In 2009 the Kentucky Supreme Court substantially revised the Kentucky Rules of Professional Conduct.
Articles in this index written before 2009 citing Kentucky Rules of Professional Conduct must be checked for any changes to the rule cited.

2001 Malpractice Review: Divorce - What's Hers? What's His?

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Disputes involving division of marital property in divorce actions continued to increase in 2001. As a result of the proliferation of double income families, retirement plans, and investment options it is easy to err when sorting out what belongs to whom. What follows is a recap of recent decisions illustrating the problem:

  • IRAs and ERISA Plans:
    • In New Hampshire a former wife was awarded the husband’s IRA even though the divorce agreement provided that “ each party is awarded any interest in … any IRA or other retirement account that each one may have … free and clear of any right title, interest or claim of the other.” This language was found to be ambiguous in that it could be construed to mean the former wife could still be the beneficiary of the husband’s IRA. It is significant to the result that the husband had not removed the wife as beneficiary of his IRA after the divorce. New Hampshire Supreme Court, Estate of Tremaine v. Tremaine, No. 99-547, 7/31/01.
    • In Maryland a former wife who agreed at divorce that she had no interest in any of the husband’s assets got his IRA benefits at his death because he never removed her as beneficiary of the account. Maryland Court of Appeals,PaineWebber Inc. v. East, No. 44, September Term, 2000, 3/14/01.
    • In a Louisiana divorce action a wife agreed that she was not entitled to any of the husband’s property. Since the agreement did not specifically include pensions, however, it was ruled the wife was entitled to a portion of the pension payout. Louisiana Supreme Court, Coleman v. Robinson, No. 99-C-3097, 1/17/01.
    • The US Supreme Court ruled federal law governing ERISA benefit plans pre-empts state law. Thus, a former spouse got her deceased ex-husband’s life insurance and pension provided by his employer’s ERISA plan because he failed to remove her as beneficiary before his death. Egelhoff v. Egelhoff, 121 S.CT. 1322, 3/21/01
    • Lessons Learned: IRAs have been in existence over 20 years and are now starting to become a bigger, if not the biggest, part of marital and estate assets. Do not rely on boilerplate language in drafting divorce agreements. Make sure the intent of the parties is covered in detail. Do not leave out asset classes – spell it out. Be sure to stress to divorce clients the urgency of changing IRA, ERISA plan, and insurance policy beneficiaries immediately upon final settlement. Do this verbally and in a closing letter.
  • Marital Property – Stocks, Stock Options, Trusts, and Inheritances:
    • In Alabama assets owned prior to a marriage are not considered when dividing assets upon divorce unless the assets were used during the marriage for the couples common benefit. The wife in a divorce action claimed an interest in the husband’s stock acquired before the marriage in a family business worth $7,000,000 because he used dividends from the stock for household expenses. It was ruled that the trial judge had discretion to consider the stock when dividing property and did not err in deciding not to do so. Alabama Supreme Court, Ex parte Durbin, No. 1000775, 9/7/01.
    • In Massachusetts it was ruled that stock options that did not vest until after the divorce could in whole or part be considered marital property. If the options are for past services, they are marital property even though they had not yet vested. If the options are for future services, a percentage of the options are marital property determined by how long the employee owned the options during the marriage and the length of time between grant of the options and vesting. Massachusetts Supreme Judicial Court, Baccanti v. Morton, No. SJC-08442, 8/13/01.
    • In Colorado a husband argued in a divorce action that his interest in a family trust was not marital property because his mother had the authority to terminate the trust at will. It was ruled that the mother’s authority was a condition subsequent. The husband, therefore, has a present interest in the trust until the mother exercises her authority. Accordingly, appreciation in trust assets during the term of the marriage was marital property. Colorado Court of Appeals, In re Marriage of Gorman, No. 00CA0998, 10/11/01.
    • In Alaska a husband inherited money from his mother several years before he separated from his wife telling her the funds could be used for their needs. She claimed a share when they were divorced because she had closed her own retirement account and left her job in reliance on those representations. The husband averred that he did not object to her taking those steps, but made no promise that they would share the inheritance. The court held that the husband made no changes that showed intent to convert his inheritance to marital assets. Nonetheless, the case was remanded for a determination whether equity required that a portion of the inheritance go to the wife. Alaska Supreme Court, Sampson v. Sampson, No. S-9088, 12/15/00.
    • Lessons Learned: Do not accept a divorce or estate planning matter involving complex financial issues unless you know what you are doing. Use experts in accounting, financial planning, and retirement programs to assist in asset evaluation. Ask clients detailed questions to be sure you have a complete inventory of assets. Use aggressive discovery to identify the opposing party’s assets.
  • Disability Benefits:
    • In Kansas a Veteran Administration disability benefit was considered in determining the wife’s alimony. The husband argued that federal law prohibits these benefits from being divided. It was ruled that the alimony award was not an interest in the disability benefit. Rather the court merely considered these benefits in evaluating the overall economic situation of the parties to reach a fair result. Kansas Court of Appeals, In the Matter of the Marriage of Bahr, No. 86,790, 9/28/01.
    • Lesson Learned: This decision is consistent with rulings in eight other states and is the clear trend on this issue.
  • Personal Injury Settlement:
    • In New Hampshire if a personal injury settlement is acquired during the marriage it is marital property subject to division upon divorce. At issue was an annuity that had four years to run after the divorce. The husband argued to no avail that this money was for pain and suffering and should not be included in the divorce settlement. New Hampshire Supreme Court, In the Matter of Preston, No. 99-536, 10/3/01.
    • Lesson Learned: If the asset was obtained during the marriage, it is difficult to exclude it from the divorce settlement.
  • Workers’ Compensation:
    • In Maine the husband received a $225,000 workers’ compensation award four years before his wife filed for divorce. It was ruled that only the portion of the award that compensated the husband for lost wages prior to the divorce was marital property. Maine Supreme Judicial Court, Doucette v. Washburn, No. CUM-00-382, 2/22/01.
    • Lesson Learned: The purpose of the award; i.e., compensatory, pain and suffering, etc., may provide a basis to include or exclude assets from marital property. But see Personal Injury Settlement above.

 


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