Preventive Family Law for Nevada

Common Financial Mistakes Following Divorce #2

Failing to change the beneficiary designations after a divorce or separation can have devastating consequences.  Did you know that the beneficiary designation you list on certain assets such as your insurance policies or your pension plan will take precedence over your will or trust?  Even if your Divorce Decree indicates that you have the right to change the designation, or even if your former spouse waives an interest in your policy that might not be enough, if you do not also change the beneficiary designation. 

Consider the case of Redd v. Brooke, 96 Nev 9, 604 P.2d 360 (1980).  In this case a Husband and Wife divorced, their decree provided that each would assume ownership of any life insurance policies held on their own life.  Husband subsequently died without changing the beneficiary designation of his policy. The Court found that absent unequivocal language in the Decree to remove the ex-wife as a beneficiary under the policy, the ex-wife was still entitled to all of the proceeds from the policy, as Husband had the ability to change the designation but had failed to do so.  Therefore the presumption was that he still intended his ex-wife to benefit from the policy.

One of the biggest misstates people make is forgetting to update their beneficiary designations when they get married, divorced, have children or grandchildren, or when one of their designated beneficiaries passes away.  Any time you have major life changes, make sure you update your beneficiary designations as well.  You can update your beneficiary designations at any time by contacting the company who administers your policy or plan.  Generally, the company will require you to submit your request in writing, and they may require that you use their special form.  There should not be any cost to you to make this change.  Additionally, consider an annual check up with your financial planner or estate planning attorney, so that they can ensure your plan still mets your needs.

Consider the case of Redd v. Brooke, 96 Nev 9, 604 P.2d 360 (1980).  In this case a Husband and Wife divorced, their decree provided that each would assume ownership of any life insurance policies held on their own life.  Husband subsequently died without changing the beneficiary designation of his policy. The Court found that absent unequivocal language in the Decree to remove the ex-wife as a beneficiary under the policy, the ex-wife was still entitled to all of the proceeds from the policy, as Husband had the ability to change the designation but had failed to do so.  Therefore the presumption was that he still intended his ex-wife to benefit from the policy.

One of the biggest misstates people make is forgetting to update their beneficiary designations when they get married, divorced, have children or grandchildren, or when one of their designated beneficiaries passes away.  Any time you have major life changes, make sure you update your beneficiary designations as well.  You can update your beneficiary designations at any time by contacting the company who administers your policy or plan.  Generally, the company will require you to submit your request in writing, and they may require that you use their special form.  There should not be any cost to you to make this change.  Additionally, consider an annual check up with your financial planner or estate planning attorney, so that they can ensure your plan still mets your needs.

Do Your Homework Before Deciding to Keep the House

Deciding whether to keep the house as part of a property settlement in a divorce can be a very emotional issue.  Many times divorcing parents believe that they must maintain the home for their children.  Parents put themselves in a precarious financial position, under the mistaken belief that the home represents stability for their children.  However psychological studies do not bear this out.  There is no evidence that children do any better or worse depending upon whether they continue to live in the former marital residence.  Rather, the key to success for the children is the stability of their parents.

The home often represents a large percentage of the overall marital estate.  For example the value of the house could equal or even exceed retirement savings.  A dependent spouse who keeps the house and gives up retirement savings may be in a difficult situation as retirement approaches.  Sometimes the house is just too expensive to maintain.  In addition, the house may have appreciated during the marriage subjecting it to tax upon sale. 

Careful consideration must be given as to whether keeping the home make good "dollars and cents" as well as emotional sense following a divorce.  In most cases, it is a better decision to have a smaller house, less maintenance expenses, and a retirement account, rather than a large marital home.  Considering discussing this issue with your CPA or a Certified Divorce Financial Analyst before assuming that keeping the home is always a safe bet.

Can My Spouse Take My Retirement?

The short answer to this question is "yes".  Retirement benefits are treated like any other asset.  If the benefit is earned during the marriage, it is subject to division at the time of a divorce.  However only those benefits accumulated during the marriage will be counted.  If you had benefits earned earned either before or after the marriage, those assets are not subject to division. 

Additionally, keep in mind that retirement benefits often require an additional order known as a "qualified domestic relations order" (QDRO) in addition to a decree of divorce to divide a pension.