When couples split up, the last thing they're thinking is, "What happens when I die?"
Breakups are emotionally difficult times, with many decisions to be made. But the ramifications of a split are magnified when the parties do not go through with a divorce.
Many people think the mere act of separating will result in legal changes to their wills, estate plans, powers of attorney and beneficiary designations, but that's 100 per cent incorrect, says Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management in Toronto.
While a divorce changes many things, a separation does not. Anyone who is separating should immediately speak to a lawyer. For high-net-worth people, the urgency is even greater.
The biggest potential danger is to your estate. "If married spouses do not execute new wills after separation, then effectively the old wills are still valid. The ex could end up with your property," says Mr. Golombek.
New documents will immediately make provisions for the division of property, possible support payments and other arrangements in the case of death.
"Simultaneous to all of this [separation] process, it's very important to update your will, even if this one isn't going to be your final will and you haven't figured out the details of trusts for kids and things like that," says Mr. Golombek. "If it's not your intention to leave your soon-to-be-ex all your property in your will, then it's imperative that you just do a quick updated one in the meantime."
Many people think they can't change anything in their wills or estate plans until all potential family issues – such as dividing property with your separated spouse – are resolved, which is not the case, says Christine Van Cauwenberghe, vice-president of tax and estate planning for Winnipeg-based Investors Group Inc.
Ms. Van Cauwenberghe says her firm sees people who have been separated for years, if not decades, who never divorce.
"Perhaps they've divided their property and don't want to re-engage with their ex-spouse or go to court," she says. "Or they may not be concerned about getting remarried so don't care about getting divorced. That can be fine so long as you've dealt with your family property issues and redo your estate."
The rules vary from province to province, she says, but "usually your previous will isn't rendered ineffective until you're actually divorced." When you die after getting legally divorced, your will treats your spouse as having predeceased you.
She also advises designating your estate as your beneficiary for your registered retirement savings plans (RRSPs) and insurance policies. Then they will go through your estate and be divided according to your updated will.
"You also need to change your power of attorney for finances and heath care," says Ms. Van Cauwenberghe.
"The worst files I've seen are situations where people have been separated for many years and didn't change their estate plan. For example, someone may have had an insurance policy that they've paid on for years but never changed the beneficiary," she says.
"Twenty years later they pass away and the insurance policy is paid to a spouse that they haven't been in touch with for decades. The new spouse could be a common-law one and it would be very difficult for her to have a case."
When a person is separated, it's possible to have two spouses, says Susan Stefura, principal at Bespoke Financial Consulting Inc. in Toronto. While a person cannot have two legally married spouses, she could conceivably have a spouse she is still legally married to and another spouse who is common-law.
The definition of common-law relationships varies among provinces, she adds. In Ontario, it's three years or longer if you've been living in a conjugal relationship. From a tax perspective, it's one year. For estate planning purposes, it's three years.
"That sort of situation gets really messy, particularly when combined with an intestate situation," meaning when a person dies without a will, says Ms. Stefura. "It's really a court case waiting to happen. Because you're still legally married, the law protects the separated spouse.
"What could happen is that the person you most want to leave assets to is cut out. That could be your common-law spouse who you've been living with for 20 years. In that case, the common-law spouse would probably sue the estate."
These cases are usually resolved in court, Ms. Stefura says. "It's pretty uncommon that the spouses would come to an agreement outside of court as to how the estate would be distributed."
Families need to address these issues, even if they are difficult to talk about.
"The last thing you want is for it to go to court, because that takes lots of time and money, which ends up reducing the value of your estate."