We are living longer and divorcing more often. An older client’s decision to divorce, remarry, or cohabitate presents specific problems. A few of these issues will be examined in this paper, as well as general health, life, and estate planning devices. There also is some evidence that with longer life expectancies that some couples outlive the the marriage contract they entered into many years ago. Some are deciding that they want to try something different in their few good years.
The information below applies to ALL gray haired people, whether they are happily married or something less.
Divorce or remarriage is likely to affect the eligibility of amount of benefits payable to an individual.
There are many nuances to social security eligibility and benefits, and the Act is subject to constant modification. Therefore, clients should be advised to contact the Social Security Administration for specific advice and information.
a. Information by phone: 1-800-772-1213 from 7:00 a.m. to 7:00 p.m. (any time zone)
b. Local Social Security Office.
c. Free Publications
Also check www.ssa.gov for more information
Two general points:
A part of pre-divorce or post-divorce budget planning should be the investigation of the cost and availability of health insurance.
Divorce will eliminate a non-employee spouse’s entitlement to health insurance. Although COBRA may be available to provide continued coverage, entitlement is limited, new insurance will have to be obtained when the entitlement period elapses (usually 36 months), and pre-existing conditions may make it impossible to obtain adequate health insurance.
Many retirement benefits provide for the retention of health insurance by the non-employee spouse if the divorce occurs after the retirement date of the employee spouse. If possible, the retirement plan should be carefully evaluated to determine the optimum divorce date.
If the non-employee spouse is 65 years of age or will be 65 within the COBRA entitlement period, and is entitled to Social Security benefits, Medicare will probably be their primary insurer. The non-employee spouse should be counseled to obtain information on the costs and benefits of Medicare Part A and Part B, and the costs, benefits, and propriety of Medigap Insurance.
If a former spouse has been named as the irrevocable beneficiary of a trust, there may not be anyway to revoke or modify the instrument. However, the terms should be examined to see if there are any “escape hatches.” Also, the trust may not have been funded. Lastly, the primary asset may be life insurance. In such cases, unless there is a separate obligation to maintain it, the policy can be allowed to lapse.
Joint ownership arrangements should be reviewed. While right of survivorship provisions may avoid probate, they do not resolve the issue of lifetime property management if one spouse becomes incapacitated. Additionally, the joint owner may inadvertently take a larger percentage of the decedent’s assets than the decedent desired, and the property may be liable to the claims of the non-contributing owner’s creditors.
In particular, review financial accounts. Many individuals place a child’s name on an account for convenience, but inadvertently designate the account as “JTROS.” If the account is the primary asset of the estate, that child will be paid all of the funds, even though the client intended for her estate to equally divided to her three children under the terms of her will.
In Texas, the surviving spouse has a right to remain in the homestead until death or abandonment, even if the property was owned by the deceased spouse as his/her separate property. The deceased spouse can bequeath the property to other persons, but their right to use and possession, and right to dispose of the property, is subject to the homestead right of the surviving spouse.
Alimony commonly terminates upon remarriage. Financial consideration should be given to this loss of income that cannot be regained if the subsequent marriage fails.
As part of pre-divorce planning, pension and retirement plans should be reviewed to determine vesting, amount and types of benefits (including survivor benefits and health insurance), the availability of early withdrawal, and if permitted, any penalties that may be assessed.
The so-called “marriage penalty” should be computed. Married people in Texas often pay higher taxes than two single people with the identical income.
Additionally, there is a one-time capital gain exclusion of $125,000.00 arising from the sale of the homestead. This exclusion ceases to exist once it is used by either party to a marriage, even if exercised in a prior marriage or while single. For example, if Sally, who has never exercised the exclusion, marries Bob, who exercised the exclusion in a prior marriage, Sally cannot exercise the exclusion during her marriage to Bob.
Therefore, it is important to determine if either party to a contemplated marriage has exercised the $125,000.00 capital gain exclusion.
If an older couple decides to cohabitate instead of getting married, they should consider a Cohabitation Agreement covering topics similar to those that would be included in a premarital contract, specifically including ownership rights to property acquired during the relationship and at the termination of the relationship. If a significant bequest is made by Will to the surviving partner, particular care should be taken to try to prevent a challenge by the decedent’s family. All formal requisites of state law should be made; totally disinterested witnesses should be used; and if competency may be questioned, the testator should be examined by a physician on the day of execution of the Will or Trust instrument.
Recommended Documents Relating to Personal Care
Recommended Documents Relating to Property
This article contains general legal concepts and is not legal advice on any particular case. Consult with an attorney about your specific situation. You can do everything mentioned in this article yourself, just as you could perform surgery on yourself. The question is: do you want to be the first person that the doctor does surgery on? If not, get an experienced one. Similarly, consider hiring experienced attorneys to help you with these major decisions in your life.