Helping Clients Navigate Estate Planning and Divorce

By: Gus Dimopoulos

As an attorney specializing in matrimonial law, I’ve worked on numerous cases involving divorce and estate planning. Clients often turn exclusively to financial professionals for guidance, overlooking the crucial role of their attorneys.

Estate planning is indeed a key area for CPAs and other financial professionals. However, divorce—which is within the expertise of attorneys—can significantly impact estate planning. Elements including beneficiary designations and custody rights can be drastically altered in a divorce, creating complexities that require legal insight. When accountants and lawyers collaborate during a client’s divorce, they can ensure a smoother estate planning process and protect the client’s interests.

When I begin working with a client going through a divorce, one of my first questions is, “Do you have a good relationship with your accountant?” Similarly, proactive accountants should ask their clients, “Do you have a good relationship with your attorney?”

For professionals assisting clients with estate planning amid a divorce, collaboration with the client’s attorney and accountant is crucial. Here are five strategies to foster effective collaboration:

Maintain open communication. Financial professionals might instinctively distance themselves from divorce matters, focusing solely on finances. However, estate planning often overlaps with marital issues; therefore, it’s important for accountants and attorneys to maintain honest and open communication while remaining neutral. This ensures that both sides have a clear and transparent understanding of the financial situation and the representation of each party. By considering ethical requirements, this collaboration reduces the potential for complications and misrepresentations.

Focus on taxes. Estate planning and taxation are complicated fields before you add divorce to the equation. When you do, the rules, regulations, and paperwork can become overwhelming; for example, divorce can change the taxation implications of transferring financial assets between formerly married spouses. Divorce can complicate the taxation of alimony payments and Social Security benefits, too. I also speak with clients regularly about the tax implications of giving or receiving inheritances. (An interesting aside: For the most part, any inheritance a spouse receives during their marriage remains that spouse’s separate property, provided it wasn’t commingled with other funds.) Given these complexities, it’s extremely helpful when accountants share their expertise, assisting the attorneys and both parties to navigate these nuanced areas with precision.

Consider state laws. Divorce laws don’t vary widely from state to state, but there are still differences that can have an outsized impact on estate planning considerations. Specific rules regarding property division, spousal support, and inheritance vary; for example, New York's equitable distribution law mandates that the court split assets fairly during a divorce—but that doesn’t necessarily mean equally. New York’s law takes into account a variety of factors, including spouses’ property and incomes at both the time of the marriage and the time of the divorce. Ultimately, New York courts have discretion in deciding who gets which—and how many—assets. By working together, accountants and attorneys can ensure compliance with laws like this, and all other relevant state rules, during the estate planning process.

Address guardianship details. Although custody issues primarily fall under matrimonial law, they also impact estate planning. It’s common for clients to ask, “If something happens to me, will my former spouse automatically gain custody of our children? Can my parents or siblings petition the court for custody rights, instead?” These questions weigh heavily on clients’ minds, especially if the former spouse is an unfit guardian, perhaps due to mental illness or drug addiction. Furthermore, it can be very difficult for divorcing couples to decide who gets custody if tragedy strikes both parents. Divorcing couples have a hard enough time determining which parent should have custody—determining which other family members should is a whole different scenario. There are nuances beyond just custody, tool; for example, setting up trusts requires both legal and financial expertise. Attorneys and financial advisors collaborating on these issues ensures comprehensive planning.

Update beneficiary designations. Beneficiary designations on retirement and other accounts often include a spouse; these require updating post-divorce. Financial professionals must work with attorneys to ensure all beneficiary information reflects the divorce and aligns with the client’s new circumstances. This prevents unintended recipients, such as an ex-spouse, from inheriting assets. Financial professionals should also be aware of legal nuances including Automatic Orders, a domestic relations law in New York. The orders don’t technically prohibit a spouse from changing his or her retirement account beneficiary amid the divorce proceedings —but judges will often interpret the law that way, and require spouses to undo any changes. Automatic Orders also don’t allow either spouse to “transfer, encumber, assign, or remove” retirement funds without the other spouse’s consent or court order.

Navigating the intersection of estate planning and divorce requires a collaborative approach. By working together, financial and legal professionals can provide clients with the best possible outcomes, allowing them to move forward.

Gus Dimopoulos, Esq. is managing partner of Dimopoulos Bruggemann P.C., a matrimonial and family law firm based in Westchester County, N.Y. that specializes in high-net-worth divorces. For more information, visit www.dimolaw.com.

This article was originally published in NYSSCPA’s TaxStringer on August 1, 2024 and can be viewed here.