Estate planning is personal to every individual. The idea of putting one’s affairs in order is daunting for many individuals for a variety of reasons. For some, it may be the undesirability of discussing death or the management of his or her affairs by third parties. Others wish to forestall potential interfamilial disputes over the division of an estate. For many, the size of his or her estate may seem negligible and, thus, unworthy of advance planning as to its distribution upon death.
While estate planning may not be an appealing undertaking, it is an undertaking, which if not addressed, may result in undesirable or even catastrophic consequences to the estate holder; the estate holder’s spouse; and his or her family members. The time and potential discomfort of having a Last Will & Testament prepared; having health care proxies designated; and addressing the need for trusts and other estate planning devices are often well out-weighed by the benefits received by having one’s affairs in order at the time of death.
For individuals going through a divorce, estate planning is often not considered. Divorce in itself can be an extremely stressful process, and spouses facing this process often believe that estate planning can be addressed at a later time. However, divorce law and estate planning are integrally related, as the laws regarding the division of property upon divorce, drastically change in the event a party to the divorce passes away during the divorce process.
Under New Jersey law, parties going through a divorce are entitled to “equitable distribution” of property acquired during the marriage. This means that the court will divide property acquired during the marriage (no matter which spouse holds title to the property at the time of divorce), including real estate; bank and brokerage accounts; furniture and furnishings; retirement accounts, etc. Thus, for example, should title to the marital home be in the Husband’s name, the Wife’s interest in that asset will still be protected under divorce law.
In the event one party to a divorce passes away during the divorce process, the laws regarding the division of property in the context of a divorce no longer apply. This means that the judge is not permitted to make an award of equitable distribution as to the division of property acquired during the marriage. In theory, all property in the name of one spouse would remain that spouse’s property, without claim by the other party, and vice versa. In the example above, if the Husband died during the divorce proceedings, the Wife would lose her claim to the marital home by way of equitable distribution.
To prevent the potential of significant inequity in the case that a party passes away during the divorce process, the New Jersey courts have attempted to craft equitable remedies to ensure that neither the living spouse nor the estate of the dying spouse are unjustly enriched to the detriment of the other party. However, the equitable remedies available to the court are limited and far from perfect. Indeed, unless proper estate planning is considered, a death during the divorce often results in a long and costly estate battle, pitting the family of the deceased spouse against the surviving spouse. In these cases, death may end the divorce, but not the fighting. The better course is to plan for potential estate issues at the time of the divorce utilizing life insurance, trusts, and other vehicles to avoid the potential inequity that a death can have during the divorce proceedings.
Estate planning may seem like a task that can always wait for a later date. However, especially for individuals with a significant net worth; valuable assets; or diverse portfolios, delay in taking on this endeavor can be extremely risky. For those going through a divorce, understanding the potential ramifications of an untimely death becomes even more imperative. In either case, the first step is to speak with an attorney about the steps to take to ensure protection for you, your estate, your family and your loved ones.