Gail Heinzman, CPA (Gail@HeinzmanGroup.com) responds to both Carol Arnott and Joyce Pearson (below).
The legal ownership of a 529 plan may be in the name of the child or the parent. As noted below, if the 529 account is an UGMA, it is the child’s property.
As to the comment by Joyce Pearson, that may apply in some cases but not all. A 529 plan may be an UTMA in which case it is an irrevocable gift. However, if the owner is the parent, he/she has the right to re-designate beneficiaries. This usually happens if an older child does not exhaust his/her 529 plan and younger child needs more money for education. In this case, the original designation was not an irrevocable gift. I have not seen a 529 with multiple owners or divided control. The terms of 529 plans vary. This issue should be addressed with their attorney.
Monday, April 30, 2007
Response to Carol Arnott's comments
The following is a response to Carol Arnott's comments on children's assets from Joyce Pearson, DivPlan@aol.com.
I would have a tendency to disagree with Carnott re: 529 Plans. My understanding is that they are an irrevocable gift to beneficiary (which is why they are out of the estate of the donor) but under the control of someone ( usually the grantor). Recognizing that even with an UTMA the 529 can be liquidated, I make sure that all parties are aware of the ease with which this can be done. So If possible they are divided for control purposes and ability to add future dollars to ensue educational goals are met but not considered part of the marital division/assets used for offset purposes.
I would have a tendency to disagree with Carnott re: 529 Plans. My understanding is that they are an irrevocable gift to beneficiary (which is why they are out of the estate of the donor) but under the control of someone ( usually the grantor). Recognizing that even with an UTMA the 529 can be liquidated, I make sure that all parties are aware of the ease with which this can be done. So If possible they are divided for control purposes and ability to add future dollars to ensue educational goals are met but not considered part of the marital division/assets used for offset purposes.
Tuesday, April 24, 2007
More on Children's accounts
After my posting last week about children's accounts, Carol Arnott (carnott@greenvillefinancial.com) contacted me with further information:
"To be more specific, assets held in custodian accounts for a minor, such as an UGMA or UTMA, are not considered marital property since they were irrevocable gifts to the child when contributed to the account. A more popular way to save for college education in recent years, however, is the 529 college savings plan. Assets held in these types of plans are controlled by the owner of the account, typically the parent, and may be considered marital property subject to property division. In addition to favorable tax treatment for funds used to pay qualified higher education expenses, one of the key benefits of a 529 plan is that the child does not gain control of the funds when they reach the age of majority. An exception to this rule is if the funds in the 529 plan were transferred from a custodian account. If that’s the case the funds belong to the child and not the parent. Bottom line- look at the statements and ask questions!"
"To be more specific, assets held in custodian accounts for a minor, such as an UGMA or UTMA, are not considered marital property since they were irrevocable gifts to the child when contributed to the account. A more popular way to save for college education in recent years, however, is the 529 college savings plan. Assets held in these types of plans are controlled by the owner of the account, typically the parent, and may be considered marital property subject to property division. In addition to favorable tax treatment for funds used to pay qualified higher education expenses, one of the key benefits of a 529 plan is that the child does not gain control of the funds when they reach the age of majority. An exception to this rule is if the funds in the 529 plan were transferred from a custodian account. If that’s the case the funds belong to the child and not the parent. Bottom line- look at the statements and ask questions!"
Tuesday, April 17, 2007
Children's accounts are not marital property
You may have accounts that you have earmarked for the children's education. They must be set aside and not divided as part of the marital property. They belong to the children.
Don't forget tax refunds
Sometimes, assets come in later, after the divorce is final -- such as tax refunds, bonuses on work done while still married, royalties, etc. Don't forget to include those in your settlement negotiations.
What about stock options?
Stock options are complicated and require a lot investigation into the type, the ability to divide or transfer, and the way to allocate the funds when they are dividied. Be sure to consult an expert on this asset.
Tuesday, April 10, 2007
The Biggest Problem With QDROs
According to Edwin Schilling III, JD, one of the most significant problems with QDROs is not having them prepared before the divorce is final. Mr. Schilling lectures attorneys on “The 30 Most Common Errors in QDROs.” (Qualified Domestic Relations Order)
The reason this is such an enormous problem is that after the divorce is final, the former spouse has no rights to something that was not legally addressed. If the participant spouse dies before the QDRO is prepared, the former spouse loses rights to share in the retirement plan. As he says in his program, “Once the marriage is over, if there is not an appropriate order in place, the former spouse has no more rights to the retirement and benefits than does my mother. The former spouse is a stranger to the plan without an order.”
Mr. Schilling says that he has had 13 cases when the participant spouse died before the QDRO was prepared and he had to explain to the non-member spouse that she/he may have lost everything. These cases usually result in malpractice claims against the attorney of record.
Mr. Schilling shares a couple of his worst stories. In the first one, his client was the wife who was married to a Federal Civil Service employee who was not entitled to Social Security. The spouses were in their 60’s and had been married 40 years They had agreed that she would half of his pension and survivor benefits worth more than $3,000 a month. The lawyer for the wife begged the judge to enter Mr. Schilling’s order at the time of the dissolution, but the judge refused and set a follow-up hearing date three months later to deal with property issues. The next week the husband died. How would you like to be the one to tell this lady that she will have no income and that the benefits of 35 years of federal employment were gone?
The reason this is such an enormous problem is that after the divorce is final, the former spouse has no rights to something that was not legally addressed. If the participant spouse dies before the QDRO is prepared, the former spouse loses rights to share in the retirement plan. As he says in his program, “Once the marriage is over, if there is not an appropriate order in place, the former spouse has no more rights to the retirement and benefits than does my mother. The former spouse is a stranger to the plan without an order.”
Mr. Schilling says that he has had 13 cases when the participant spouse died before the QDRO was prepared and he had to explain to the non-member spouse that she/he may have lost everything. These cases usually result in malpractice claims against the attorney of record.
Mr. Schilling shares a couple of his worst stories. In the first one, his client was the wife who was married to a Federal Civil Service employee who was not entitled to Social Security. The spouses were in their 60’s and had been married 40 years They had agreed that she would half of his pension and survivor benefits worth more than $3,000 a month. The lawyer for the wife begged the judge to enter Mr. Schilling’s order at the time of the dissolution, but the judge refused and set a follow-up hearing date three months later to deal with property issues. The next week the husband died. How would you like to be the one to tell this lady that she will have no income and that the benefits of 35 years of federal employment were gone?
Wednesday, April 4, 2007
Decisions made by the Judge in divorce court
Do you ever wonder why we divorce professionals try to get our clients to settle rather than go to court and have the judge decide their future? Read the following regarding some surprising facts from the court files.
In the late 1980s, several states set up task forces to study gender bias in the courts. For example, in Colorado, one section of the task force was charged with the area of divorce. It studied cases taken directly from the court files. The parameters were that (1) the marriage have lasted 12 years or longer, (2) the case be decided by a judge as opposed to being settled out of court (the task force wanted to see the results of what the judges were doing), and (3) there was a minimum of $10,000 in positive net worth.
There were 28 cases in the year previous to the study that matched the above parameters. Out of 28 cases, the average length of marriage was 20.5 years. At the time of divorce, the average age of the wife was 44, the husband, 45. Eleven of the 28 families had net assets of less than $50,000 at the time of divorce and ten had net assets of $100,000 or more.
At the time of the court order, the wife’s average net worth was slightly greater than the husband’s, because she was usually given less of the marital debt. Within four years of the divorce, however, the wife’s projected net worth declined by 25 percent while the husband’s nearly doubled. Within eight years of the divorce, the wife will have a negative net worth while the husband’s projected net worth is approximately $200,000.
In gathering data, besides looking at the court files, the Colorado task force interviewed many divorced men and women. One women told her story about the alimony award after 38 years of marriage during which she was not employed. The judge ordered her husband to pay her $300 per month for two years. He awarded the house, appraised at $160,000, to the wife, and all the other assets, including a retirement fund, to the husband, saying, “Mother has been out of the work force, and if we gave her all that money she wouldn’t know how to handle it.”
Another woman told the Colorado task force that she had been awarded a tractor as part of the property settlement but her ex-husband refused to deliver it. She had tried for four years to get the original order enforced, without success. One district judge gave her former husband permission to continue using the tractor. When her lawyer objected, the judge asked her what she was going to do with the tractor.
The Washington State Task Force on Gender and Justice in the Courts found that only 10% of all wives being divorced were awarded alimony and the average amount was $432 per month for an average length of 2.6 years. The national average as of spring 1986 had 15 percent of wives receiving an average of $329 per month.
We have all seen improvements in the rulings from the bench but perhaps it is time to re-visit court files to see how much the numbers have changed.
In the late 1980s, several states set up task forces to study gender bias in the courts. For example, in Colorado, one section of the task force was charged with the area of divorce. It studied cases taken directly from the court files. The parameters were that (1) the marriage have lasted 12 years or longer, (2) the case be decided by a judge as opposed to being settled out of court (the task force wanted to see the results of what the judges were doing), and (3) there was a minimum of $10,000 in positive net worth.
There were 28 cases in the year previous to the study that matched the above parameters. Out of 28 cases, the average length of marriage was 20.5 years. At the time of divorce, the average age of the wife was 44, the husband, 45. Eleven of the 28 families had net assets of less than $50,000 at the time of divorce and ten had net assets of $100,000 or more.
At the time of the court order, the wife’s average net worth was slightly greater than the husband’s, because she was usually given less of the marital debt. Within four years of the divorce, however, the wife’s projected net worth declined by 25 percent while the husband’s nearly doubled. Within eight years of the divorce, the wife will have a negative net worth while the husband’s projected net worth is approximately $200,000.
In gathering data, besides looking at the court files, the Colorado task force interviewed many divorced men and women. One women told her story about the alimony award after 38 years of marriage during which she was not employed. The judge ordered her husband to pay her $300 per month for two years. He awarded the house, appraised at $160,000, to the wife, and all the other assets, including a retirement fund, to the husband, saying, “Mother has been out of the work force, and if we gave her all that money she wouldn’t know how to handle it.”
Another woman told the Colorado task force that she had been awarded a tractor as part of the property settlement but her ex-husband refused to deliver it. She had tried for four years to get the original order enforced, without success. One district judge gave her former husband permission to continue using the tractor. When her lawyer objected, the judge asked her what she was going to do with the tractor.
The Washington State Task Force on Gender and Justice in the Courts found that only 10% of all wives being divorced were awarded alimony and the average amount was $432 per month for an average length of 2.6 years. The national average as of spring 1986 had 15 percent of wives receiving an average of $329 per month.
We have all seen improvements in the rulings from the bench but perhaps it is time to re-visit court files to see how much the numbers have changed.
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