Tennessee Estate Planning Law : Tennessee Estate Planning Lawyer & Attorney : Bryan Howard : Howard & Mobley Law Firm : Nashville, Chattanooga, Memphis

In a recent case, Cajun Industries, LLC vs. Robert Kidder, et al., the decedent designated his three children as beneficiaries of his 401(k) plan after his first wife died. He remarried a few months before he died and did not realize he needed to make any changes because he still wanted his 401(k) plan to go to his children. Unfortunately, when he died, his new wife successfully claimed the entire 401(k) account due to a federal law known as ERISA. This law required Mr. Kidder to fill out a new beneficiary form after he remarried and to obtain the consent of his new wife.  Because his wife had not consented to his designation in favor of his children, ERISA required the account to be distributed to his wife.

There were two other potential solutions that would have allowed the funds in the 401(k) account to go to Mr. Kidder’s children. Prior to getting married, Mr. Kidder could have asked his wife to sign a prenuptial agreement wherein she agreed to sign a waiver of his 401(k) plan. Alternatively, before he married, Mr. Kidder could have rolled his 401(k) account to an IRA and then designated his children as beneficiaries of his IRA. The rules requiring a spousal waiver to a beneficiary designation do not apply to IRAs.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In the Liner divorce case, the court awarded 1/2 of the equity in the husband’s premarital residence to the wife. As a general rule, assets owned by one spouse prior to the marriage are treated as separate property and are not divided in the divorce. There are some exceptions, including the division of appreciation of the property if the non-owner contributes to the appreciation. This case did not involve appreciation. Rather, the wife was awarded 1/2 of the house primarily because she made non-financial contributions to the ongoing maintenance and management of the residence.

This case demonstrates the importance of entering into a prenuptial agreement or an asset protection trust prior to marriage. Assets that you transfer into an asset protection trust prior to the marriage will belong to the trust and will not be subject to division in the event of a divorce.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In the attached Carnahan decision, the Tennessee Court of Appeals appointed a disabled man’s daughter as his conservator despite his objections.  The Court also allowed the daughter to file a divorce on behalf of her father.

It is somewhat unusual for a child to be appointed as a conservator ahead of a spouse who is willing and able to serve in such role. However, in this case, the ward’s wife had signed a prenuptial agreement that waived her right to seek the appointment of a conservator for him. If there had not been a prenuptial agreement, it is likely that the wife would have been appointed as the conservator due to the priorities set forth by Tennessee law.

It is also unusual for a court to give the conservator the power to file a divorce on behalf of the ward. This is generally thought to be such a personal matter that it should not be exercised by a conservator. When the daughter’s father had legal capacity, he decided to get married. By allowing the daughter to file for divorce in her capacity as conservator, the court allowed the daughter to substitute her judgment regarding her stepmother in place of her father's decision made while he was competent. Have you ever seen a friend or family member marry someone whom you did not approve of?

There are two lessons to be learned from this case. You should address conservatorship in your prenuptial agreement and your financial and healthcare powers of attorney. If you do not want your future spouse to participate in the appointment of your conservator, then make sure that point is addressed in the prenuptial agreement.

Your financial and healthcare powers of attorney should clearly state who you want to serve as your conservator in the event that you become incapacitated. Further, your powers of attorney should state whether or not you want the agent or conservator to be able to file for a divorce on your behalf. I personally do not like the idea of an agent under a power of attorney or a conservator being able to file for divorce. When your spouse is not your agent or conservator, it will often be one of your children. Your children are likely to benefit financially if you obtain a divorce before you die. Therefore, your conservator or agent has a built-in financial conflict of interest. Even if there is not a financial conflict of interest, a lot of step-children dislike their step-parents and might file for divorce just to be mean.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I came across an interesting article regarding estate planning for second marriages. The article highlights some of the most common issues faced by male business owners who have children from a prior marriage. Women, of course, face many of the same issues.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

More than 50% of marriages end in divorce. When one spouse enters the marriage with significant assets, they often leave with less than they started with.

The traditional method for protecting your assets is to enter into a prenuptial agreement before you get married. I recommend this to all of my clients who are getting married.

In lieu of or in addition to a prenuptial agreement, Tennessee residents can protect their assets by transferring them to an asset protection trust {pdf} before they get married. Even if they do not have a prenuptial agreement, their spouse will not be entitled to any of the trust assets upon divorce. Furthermore, their spouse will not be able to claim any portion of the trust assets upon death. This latter point is especially important for later-in-life marriages when one or both spouses have children from prior marriages.

I have mostly used pre-marital asset protection trusts for young adults who have received substantial gifts and/or inheritances from their parents and grandparents. As a general rule, these young adults have relied solely upon the protection afforded by the trust because they were not willing to discuss a prenuptial agreement with their future spouse.

• Email This
• Print
• Comments
• Trackbacks
• Share Link