During the divorce proceeding, he suffered a heart attack and died.

Susan, who went from being a divorcee to a widow, inherited all of her husband’s assets. Steven lost the ability to provide separately for his children and to have control over how the money would be managed. This was not what he wanted or intended. Moreover, had he done careful estate planning before commencing a divorce action, the result would have been very different.

No one wants to contemplate the idea he or she could die, but it can always happen. Before filing for divorce, Steven should have reviewed all of his assets. He should have gathered beneficiary designations and been clear about how each asset was titled. And he should have revised his will. Here is how his results could have been different:

1. The house would have remained jointly titled.

2. The financial accounts could have been separated so that Steven had separate assets in his own name. Short of taking full ownership of an account, he could have withdrawn a certain amount and created an account in his name. Both spouses would have had a certain amount of money in each of their names to take advantage of the estate tax exemption amount.

3. If Steven had revised his will and created trusts for his children, he could have then made the trusts, not his wife, the beneficiaries of his IRA.

4. Steven could have transferred the life insurance policy to a trust, naming his children as beneficiaries. The creation of the life insurance trust is a good estate-planning tool, regardless, because it keeps the asset out of the estate tax system. If he was not inclined to create a trust, he could have designated the trust under his will for the benefit of his children as the beneficiary of the life insurance proceeds.
 
5. Steven could have changed his will to either exclude Susan, forcing her to “elect” against his will, or provide that she merely receive her “elective share” of his assets. Since the couple jointly owned most of their assets, the passage of joint assets to Susan automatically would be factored into the calculation of the elective share amount.

6. Steven could have created custodial accounts or trusts for the children and contributed the annual exclusion amount (currently $14,000). The exclusion would have had the added benefit of taking money out of the marital pot used for the divorce settlement. Steven could have gifted a larger sum to a trust for the benefit of the children using his lifetime exemption amount (currently $5 million), but he would have to have done that well before the divorce filing to avoid any claim of a fraudulent conveyance.

Conclusion
Once the divorce process began, Steven could do none of these things. Before he died, he had been a successful businessman who managed to make good investments throughout his marriage. Had he applied some thoughtful planning to his divorce, he would have ensured that his finances were passed on and managed in a way that he would have wanted. 

Judith L. Poller is a partner and co-chair of the family law group at Pryor Cashman LLP.

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