Filing for Divorce and the Gray Zone of Inheritance

*In this guest post, Howard Iken, a divorce attorney in Orlando, Florida, describes how divorce proceedings can affect your estate plan and the inheritance process. The views expressed in this article are Mr. Iken’s own. *

*Photo by banjo d is licensed under CC 2.0. *

You just filed for divorce. The two of you may have significant assets that you desire to divide. In many instances, one or both spouses have pre-marital assets. Pre-marital assets consist of cash, real estate, retirement accounts, or other items of significant value that were acquired before the date of marriage. In many states there are principles of law that allow a spouse to claim all or most of a premarital asset during a divorce case. The underlying idea is that fairness requires the distribution of assets created before the marriage date to go to the spouse that created them. Various states use terms like “special equity”, or “unequal distribution” when referring to an effort to claim premarital assets. In any case: special treatment of premarital assets simply seems fair to most people.

The Gray Zone of Divorce

Unfortunately there is a “gray zone” in a divorce filing. That is the period between your filing date and the date of the final judgment. During that period, if your life ends due to a catastrophic event, all or most of your assets may go to your soon-to-be ex instead of children, relatives, or other heirs. Most states recognize that spouses jointly own all assets regardless of who is on the deed, title, or account. In the absence of special preparation, that means your assets could go to the person you are planning to divorce. In a contested divorce case the gray zone could last several years. So it is very important to look at your individual situation to see if the gray zone is an issue.

The filing of a divorce case may prevent people from doing the things they need to protect their premarital assets. In some states the courts issue an initial order that forbids transfer or movement of assets. In certain jurisdictions transferring assets would be a violation of a court order. That means the protection measures you need to take go directly against many court rules. In a really long case, premarital assets are at risk. If you have children from another marriage that should rightfully inherit your premarital assets, the gray zone can operate to cheat them out of their inheritance.

Some Techniques You Can Use

Transfer premarital property before your divorce filing.

If there is no court order in place forbidding transfers; it is not illegal to transfer assets that are solely in your name.  And if the assets are clearly non-marital, consequences from a later court filing may be limited. Many people completely trust their children or relatives, and have no concern with an outright transfer to them. An immediate ownership transfer will bypass later problems that can come up in the gray zone.

Place assets in a Trust

This is an advanced technique and should be used in conjunction with an attorney. Any type of asset can be placed within a Trust. This can be used to bypass inheritance laws, transfer ownership, or obscure ownership.

Bifurcation of your Case

In certain situations, a court may agree to decide an asset issue long before the final judgment for divorce. One common example is in a situation where one spouse has a terminal illness. In that situation, the spouse has a valid concern about inheritance issues and they may not be able to wait for a final judgment. A “bifurcation” refers to an order splitting the case into several distinct issues and entering a decision on one of the issues. Many judges will consider granting a bifurcation if the situation justifies it.

If you have premarital assets, or some valid reason to unevenly split assets, you should always do some pre-divorce planning. That planning should include discussion of the various techniques available. Because asset planning is always a complex issue, get some input from a competent attorney. Divorce law varies state to state and has complex interactions with asset and real estate law. Be sure to also get input from a divorce attorney to see how the various rules interact. With a bit of planning most people can be successful at navigating the Gray Zone of Divorce.

Howard Iken is a divorce attorney in Orlando Florida. Mr. Iken is a frequent writer and has contributed legal advice throughout the Internet. He can be contacted at 800-469-3486. Any opinions or legal concepts in this article may not apply to your individual state. Consult with an attorney for state-specific advice.

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See Also:

Issues of Inheritance Planning

Buying Real Estate with Someone Else