Going through a divorce brings many legal and financial changes, but one of the most commonly overlooked tasks is updating beneficiary designations. Many people assume that finalizing a divorce automatically removes an ex-spouse as a beneficiary on financial accounts and insurance policies, but this is not always the case. Failing to update these designations can lead to unintended consequences, including your ex-spouse receiving assets that you intended for other loved ones. Understanding the importance of revising beneficiary designations after divorce can help protect your financial future and ensure that your assets go to the right individuals.
Beneficiary designations override a will, meaning that even if your will states that your assets should go to your children, siblings, or another beneficiary, an outdated designation on a life insurance policy, retirement account, or bank account could still result in your ex-spouse receiving those funds. Utah law may provide some automatic revocations of ex-spouses as beneficiaries upon divorce, but these laws do not apply to all accounts, especially employer-provided benefits and federal retirement plans. Reviewing and updating these designations is crucial to ensure your wishes are honored.
Common assets with beneficiary designations include life insurance policies, 401(k) and IRA accounts, pensions, payable-on-death (POD) bank accounts, and transfer-on-death (TOD) investment accounts. Many people list their spouse as the primary beneficiary when these accounts are set up, and unless changes are made after divorce, those assets may still legally pass to an ex-spouse upon the account holder’s passing. Updating these accounts requires submitting a change of beneficiary form with the financial institution or insurance provider.
When revising your beneficiary designations, it is important to carefully consider who you want to receive your assets. Many parents choose to name their children, but minors cannot legally inherit money outright. Establishing a trust and naming the trust as the beneficiary can provide added protection and ensure that funds are managed responsibly for the benefit of your children. Additionally, it is wise to name contingent beneficiaries in case your primary beneficiary passes away before you.
Estate planning is an ongoing process, and major life events such as divorce require careful review and updates. Simply changing your will is not enough to protect your assets if your beneficiary designations remain outdated. Taking the time to update these accounts now can prevent legal disputes, financial complications, and unintended distributions in the future.
We know this blog may raise more questions than it answers. If you are recently divorced and need guidance on updating your beneficiary designations, contact our firm today to ensure your estate plan aligns with your current wishes and financial goals.