Articles Posted in Equitable Distribution

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State Farm Life & Assurance Co. v. Goecks, F. Supp. 3d       , 2016 WL 1715205 (W.D. Wis. 2016)

Facts: A Wisconsin divorce decree provided:

The respondent [Gary] shall be required to maintain the petitioner [Sharon] as the primary, irrevocable beneficiary on one third of the face value of all his life insurance policies in effect as of the date of the final hearing or in the amount of Seventy Five Thousand Dollars ($75,000) of the face value of said policies, whichever sum is greater. Respondent shall provide the petitioner proof of said insurance and beneficiary designations. Petitioner shall pay the respondent the sum of Twenty Five Dollars ($25.00) per month toward the cost of said insurance. The parties further agree to designate the children as primary beneficiaries of all life insurance policies except as set forth above.  2016 WL 1715205, at *1. The divorce decree was not submitted to the employer for qualification as a QDRO.

The husband initially complied with the above provision, but later changed the beneficiary on some of his life insurance to his new wife. Upon his death, the insurers paid some of the benefits to the new wife, and interpleaded the remainder. Both wives asserted competing claims to the proceeds.

Of the various insurance policies at issue, one was an employer-provided policy regulated by ERISA.

Issue: Who is entitled to the proceeds from the employer-provided policy?

Answer to Issue: The husband’s wife at the time of his death.

Summary of Rationale: The court first held that the husband had breached the contract, rejecting a rather weak state law argument that the agreement only required the husband to name his former wife and children as a beneficiary of the insurance, and not as the exclusive beneficiary.

The employer-provided life insurance policy was part of a benefit plan, and it was therefore subject to ERISA. Benefits regulated by ERISA can be transferred only under terms of a QDRO. No QDRO was ever submitted. Thus, federal law preempted state law and barred enforcement of the decree with regard to the ERISA- regulated policy.

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Family Chiropractic Sports Injury & Rehab Clinic, v. Comm’r, T.C. Memo. 2016-10, 2016 WL 234515 (2016)

Facts: Husband and wife operated a chiropractic The practice had an Employee Stock Ownership Plan (“ESOP”). Husband and wife were the only participants.

The parties were divorced in Iowa. The decree was silent on the ESOP, but the wife agreed to transfer her interest in the ESOP to the husband. She later did so.

The IRS decertified the ESOP, resulting in the loss of valuable tax benefits, on the ground that the transfer to the wife violated the antiassignment provision of the plan and the antiassignment provision of ERISA. The practice filed a declaratory judgment action questioning the decertification.

Issue: Did the IRS err in decertifying the ESOP?

Answer to Issue: No.

Summary of Rationale: The plan provided that vested benefits could not be transferred. There was no divorce exception. The wife’s vested benefits were transferred to the husband. Therefore, the provision was violated and the ESOP was correctly decertified.

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Dahl Aerospace Employees’ Ret. Plan of Aerospace Corp., 122 F. Supp. 3d 453 (E.D. Va. 2015)

Facts: A Virginia divorce decree, incorporating a settlement agreement, gave each spouse the option to elect survivor benefits under the retirement plan of the other This provision was not immediately stated in a DRO or qualified by the plan.

The husband’s pension plan allowed him, upon retirement, to elect a 50%, 75%, or 100% survivor benefit.

The husband retired on July 31, 2014, 11 years after the divorce decree. He did not notify his former wife in advance, or give her any option to elect survivor benefits. Instead, he elected his current wife as 50% survivor beneficiary. He stated in his election that no outstanding court order required him to name another person as survivor beneficiary—a blatantly false statement.

Upon learning of the husband’s retirement, the former wife’s counsel prepared a draft DRO requiring the husband’s employer to act as if the husband had elected 100% survivor benefits for his former wife. The retirement plan refused to qualify this order, on the grounds that the husband had already elected a 50% benefit for his current wife and he was only permitted to name one survivor beneficiary.

The former wife sued the plan and the husband in federal court, seeking a declaratory judgment that the husband’s election of his current wife as survivor beneficiary was void for fraud, and that the plan was required to qualify an appropriate DRO naming the former wife as survivor beneficiary. The plan and the husband moved to dismiss the wife’s action.

Issue: Should the wife’s action be dismissed?

Answer to Issue: Yes.

Summary of Rationale: The plan argued that the wife lacked standing, because she was not an actual plan But a person with a claim to benefits is also entitled to sue the plan. The former wife had a colorable claim to benefits.

At the time the husband retired, there was no QDRO in effect limiting his choice of survivor beneficiary. Therefore, the former wife could prevail only by establishing that the husband’s survivor benefit election was void. She cited no case law holding that an election of survivor benefits is void if a false statement is made which defrauds a former spouse who has not yet obtained a QDRO. In the absence of such law, the court refused to hold that the survivor benefit election was void.

Because the former wife did not obtain a QDRO, the husband’s election of his current wife was enforceable under ERISA, even though the election violated a state court order.


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Belot v. Comm’r, T.C. Memo. 2016-113, 2016 WL 3248031 (2016)

Facts: During their marriage, the parties operated a dance studio. The business consisted of an S corporation which was the actual studio, an LLC which operated a boutique selling dance clothing, and another LLC which owned the real estate on which the studio operated. The parties owned each of these entities in different percentages.

The parties were divorced in New Jersey in 2007. The decree incorporated an agreement signed by the parties, in which they agreed to convey interests in the entities so that each of them owned 50% of all three entities. The decree therefore left the divorcing parties as joint owners of the business.

Later in 2007, the wife filed a complaint against the husband, alleging that he had mismanaged the studio, and seeking to remove him as director and employee. This action was settled in 2008 by an agreement, in which the wife agreed to buy the husband’s interest in the business for $900,000 to be paid at closing, and $680,000 to be paid over 10 years.

The husband filed tax returns which claimed that the sale of the business under the 2008 agreement was a § 1041 exchange. When the IRS assessed a deficiency, the husband then appealed to the Tax Court.

Issue: Was the transfer required by the 2008 agreement a 1041 exchange?

Answer to Issue: Yes

Summary of Rationale: The IRS relied upon Reg. § 1.1041-1T(b), Q&A-7, which provides:

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Dana M. Horlick, Attorney, Woodruff Family Law Group

Whenever you become a party to a lawsuit, whether you are the Plaintiff or the Defendant, there are deadlines imposed by the Court, by statute, and by the Rules of Civil Procedure that are important to follow. There are deadlines whether you are in Guilford County, North Carolina or Fulton County, Georgia. Missing such a deadline could severely impact your rights.

For a real life celebrity example, let’s look at Phaedra Parks – star of Real Housewives of Atlanta – and her jailed husband, Apollo Nida. The couple were married in 2009 and separated in 2014.

On December 1st of this year, Apollo Nida filed a Complaint against Phaedra Parks, seeking a divorce, along with joint legal custody of the minor children and an equitable division of all of the personal property, assets, and marital debts.

However, back in November of this year, the parties were granted a divorce, after Nida failed to respond to Parks’ divorce petition. Parks filed for divorce in March of 2015 and subsequently was divorced in November. The judge also awarded Parks custody of the parties’ two children. Nida will have visitation rights once he completes the eight-year prison sentence he is currently serving for bank fraud and identity theft.

Now consider if this situation happened here in Guilford County. Once the parties remain separated for one year, either of the parties can file for divorce, which Parks does. Once the Plaintiff has effectuated service of the divorce complaint on the Defendant, the Defendant has 30 days to respond. The 30-day deadline is according to the North Carolina Rules of Civil Procedure. To extend this deadline, the Defendant can file a Motion for Extension of Time and receive an extension, as long as the deadline has not already passed. Now in the case of Parks and Nida, Nida never filed an Answer and never sought an extension of time.

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CarolynCarolyn Woodruff, a North Carolina CPA and Family Law Specialist, frequently is faced in sending a divorce client in the right direction after receiving a retirement plan in a divorce settlement.   Here are her thoughts on the subject:

The recipient may be receiving generally one or more of three types of retirement funds: (1) IRA; (2) 401k; and/or (3) defined benefit plan. Each type of plan should be evaluated as each has unique characteristics discussed hereafter.

Overall, there are four questions the divorcee should ask immediately post-divorce: (1) Age: What is my age now and at what age do I expect to retire? (2) Debt: What is my debt? Do I owe credit cards? Car debt? Is my home paid for? (3) Advisor: Do I need a financial planner or advisor, or am I competent to make investments myself? If the divorcee can do some basic investment herself, she can save administrative costs with mutual funds such as Vanguard. (4) Goal:  How much will I need for retirement adjusted for inflation? The goal is to develop a plan that achieves the goal with moderate or low-risk investments.

Hypothetical: A 40- year-old divorcee would like to retire at 67, which means she has 27 years to plan for retirement. Let’s say she has a 20-year mortgage on her newly acquired home, so this should be paid for before retirement, and perhaps available for a reverse mortgage at some point after retirement if needed. The availability of a reverse mortgage might be the source for medical bills in retirement.  However, she still has school debt, credit card debt and a car payment. She thinks that she will want $4000 per month in retirement after inflation adjustments are made. Let’s say she receives $100,000 in a 401k at the divorce, $20,000 in an IRA, and a small defined benefit plan that will pay $250 a month for her life when she is 67. Her predicted social security is $1500. So with social security at $1500 and the defined benefit plan at $250, she has $1750 of the needed $4000, so she has to make up $2,250 per month or $27,000 per year.. Let’s say her life expectancy is 88, but quite frankly it is good to plan for 100 so you do not out live your money. So that means the money needs to last for 33 years in retirement. The question is how does the divorcee plan for $27,000 per year for the 33 years? What is the amount of savings she will need to make up the $27,000.  At a planned withdrawal rate of  5 percent in retirement, this divorcee is going to need around $540,000  in retirement to meet her goal. At a planned withdrawal rate at retirement of 4 percent, she will need a nest egg of $675,000.  While a financial planner could do some allegedly precise calculations, here’s generally how the discussion will go. (I say allegedly because no one can be sure what inflation will be and what investment rate of return will be. Conservatively, the IRA should grow to at least $150,000 in 33 years. The $100,000 in the 401k should grow to make up the remainder of the needed money. So, the focus should be on investment vehicles that will turn the $20,000 in the IRA and the $100,000 in the 401k into $675,000 between now and retirement.

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13062458_1042739802458603_2436945721037467362_nBy: Dana M. Horlick, Attorney, Woodruff Family Law Group


Now let’s change the hypothetical of our Greensboro couple – Petunia and Rocky – in one respect. Recall that Petunia’s parents wanted her to have a premarital agreement regarding Home Grown Lawn Care, but Petunia and Rocky did not sign one. Maybe a few years into her marriage, Petunia realizes that she wants to keep Home Grown Lawn Care in the family and that Rocky and her parents just do not get along. So Petunia executes a will, leaving her shares of Home Grown Lawn Care to her parents and the remainder of her estate to Rocky.

Under this scenario, Petunia’s parents would receive her shares of Home Grown Lawn Care, valued at $125,000.00. Rocky would receive the 401(k) worth $15,000.00. Rocky may decide that he is entitled to a larger share of Petunia’s estate. He can then exercise the right to elective share, which is a two-step calculation. First, you have to determine what percentage of the total net assets the surviving spouse receives. Second, you have to determine the amount of the elective share, based on the percentage calculated in step one.

Let’s take this step-by-step. The North Carolina legislature has determined that the percentage of the total net assets should vary based on the length of the marriage. Thus, the longer the marriage, the higher the percentage of the total net assets. The below chart shows the percentages, based on the statutory language in N.C.G.S. §30-3.1:


Number of Years Married Share of the Total Net Assets
Less than five years 15%
At least five years, but less than ten years 25%
At least ten years, but less than 15 years 33%
15 years or more 50%

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13062458_1042739802458603_2436945721037467362_nBy: Dana M. Horlick, Attorney, Woodruff Family Law Group


Now that we have the details and definitions out of the way, we can return to our Greensboro couple Rocky and Petunia and take a look at what happens to Petunia’s estate. Recall that Petunia died without a premarital agreement, without children, and without a will. Since Petunia died without a will, this means that she has died intestate, and her property will pass via intestacy, with Rocky as the administrator of her estate. Also recall that Petunia died with an interest in Home Grown Lawn Care worth $125,000.00 and a 401(k) worth $15,000.00, of which Rocky is the beneficiary. Also, Petunia died in a car accident five years into the marriage – this will be important later on.

Without a will, the share of the surviving spouse is governed by statute. There are other factors to consider, though, namely is the decedent (Petunia) survived by any children or her parents? The presence of either surviving children or parents reduces the share of the surviving spouse under the statute. In this case, there are no children, but her parents survive Petunia.

N.C.G.S. §29-14 (a)(3), provides for the surviving spouse’s share of   the real property as follows: “If the intestate is not survived by a child, children or any lineal descendant of a deceased child or children, but is survived by one or more parents, a one-half undivided interest in the real property.” Based on those facts, and the statute, Rocky gets ½ undivided interest in the real property. Under the facts of our hypothetical, there is no real property, meaning that Rocky gets ½ of nothing. If for example, Petunia owned a parcel of land, Rocky would get ½ of that parcel, and her parents would get the remaining half.

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              By Carolyn Woodruff, North Carolina Family Law Specialist, CPA, and CVACarolyn

I am constantly amazed at how people going through a divorce “fight” over “stuff” like a tea cup, a train set, a doll, or a stuffed animal. Generally, when I am using the word “stuff”, I mean personal property like tables and chairs, jewelry, or sentimental items from childhood.  The items have very little monetary value usually (some jewelry and collectibles excepted).  Sometimes the items have great sentimental value.  So, why the fight?

The columnists “Soapbox” in the Sunday magazine Wall Street Journal inspired me to contemplate personal property and its role in our lives.  Jay Leno was one of the columnists, and he talked about his one hundred and fifty cars and one hundred and seventeen motorcycles, all in working condition.  He likes the story behind his cars.  Pat Cleveland considers expensive items “meaningful” and indicia of success, perhaps why so many like Louis Vuitton purses.  Someone commented on behalf of Barbie, the Mattel doll, who states her accessories of a Corvette or outfits create imagination.

In a divorce, anger and striking out at the other side frequently takes the form of snatching and holding hostage a special, sentimental item.  So as a boy, perhaps you collected fishing lures.  The lures bring back memories of special travel and times, but have no monetary value.  There is the pink trout lure that grandma bought you when she took you to the Colorado mountains to fly fish for trout.  Priceless!  And in your divorce, your ex-wife wants to make it an earring.  Oh boy!  Continue reading →

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A premarital agreement is a contract, signed by two persons who are about to be married. It sets forth rules that will apply when the marriage ends, either in death or divorce. It can also set forth rules to govern how the parties will deal with their property during the marriage.

Married persons do not have to sign a premarital agreement. The law already provides rules for dividing property and awarding support upon divorce, and rules for dividing property upon death. If the two people do not have a premarital agreement, these normal rules apply. The purpose of a premarital agreement is to contract out of the normal rules, and to apply different rules in their place.

To understand whether you need a premarital agreement, you need to first understand the rules that will apply if you do not have an agreement. If those rules are acceptable to both parties, there is no need to sign a premarital agreement. If those rules are not acceptable, and the spouses can agree upon a different set of rules that they both like better, there is reason to sign a premarital agreement.

The rules that apply without an agreement vary from state to state. This blog post will discuss the rules that apply to division of property upon divorce, and why spouses might want to sign an agreement that applies different rules.

In North Carolina, when a marriage ends in divorce, the court divides the parties’ property into two categories. “Separate property” which is usually property acquired before the marriage, or property acquired by gift or inheritance during the marriage. Separate property is not divided upon divorce. “Marital property” is everything that is not separate property, and it is divided equitably between the spouses. The presumption is that an equal division is equitable, but the presumption can be rebutted by proof that another decision is fairer.  See generally N.C. Gen. Stat. (“G.S.”) § 50-20.

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