When people ask why I chose family law, I tell them that it’s one of the few areas of law where one not only deals at close range with clients, but one that touches on a plethora of areas of the law. After over 20 years in practice, it has become obvious that the multi-disciplinary nature of divorce extends far beyond the issues of income taxes, bankruptcies, and the business entities that we deal with to value the estate. It extends into areas of trust and estate planning, insurance and a variety of other areas that those experiencing divorce often don’t foresee. The purpose of this Article is to highlight a few of the most common areas where what appears to be ordinary planning can have an unexpected negative result in the event of a divorce.
It is a common occurrence for couples to jointly consult estate planners with the single focus of passing along their wealth to future generations in the most tax effective manner possible. Sometimes these estate plans involve putting assets into trusts that are irrevocable which means that the spouses can not reverse the transfer and the assets that go into the trust are no longer available to be awarded in divorce.
There are times in joint estate planning where only one of the spouses will interact with the estate planner to decide how to structure the plan. While practical, a spouse who is uninvolved in the planning loses out on the chance to understand the plan structure and its implications. Each spouse needs to be advised about not only the consequences on death, but consequences on divorce of any estate planning technique they use.
Many times a spouse in divorce will explain to his or her lawyer that he or she did not understand the consequences of the estate plan that gave away a significant portion of the couple’s wealth, but if the transfers were done in a manner that prevents them from being set aside, no recourse exists. Proving a transfer colorable or illusory or fraudulent in divorce presents many challenges. Spouses can avoid these situations if they consult with a family law attorney to understand how things they sign even while happily married will operate if they are divorced.
Family businesses present another unique set of challenges in divorce. Just because two people are married doesn’t mean that they are exempt from the statutes, rules and written agreements that govern their business relationships. In addition to the rights that an owner spouse has by virtue of being a spouse, he or she also has rights to information and to influence decision-making that can add a measure of control in the business if properly invoked as part of a divorce action. For this reason, discussing the formation of a business from a family law perspective before the form is documented will eliminate surprises if there is ever a divorce.
A common misconception about transactions between married people is that a person who trusts his or her spouse to manage the household financial affairs can avoid the legal effect of such management if he or she later claims a lack of knowledge or a lack of understanding. In reality, it is not that easy to do. A person is presumed to have read and understood any document he or she signs. Many lay people presume that a fiduciary duty exists between husbands and wives. This is not the case, and the elements of fiduciary duty need to be proven before a spouse can make a claim for a breach of that duty to avoid the legal effect of signing a document. Since lay people frequently lack the training to understand the effect of legal documents or the impact they can have in the event of divorce, having a divorce lawyer to consult before they are signed insures that nothing is missed.
Gifts are another area ripe for controversy during divorce proceedings. When a couple marries, they may receive gifts of cash or property from family. People seldom pay attention to whether the documents reflecting the gift prove that it was intended for only one or for both members of the couple. Parents or other family members considering gifts need education on now to make their intentions clear to be sure that gifts to one spouse alone can be protected as non-marital property.
As distasteful as it may be to scrutinize every transaction on multiple levels, it is better to decide consciously that other concerns are more important than to take action without being fully advised.