Lynn Brenner's Family Finance

Divorce: What Counts as a Marital Asset?

Q: Maybe my situation is unusual, but I can't seem to find evidence that my husband will understand. We’re getting a divorce in Georgia, where we were married and lived for 27 years. He still lives there. I now live in another state, but divorce will be handled in Georgia, an equitable distribution state.

I have several IRAs in my name that were set up by my father with his money during the early years of my marriage. Both my attorneys have told me these were gifts and are therefore outside the pool of marital property. My husband started several IRAs of his own in his name during our marriage. Are his IRAs considered marital property? Are they to be split fifty-fifty?

I also have a question about his defined benefit pension. Seventy-two percent of his work years were during our marriage. Assuming the coverture fraction is calculated correctly, am I therefore entitled to 36% of his pension?  -- CB via email

 

A: I don't think you should spend a lot of energy trying to explain the situation to your soon-to-be ex-husband. That's his lawyer's job, not yours. But here's the basic rundown:

When a couple divorces, the law calls for a division of their marital assets. As a general rule, a marital asset is anything that was acquired during your marriage, no matter whose name it’s in. That includes the appreciation in your retirement plans. For example, if your 401(k) plan was worth $20,000 when you got married, and it's now worth $170,000, the $150,000 increase in its value is a marital asset – regardless of the fact that your 401(k) account is in your name and was funded only with money you earned. Your salary and the investment income it earns during your marriage are marital assets.

If your husband’s IRAs were funded with his salary during your marriage, they’re a marital asset even if the accounts are in his sole name.

But an account in your sole name is not a marital asset if it was funded entirely with a gift that was made solely to you, and you have never commingled it with money earned during your marriage. Those accounts are called ‘separate property’ and they’re off the table.

That’s why your lawyers have told you the IRAs your father set up for you aren’t subject to division: They were funded with non-marital assets -- i.e., your father's gift to you. And presumably, you made no additional contributions to these accounts during your marriage, so they've always been kept separate from marital money.

Clear so far?  

Okay – let's talk about how the marital assets are divided.

In a community property state like California, the law says they’re to be divided fifty/fifty. In an equitable distribution state like George, the law says they’re divided equitably. Equitably means fairly. Who decides what's fair? The court does -- and its decision is based on factors like the duration of the marriage, and the respective marital contributions of both parties.

This doesn't mean that a one-income marriage results in a lopsided division of assets because -- as everyone who is married or ever has been married knows -- marital contributions aren't limited to income. Divorce courts also consider non-economic contributions, such as caring for the children and running the household.

As a general rule, when a marriage has lasted for a long time, equitable division of marital assets means equal division. (Bear in mind, however, that division of marital property is always subject to negotiation, provided the final settlement falls within the perameters laid down by the law.)

As for your last question, most equitable distribution states treat the portion of a defined benefit pension that was earned during a marriage as a marital asset. A ‘coverture’ calculation is what determines how big a chunk of the pension was earned during the marriage. If 72% of your husband’s pension is considered a marital asset, then yes -- an equal division of the marital pot could result in your getting 36% of his pension.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Life Insurance Is Always Paid to the Named Beneficiary

Q: My ex died in a car crash. Does my fifteen year-old daughter have a right to his life insurance, even though his same sex partner of nine years is the beneficiary? We are in Ohio, and I'm not sure what my rights might be. --RW via email

A: Bad news, I'm afraid. Children have no legal right to inherit from their parents.

Your ex-husband's life insurance policy goes the beneficiary he named. This would be true regardless of his beneficiary's gender, or age, or of their relationship. In fact, the named beneficiary of a life insurance policy doesn't even have to be a human being -- it could be a charitable institution, for example.

A life insurance policy is a contract between the insurance company and the person who pays the premium. It's protected by contract law -- and there is no stronger legal protection.

Whether or not your daughter gets anything is going to depend on whether or not her father left a will. If he did, and it doesn't name her, she gets nothing. It often shocks people to learn that the law lets you disinherit your children, but it's true -- and not just in Ohio.

The law doesn't let you disinherit your spouse -- but a former spouse has no inheritance rights.

It's a different story if there is no will. When a person dies without a will and without a surviving spouse, the state's intestacy law determines how his assets are divided. Most state intestacy laws -- including Ohio's -- would divide his assets among his surviving children.

But intestacy law only applies to property that can be left through a will -- and that doesn't include jointly owned property and accounts with named beneficiaries. An asset with a named beneficiary goes directly to that person. A jointly-owned asset automatically goes to the surviving owner.

You won't have trouble finding out if your ex left a will because a will is a public document. Besides, when a will is presented for probate, the decedent's next of kin must be notified. (Probate is the legal procedure in which a court validates a will.) If there's a will, your daughter will have to receive probate notification; and since she is a minor, you will be notified as her guardian.

If there isn't a will, and you have reason to believe that your ex owned assets in his name alone -- i.e., he owned assets that were not jointly owned and didn't have named beneficiaries -- your daughter has a legal claim to those assets. You can pursue that claim by asking the probate court in your county for an intestacy proceeding. That's the legal process in which an estate is distributed when there is no will. 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Can a Disabled Person Work After Age 66 Without Losing His Social Security Benefit?

 Q:  I started collecting a reduced SS benefit at age 62. I later applied for a disability benefit and was granted one at age 63.5. I have read that at full retirement age (FRA),  the Disability Benefit reverts to a FRA benefit.  I am now age 70. Can I take small sedentary jobs without affecting my SS Benefit? --HS via email

 

A:  Yes, you can.

You've understood the rules correctly. After you reach your full retirement age -- in your case, 66 years old -- your Social Security disability benefit automatically becomes a retirement benefit.

You still receive the same amount every month. (A Social Security Disability benefit is equal to your full Social Security retirement benefit, regardless of the age at which you qualify to receive it.) But after you turn 66, your monthly check is paid by the Social Security Administration Retirement Trust Fund instead of the Disability Trust Fund.

Since a retirement benefit is based on your age, rather than on your disability, you're no longer subject to the disability work rules. And since you're over your full retirement age,  you can work without losing any of your benefit regardless of the amount you earn. (For more information about these rules, read What you Need to Know When You Get Social Security Disability Benefits.)

 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Does the Ex-Wife Get the 401(k) Account? Looks Like I Spoke Too Soon!

In my last post, I gave a grim answer to RM, a widow who had just learned that her recently deceased husband had forgotten to change the beneficiary designation on his 401(k) account, which still listed his former wife.

Would her husband's ex inherit the account as a result? she asked.

I wrote that that was indeed likely.

Well, hold the phone! It looks as if I was wrong!

I based that answer on a recent U.S. Supreme Court decision, 'Kennedy vs the Plan Administrator for the DuPont Savings and Investment plan'. In that case, the court unanimously decided that the DuPont plan must pay the decedent's 401(k) account to his former spouse even though she had waived her right to it in their divorce decree.

The reason: The decedent hadn't changed his beneficiary designation.

But I kept researching this question even after I posted that answer. (This is a perfect illustration of how blogging is often the equivalent of writing up your notes while you continue to report.)

I'd glad I did:

In every respect but one, the Kennedy case is the same as RM's -- but that one respect makes a critical difference, says Bob Walter, an attorney who specializes in 401(k) plans and is a principal at Buck Consultants.

In the Kennedy case, the alternative claimant to the 401(k) account was the decedent's estate. In RM's case, the claimant is the decedent's surviving spouse. That's an important distinction.

Let's put some names on RM's drama to make Walter's explanation easier to follow. We'll call our surviving spouse Rose, her late husband John, and his former wife Betty.

Federal law says your spouse is entitled to be your 401(k) beneficiary unless he or she waives that right and gives written consent to the designation of another beneficiary.

So as soon as John married his second wife Rose, she was entitled to be his beneficiary. Assuming Rose never waived that right or consented to the designation of another beneficiary, Walter says that  Betty the ex wife can no longer have a valid claim on his account.

He notes that the typical language in a large 401(k) plan's Summary Plan Description states: "If you and your spouse become legally divorced and you have specifically named your spouse as your designated beneficiary, that designation will remain in effect despite the divorce until you submit a new designation or you marry a new spouse." (Italics added.)

My initial post was right in one respect:  RM should definitely consult a lawyer. "Assuming that she can prove the fact of the marriage, she would appear to have a meritorious claim," says Walter.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved