Family Law Bits

A Beneficial Benefit Discussion

I often remind my clients that just because the divorce is ordered it does not mean that the work is done. Clients must revise, at a minimum, estate plan documents, such as their will, health care proxy and durable power of attorney, as well as update beneficiaries on life insurance, pension plans and retirement vehicles. Merely because you are divorced and your separation agreement or court order deals with these assets, that does not mean the result will be the one you anticipated, negotiated, and/or bargained for.

In a landmark case of Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, the plan administrator distributed the benefits of its deceased employee’s retirement plan to his ex-wife. Why? Well, the employee husband participated in a retirement plan through his job and named his then wife as the beneficiary. They eventually divorced and as part of the settlement the ex-wife waived all rights to the husband’s retirement plan benefits. However, the husband never changed the named beneficiary on his retirement plan. When he died, the plan administrator paid the benefits to his now ex-wife, in accordance with the terms of the plan.

In this case, the man’s daughter sued the plan to recover the money and the Supreme Court, in a 9-0 ruling, found the plan administrator had acted correctly. The Court’s rationale was as follows:

• The plan document clearly spelled out the procedures for designating and changing beneficiaries. The deceased had the right and the opportunity to name a different beneficiary. His failure to do so was not compensable.

• The divorce decree was not a QDRO (qualified domestic relations order,) so although the ex-wife had waived her rights to the benefits in the decree, it was not binding upon the plan or the plan document. 
• The plan administrator by law is obligated to follow the terms of the plan document, and in this case, that required distribution of the funds to the ex wife in accordance with the beneficiary designation on record with the plan.

For all of the above reasons, the plan administrator was not found liable for the distribution, but that certainly did no help the daughter or other heirs of the deceased.

By: Julie A. Dialessi-Lafley, Esq.

Divorce settlement calls for home to be sawed in half

I've seen and heard quite a few bizarre things in the world of divorce, and have certainly come up with some creative settlement ideas, but I recently read about one that takes the cake. Or should I say the kitchen sink?

A couple who live in Cambodia were married for 18 years. Their marriage ended and they entered into a divorce settlement whereby they would split the house and the contents. I know what you're thinking "sure, after 18 years that makes sense and seems fair." The crazy thing is that they literally split the house; by sawing it in two!!

What's even more strange is that the village chief, local officials, and the police were present when the "split" took place. No one objected, although they did try to reconcile the couple.

Apparently the husband showed up at the marital home with relatives, and proceeded to cut the house in half. After the house was torn apart, the husband carried the debris away. The wife now owns the half of the house that is still standing, and plans to live in it.

Who knows whether this newsworthy settlement arrangement is what both parties wanted, or if the men in that country are allowed to make most of the decisions. I don't pretend to know about divorce law in Cambodia, but surely this couple could have come up with a better way of dividing the marital assets?


By: Melissa R. Gillis, Esq.

Division of a 401K between a divorcing couple

The standard rules of a 401K retirement plan indicate that a 401K would have single ownership by an individual. The contributions and earnings in a 401K are tax deferred until withdrawn by the owner. Any withdrawals made before the age of 59 ½ are subject to a ten (10%) percent Early Withdrawal penalty period. The financial institution that holds the 401K is required to withhold a minimum of twenty (20%) percent for Federal Income Tax on each 401K withdrawal.

It is true that a 401K can be borrowed against without a tax consequence by the owner, so long as the owner participant is still employed by the same company and continues to make payments to the 401K loan in order to pay it off in full. It the owner or participant should leave the company or stop making payments, the 401K loan is then considered distribution and subject to all taxes and penalties.

In the context of a divorce, when there is a division of assets that requires a division of the monies in a 401K, a 401K may be transferred from one spouse to another via a Qualified Domestic Relations Order (QDRO.) All or part of the value of the 401K may be transferred pursuant to the QDRO, and the value of the account may be established at different points in time. The amount or portion transferred to the non-owner spouse (alternate payee) is no longer considered a 401K if that individual is not employed by the company who maintains the retirement plan. That portion transferred to the alternate payee becomes an IRA, or an Individual Retirement Account, for that spouse. That portion of money is then subject to all of the IRA rules, including a financial institution being required to withhold the minimum of ten (10%) percent for Federal Income Tax in the event monies are withdrawn from that IRA.

At the time of a division by a QDRO, it is also important to note that cash could be withdrawn from the 401K by the receiving spouse without the consequences of the ten (10%) percent early withdrawal penalty so long as the parties do so per the QDRO. This is clearly beneficial to parties who wait for the court order by QDRO, however, for those parties who try to accommodate each other during the pendency of divorce and prior to the approval of the QDRO and resolution of the divorce, by withdrawing from the 401K directly, they will end up paying unnecessary taxes and early penalty withdrawals. When the issue of access to money from a 401K arises during the pendency of a divorce it is important for the parties to acknowledge that in addition to the rules related to 401Ks as to taxation and withdrawal penalties, there is also the income tax component that needs to be figured in when deciding how the monies should be withdrawn.

Consultation with an accountant, and preferably one who specializes in divorce matters, is of paramount importance for the parties. Most attorneys with experience in family law will be able to refer the clients to an accountant or divorce financial analyst who has the appropriate experience and knowledge in order to calculate alternatives for the parties to determine which is the best way for a withdrawal or division of monies from a 401K.


by: Julie A. Dialessi-Lafley, Esq.

Division of property – a primer on what to expect

Both alimony and the division of married property in Massachusetts are guided by statute, G.L.c.208, § 34, often referred to simply as Section 34. The statute as a whole reads as follows:

Upon divorce or upon a complaint in an action brought at any time after a divorce, whether such a divorce has been adjudged in this Commonwealth or another jurisdiction, the Court of the Commonwealth, provided there is personal jurisdiction over both parties, may make a judgment for either of the parties to pay alimony to the other. In addition to or in lieu of a judgment to pay alimony, the Court may assign to either husband or wife all or any part of the estate of the other. In determining the amount of alimony, if any, to be paid, or in fixing the amount and value of the property, if any, to be so assigned, the Court, after hearing the witnesses, if any, of each party, shall consider the length of the marriage, the conduct of the parties during the marriage, the age, health, stage, occupation, amount and sources of income, vocational skills, employability status, liabilities and needs of each of the parties and opportunity of each for future acquisition of capital assets and income. In fixing the nature and value of the property to be so assigned, the court shall also consider the present and future needs of the dependent children of the marriage. The Court may also consider the contribution of each of the parties in the acquisition, preservation, or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit. When the Court makes an order for alimony on behalf of a spouse, said Court shall also determine whether the obligor under such an order has health insurance or other health coverage available to him or her through an employer or organization or has health insurance or other health coverage available to him or her at reasonable cost that may be extended to cover the spouse for whom support is ordered. When said Court has determined that said obligor has such insurance or coverage available to him or her, said Court shall include in the support order a requirement that the obligor do one of the following: exercise the option of additional coverage in favor of the spouse, obtain coverage for the spouse or reimburse the spouse for the cost of health coverage. In no event shall the order for alimony be reduced as a result of the obligor’s cost for health insurance coverage for the spouse.

There are several points to bear in mind about Massachusetts property division law. First, and most significantly, all property owned jointly, separately or in trust, whether as an inheritance from your parents or a gift from your spouse’s great-aunt, is marital property, Pension benefits, business interests, accounts receivable, etc., are all marital property if you or your spouse have it. Massachusetts is what is known as an “equitable division” state. While the trend in most “equitable distribution” states is to exclude inherited or gifted property and to exclude property acquired prior to the marriage by one spouse, Massachusetts at present remains firm in looking at all property, however or whenever acquired, as property that may be divided upon divorce. Individual judges may look at inherited or gifted property in a slightly different way, but it is unquestionably part of the asset picture.

The second point to bear in mind is that “fault” or “conduct” plays a very minimal role in determining how property is to be divided. This is also true in alimony or support awards. In my experience, conduct becomes a factor of significance only when the conduct is so egregious as to be shocking.

Courts, and therefore lawyers, typically begin an analysis of how to divide marital property with the concept that marriage is an economic partnership and that the appropriate way to allocate property is on a roughly 50-50 basis. The 50-50 concept works well if the couple has a fair amount of property that can be equalized with a minimum of disruption. For example, if the net equity in the family’s house is $50,000 (that is, the fair market value minus mortgage) and the family has $50,000 in stocks, bonds, and savings. A division may be house to one party, and stocks, bonds and savings to the other. Unfortunately, most families do not have this level of flexibility because the bulk of their money is tied up in one major asset -the family home.

There is frankly no ideal solution about what to do with the house upon divorce because generally the spouse having physical custody of the children wishes to stay in place until the children finish school. Often, while there may be significant equity in the house, it is the least expensive appropriate housing available. Refinancing to buy out the other spouse’s interest may be a significantly costly burden, and selling the property and dividing the proceeds immediately may not give the spouse having custody of the children enough down payment money to be able to both purchase another residence in the same community and school district and keep the monthly mortgage cost at a reasonable level.

The most common solution to the problem is to allow the custodial parent to remain in the house until his or her remarriage or until the youngest child is emancipated. The property is then sold (or refinanced) and the proceeds divided. If there are no minor children involved, often the property is sold immediately with equal division of the proceeds.

Other than the marital home and savings or stocks and bonds, (which can typically be divided with little difficulty,) other major issues that can come up in the context of division of property are furnishings within the home, business interests that require valuation, and pension and profit-sharing plans and their valuation. Briefly, furnishings seldom tend to be a major problem, but business interests always are. (While in almost no instances have Courts awarded a percentage or share of one spouse's business interests to the other, the value of the interest is nonetheless usually used to offset some other marital asset. Thus, valuation becomes a major issue, usually requiring an accountant or other expert (also true with pension plans).

The above discussion is a general one, intended only to demystify in broad terms the concepts that inform both the Courts and attorneys in handling divorce matters and to make you aware of the legal background against which your own situation will proceed. A full discussion of all assets and liabilities (debts) of the marriage will be necessary.

By: Julie A. Dialessi-Lafley, Esq.

To live together or not to live together while divorcing; that is the question

I am coming across the same scenario more and more today; divorcing couples still living together. Massachusetts used to have a requirement that the parties had to live apart for 30 days prior to commencement of the action, unless waived by the Court. Now, couples can file a Complaint or Joint Petition for Divorce, bring it to the Sheriff’s office for service, then go home and have dinner together. This obviously creates a whole host of problems and issues, particularly since the divorce process in and of itself is generally confrontational. So why is this happening?

One of the main reasons is what we have been hearing about for months; the economy. Taking a couple who are just making ends meet and now asking them to maintain two households on the same income can be impossible. You know the saying; you can’t squeeze water from a stone. Sometimes it comes down to selling the marital home and splitting the equity so that each can purchase another residence. Other times it is really a question of how will the credit cards get paid? How will two rents be afforded? How can one qualify for a mortgage with poor credit?

So what about the couples that can afford to live apart yet choose to live together? Maybe it’s a power struggle for the marital home. Maybe the couple has been married so long their very identities are intertwined, and there is fear in not knowing what life will bring without the other. Maybe it’s a control issue. Maybe people don’t want to be married anymore, but just truly can’t let go. Maybe they think the children will adjust better. Maybe they are holding hope out for reconciliation. The list goes on and on.

Any way you slice it, living together during a divorce automatically creates an extremely emotionally charged situation for both you and your children. One or both of the parties are struggling for independence, waiving their new life in the other’s face, tweaking and needling the other at every opportunity. It’s a recipe for fights, restraining orders, and possibly a restriction of visitation rights by the aggressor.

Even without police involvement, consider how the tension affects the children. Children of all ages pick up on the fact that there is something going on between Mom and Dad. It can cause resentment, anger and divided loyalties. The emotional ramifications can sometimes be worse than the divorce itself.

Parties need to look at the big picture; look at their lives post divorce. Stop the constant squabbling and focus on what’s important. If there is hope for reconciliation, work on it. If not, and you have children, it is better to put anger aside and get along for their sake. If you can’t, then it’s time to get some counseling. Consider this; there’s not a thing you can do about what happened yesterday, or even a minute ago, but you can act positively today to change tomorrow.

By: Melissa R. Gillis, Esq.