Post Divorce Planning
Post Divorce Planning Articles
- Tax, Estate and Practical Issues in Divorce and Remarriage
- Partial Checklist of Actions as a Result of Divorce
Partial Checklist of Actions as a Result of Divorce
Copyright 2002, FIT, Inc. All Rights reserved.
___ Change Beneficiary Designations on:
• ERISA Qualified Plans ( ONLY after the divorce is finalized, or with signed spousal approval before divorce )
• IRAs
• Deferred Compensation Plans
•S tock Option Plans
• Life Insurance Policies
___ Complete Any Title Transfers on Assets (preferably before the divorce is finalized), Such as:
• Residence Ownership
• Other Real Estate Ownership
• Automobiles
• Stock or Equity Rights in a Business or Investment
• Life Insurance (e.g., ex-spouse owns policy)
___ Redo All Estate Planning Documents (to the extent an ex-spouse is named)
• Will (especially if revoked by divorce)
• Revocable Trust(s)
• Medical or Healthcare Power of Attorney
• General Power of Attorney
• Decide whether to Retain any Irrevocable Insurance Trusts which Name Spouse as Beneficiary
___ Create Any Required Funding Arrangements Under the Divorce Decree (e.g., new trust)
___ Enter a Modification for any Employee Benefit Cafeteria Plan (permitted under the Code)
___ Make Changes in Personal or Employer-Based Insurance Coverages That Names Ex-Spouse (perhaps obtain a refund)
• Life Insurance
• Health Insurance
• Long Term Care Insurance
• Disability Insurance
• Property & Casualty (e.g., auto, home, umbrella)
___ Terminate Joint Liabilities, for example:
• Credit Cards
• Lines of Credit
• Guarantees of Ex-Spouse’s Liabilities (e.g., business interest)
• Mortgages (may not be permitted)
• Utilities
___ Change of Address for (Notice to Post Office and Notice to Each Party), for example::
• IRS (i.e., tax returns and audits) Form 8822
• Employer(s)
• Credit Mailings
• Drivers License
• Passport
___ Terminate Joint Accounts (and change direct deposits) or Permitted Access by an Ex-Spouse, for example:
• Banking (i.e., checking, savings, etc.)
• Brokerage
• Safety Deposit Boxes
• Terminate Automatic Withdrawals Which Are No Longer Appropriate (e.g. to ex-spouse’s account or benefit)
___ Change Access Codes, for example:
• Web-Based Access (e.g., bank, brokerage)
• Credit, Debit and ATM Cards
• Frequent Flyer Accounts
• Email Accounts
[1] For more information on this issue see: Henkel, Estate Planning and Wealth Preservation: Strategies and Solutions, section 53.17 (WG&L 1994).
[2] Id.
[3] See 11 UCCA section 523(a)(5), 727, 1141(d)(2), 1228(c)(2) and 1328(a)(2).
[4] i.e., the recipient of the alimony is taxable. See IRC sections 61(a)(8) and 71(a).
[5] The Pension Benefit Guaranty Corporation has issued a helpful booklet on divorce and Qualified Domestic Relations Orders. The booklet includes sample forms and a checklist. Copies can be found at http://www.pbgc.gov/
[6] See IRC section 414(p)
[7] 679 N.Y.S.2d 233 (N.Y.Sup.Ct. 1998).
[8] See Revenue Ruling 70-218, 1970-1 CB 19.
[9] See the portion of the article dealing with Property Transfers and Transfer Taxes.
[10] See IRC section 2035.
[11] See IRC section 2042
[12] But see IRC section 2206.
[13] See IRC section 2042(2).
[14] Revenue Ruling 76-113, 1976-1 CB 276.
[15] Id. See IRC section 2053(a)(4).
[16] For example, in Georgia, the divorce results in the ex-spouse being treated as a pre-deceased heir of the maker of the will. See: O.C.G.A. section 53-4-49.
[17] Unfortunately neither the Code or Regulations define “reasonable allowance.” Any payments which exceed this ambiguous amount are not protected by IRC section 2516.
[18] See IRC sections 2516(1) & (2). While IRC section 2516(2) provides for support of “issue of the marriage during minority,” Treasury Regulation section 25.2516-2 restricts the language to minor children of the marriage. Black’s Law Dictionary provides that issue means ” all persons who have descended from a common ancestor.” The Treasury’s language would appear to be an attempt to provide a greater restriction than the one provided for in the Code.
[19] Thus, support payments (e.g., while in college) for children who have reached majority are not protected by IR C section 2516.
[20] However, it is not clear whether payments for tuition costs for a step-child might be treated as non-taxable gifts under IRC section 2503(e). The placement of such language in a martial agreement might mean that the payment was not a gift, but rather was consideration for the release of marital rights.
[21] c.f., PLR 7940022.
[22] See Revenue Ruling 79-118, 1979-1 CB 315.
[23] 340 US 106 (1950),
[24] See Treasury Regulations section 20.2053-4.
[25] Revenue Ruling 71-67, 1971-1 CB 271.
[26]Kosow Est. v. Comm’r , 45 F3d 1524 (11 th Cir. 1995) and Scholl Est. v. Comm’r , 88 T.C. 1265 (1987).
[27] IRC section 2513.
[28] T.R. section 25-2513-2(a). The return must be filed by the donor spouse, even if a gift tax return was not otherwise required (e.g., only annual exclusion gifts were made).
[29] T.R. section 25-2513-4. Because of this rule, consenting spouses should be very careful to assure that the value of the gifts are accurate.
[30] IRC section 2513(b) and Revenue Ruling 80-224, 1980-2 CB 281.
[31] IRC section 2652(a)(2).
[32] i.e., because gift splitting is not permitted, one-half of the gifts are not covered by the ex-spouse’s annual exclusion and a gift tax may be due from the donor.
[33] i.e., One-half of the gifts ($220,000) times the lowest tax rate (41%) or the highest rate (50%) in 2002.
[34] ½ of the gift ($800,000) deemed made by the spouse times the top estate tax rate of 50% in 2002.
[35] $1,000,000 (spouse’s unified credit) discounted at 40% ($1,666,666 in transferred value) times top estate tax rate of 50% in 2002.
[36] See IRC section 2503(e).
[37] IRC section 529(c)92)(B).
[38] See: Hader, “Planning to Avoid the Reciprocal Trust Doctrine,” Est.Plan., Oct. 1999; Revenue 86-24, 1985-1 CB 329.
[39] IRC section 2523(f)(4).
[40] See: IRC section 2036.
[41] See: Zaritsky, Planning for Family Wealth Transfers: Analysis with Forms , section 9.05: Retaining Family Ownership Through Buy-Sell Agreements (WG&L).
[42] 756 N.E.2d 17 (Mass.App.Ct.2001).
[43] O.C.G.A. section 53-12-28. Note that a literal reading of the statute would mean that distributions for the benefit of the beneficiary might not be subject to garnishment for alimony.
[44] Barry A. Nelson & Rosario F. Carr, “Drafting to Achieve Maximum Flexibility in the Estate Plan”, Est. Plan., July 1998; Alan S. Acker, “Every Drafter’s Dream: The Flexible Irrevocable Trust”, BNA Tax Memorandum, 1998, at 295; Neill G Keydel & Frederick R. McBryde, “Building Flexibility in Estate Planning Documents”, Tr. & Est., Jan. 1996.
[45] William S. Forsberg, “Special Powers of Appointment: The Key to Flexibility in Planning,” Est. Plan., Jan. 2000.
[46] See: Raithel, Drafting Estate Planning Provisions to Avoid Litigation, Estate Planning, February 2000; ” No Contest Clauses in California Will and Trusts, ” 18 Whittier L. Rev., 613-633, 1997.
[47] IRC section 72(t)(2)(C).
[48] Some state laws provide some protection for IRAs. c.f., O.C.G.A. section 18-4-22 and Meehan V. Wallace , 102 F3d 1209 (11 th Cir. 1997). See also 11 U.S.C. 541(c)(2).
[49] 114 TC 259 (2000).
[50] Supra Note 47.
[51] IRC section 402(e)(4)(A) and IRS Notice 98-24, 1998-17 I.R.B. 5.
[52] See IRS Notice 98-24, 1998-17 I.R.B. 5 for the rules governing applicable holding periods.
[53] See: Roush, Beneficiary Designations After Divorce: Will the Ex-Spouse Benefit?” 25 Est. Plan. 5 (June 1998).
[54] 1999 WL 486590 (unpublished opinion) (4 th Cir. 1998).
[55] 23 EBC 1761 (3rd . Cir. 1999).
[56] (1998 CA6) No. 96-6233.
[57] 591 NW2d 212.
[58] 149 2d 264 (2001). See Susan Gary, “State Statue Does Not Revoke Beneficiary Designation After Divorce,” 28 Est. Plan. (August 2001).
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PARTIAL CHECKLIST OF ACTIONS AS A RESULT OF DIVORCE |
There are a multitude of practical issues which surround any divorce. This list is intended to provide a least a partial list of some of the issues which clients should address before and after their divorce is final. The list is not intended to cover every issue, but can help clients understand that the divorce involves far more than just the signing of a divorce decree.
X ERISA Qualified Plans ( ONLY after the divorce is finalized, or with signed spousal approval before divorce )
X IRAs
X Deferred Compensation Plans
X Stock Option Plans
X Life Insurance Policies
X Accounts Paid to the Order of or Paid at your Death to the Ex-Spouse
___ Complete Any Title Transfers on Assets ( preferably before the divorce is finalized ), such as:
X Residence Ownership
X Other Real Estate Ownership
X Automobiles
X Stock or Equity Rights in a Business or Investment ( make sure to get the original certificates )
X Brokerage Accounts
X Life Insurance (e.g., ex-spouse owns policy)
___ Terminate Joint Liabilities, for example:
X Credit Cards
X Lines of Credit
X Personal Guarantees of Ex-Spouse’s Liabilities (e.g., business interest)
X Mortgages (may not be permitted by the terms)
X Utilities
___Terminate Joint Accounts ( and change direct deposits to these accounts ), for example:
X Banking (i.e., checking, savings, etc.)
X Brokerage
X Safety Deposit Boxes
X Terminate Automatic Withdrawals ( e.g. to ex-spouse’s account or benefit )
___ Remove Permitted Access or Signing Authority by an Ex-Spouse, for example
X Personal Banking (i.e., checking, savings, etc.)
X Business Payroll Service
X Business Checking Accounts
X Personal Brokerage Accounts
___ Do a Change of Address for ( Notice to Post Office and Notice to Each Party ),for example::
X IRS (i.e., tax returns and audits) – Use IRS Form 8822
X Employer(s)
X Creditor, Bank, Brokerage and Similar Mailings
X All Insurance Companies
X Drivers License
X Passport
X Military and Veterans Benefits
___ Redo All Estate Planning Documents ( to the extent an ex-spouse is named )
X Will ( especially if revoked by divorce under state law )
X Revocable Trust(s)
X Medical Directive or Healthcare Power of Attorney
X General Power of Attorney
X Decide whether to Retain any Irrevocable Insurance Trusts which Name Spouse as Beneficiary
X If your Relatives have named your Ex-Spouse in their Documents, Alert them to the Need to make Changes
___ Enter a Modification for any Employee Benefit Cafeteria Plan
___ Make Changes in Personal or Employer-Based Insurance Coverage That Names Ex-Spouse If permitted by the Divorce Decree ( perhaps obtain a refund )
X Life Insurance
X Health Insurance
X Long Term Care Insurance
X Disability Insurance
X Property & Casualty (e.g., auto, home, umbrella)
___ Change Access Codes and Passwords , for example:
X Web Based Access (e.g., bank, brokerage)
X Credit, Debit and ATM Cards
X Frequent Flyer Accounts
X Email Accounts
X Personal Safe
___ Change the Locks to and Change the Location of any Hidden Keys (do not just take back keys)
X Personal Home
X Studio Apartments
X Vacation Home
X Office
X Personal Safe
X Mailbox
___ Take Back Keys and Change the Location of any Hidden Keys
X Rental Properties
X Vehicles
___ Obtain Signature of Ex-Spouse
X Resigning an Officer or Director of any Business
X Signing over any Life Insurance, Long Term Care, Disability or Other Insurance Benefit
X To Permit any Continued Military or VA Benefits
X Relinquishment of any Rights to a Family Burial Plot
___ Notify the School of any Minor Children of any Changes in Custody
___ Create Any Required Funding Arrangements Under the Divorce Decree (e.g., new trust)
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