Some people who get married after having written a will sometimes forget to change their wills to account for the new spouse. In other cases, a person may simply leave his or her spouse out of the will for various reasons, intending to disinherit the spouse. Fortunately, under Michigan law, the new spouse and the disinherited spouse have several options to receive part of the deceased spouse’s estate anyway.

One way in which the law protects a spouse from being accidentally or willfully disinherited is through the elective share. If a surviving spouse is left out of a will, the surviving spouse can chose to take a part of the deceased spouse’s estate, called an elective share. The elective share is calculated according to the statute. A spouse can take one half of the property that would have passed to the spouse if the deceased spouse had died without a will, reduced by one half of the value of property the surviving spouse received from the deceased spouse through means other than a will or intestate succession.

If a deceased spouse’s will is invalidated for any reason, and there is no other will to take effect, the surviving spouse can claim an intestate share of the estate. If the deceased spouse did not have children, and has no living parents, the surviving spouse can receive the entire estate. Under the intestacy law, the surviving spouse is entitled to a combination of between $100,000 and $150,000 and between one half and three quarters of the estate depending on whether there are other heirs.

A spouse who marries the deceased spouse after the spouse made a will, and was therefore not named in the will, is known as a pretermitted spouse. A pretermitted spouse is allowed to choose between receiving an elective share, or the share he or she would have received had the deceased died without a will. However, there are some limitations as to what kind of property can be claimed by a pretermitted spouse. For example, the pretermitted spouse cannot take a part of any property that is placed in a trust for the benefit of the children of the deceased who were born after the marriage of the deceased to the pretermitted spouse, and who are not also children of the pretermitted spouse.

Until this year, 2017, widows in Michigan could have taken the equivalent of a life estate in a third of their deceased spouse’s real estate if the deceased spouse did not include the widow in his will. This was known as dower rights, but has since been abolished in Michigan.

Contact an Experienced Estate Planning Attorney

It is important to review and update your estate plan every time you experience a major change in your personal life. This is especially important if you get married or have children. While the law provides various methods in which your immediate family may receive property, if you want to ensure your estate is divided according to your wishes, you need to have a valid will in place. For a consultation to discuss your estate plan, contact Resnick Law, P.C., to talk to the skilled estate planning attorneys in Bloomfield Hills and Detroit, Michigan.

(image courtesy of Frank McKenna)

A domestic asset protection trust is a kind of irrevocable self-settled trust that a person can set up with an independent trustee to administer it. Because the trust is irrevocable, it means that once it is set up, the person creating the trust cannot voluntarily choose to terminate or end the trust. The person setting up the trust cannot be the named the trust’s trustee, although he or she can be a beneficiary and can control some aspects of the trust, such as directing the investment of trust assets.

In this way, the trustee does not have direct control of the assets in the trust, and legally the trust assets do not belong to him or her. Therefore, any increased value in assets that may be subject to division in a divorce as marital assets are protected. Unlike prenuptial agreements, the placing of assets into the trust does not require the other spouse’s consent if the trust is set up at least 30 days before the wedding.

Other than that, the trust acts very much like a prenuptial agreement in that trust assets are not generally divided as part of a divorce. However, it is important for trust settlors to remember that the domestic asset protection trust does not protect the trust property from claims made as part of a requirement to pay child support.

While a person is free to set up a domestic asset protection trust without the permission of a spouse, the person setting up the trust is required to sign an affidavit attesting to certain facts. The person setting up the trust has to attest to the fact that he or she holds full title to the assets being transferred into the trust. A false attestation that allows a person to transfer marital property into a trust without the consent of the other spouse is not likely to support the validity of the trust later on.

A domestic asset protection trust can also be beneficial in other situations, such as protecting assets from creditors. A creditor will nevertheless be able to reach the trust assets if the trust was only set up in anticipation of the creditor’s claim, or while the claim was pending. The creditor can file a fraudulent transfer claim against the trust settlor to void the protections of the trust.

Contact Us for More Information

For more information on Michigan’s laws on domestic asset protection trusts and how you can protect your assets from creditors and from division in a divorce, contact an experienced asset protection attorney at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. Our experienced attorneys can discuss the legal issues that will arise in forming an asset protection trust, and how these issues may affect you.

(image courtesy of Anne Edgar)

When a person files for bankruptcy, “automatic stay” provisions come into play and most creditors must stop collection methods. Under a Chapter 7 bankruptcy, the debtor’s assets are collected by the trustee and sold to pay the creditors. Only “exempt” property is protected under a Chapter 7 bankruptcy.

Under a Chapter 13 bankruptcy, the filing party’s debts are reorganized and paid off in three-to-five years. The filing party keeps all property under a Chapter 13 bankruptcy; Chapter 11 bankruptcies are less common for individuals and are more complicated reorganization bankruptcy procedures for companies or extremely high net worth individuals.

To address some of the overlap between divorce and bankruptcy, the U.S. Congress passed revisions to the bankruptcy code, including The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which, as it relates to divorce, is that the automatic “stay” does not apply to spousal support or child support — so these will continue to be collected.

In addition, unsecured property settlement debts (debts owed to you by your spouse in your property settlement) are not subject to “discharge” in bankruptcy. When a debt is discharged, the creditor is legally forbidden to take any action “to collect, recover or offset any such debt.” (See Section 524 (a)(2) of the Bankruptcy Code.) The goal of most consumer bankruptcy cases is to discharge all debts, or as many debts as possible.

Financial support awarded in divorce decrees is a “first priority claim” that generally cannot be discharged. (Other examples of claims entitled to a priority are certain taxes, employee wage claims earned within 90 days before the bankruptcy filing, up to a certain dollar amount, alimony, etc.) Other debts that generally cannot be discharged include student loans.

Furthermore, your spouse’s filing for bankruptcy should not affect your right to receive wage garnishment for the support owed to you. Generally, your spouse’s filing of bankruptcy will not affect your collection of his or her past-due support, but under some bankruptcy plans the past-due payments may be discharged.

In some instances, your spouse’s filing of bankruptcy may be helpful as he or she will disclose income, real property and personal property when filing. You may be able to use property that was exempt from discharge to collect what support or property settlement obligations are owed to you.

A bankruptcy can, however, delay divorce proceedings. The State court handling the divorce will have no authority to make orders regarding marital property until either the bankruptcy is concluded or the automatic stay is lifted.

A money settlement is most likely to be property exempt from discharge in a bankruptcy if it appears to be a support arrangement, although with the passage of BAPCPA, it is generally no longer necessary to characterize money settlement as “support” in order to avoid discharge.

The court will look at the schedule of payments (one-time payment or installment payments), whether a major life event (like remarriage) affects the payment, whether there was a need for support, and other indicators that the payment was intended as support. Ultimately, the bankruptcy court is not bound by what you call the money settlement in your divorce.

A Difference of Note: Chapter 7 vs. Chapter 13 Discharge

Under Chapter 7 or “straight bankruptcy,” most debts are discharged, but there are exceptions: You may choose to continue making payments on your vehicle loan in order to keep that vehicle, so you might voluntarily choose not to discharge that loan. The kinds of debts that can’t be discharged in a Chapter 7 case are mostly the same kinds that can’t be discharged in a Chapter 13 “adjustment of debts” case, including child and spousal support, most student loans and recent income taxes.

However, there is one major kind of debt that can’t be discharged under Chapter 7 but can be discharged under Chapter 13: non-support divorce debts. So, if you owe a large amount of this kind of debt, you should seriously look into filing Chapter 13 bankruptcy instead of Chapter 7.

What are “Non-Support” Divorce Debts?

They are usually obligations in your divorce decree related to the division of property and the division of debts between you and your ex-spouse. As to the division of property, if in your divorce, your ex-spouse received fewer assets than you did, your divorce decree may have required you to pay your ex-spouse a specific amount of money to make up for the difference.

As to the division of debts, your divorce decree may have required you to pay certain debts so that your ex-spouse would not have to do so. This created a new and separate obligation by you to your ex-spouse to pay those debts, over and beyond your initial obligation to the creditor(s).

In a Chapter 7 case, your obligation to pay your ex-spouse the money to make-up for you getting more of the marital assets cannot be discharged — you would continue owing your ex-spouse that debt.

The divorce-created obligation to pay the designated debts would also not be discharged in a Chapter 7 case — you may be able to discharge your obligation to the initial creditor(s), but you would still be required to pay the debt(s) because of the requirement to do so in your divorce decree.

Discharged Only Under Chapter 13

However, both obligations to your ex-spouse, and all other non-support divorce debts, would be discharged in a Chapter 13 case. That’s part of the Chapter 13 “super discharge.”

That doesn’t mean that it could be discharged in a matter of months as in a Chapter 7 case. Rather, in a Chapter 13 case, it means non-support obligations would be treated like all other “general unsecured” debts. Outstanding non-support obligations would all be put into one pool of debt, and then to the extent you pay down that pool of debt is based on a number of factors, including:

• The amount of your other legally higher priority debts (such as back child or spousal support, recent income taxes and such), all of which must be paid in full before other debts are paid anything;
• The amount of the other “general unsecured” debts in that pool — the more other debts there are, the less your ex-spouse will receive;
• How much your plan must pay in administrative expenses: the Chapter 13 Trustee fees and whatever attorney fees you did not pay before your case was filed —which must be paid ahead of the general unsecured creditors;
• Whether your Chapter 13 plan lasts three years or five years — determined by your income when your case is filed, and;
• How much you can afford to pay all your creditors per month, now and throughout the length of the case.

As stated in the beginning, divorce and bankruptcy are complex and overlapping areas of the law. The best advice is to seek good counsel before undertaking either action.

For more information on bankruptcy and divorce overlap, contact Carina Kraatz at Resnick Law or call her at (248) 642-5400.