Many states allow for a couple to legally separate instead of filing directly for a divorce. Couples may decide to first separate for religious reasons, or because of health care coverage, Social Security or military or family benefits rather than divorce, which severs the relationship for most, if not all those purposes.
Florida, however, does not have a legal process for separation. Consequently, Florida residents who do not get a divorce remain treated as married for purposes of our estate laws. Federal tax law also plays into separations. Today I’m going to review a few of these issues.
Qualified Domestic Relations Order
While a divorcing couple may split an IRA with something called a Qualified Domestic Relations Order (QDRO), a separated couple may not without adverse tax consequence. A QDRO creates or recognizes the existence of a divorcing spouse’s right to receive all or a portion of benefits payable from his or her former spouse’s benefits with respect to retirement plans.
When a judge issues a QDRO, for example, it may divide an IRA account between spouses without the transferor spouse recognizing the distribution as taxable income, and the transferee spouse is not burdened with contribution limitations. The account is simply divided tax free.
Separation agreements, in contrast, cannot split an IRA tax free unless the separation agreement is incident to the decree of divorce. Any transfers could be recognized by the transferor spouse as taxable income. Moreover, the transferor may trigger the 10% excise tax penalty if he or she is under the age of 59½.
Another consideration is a spouse’s rights to inherit the estate of a deceased spouse. Florida, like many other states, has two such laws that may apply. One is called the “pretermitted spouse” and the other is a “spousal elective share.”
Absent a nuptial agreement waiving these rights, a surviving spouse who is not included in the decedent spouse’s Will (or Trust) is entitled to either one or the other. A pretermitted spouse is one who becomes a spouse after the decedent created his Will. The law assumes that the decedent intended to provide for the spouse but did not get around to updating his Will. The pretermitted share is the same as the intestate share, generally 50% of the estate.
The elective share, in contrast, makes no assumption about what the decedent intended and is a mechanism for enforcing Florida’s public policy against disinheriting one’s spouse. The elective share is 30% of the decedent’s estate. I’m generalizing here because there are statutory complexities in determining both the amount of the estate subject to the elective share, and how assets bequeathed to the spouse are valued.
Florida homestead laws also factor into how a primary residence may be subject to surviving spouse’s rights. Under the Florida Constitution and descent and devise laws, a decedent spouse must bequeath his home to his spouse at death. Failure to do so, even in a trust that grants the surviving spouse rights for the remainder of her life, constitutes an invalid devise.
Under an invalid devise, Florida law disregards the decedent spouse’s will and trust. The surviving spouse is entitled to ownership depending upon whether the decedent spouse had surviving descendants. If there are not surviving descendants, the surviving spouse takes the property in fee simple. If there are surviving descendants, then the surviving spouse may choose between a life estate interest or an undivided ½ interest in the residence as tenants in common.
With a life estate interest, the surviving spouse will get to reside on the property for the duration of her life if she chooses to do so, then upon her death the property passes to the first decedent spouse’s descendants (children or grandchildren).
If the surviving spouse instead elects the ½ interest, then she owns it as tenants in common with the decedent spouse’s descendants. Here, the surviving spouse may leave her ½ share of the residence to anyone that she wants in her Will or Trust.
Having a separation agreement does not affect the surviving spouse’s rights under Florida law with either pretermitted share, elective share, or homestead rights. To avoid these possibilities a valid nuptial agreement must be in place.
Finally, a word about a divorce decree as it relates to Florida estate plans. Florida law provides that all provisions in favor of a divorced spouse in a Will (or Trust) are treated as if the surviving former spouse predeceased the testator. As an example, if John dies following his divorce from Susan, any provision in John’s Will or Trust naming Susan is treated as if Susan died before John died.
This is true unless the Will or Trust document or the divorce judgment provides otherwise. For example, some divorce judgments require one spouse to bequeath assets to the former spouse in his estate plan. Otherwise, a Florida resident must generally amend his documents if he still wants to include his former spouse in his estate plan.
Even if you signed a valid Separation Agreement while residing in one of the many states that recognize them, if you are a Florida resident you should review your estate plan a competent estate planning attorney.
© 2021 Craig R. Hersch learn more at floridaestateplanning.com