Tag Archive for: divorce and money

Post-Separation Strategies in Maryland Divorce Cases

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A 2013 Virginia case, Wright v Wright, 61 Va. App. 432; 737 S.E. 2d 519; 2013 Va. App. LEXIS 53 prompted me to observe that a high earning spouse can increase what he, or she, gets to keep by paying expenses out of marital property and banking the post –separation earnings because in Virginia those earnings are not marital property. Conversely, if you are the lower earning spouse you want prompt filings, quick hearings and, if the stakes justify it, an injunction on expenditure of marital property. See The “Wright” Strategy for Increasing What You Keep in Your Divorce, April 2014.

In Maryland, a spouse’s earnings after separation are marital property in the absence of an agreement to the contrary. So there is no advantage to paying expenses with accumulated marital property and banking post-separation earnings in Maryland. What then is the proper strategy for a high earning spouse in Maryland in a case with a relatively long separation?

First, if there is any existing non-marital property, don’t spend that. And remember that from separation to divorce you are earning marital property, increasing the marital proportion of retirement accounts, and adding to the duration of marriage, which is a factor in determining both alimony and marital property distribution. So it pays to settle early because a Separation and Property Settlement Agreement will exclude subsequent earnings from marital property.
Getting to settlement usually requires making a good offer. Getting to settlement early may require making a good offer early. This runs directly contrary to many negotiator’s instinct to make a low ball offer and move up in baby steps to wear down the adversary and get a “good deal”.
For high earners the good deal achieved by extended negotiations may be at the cost of hundreds of thousands of extra dollars added to the marital estate, and then divided. Sometimes it makes sense to make a really good offer early.
What about the Maryland financially dependent spouse? Certainly this spouse wants to settle temporary support and custody, visitation and access early, if possible. But what about the final settlement distributing marital property? It may pay to delay. But the advantage of dividing a bigger pie later must be balanced against the obligation to negotiate in good faith. Also, the additional costs and stress of getting-to-yes later rather than earlier are big negatives. Perhaps a bigger issue is that if the moment for settlement passes, it may not come again.

/by Michael Callahan

Post-divorce Review of Estate Plan

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          After your divorce you should review your Will and all beneficiary designations to ensure that you do not unintentionally include a gift to your former spouse.  Although we strongly recommend against relying on statutes to correct your estate plan despite your own inaction, there are statutes that provide that the judgment of divorce eliminates prior bequests or certain beneficiary designations to the former spouse.   See Va. Code Sec. 20-111, 20-111.1, 64.1-59; Md. Code, Estates and Trusts Article, Sec. 4-105(4); DC Code Sec. 18-109 and Estate of Roscoe H. Liles, 435 A.2d 379; 1981 D.C. App. LEXIS 355.  The effect of these statutes on the treatment of a now former spouse in an estate plan is uncertain and incomplete and may be frustrated by federal law spousal protections.  The savings statutes are no substitute for a careful review of estate planning documents and beneficiary designations and corrective action based on the divorce settlement or judgment.

/by Michael Callahan

Wills and Elections Against the Will

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             You can improve on the intestate estate outcome by unilateral action.  You can make a Will or a new Will; or revoke a Will that leaves everything to your now estranged spouse.  We encourage clients to consider taking these actions early on in the process.

            However you cannot freely disinherit your spouse.  In each local jurisdiction the surviving spouse can renounce the gift, if any, to the spouse in the Will and elect to take a statutory share of the estate.  The surviving spouse is entitled to claim an elective share as follows:

Maryland – an allowance of $5,000 and one-half of the net probate estate if there are no surviving issue of the decedent and one-third if there are surviving issue.  Md. Code, Estates and Trusts Article, Sec. 3-201 and 3-203.

Virginia –  one-half of the augmented estate if there are no surviving issue of the decedent and one-third of the augmented estate if there are surviving issue.  Va. Code Sec. 64.1-16.1.

 District of Columbia – the surviving spouse who renounces the gift under the Will is entitled to the amount he or she would take if the decedent did not make a Will.  D.C. Code Sec. 19-113.

/by Michael Callahan

Spousal Claims in Intestate Estates

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If you die intestate (without a valid Will) your spouse is entitled to the following percentages of your net probate estate:

Maryland – the surviving spouse takes entire net probate estate unless there are surviving decedents or surviving parents of the decedent;

the surviving spouse takes $15,000 plus one-half of the net probate estate if the decedent is survived by decedents who are not minor children, or by parents of the decedent; and

the surviving spouse takes one-half of the net probate estate if the decedent is survived by his or her minor children.

See MD Code, Estates and Trust Article, Sec. 3-102.

 Virginia – surviving spouse takes entire net probate estate unless there are surviving descendants of the decedent who are not descendants of the surviving spouse, in that event the surviving spouse takes one-third of the net probate estate;

the surviving spouse also has a claim to one-half of the augmented estate if the decedent is not survived by descendants and one-third if the decedent is survived by descendants,

See Va. Code Sec. 64.1-1.

 District of Columbia – D.C. law provides that the surviving spouse or domestic partner, and minor children, are entitled to a reasonable allowance from the probate estate for maintenance during estate administration.  D.C. Code section 19-101.04

The surviving spouse or domestic partner takes the entire net probate estate if the decedent is not survived by descendants or parents;

The surviving spouse or domestic partner takes two-thirds of the net probate estate if the decedent is survived only by descendants who are issue of the decedent and the surviving spouse;

The surviving spouse or domestic partner takes three-fourths of the net probate estate if the decedent is not survived by descendants but is survived by a parent;

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is  survived only by descendants who are issue of the decedent and the surviving spouse, and the surviving spouse has other issue; and

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is survived by descendants one or more of who are not issue of the surviving spouse.  D.C. Code section 19-302.

            Also in each local jurisdiction there is a statutory preference for the surviving spouse to be the personal representative or executor of the estate.

/by Michael Callahan

Spousal Rights and Non-Probate assets

Generally spousal claims apply to the probate estate which only includes assets that the decedent owned at death and which did not pass by operation of law or beneficiary designation or other contract provision.   Virginia expands the spousal protections to the “augmented” estate, the calculation of which includes certain non-probate assets and prior gifts.  A federal law known by the acronym ERISA protects spouses’ rights to certain retirement plans and accounts.  Often the vast majority of a decedent’s property passes outside of probate.

            For example, many spouses own the marital home and sometime other real property in a form of ownership called tenants by the entirety (“T by E”).  One of the characteristics of this tenancy is survivorship – if one tenant dies the other succeeds to ownership of the entire property by operation of law.  A Will cannot change this result.

            Often spouses hold bank accounts as joint tenants with right of survivorship (“JTWROS”) or name each other as pay on death (“POD”) beneficiaries of their financial accounts.  These arrangements can be changed by transferring the funds or changing the beneficiary.

            You can freely change the beneficiary designation on your IRA’s.  However 401(k) accounts are subject to ERISA spousal protections.  You cannot name a beneficiary other than your spouse without your spouse’s consent and if you name no beneficiary your spouse takes by default.  A spouse’s ERISA rights in 401(k) accounts, 403(b) accounts, pensions, etc. can be eliminated only by a final judgment of divorce, or completion and delivery of a beneficiary designation with spousal consent to the plan administrator.

/by Michael Callahan

Spousal Estate Rights

The marital contract that spouses enter into at the time of the marriage includes many provisions that I often find are a surprise to some people.   One area where marriage makes a big difference is how property passes at death. 

If you are married at the time of your death your spouse has important rights to your estate, whether or not you made a Will.  And the law does not consider you unmarried just because you are separated or there is a divorce case pending.  Only the final judgment of divorce changes your status for decedent estate purposes.  A limited divorce does not terminate spousal estate rights although Virginia, but not Maryland and the District of Columbia, bars the estate claims of surviving spouses who abandoned the decedent. See Va. Code Sec. 64.1-16.3.

/by Michael Callahan