What happens to your money if you die during the divorce process?

/ Planning Within Reach, LLC/

The divorce process can take months, if not years, to complete. What if you die before the divorce is final?

Once a spouse is served divorce papers, the divorce process officially begins. At that time, both parties are forbidden from making certain changes to their accounts and finances.

Because things are “frozen” in a sense while the divorce is ongoing, it is a valid concern that your soon-to-be ex-spouse could receive your share of assets if something happens to you. From the law’s perspective, if you die before the divorce is final, your spouse is still considered the surviving spouse even though you were in the middle of a divorce.

While death is probably not top of mind for many, those that are divorcing later in life or whose health takes a turn for the worse during the process can be extremely concerned. The rules surrounding divorce and estates are state-specific and complicated, but you have options to make your intentions known. Here are some talking points to discuss with your attorney to help you develop a plan of action.

During the Divorce (after a spouse has been served divorce papers)

Once the divorce process officially begins, both spouses are subject to their state laws which typically include an Automatic Temporary Restraining Order (ATRO). The ATRO outlines actions you are prohibited from taking until the divorce is final. Review this very carefully with your attorney to avoid a violation.

Examples of prohibitions in ATROs:

  • Cashing out or borrowing against life insurance policies

  • Making trades in any accounts

  • Changing beneficiaries on your accounts

What can you do?

Ask your attorney about taking the following steps during the divorce process.

  • Revoke your current will, which likely says you are leaving everything to the surviving spouse, and create a new will leaving everything to your desired beneficiaries (children, charity, other family members, etc).

  • Revoke your revocable trust, which also likely points everything to the surviving spouse.

  • Eliminate the “rights of survivor” titling on accounts. For example, if you have a JTWROS account (joint tenancy with a right of survivorship), see if you can change it to a tenants-in-common (TIC) account. That would allow you to leave your share of the asset to your desired beneficiaries versus your spouse.

  • Create a new healthcare directive. This document names those who can make medical decisions on your behalf if you are incapacitated.

  • Create a new financial power of attorney. This document names those who can make financial decisions on your behalf if you are incapacitated.

After the Divorce is Final

At this point, engage a financial planner to update your financial plan and ensure that you are on track to meet your financial goals. They will guide you on important steps you may need to take such as:

  • Rebalancing your portfolio,

  • Updating your beneficiaries,

  • Updating the titling on your accounts, and

  • Meeting with an attorney to create new estate planning documents.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.