The Risk Manager, Fall 1996

An extraordinary number of recent decisions concern divorce cases that have gone even more sour. What follows are samples of when inadequate advice has exposed lawyers to malpractice claims. They are offered in the hope that you can stay off the bleeding edge of this escalating malpractice risk:

In Wyoming a divorce decree provided for $20,000 annual alimony during the wife’s lifetime. When the husband predeceased the wife the alimony payments ended as is the usual case. The wife sued the estate, but lost her claim at the trial level. The Wyoming Supreme Court, however, ruled that she was entitled to continued alimony from the estate by interpreting the lifetime alimony provision as an express agreement that payments would continue after the husband’s death. Oedekoven v. Oedekoven, 920 P.2d 649 (Wyo.1996)

• Lesson Learned: Be specific when alimony terminates in divorce decrees.

In a California divorce action the wife was awarded a share of the husband’s retirement pay upon his future retirement. She then learned to her and her lawyer’s chagrin that “retirement pay” did not include an $83,000 early retirement bonus her husband received when he accepted early retirement after the divorce. In Re Marriage of Frahm, 53 Cal. Reptr.2d 31 (Cal.App. 4 Dist.1996)

• Lesson Learned: Investigate the employment status of a spouse for any indication of possible extra retirement benefits. Cover elective retirement, termination benefits, and other options that could increase alimony or a property settlement. Also consider the financial stability of any pension plan and what happens if the plan goes bankrupt before the spouse retires.

In a Georgia divorce the wife got the condominium, but the husband had to make the mortgage payments. When the wife sold the condo and paid off the mortgage the question came up whether the husband now had to make payments to the wife. The Georgia Supreme Court sided with the wife and required the husband to make “mortgage payments” to her. Bryant v. Cole, 468 S.E.2d 361 (Ga.1996)

• Lesson Learned: Cover in the decree what happens if property is sold, refinanced, or used in a manner not contemplated by the property settlement intent. In this case the tax consequences of paying the wife if the property is sold instead of paying mortgage principal and interest should have been explained as well.

The Ninth Circuit recently ruled that a husband who moved out of the matrimonial home before the divorce and before the home was sold as part of the property settlement cannot roll over his share of the capital gain when he buys a new home. Perry v. C.I.R., 91 F.3d 82 (9th Cir.1996)

• Lesson Learned: Explain carefully to the client the tax consequences of “moving out.” Timing is everything and intentions regarding principal residence need to be substantiated.