who are exasperated that they did not begin their estate planning sooner. While I would not disagree that the earlier the better when it comes to estate planning, it does not mean that a person like you who starts their estate planning later cannot catch up and become a responsible steward of their estate for their children and other beneficiaries. It takes some effort and most importantly a plan to do so, however.
What needs to be done after a divorce from an estate planning perspective
One of the first things that you should look to do after going through a divorce is to retitle any assets that no longer belong to you and your spouse but to you as an individual. There is an almost limitless number of assets or properties that we could name, including your family home, vehicles, and rental property. You can speak to one of the attorneys with the Law Office of Bryan Fagan about the most efficient way to do it for each of these types of property. To retitle a vehicle, you would need to go through the State of Texas. For a home or rental property, a special or general warranty deed would be a couple of different methods which you could consider. Once those deeds are drawn up and signatures on them be sure to file them with your county clerk so that property tax records and other databases can be updated.
What about the family house?
The family home is such an important item both in your divorce and in estate planning that I would like to make special mention of it here. For most of us, our family home represents the most significant purchase we will ever make in our lives from a financial perspective. You will spend hundreds of thousands of dollars on that home if you live there for an extended period. As a result, you need to make sure that you work with an attorney who knows how to do two things from a divorce perspective. One, the house needs to be re-titled so that your ex-spouse is not listed on the deed any longer.
Next, you will need to remove your ex-spouse’s name from the mortgage on the house. This can be accomplished in a couple of different ways. If you have the cash, and it may be unlikely that you do, you can try to pay off the mortgage so that there is no more mortgage to concern yourself with. For most of us in this position, it would be a matter of refinancing the mortgage to remove an ex-spouse's name. Note that a refinance is you obtaining a completely new mortgage in your name and not simply modifying the existing mortgage. The key to this discussion is being able to qualify for a refinance.
When you are drawing up your Final Decree of Divorce it is wise to consider what kind of language you should agree to with the house. Under this hypothetical situation, we are going to assume that you are the spouse who will be keeping the house in your divorce. When you are trying to structure things post-divorce with the house you and your spouse are going to want two different things. Your spouse is going to want her name off the mortgage or at least to have you refinance the mortgage so that you obtain a new mortgage with only your name. Here is why this is not as simple as it may look in terms of problem-solving.
There is no guarantee that you will be able to qualify for a refinance of the mortgage. Refinancing the mortgage in your name means that you will be put through a similar process as you did when you first obtained your current mortgage. An inspection of your home will be necessary at which time any repairs may need to be performed during a time in which you are relatively low on cash due to the expenses of the divorce. Therefore, doing several repairs right after your divorce ends is probably not going to be ideal. You will also need to qualify for a new mortgage on your existing home based on your sole income. If you qualified on your sole income the first time around then this step may not be that challenging. However, if you obtained your first mortgage due to your combined income with your spouse then your chances of qualifying for a mortgage this time around are slim. You may want to shift from a fifteen-year mortgage to a thirty-year mortgage to decrease your monthly payment if you think that is
So, if you include in your divorce a condition that you must refinance the mortgage to remove your spouse’s name from the loan then there is no way to guarantee that this will happen. Refinancing the mortgage is not a matter of filing some paperwork and going from there. Since there is no guarantee that you can get approved it may be best to consider a provision that you will apply to refinance the mortgage within “X” number of days after the divorce has been finalized. You can then keep your ex-spouse updated on the events surrounding the refinance process so that she is kept in the loop.
A deed of trust to secure assumption allows for your spouse to have some peace of mind in the event a refinance is not successful. In a deed of trust to secure assumption, your ex-spouse would be able to foreclose upon you if you cannot pay the mortgage which bears her name in addition to yours. What surprises many people is that just because you get a divorce decree which shows that you are the owner of the home and your spouse no longer is, that does not mean that her name is going to be removed from the loan. A loan is a contract between you, your ex-spouse, and the lender. A divorce is not a factor that materially alters that contract. Meaning, her name stays on the mortgage even if you get divorced.
The other side of the coin is the part that would stand to benefit you. You will need to have the deed updated to the home so that your spouse’s name no longer appears. If you are taking on the massive responsibility of caring for and paying for the home all on your own, you do not want your spouse to have any potential benefit from homeownership. A special or general warranty deed may be the preferable way for you to remove their name from the deed. She would deed to you her portion of the home, essentially. Talk with your family law attorney for help on this. The attorneys with the Law Office of Bryan Fagan are familiar with both types of legal documents and how they relate to one another at the end stages of a divorce.
What about your will?
Hopefully, you have a will. A will is a powerful tool in your estate planning arsenal. I think every adult should have a will regardless of their level of wealth, marital status, or any other factor. Having a will is something that cannot hurt you to have. Rather, you can stand to benefit a great deal from drafting a will and using it to plan your estate. Again, if you have questions about drafting a will please reach out to the Law Office of Bryan Fagan. One of our estate planning attorneys can help you get back on track with your estate planning if you have not begun that process or can help you finalize plans which you made during your marriage.
Many times, spouses will create what is known as mirror image wills. A mirror image will is a document that reflects what your spouse's will shows. You both will leave the same property to the same people, name the same person as trustee of a testamentary trust intended to benefit your children, and other identical provisions. When you are married then this sort of agreement is to be expected and makes estate planning simple. However, when you go through a divorce it would make no sense to keep your will as it was when you were married. Therefore, the time immediately after your divorce is a perfect opportunity to assess your life, and your will and make any changes to the will that may be necessary.
From a divorce standpoint, you would not have any community property after the divorce comes to an end. Community property is property owned in full both by you and your spouse. This is the property that is subject to division in the divorce. Once you divide that property in the divorce between the two of you that estate no longer exists. Once the divorce comes to an end and the judge signs off on your divorce decree, there is just your property and your ex-spouse's property. Therefore, leaving a life estate in the family home, for example, would not be necessary because you are not married. Considerations like this are no longer necessary. Depending upon how you drafted your will a change or several changes may be necessary.
How are trusts handled in the context of a Texas divorce?
One of the main reasons why people create trusts is to be able to place money into the trust to avoid having to go through the probate process. A trustee would follow the terms of the trust and upon certain conditions coming to fruition, the trustee would disperse money accordingly. Without a trust or a will, this money would need to go through the probate process so that a judge could determine who your heirs are and how best to divide certain assets after debts are paid. The type of trust that you create during your lifetime will determine whether how the divorce will impact that trust.
There are two basic types of trusts which are relevant here. The first is known as a revocable trust. A revocable trust allows you to make changes to it during your lifetime. If you create a trust before your divorce, then the trust will treat your spouse and any relatives of your spouse as having lost any interest in the trust once the divorce is finalized. This means that your ex-spouse and their family will not inherit any property from you.
On the other hand, an irrevocable trust created during your marriage would see no impact from your divorce. This statement assumes that the irrevocable trust was what you wanted to create regardless of how a divorce may not impact who or what receives property. Therefore, be careful of how you draft the language created in the trust. An irrevocable trust would mean that, for example, your ex-spouse would stand to inherit property in that trust and that a future spouse would not be able to. Instead of being able to change the trust itself, you would have to create an entirely new trust if your intentions should change after the divorce comes to an end.
Just like we mentioned earlier, you should update your beneficiaries in different areas where you name persons to that position. These would be payable on death bank accounts, annuities, life insurance policies, retirement plans, investment accounts, and health savings accounts. Each of these types of savings and investment vehicles allows you to select a beneficiary and would not be impacted by a will or trust. You would need to take matters into your own hands and update each of these accounts and investment vehicles so that your beneficiaries reflect your current wishes. Fortunately, the law in Texas usually cancels out an ex-spouse’s ability to receive property via one of these accounts even if they are not updated correctly. There are exceptions to this rule, so you should speak with an experienced estate planning attorney or family law attorney to discuss this matter in full and determine where your family stands and how you can work to benefit them during and after your divorce.
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