Senior Divorce – Part II

Seniors divorcing face
different issues and considerations then younger couples divorcing. This article
concludes a checklist begun in last month’s issue.

Beneficiary
Designations:

Divorcing seniors are likely to have substantial retirement
accounts and other assets governed by beneficiary designations. These must be
formally changed for every account (IRAs, pensions, insurance, brokerage
accounts set up with beneficiary designations). The mere recitation of how
beneficiary designations are resolved in a property settlement agreement should
not be relied upon as sufficient. Change forms should be sent certified mail
return receipt requested.

Insurance:

Life
insurance planning is different as seniors are more likely to own policies with
considerable value. Further, while younger couples can often purchase
inexpensive term insurance to meet divorce requirements, seniors are less
likely to be able to avail themselves of this option. If your ex-spouse is to
maintain life insurance for you, it is even more important as a senior divorcee
that you assure that your ex-spouse’s coverage does not lapse since age and
health problems are far more likely to make replacing lapsed coverage
prohibitive or impossible. Confirmation of payments and an arrangement to
receive notice from the insurance company in the event of default is essential
to protect the policies. Mandate in the property settlement agreement that
periodic in-force illustrations will be prepared, and if policy performance
becomes a problem, include a mechanism to address it. Seniors are more likely
not to need life insurance coverage. Older policies might be sold to avoid
future premiums and raise additional cash to divide between the spouses. The
price which might be realized in a secondary market may substantially exceed
the cash surrender value. Young couples rarely can avail themselves of this
because coverage is needed to protect alimony payments and minor children.
Seniors are more likely to have their insurance in a trust (“ILIT”) in which
case the trust and the trustees should agree to all actions as part of the
overall property settlement agreement. The trust
might have to formally be involved in the proceedings.

Wills, Powers, Etc.

Most divorcing spouses, other than
perhaps cancelling powers of attorney, tend to wait to update their estate
planning documents until after the divorce is settled so that the revisions can
reflect the agreements. This is more dangerous for seniors. As soon as the
divorce starts seniors should revise their wills, powers, living wills, health
proxies and other documents. Name new agents on every document. Your will might
bequeath to your spouse the lesser of the minimum required by state law (spousal right of election), or what the divorce
agreement mandates. Once the divorce is finalized these documents should be
revised again to reflect the settlement. What lawyer is used? In some cases, if
both spouses and their matrimonial counsel can agree in writing to the
parameters, the same planner may be able to revise both spouse’s documents.
This can be a significant cost and time saver, and more significantly, create
less antagonism and facilitate joint post-divorce planning for insurance
trusts, children’s trusts and more. In other situations, one spouse may continue
with the same attorney subject to approval by the other spouse and counsel, and
the other spouse can hire a new attorney. Seniors divorcing often assume that
adult children will take an “adult” view of the situation. Children, even
though they are adults, often take the divorce really hard and too often take
sides or worse. Seniors need to carefully consider whether children (who most
likely were named as fiduciaries) should be left
as agents. Seniors might initially name friends or advisers until the situation
calms down, then change the documents back to the children. Estate tax planning
needs to be revised. The post-divorce asset landscape will look quite
different. An aggressive annual gift program may no longer be financially
feasible. Perhaps cash gifts will give way to property gifts to preserve liquidity.

Senior Twists:
A couple of recent
cases highlight senior divorce issues. Husband and wife were divorcing. Prior
to settlement they sold their home. Then husband died. If the proceeds were
included in his estate his creditors would take all. If wife could take the
proceeds before it reached his estate, she would take all. The court held that when
the still married couple sold the house, that act destroyed the tenants by the
entirety ownership of the house so that the funds (unlike a house owned tenants
by the entirety) would pass to Husband’s estate, not the wife. Matter of
Schmitt, 94939/06. The divorce
had no bearing on the distribution of proceeds since an action for divorce
abates at the death of either party. Cornell v. Cornell, 7 N.Y.2d 164. In another case, the divorcing
couple’s child had previously died and they could not agree on the disposition
of their child’s ashes. A Solomon-like division was not acceptable to the
husband. The remains were not deemed property but rather a right subject to the
mutual decision of the parents. The case was remanded for
further decision.  Kulp v. Kulp, No. 269 MDA 2006, March 12, 2007.