Posts Tagged ‘divorce’

Common-Law Marriage, Divorce and Probate, All In One Case

DECEMBER 19, 2016 VOLUME 23 NUMBER 47
Here’s a question we hear frequently: how long does a couple have to live together in order to be considered married? The answer in Arizona: until the wedding ceremony.

In other words, Arizona does not recognize “common-law” marriages. That strong, direct statement, however, masks a more complicated answer. Arizona, like every other state, will recognize a marriage that was validly established in another state — so if a couple living in, say, Oklahoma (which does recognize common-law marriages) meets that state’s requirement to be treated as validly married, and they then move to Arizona, they will be married under Arizona law, as well.

No state, however, has a concept of concept of common-law divorce. That is, a divorce must be granted by a court, and can not be established by the couple simply acting as if they were divorced. And no state recognizes bigamous marriages — so if a couple is already married (by common-law or by a formal state-recognized marriage), neither spouse can enter into another marriage, whether by common-law or regular ceremony.

Try telling all that to Rhonda Brown, an Oklahoma woman who seems to have a fairly fluid concept of marriage. She and Bobby Joe Brown were married in 1995, and they had three children together. After a few years of marriage, though, she told her husband that she could not continue to live with him if he did not stop sleeping with other women, and when he did not change, she moved out on her own.

Rhonda moved around Oklahoma and Kansas for several years. She had children by another man (they were removed from her care by the Kansas authorities). According to her testimony, she and Bobby Joe still saw one another occasionally.

At one point Rhonda even “married” another man — though she said she always thought of the second marriage as a “sham.” How did that happen? According to her, she and Jimmy had been long-time friends and had always agreed they would marry one another if it was necessary for one to help the other out. After Jimmy’s release from prison, his grandparents let him live with them and supported him, but told him he needed to get married. When Rhonda agreed to visit his grandparents and tell them that she and Jimmy were going to get married, his grandparents immediately called a minister and had the ceremony that same day. She never saw Jimmy again, she said.

Meanwhile, Bobby Joe had moved in with another woman, Ami. Although they never had a marriage ceremony, Ami said that they always acted as if they were married, and held themselves out as husband and wife. That’s the very definition of common-law marriage in most states where it is permitted — including Oklahoma. They even had two children together and, according to Ami, they were a married couple in almost every respect. One problem: Bobby Joe was still married to Rhonda.

Then, in 2013, Bobby Joe died in a motorcycle accident. Ami filed a petition with the local probate court, alleging that she was the surviving spouse and asking for appointment as personal representative of his estate. The probate judge approved her appointment as personal representative; Ami did not mention Rhonda or give her notice of the proceedings.

Rhonda ultimately learned about the probate of Bobby Joe’s estate, and sought to remove Ami as personal representative. She pointed out that she had priority for appointment as Bobby Joe’s legal spouse, and that she was one of the heirs of his estate. The probate court heard testimony about the complicated relationship — and then denied Rhonda’s claim to priority for appointment.

The Oklahoma Court of Appeals affirmed the probate court decision, and Rhonda asked the state Supreme Court to review the ruling. The Oklahoma Supreme Court also agreed that Rhonda should not be appointed to administer her husband’s estate.

It is important to note that the state courts did not find that Rhonda and Bobby Joe were divorced, or that Bobby Joe and Ami were validly married. The ruling was ultimately based on concepts of “estoppel” — Rhonda could not make the legal argument that she was married to Bobby Joe because she had participated in another marriage, even though she claimed that her second marriage was a sham. To be more precise, the ban against her asserting her status as surviving spouse might be said to be partly because she admitted to a sham marriage — the courts decided that she should not be permitted to argue two inconsistent things in two different state proceedings. Estate of Brown, November 1, 2016.

The decision in Bobby Joe’s probate appeal was not unanimous, by the way. Six of the nine Justices of the Oklahoma Supreme Court agreed that Rhonda should not be allowed to seek appointment as personal representative, while three argued that there had been no divorce and Rhonda was still entitled to handle Bobby Joe’s estate.

It is also worth noting that the Oklahoma courts did not decide that Rhonda was not Bobby Joe’s surviving spouse. Though she could not insist on her priority for appointment as personal representative, the state Supreme Court decision does not say that she is not entitled to a share of Bobby Joe’s estate. That argument might be made later, back in probate court. We’ll let you know if we hear about it.

Why do we care about common-law (and other fluid concepts of) marriage in Arizona, where only properly recorded marriages are valid? For two reasons: (1) people who move to Arizona from Oklahoma, Kansas, Montana — or one of the handful of other states which recognize common-law marriages — might bring their confused marital statuses with them, and (2) we are constantly both surprised and intrigued by the complicated ways people live their lives.

It has been more than a decade since we last reported on common-law marriages, incidentally. In our 2013 newsletter article on the subject, we reported that fifteen states then recognized some form of common-law marriage. Today that number is down to eleven, with some dispute as to the status in one or two of those.

Husband’s Interest in Trust Not Divided in Divorce Proceedings

AUGUST 22, 2016 VOLUME 23 NUMBER 31
Carl and Debbie (not their real names) were married, and have two children together. After more than a decade together, Carl filed for a divorce in their home state of Massachusetts.

In the course of the divorce action, the court was required to divide Carl and Debbie’s assets equitably. But what would that mean for the trust established for Carl by his father back in the early years of the couple’s marriage?

Carl’s father had set up the trust to make distributions to Carl, his two siblings, his children, nieces and nephews. Debbie was not named as a beneficiary of the trust, and distributions could not be made to her. Over a two-year period just before the marriage ended, Carl had received over $800,000 in distributions from the trust. At the time of the divorce trial, the trust was valued at almost $25 million; Carl was one of eleven potential beneficiaries of the trust.

The divorce court had to figure out what to do about the trust. Noting that it provided for payments for Carl’s “comfortable support, health, maintenance, welfare and education,” the divorce judge decided that Debbie should be entitled to a share of the trust.

Calculating that Carl’s one-eleventh interest in the trust would be about $2.2 million, the divorce judge assigned 60% of that figure to Debbie. Carl appealed; the Massachusetts Court of Appeals affirmed the divorce judge’s determination. Carl appealed again, this time to the Massachusetts Supreme Court.

The state’s high court disagreed, and reversed the award of an interest in the trust to Debbie. Part of the reason for the reversal: the trust included a spendthrift provision, which should prohibit any claim by third persons against Carl’s interest. The justices also noted that Carl was not one of the trustees of the trust (his brother and one of his father’s lawyers were trustees), that Carl’s interest was not a separate share of the trust (it provided that distributions could be unequal and, in fact, no distributions had yet been made to or for second-generation beneficiaries), and that no distributions had been made to Carl since the divorce petition was filed (though distributions had continued to his two siblings).

Because of the exact nature of the trust, the Massachusetts Supreme Judicial Court ruled that Carl’s interest in the trust was not available to be assigned to his wife in the divorce proceedings. The court did note, however, that when the divorce judge reconsiders the division of property, she might want to assign more of the couple’s assets to Debbie because of Carl’s potential benefits flowing from the trust. Pfannenstiehl v. Pfannenstiehl, August 4, 2016.

Many of our clients are concerned about the scenario in Carl and Debbie’s situation — but from the other side of the equation. If you want to leave some of your property to your child, but worry about the possibility of divorce or other marital problems, what can (or should) you do?

Arizona, of course, is a community property state. That means that everything a married couple acquires during the marriage is presumed to belong equally to both spouses. One huge exception to that general rule: gifts and inheritances.

If you give or leave money to your married daughter in Arizona, it is not community property. It remains her separate property — unless, of course, she converts it to community property by putting her spouse’s name on the title (that’s not the only way to convert it into community property, but it’s the most common one).

What about leaving property to your daughter in a trust? That should help protect it even better against her spouse — and her other creditors. It’s hard to explain the original divorce judge in Carl and Debbie’s case, or the Court of Appeals decision that upheld it, but the final outcome should clearly be the one adopted by the high court in Massachusetts. A trust for your daughter should not figure in her later divorce — though it is possible to imagine that her divorce court judge might award slightly more of the couple’s property to her spouse if she has ready access to a substantial trust account.

Does it make any difference who is named as trustee of your daughter’s trust? The court in Carl and Debbie’s case thought it was worth noting that Carl was not the trustee of his own trust, but the outcome should not have been different if he had been. A trustee has a duty to all of the potential beneficiaries, and therefore can’t just act in their own interest. That means that even if Carl had been trustee (or co-trustee) of the trust established by his father, his access to the trust’s principal would have been limited.

Would it make a difference if there were other compelling financial concerns involved? It should not, and in that regard it might be worth noting that Debbie’s earning potential was found to be substantially less than Carl’s, and that the couple’s daughter is a Down Syndrome child.

Should it matter whether a trust beneficiary has a history of relying on the trust? It probably does not — note that Carl and Debbie more than doubled their earnings in the years in which the trust made distributions.

Are you concerned by the possibility that an inheritance you leave to your child might become an element in a future divorce proceeding? Talk to your estate planning attorney about your options, and don’t be surprised if you find yourself discussing a trust arrangement.

Court Annuls Marriage After Death of “Spouse”

JANUARY 20, 2014 VOLUME 21 NUMBER 3

Cynthia Madsen (not her real name) was, according to her doctor, already showing signs of dementia in 2007. In fact, her doctor wrote that she was not able to manage her own financial affairs. By mid-2009, her condition had worsened; her doctor wrote that she could not make decisions in her own best interests, and that her children should seek a guardianship because there was danger that someone might try to take advantage of her.

No guardianship or conservatorship proceeding was initiated, though — Cynthia continued to live at home with the assistance of a caregiver and a live-in friend named Patrick. In 2011 — almost two years after her doctor reported that Cynthia could make no decisions on her own — Patrick asked Cynthia’s minister to officiate as he and Cynthia got married. The minister refused, saying he did not believe Cynthia was competent to make such a life decision.

Things began to accelerate a few months later. Cynthia was admitted to the hospital . Cynthia’s daughter filed a guardianship and conservatorship proceeding. In the course of that proceeding, a court-appointed investigator interviewed Cynthia and wrote that she was incapacitated; the investigator recommended that a full guardian and conservator should be appointed. The next day, Patrick and Cynthia were married. Two days after that, Cynthia’s daughter was appointed as her temporary guardian and conservator, and moved her to a care facility.

As guardian and conservator, Cynthia’s daughter filed a petition to dissolve the marriage or, in the alternative, to annul it. The difference is important — dissolution of the marriage (what most of us still refer to as “divorce,” though the terminology changed decades ago) recognizes that the married couple are unhappy in the marriage, or that at least one of them believes the marriage is irretrievably broken. Annulment, on the other hand, recognizes that the marriage was never valid in the first place.

While the dissolution/annulment case was pending, Cynthia died. The divorce court promptly dismissed the dissolution part of the petition — a divorce can not be granted after the death of one spouse, since the marriage is, in a sense, dissolved by the death. But the annulment proceeding continued. Ultimately, the court ruled that Cynthia was incompetent to enter into a marriage contract, and so the marriage never was effective. The annulment was granted.

The Arizona Court of Appeals upheld the annulment. It is irrelevant, ruled the judges, that Patrick claimed that neither he nor Cynthia was unhappy in the marriage. It is irrelevant that Cynthia died while the case was pending. In this case, there was clear evidence that Cynthia did not understand the nature and significance of the marriage ceremony, and the trial judge’s determination that there was no effective marriage was allowed to stand. Savittieri v. Williams, January 2, 2014.

At Elder Law Issues we have written about this question before. In October of last year we reported on a Wisconsin case in which an annulment proceeding was allowed to continue after the death of the incompetent “spouse.” At the time we noted that we had not seen Arizona cases with the same facts, but we predicted that the result would likely be the same in Arizona. The Savittieri case shows that we predicted correctly.

It is worth noting that the result in this new Arizona case did not depend on the fact that a guardian and conservator was appointed almost immediately after the “marriage” ceremony. The fact of guardianship and conservatorship, by themselves, would probably not be enough to invalidate the marriage. As we have previously noted (this time citing a Missouri case with illustrative facts), the question is not whether a guardian or conservator was, or could be, appointed — it is whether the person understood the nature of the marriage and had mental capacity to enter into the marital contract itself. Cynthia did not — the guardianship and conservatorship were based on that incapacity, but did not necessarily prove it.

Decedent’s Family Permitted to Challenge Validity of Marriage

OCTOBER 7, 2013 VOLUME 20 NUMBER 38

Though we do not handle divorce cases at Fleming & Curti, PLC, we do find ourselves dealing with divorce, annulment, child support and spousal maintenance issues from time to time. One common question we see involves late-life marriages between a (sometimes) confused senior and a (sometimes, but not always) younger suitor. The questions sometimes come from the senior himself or herself (“I love my fiance, but can my children do anything to challenge this marriage?”) and sometimes from other family members (“Dad wants to marry his caretaker, but we children think she’s just taking advantage of a demented older man for his money. What can we do about it?”).

It is extremely difficult to generalize about these issues, since they are very, very fact dependent. When lawyers say “fact dependent,” incidentally, they usually mean that they anticipate that testimony will be conflicting, that litigants will hear only the part of the testimony that supports their own position, and that the cost, complexity and time spent on litigating the “fact dependent” questions will be substantial, perhaps even prohibitively so.

There is one recurring legal question, though. If either spouse is incompetent (setting aside the definition of that very flexible word for a moment) at the time of a marriage, that marriage may be invalid. But the incompetent spouse is usually not the one challenging the validity of the marriage, and family members who do challenge it are often trying to set aside the marriage after the death of the incompetent spouse. In general terms, only spouses are permitted to litigate divorce, annulment and support questions, and the availability of divorce proceedings usually ends with the death of either spouse. So can family members challenge the validity of a marriage after the death of an allegedly incompetent spouse?

According to the Wisconsin Supreme Court, the answer is “yes.” Of course, Wisconsin cases do not carry direct authority in Arizona (or other states), but the rationale may be persuasive — so it’s worth describing the case even for an Arizona audience.

Naomi Latigue (not her real name) had been married for thirty years when her husband Larry died in 2001. They had not had any children together, but Larry had three children from his first marriage. Naomi had signed a will leaving her entire estate to Larry and, if he died before her, to his children — as if they were her own children (though she had never adopted them).

Several years after Larry’s death, Naomi suffered a stroke. It left her deeply affected — for purposes of the later Supreme Court decision, we can assume that her competence was marginal, at best. After what was probably another stroke in 2008, she was admitted to the hospital and then, two weeks later, discharged to a nursing home.

While she was at the nursing home, her live-in companion (of about five years — predating her first stroke) checked her out twice — first to get a marriage license and then, a week later, to get married before a local judge. He did not tell her family members about the plan or the fact of the marriage (they learned about it from her insurance carrier when making claims a few weeks later). Her step-daughter filed a guardianship petition and a temporary guardian of the person and of the estate (what we in Arizona would call a temporary conservator) was appointed. Naomi died a few days later, before the guardianship petition was resolved.

Wisconsin, like most states (perhaps all states) provides that a spouse who marries the decedent after their will is written is entitled to some share of the probate estate. Naomi’s new husband filed a probate petition, alleging that her original will could not be found but that in any event he was entitled to a share, and to appointment as personal representative. Naomi’s step-daughter filed a competing petition, seeking probate of a copy of Naomi’s will and arguing that the marriage was invalid.

The probate court considered arguments of the parties and ultimately ruled that the only way to challenge the validity of a marriage is by filing a petition to have it annulled. By state law (the same rule applies in Arizona) only the affected spouses can prosecute an annulment proceeding, and so there was no mechanism for Naomi’s step-daughter to challenge the validity of the will. Accordingly, Naomi’s husband was appointed as personal representative and awarded a share of her estate.

The Wisconsin Supreme Court reversed that holding, and remanded the case back to the probate court for a determination about whether the marriage was valid. It is true, wrote the Justices, that spouses can only challenge the validity of their marriage by filing an annulment petition, but that does not prevent a probate court from determining whether Naomi was competent to enter into the marriage. If she was not, said the court, the marriage was void from the moment it was entered into, and Naomi’s heirs could make that argument in the probate court. Estate of Laubenheimer, July 16, 2013.

Would the same principles apply in Arizona? Probably. Arizona does have one case with somewhat analogous facts and a similar result. In Estate of Rodriguez, a 2007 Arizona Court of Appeals case, the decedent had referred to herself as married and had signed a will leaving the bulk of her estate to her “husband.” After her death it developed that he had still been married to his first wife at the time of his marriage to the decedent, and so her family challenged the validity of the marriage. He argued that the probate court had no jurisdiction to void the marriage, since the couple had not resided in Arizona at the time of her death; the Court of Appeals, in language similar to the Wisconsin Supreme Court’s opinion in Naomi’s case, ruled that the probate proceeding was not an annulment petition but a separate challenge to a void marriage.

Divorce Case Includes Useful Pointers for Elder Law Attorneys

JANUARY 28, 2013 VOLUME 20 NUMBER 4
At Fleming & Curti, PLC, we don’t spend much time reading appellate decisions about divorce, property division and child support. That’s because we don’t practice family law, and there’s plenty to keep up with in our chosen realms of law. But a recent decision from the Arizona Court of Appeals caught our attention. Although it arises from a divorce case, it involves a number of issues we frequently deal with.

Carl Gregor filed for divorce from his wife Evelyn Gregor (not their real names) in 2005 in Phoenix. Carl had been disabled while working for the federal government, and received a monthly payment from the Federal Employees’ Compensation Act. Evelyn, a retired teacher, received a monthly state retirement check. The couple had an adult son, Aaron, who was disabled. The divorce proceeded through a trial and an appeal in 2009; the appellate court sent the matter back for further proceedings, and another set of hearings was held.

After the new trial and entry of an modified Decree of Dissolution, both Carl and Evelyn appealed. For good measure, Aaron appealed as well — he argued that his mother should have been ordered to pay support for him because he was disabled. The Court of Appeals reviewed the competing arguments and addressed three items of interest to elder law and estate planning lawyers:

Evelyn’s “buy-out” annuity was community property. In her last year of teaching, and just before the first divorce decree was entered, Evelyn’s school district had offered long-time teachers a “buy-out” arrangement. It’s purpose was to get teachers to retire early, and it amounted to a one-year annuity, at the teacher’s current salary, if Evelyn would agree to leave her post before she was required to retire. She took the deal.

But was her one-year annuity community property? If so, then Carl would be entitled to receive some portion of her payments, or some property of roughly equivalent value. If not, then she could keep those monthly payments without having to share.

The trial court determined that the buy-out arrangement was akin to a severance package, intended to compensate her for future earning. Consequently, the annuity was not divided in the divorce decree. The Court of Appeals disagreed, finding that the annuity was more like retirement benefits, albeit not from the state retirement system.

The fact that the buy-out payments were not to be made until after the divorce was immaterial, ruled the appellate court. Carl was entitled to a credit in the divorce calculations for the payments Evelyn received. The precise calculation would need to be made by the trial judge, and so the Court of Appeals returned the matter for yet another evidentiary hearing to determine how to divide the payments.

Carl’s life insurance policies were at least partly community property. Carl held two whole-life insurance policies, on his own life. He testified that he had paid $40,000 in an initial payment on the policies, using an inheritance received from his mother’s estate (and, incidentally, that he had never told Evelyn about the inheritance or the policies while they were married). But he had made monthly premium payments of about $255 on the policies while the couple was married.

The trial judge ruled that Carl had produced enough evidence about the life insurance policies to overcome the presumption that they were community property, and awarded them to Carl alone. The Court of Appeals disagreed, and remanded this issue to the trial judge for another determination of the nature of the policies. Though they might not be entirely community property, ruled the appellate judges, some portion of the value of the policies belonged to the community and an equitable division needed to be made.

Aaron was not entitled to child support. Arizona law permits a divorce court to award support for an adult child if that child was severely disabled before reaching age 18. Carl sought an award of child support for the couple’s son Aaron, who lived with Carl. The trial judge denied the claim, finding that Aaron was currently disabled, but that there was insufficient evidence that he was severely disabled before his majority.

The Court of Appeals agreed with the trial judge on this one. Arizona law is clear, even though there is room for interpretation. The disability must be “severe,” and it must exist before the child reaches majority.

The evidence of disability produced for the trial court was really just a single letter from a doctor who had treated Aaron when he was 21. That letter said that his disability started when Aaron was 16, but it did not describe the severity of the disability during that time period.

There was also evidence that Aaron had gone to college, and lived on his own for at least some time. He had not applied for Social Security payments based on his alleged disability until after he turned 18. He lived with his father at the time of the divorce trial, but the appellate court noted that he was serving as his father’s caregiver. He had a driver’s license and took his father to appointments. He even drafted the pleadings in the divorce case for his father. Based on all the evidence before the trial court, the Court of Appeals agreed that no child support should be ordered. Gersten and Gersten v. Gersten, January 24, 2013.

Why are these divorce issues important to Arizona elder law attorneys? The characterization of life insurance and other less-common assets as community property or separate property can be important in estate planning as well as planning for long-term care needs. And we see a lot of adult children with disabilities — it’s important to understand what might be required of the parents of a disabled adult child when they contemplate divorce.

Divorced, Separated or Filing Soon? Think About Your Estate Plan

JULY 23, 2012 VOLUME 19 NUMBER 28
We’re sorry to hear about your marriage breaking up, and we know you have a lot of other things on your mind. But could we get you to think about your estate plan for a moment? We suspect that in the process of getting divorced or separated, you haven’t given it any thought.

At Fleming & Curti, PLC, we have seen a number of cases where a separated or recently divorced spouse has died without having taken care of estate planning. If you have recently gotten divorced or legally separated, or if you or your spouse have recently filed, you should consider the effect of this major life change on your will, living trust, beneficiary designations and custody arrangements set up for your children. In fact, we wish you would think about it for a moment if you have ever gotten divorced — a number of the cases we have handled have involved someone who didn’t get around to making appropriate changes for years after the divorce. Here are some of the issues you should think about, and discuss with either your divorce lawyer or your estate planning attorney:

Default state law. In Arizona (and in some other states — but we don’t practice law in those states) there is a statute that says divorce causes your ex-spouse to be treated as if he or she died before you. So if your will leaves everything to your husband, and then you get divorced, he should be treated as having died, which means your will now leaves everything according to the alternate provisions you spelled out. Same thing for life insurance beneficiary designations — even joint tenancy titling in real estate. If you would like to read the Arizona law on divorce and estate planning, it is available online.

But don’t rely on that law. There are a number of problems with doing so, and they are mostly not things the legislature could even fix if they tackled the issues. For instance: what about a decree of legal separation? In Arizona, that is not a divorce — the spouses are still married. The law assumes that if they wanted to really sever all rights they might have in one another’s estates, they would have gotten divorced (or had the marriage annulled). Consequently, a decree of legal separation will not have the same effect.

What about people who want their ex-spouses to receive property even though they have gotten divorced? We do see this — fairly often, in fact. Because of the presumption that the divorce effectively changed the spouses’ estate plans, if you want to leave anything to an ex-spouse you would be well-advised to sign a new will (or trust) and make it clear that your divorce has not changed your wishes.

What about couples who are not yet divorced, but who are in the middle of filing? Perhaps they have even been involved in a protracted, bitter legal struggle — but until the divorce is final, they are not divorced for purposes of estate planning. So if you are in the process of getting divorced, you would be well advised to talk with your lawyer (either the divorce lawyer or your estate planning lawyer) about what you should do between now and the finalization of the divorce decree. But note: there is a related rule which kicks in automatically in every pending Arizona divorce proceeding. It prevents the spouses from making any transfers of property or changing ownership arrangements (you can read the automatic “preliminary injunction” online), so be very careful about how you change your estate plan. The more contested the proceeding, the more urgent the need to make the change — and the more dangerous it can be to do it. So talk to your lawyer(s).

Federal law. Some kinds of property are not governed by the Arizona law treating divorced spouses as having each died before the other. The most important illustration: benefits governed by ERISA, (known to its friends as the Employee Retirement Income Security Act of 1974). Even if your divorce decree says, for instance, “husband gives up all rights he may have in wife’s retirement account at XYZ, Inc.” it may not be effective. It is critically important that you make sure that (a) your divorce decree qualifies as a QDRO (a Qualified Domestic Relations Order) and that you have taken steps to formalize the change in beneficiaries and (b) you actually get a new beneficiary designation in place. Again and again we see long-divorced spouses who have never gotten around to changing the beneficiary on their work-sponsored insurance or retirement plans, and whose ex-spouses end up with the benefits.

Look at your decree — and show it to us. Suppose your divorce decree requires you to maintain life insurance payable to your kids. Fifteen years later, after a remarriage (and the birth of two more kids by your second spouse) you decide to update your estate plan. We tell you what changes we want you to make in your life insurance beneficiary designation. Do you think we need to know about your almost-forgotten divorce decree before actually making those changes? You bet we do — and you need to remember to look at it from time to time, too, if it contains any instructions which might continue to apply to you.

Custody of your children. Maybe you were in a bitter divorce, and you think your ex-spouse is really not a good parent. Can you provide that someone else gets custody of your children on your death?

Probably not. But that doesn’t mean that you shouldn’t make any provisions for guardianship. What if your ex-spouse dies before you, or chooses not to seek custody after your death? You should have a conversation with your estate planning attorney about guardianship, even if your expression of preference may not be effective. It might turn out to have been important.

You need new powers of attorney. Just as your ex-spouse ceases to be your heir after the divorce, he or she also loses the role as agent under both your financial and health care power of attorney (under Arizona law, at least). But that could mean that you haven’t named an agent at all — and the last thing you want is for your new spouse, or your brother or sister, to be fighting with your ex-spouse about whether the documents are valid. You need to sign new powers of attorney — in fact, we think it is even more important that you do that while the divorce is pending (since the automatic rules have not yet kicked in).

What about your joint revocable living trust? Oh, what a good question. This one often requires some close communication between your divorce and estate planning attorneys. You need to separate assets and estate plans, but you have to be careful not to violate that automatic preliminary injunction we talked about earlier. Get both attorneys talking to one another (and maybe your spouse’s divorce attorney, too) as early as possible. And if your joint trust is irrevocable (as it might be, for instance, if it holds life insurance), the problems can be even more difficult, and cooperation more important.

How are step-kids treated? Remarrying someone who brings children into the marriage? You need to talk with us about how to treat your step-children (and maybe other step-relatives). The legal system makes some assumptions about how you want your children treated; those same assumptions may not apply to step-children, and so you need to be especially careful — and specific — in order to get your wishes recognized.

That’s just a sampling of some of the estate planning issues we see in cases involving divorced — or divorcing — spouses. There are a lot more issues out there, and some of them are very complex. For us, the key is communication: you need to tell us about your marital history, and we need to let you know why that can be important.

Lifetime Asset Transfers Voided Based on Agreement to Make Will

MAY 7, 2012 VOLUME 19 NUMBER 18
We have written about contracts to make (or not to revoke) a will before. The question comes up infrequently, and usually only in a handful of ways: can you and your spouse make an enforceable agreement that you will leave your respective estates to, say, your children no matter what? Yes, you can — at least in Arizona.

For John and Martha Lindford (not their real names), the question came up during their divorce proceedings. Martha wanted to make sure that the couple’s two children, John, Jr. and Paula, would receive at least a share of John’s estate when he died. When the couple negotiated a property division as part of the divorce, it included a provision that required each of them to “execute a Will leaving fifty percent (50%) of their respective estates in equal shares to the children and twenty-five percent (25%) to each other.”

Eleven years after the divorce was final they both agreed that it was time to modify their first arrangement. John and Martha both signed an amendment that eliminated the requirement that any share of each estate be left to the other, and instead provided that 75% of each ex-spouse’s estate would go to the two children. Six months after that modification, John remarried.

Five years after the second marriage John was diagnosed with cancer, and he began to seriously plan his estate. He amended signed a new will and modified his existing living trust; the new documents specifically left several business entities to his new wife, and provided that she would also receive an additional amount to bring her share of his estate up to 25% if it did not already amount to that much.

In the months after his cancer diagnosis, John also transferred several assets — the family home, several bank accounts and one of the businesses — to his second wife outright. When he died eighteen months after diagnosis, the effect had been to leave his second wife substantially more than one-quarter of his entire estate — although she had gotten a large part of that share by lifetime gifts, not in his will or the trust.

John, Jr., and Paula and first wife Martha filed a claim against John’s estate. They argued that the effect of his gifts and the terms of his will and trust violated the marital property agreement as it had been amended. His second wife acknowledged that she had gotten more than one-quarter of John’s assets, but argued that the agreement only required him to have a will leaving 75% to his children — and that lifetime transfers were not prohibited by the agreement.

After a two-day trial, an Arizona probate judge ruled that John’s actions violated the property settlement agreement with his first wife. The second wife was ordered to return all the assets she had received from John, so that a new division could be made and her share could be capped at 25%. She appealed the ruling.

The Arizona Court of Appeals agreed with the probate judge, and upheld his ruling. The appellate judges calculated that John had given about $2.5 million — amounting to more than one-third of his entire estate — to his second wife, and that he had done so in an attempt to defeat the agreement he had signed with his first wife. Estate of Lockett, April 26, 2012.

Should John’s and Martha’s original agreement, signed in the course of a divorce nearly two decades before John’s eventual death, effectively tie John’s hands indefinitely, and despite his later marriage, growth of his estate and changes in his family relationships? That question is larger than the legal question posed by his probate case. For good or ill, John and Martha had signed an agreement that compelled them each to leave three-quarters of their respective estates to their two children. That agreement might have turned out to have been unwise or constraining, but it was their agreement.

What formalities are required for such an agreement to be effective, and to bind the parties? Arizona law (and other states may have different provisions, so be careful about generalizing from Arizona’s example) requires a contract to make a will — or not to modify or revoke a will — to meet only very basic formal requirements. Paradoxically, it would seem that a contract which does not satisfy basic will formalities (e.g.: unwitnessed and not in the decedent’s handwriting) might qualify as an enforceable contract, thereby effectively creating a will.

What landmines and roadblocks might people considering such a contract (e.g.: the lawyers representing a couple in a divorce proceeding) reflect upon before signing? Well, the opinion in John’s probate case turned, among other things, on a letter he wrote before the agreement was signed. In that letter John reported that he intended to leave 75% of his “entire estate” to his first wife and children. When the second wife later argued that the agreement necessarily only covered his will and his probate estate (and therefore should exclude property he gave away before his death), both the probate judge and the appellate court pointed to his letter as proof that he meant the contract to include his entire estate. If that is true, it certainly would have been a good idea for the agreement to spell that out in more detail, and to cover the possibility of living trusts, lifetime transfers, creation of limited liability companies or family limited partnerships, and other arrangements.

How To Revoke Your Revocable Living Trust, Will or Power of Attorney

AUGUST 8, 2011 VOLUME 18 NUMBER 29
Last March we told you a good story about revocation of a living trust, though we cautioned you not to use the same method. A year before that we told you about another colorful character and how he revoked his will. Both of those court cases made us scratch our heads about the behavior of the individuals, but it occurs to us that we might never have told you what you should do to revoke your will or trust. Let us take care of that oversight now.

Please remember that we only practice law in Arizona. What works here might not work, or might not work exactly the same way, elsewhere. Your best bet is always to talk with a competent local attorney about how (and whether) to revoke a will or trust — or, for that matter, a power of attorney or other planning document you might have signed. With that caveat, here are some thoughts on how it might be done:

Revoking a will

The usual way to revoke a will is to sign a new one. It is very uncommon for an individual to want or need to revoke a will without making new arrangements for disposition of his or her property. Somewhere in your will — probably in the first paragraph or two — there is probably language that says something like “I hereby revoke all other prior wills I have signed.” That’s all it takes.

It is also possible to revoke a will by physically destroying the original document. Actually, Arizona law says you can do this by committing a “revocatory act” on the document. That can include burning, tearing, or other physical acts of destruction on the will or on a part of it. There are two keys here: you must intend to destroy the will, and you must do it yourself (though it is permitted to instruct someone else to do it in your presence). It is not an effective approach to call up your brother on the telephone, ask him to go down to the basement where the will is located, tear it up and report back to you — it must be done in your “conscious presence.”

Another way to revoke your will is more subtle: you can misplace it. If after your death no one can find your original will, and it is apparent that it was once in your possession, the law presumes that you must have destroyed it. That is only a presumption — we might be able to overcome it by showing, for instance, that you told everyone your will was completed and in a safe place shortly before your death. Obviously, a better choice is to keep track of your original will, and tell your heirs and family where to find it.

Another way to “revoke” your will: get married, or divorced, or have children. Actually, these life changes do not really revoke your will under Arizona law, but they can effectively rewrite your will — and in some circumstances can change your entire estate plan. There is a presumption in either case that you just didn’t get around to making appropriate changes in your will. Once again, you can overcome that presumption by taking appropriate action. There is a high likelihood that the law’s presumption will not be accurate as applied in your facts, so after marriage, divorce or birth of a child you should get together with a lawyer to make sure your estate plan is in order.

Revoking a trust

When a client asks about revoking a revocable living trust, our first question is not about “how” but “why.” There are very few disadvantages to having a revocable living trust — the two primary problems are the cost of setting one up and the difficulty of transferring assets to the trust. If you have already incurred both the cost and the difficulty of funding, it probably does not make sense to revoke the trust. Instead, let us talk with you about revising the trust to remove whatever provisions trouble you. Is it just that you don’t want your former girlfriend’s name to appear in the document? OK — we can probably “restate” the trust, which will involve replacing the entire trust document with a new one without the offending name.

For whatever reason, perhaps you just want to revoke your revocable living trust. After all, “revocable” is in the name, right? How do you do it?

First, you look at the trust document. Does it tell you how to revoke it? Perhaps it requires a written revocation, and maybe even it calls for the signature of the trustee (these are common but not universal requirements). If the trust tells you how to do it, follow the trust’s instructions.

Is it enough to tear up the trust? No, not under Arizona law. How about misplacing the trust document? No, a missing trust does not create a presumption of revocation in the way that a missing will would do.

How about getting married or divorced, or having children? This one involves a little more nuance. Your trust might take care of the children part — a well-drafted trust will usually make provision for the later birth (or death) of a child, or even a grandchild. Sometimes that provision is by one of the legal shorthand terms “by right of representation,” “per stirpes” or even “per capita.”

Marriage may not be covered in the trust document or Arizona’s default law. Divorce is covered by the same default statute as we described above for wills — but with the added wrinkle that if your trust is a joint trust between you and your spouse, it is a little harder to figure out what happens in individual circumstances. The message here: if you have any of these big life changes (marriage, divorce, birth or death of a child or other beneficiary) get in to your lawyer’s office as quickly as you can to make the appropriate changes to your revocable living trust.

Powers of attorney

How do you revoke your power of attorney? If you have never shared the document with the named agent or anyone else, you can revoke it by simply tearing it up and throwing it away. If you have shared it, you should write a separate letter to everyone who has seen it indicating that you are revoking the power. Make sure any new power of attorney you sign deals with the older one(s): it may not be enough to just rely on the most recent document, since they don’t automatically revoke older powers of attorney in the same way that wills do.

Keeping track of power of attorney documents and formally revoking older ones is important for another reason. Unlike trusts and wills, revoked powers of attorney are still valid to the extent that your agent acts without knowledge of the revocation. Save everyone a lot of heartache, expense and confusion by having an attorney prepare your new powers of attorney and properly revoke older versions.

One final note: you can see that the effect of having older, revoked documents around can be serious and can vary between the different types of documents. Help us keep your estate plan straight, and your life uncluttered. We know that you paid good money for those old documents, and that it is hard to throw them away. Just do it. If we prepare your new estate plan, we will offer to help you revoke and destroy the old documents (and all those drafts and copies we lawyers sent you), and we’ll volunteer our shredder to make it discreet and effective.

We Invite Your Questions, and Answer a Few

MAY 30, 2011 VOLUME 18 NUMBER 19
Periodically we try to answer some of our readers’ frequent questions, which we enjoy receiving. Some more recent questions and our quick attempts at simple answers follow. Remember, please, that slight variations in fact patterns can lead to different answers; these are intended as illustrations and guidance, not as iron-clad answers to your legal concerns. Please consult your lawyer (and we’d be interested in taking on that role, if you live in Arizona and would like to call and make an appointment) before relying on this information.

Can I leave my IRA account to a third-party special needs trust for my daughter?

Yes, you can. It may not be the best answer, and it may raise a number of other issues and concerns, so please talk to your lawyer about your specific situation. But one of your choices is indeed to leave the IRA (or a retirement plan of any kind) to your daughter’s special needs trust.

If a significant portion of your wealth is tied up in an IRA, 401(k), 403(b) or other tax-deferred retirement plan, there is plenty of information out there about how important it is to name individual beneficiaries, how the plan ought to be divided upon your death into shares for each beneficiary, and how your beneficiaries should be encouraged to “stretch out” their withdrawals as long as possible. We agree with all of that — but if one of your beneficiaries has a disability, and particularly if she is receiving Supplemental Security Income, Medicaid or other means-based public benefits, it is also important to create a special needs trust for that beneficiary. There is no reason her share of your IRA can not be made payable to that special needs trust.

The notion of naming a trust as beneficiary of a retirement account is fairly novel. Not too many years ago it was absolutely to be avoided, and many investment advisers, accountants, lawyers and financial companies retain that anti-trust bias deeply embedded in their collective and corporate psyches. But the rules are different now, and it is much easier to name a trust as beneficiary. You just need good advice from someone who is familiar with those rules and can explain how they affect your retirement account in your family situation.

In general terms, the primary effect of naming a trust as beneficiary will usually be that the age of the oldest person who might ever receive benefits from the trust will be used to calculate the withdrawal rate. But let’s see if we can make the explanation clearer. Let’s assume that your daughter, Diana, is 47. You also have two sons, Steven (age 54) and Scott (age 43). You have named Diana’s special needs trust as beneficiary of 1/3 of your IRA. Sadly, you die this year (we don’t mean anything personal — we have to let you die some time in order to ever figure out the effect of your beneficiary designations).

Next year Steven will have to withdraw at least 1/29.6 of his share of your IRA (we figure that as about 3.38%). Scott has to withdraw at least 1/39.8 of his share (that looks like about 2.51%). Diana would have to withdraw at least 1/36 (2.78%) if she had been named as beneficiary outright, but she wasn’t. So how much will her special needs trust have to withdraw?

It depends on who is named as remainder beneficiary. If upon Diana’s death the remaining money in the special needs trust goes to Scott and Steven, then we use Steven’s age for the calculation and the trust will have to withdraw the same 3.38% that he had to withdraw from his share. If Diana’s trust goes instead to her two sons (ages 15 and 17) then Diana herself is the oldest beneficiary and we can use her age — and the withdrawal will be 2.78%.

Clear as mud? Yes, but you should have seen the rules before they were simplified in 2002. While the numbers are daunting, the current rules are actually pretty easy to figure out,  and the ability to stretch out distributions from your IRA for another 36 years (or so) allows Diana’s share to continue to grow tax-deferred, despite the need to put her share in trust.

Want more information, or the numbers for your own children’s ages? Look at the IRS’s Publication 590. Appendix C is Table I, the Single Life Expectancy table to be used by IRA (and 401(k), 403(b) and other) beneficiaries.

Do alimony payments continue when someone goes on Medicaid long-term care assistance?

Short answer: yes. Now let’s parse the question a little bit more.

Assume husband and wife, married many years, were divorced five years ago. He was ordered to pay alimony of $1,000/month to her for the rest of her life. She has now gone into the nursing home, and has spent all of her own funds for her care. She has qualified for Arizona’s Long Term Care System (ALTCS — it’s Arizona’s version of the long-term care Medicaid program) payments toward her nursing home bills; she turns over her alimony payment and all but about $100/month of her Social Security, and ALTCS pays the balance of her nursing home bill.

If her ex-husband could legally stop paying the alimony payments, ALTCS would simply increase the payment to the nursing home by $1,000. She would be no worse off and he wouldn’t be subsidizing her nursing home care any more.

Because he is legally obligated to continue the alimony payments, however, ALTCS will continue to count them in its calculation of how much to pay to the nursing home. And if he went to court to argue “changed circumstances” and no continuing need to pay alimony, he might find that her attorney argues that the changed circumstances justify increasing the alimony payments so that she is not on ALTCS at all. Even if that didn’t happen, ALTCS might be inclined to view the proceeding as a sham just to get him out of paying the support payments. So it is far from certain that he would be better off by going back to the courts.

What about the reverse situation? Let’s imagine for a moment that it is the ex-husband who has gone into the nursing home. He has spent down all of his assets and applied for ALTCS. He receives $2,800/month in Social Security another $1,500 in private retirement; ALTCS says that he must turn over all but about $100/month of that income to the nursing home, and it will pick up the (small) difference.

Can he stop paying alimony? Well, no. The divorce court has ordered him to pay, and he needs to go back to argue “changed circumstances” as a way of getting out of having to make the payments. Will ALTCS, then, reduce his contribution requirement, recognizing that he is under a legal obligation to pay the alimony? Well, no. They say that his care comes first, and the entire income (minus his small personal needs allowance) has to go toward his care — and their payment to the nursing home will reflect that calculation.

What should he do? He needs to get legal help and get his support order modified. He should not simply ignore the outstanding alimony award.

Please note that “alimony” is not called that any more, and “divorce” is also an old-fashioned word. They are common in the vernacular, but the legal terms — at least in Arizona — are now “spousal maintenance” and “dissolution,” respectively. We know that, but we fear that it makes the explanation so much harder to read.

Despite Guardianship, Ward May Have Capacity to Marry

MAY 2, 2011 VOLUME 18 NUMBER 16
We have written in previous installments about differing state laws regarding the ability of a guardian (of the person) or conservator (of the estate) to file a divorce proceeding “for” an incapacitated adult. The question that comes up more often from our clients is a little different, though. In its most direct form, it might be phrased like this: “if I get a guardianship over my demented mother, will that prevent her from getting married without my permission?”

The exact dimensions of the question, of course, vary with each asking. Sometimes there is familial anxiety about a late-life romance blooming in the assisted living facility or nursing home where a parent has been placed. Sometimes the concern is over a developmentally disabled 17-year-old about to acquire, at least theoretically, the legal right to make foolish decisions. Sometimes the question is focused on a particular dangerous suitor, and sometimes it is more generalized.

The short answer to the question: the mere fact of a guardianship probably will not prevent the ward from getting married, or the marriage from being determined to be valid. The level of capacity required to enter into a marriage agreement is not exactly the same as the level of capacity required to make one’s own placement or medical decisions — or even to enter into other kinds of contracts. But the facts underpinning the guardianship proceeding are likely to be the same facts utilized in any later challenge of the validity of a marriage.

Take the recent example of Christopher C. Oakley, who lives at Lamplight Village, an assisted-living facility in West Plains, Missouri. Mr. Oakley suffered a childhood traumatic brain injury in 1986, and has required supportive assistance with bathing, housekeeping and personal care ever since. His father was apparently appointed as guardian of his person in a Florida proceeding in 1995. A professional fiduciary was appointed as conservator of Mr. Oakley’s estate at the same time, and continues to manage the proceeds from settlement of a personal injury lawsuit filed in connection with the original accident.

As Mr. Oakley reached his early 20s he became involved with Melissa Warren, another resident of Lamplight Village. She, too, had a guardian and conservator — the Howell County, Missouri, Public Administrator was appointed to handle her finances, medical and placement decisions after the probate court determined that she was unable to do so herself.

In 2006 Mr. Oakley and Ms. Warren decided they wanted to get married. They each asked their respective guardians for permission, and both refused. They then had a friend drive them to a neighboring state, where they were married. Upon their return they began to live together in a shared apartment at Lamplight Village, and they identified themselves as a married couple.

The two guardians responded quite differently. The guardian for Ms. Warren (now Mrs. Oakley) did not initially approve, but sat down with the couple and discussed what they had done. The guardian decided that they really did want to get married, that they understood the emotional and financial meaning of their decision, and that the marriage should be allowed to stand. In fact, she told the judge, if the marriage was annulled she would intend to immediately file a petition to secure court approval for a new marriage.

Mr. Oakley’s guardian reacted to the news of the wedding by filing a petition to have the marriage annulled. He argued that his original Florida guardianship was based on a finding that his son was incapacitated, and that the marriage therefore was invalid in the first place. In testimony, he explained himself by asking, rhetorically: “what happens if he decides ten years from now that if somebody else — another girl comes into his life and it’s better and bigger and everything than what he had?” He also filed a Missouri guardianship proceeding, which was granted while the annulment proceeding was pending.

The judge hearing the annulment petition denied Mr. Oakley’s father the relief he sought. The fact of a Florida guardianship, reasoned the judge, did not prevent the ward from having the capacity to understand the meaning and effect of marriage. Neither did the fact that his intellectual functioning was well below “normal” intelligence, with an IQ estimated at about 70.

The Missouri Court of Appeals agreed, and allowed the marriage to stand. The burden of proving that Mr. Oakley lacked capacity to marry was on his guardian, ruled the appellate judges, and he had failed to carry that burden. The existence of a Florida guardianship was not adequately shown, and neither was the effect of that order. The evidence considered by the trial judge was sufficient to support his finding that Mr. Oakley, despite any guardianship order, understood the nature and effect of marriage well enough to enter into this most personal of contractual arrangements.

There are a number of other interesting side-issues involved in Mr. Oakley’s marriage annulment proceeding. At least, they are interesting to lawyers — everyone else might find them less bracing. One such issue: the lawyers, the trial judge and the appellate judges all agreed that Mr. Oakley’s capacity to marry should be assessed under the law of Arkansas, where the marriage took place, rather than the law of Missouri, where the couple lived and the legal action was filed. Meanwhile, Mr. Oakley’s father insisted that the law of Florida should govern the question of whether a ward automatically loses all capacity to marry upon the appointment of a guardian; that argument was lost, however, when the Missouri courts decided that he had not proven the existence of a Florida guardianship as required by Missouri law. In Re Marriage of Oakley, April 27, 2011.

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