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Is a 529 College Savings Plan a Gift to a Child or Marital Property?

Is a 529 College Savings Plan a Gift to a Child or Marital Property?

Is a 529 College Savings Plan a Gift to a Child or Marital Property? By Amy A. Edwards Yesterday, the NC Court of Appeals addressed this question in Berens v. Berens. This was a case of first impression, meaning our courts have not yet made any decision on this subject. The Court defines 529 plan as “investment programs permit parents to set aside money for their children’s college expenses under tax-favorable conditions.” In the Berens case, the parents funded several 529 plans for their children while they were married and before they separated. The First Trial: Marital Property The lower court said the funds in the plans were marital property, and then awarded them to Mom as marital assets. She disagreed with that, and appealed the case, arguing that the money invested in the plans were gifts to each child, not marital property. And therefore, the court had no jurisdiction over the plans because they were not marital property. The Court of Appeals disagreed with her. The Appeal: Marital Property In this particular case, the Court of Appeals said the funds were not gifts to the children because they were all in Mom’s name alone. Besides the intent to give the gift to someone, a gift is only a gift if it is actually given to someone. Here, Mom failed to give a gift because no child was a named owner. Had the plans been gifts, each child would’ve had “all right, title, and control over the property.” Just because a 529 plan gives an owner a special tax benefit doesn’t mean it changes ownership. Although each child was a beneficiary, the plans were still owned by Mom. Therefore, she had the ability to spend the funds in any way see saw fit.  Amy A. Edwards is a family law attorney in Greenville, NC, certified by the NC State Bar Board of Legal Specialization as a Family Law Specialist, and is licensed only in NC. Laws change. This article is current as of...

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The Top Five Reasons a Divorce Matters in North Carolina

The Top Five Reasons a Divorce Matters in North Carolina

The Top Five Reasons a Divorce Matters in North Carolina By Amy A. Edwards In North Carolina, a spouse can file a claim for divorce only a separation of at least twelve months. Besides the ability to allow someone to remarry, a divorce is important for a number of reasons. This article isn’t legal advice, and it does not cover all of the reasons. But it highlights a few examples of why someone who is served with a complaint absolutely needs to contact a lawyer immediately. Reason #1 – Marital Property Married people who separate can file a claim for equitable distribution, asking the court to divide marital property equally (instead of just relying on which name is on the title or deed). Our state creates a deadline for filing those claims, and the clock starts ticking when a divorce complaint is filed. Failure to properly file for marital property division within the correct time period means it is permanently lost. Reason #2 – Health Insurance Family plans that cover both spouses and any children change the moment a divorce decree is entered. As of that moment, a spouse is no longer “related” for purposes of a family plan because they are no longer a family member. Children of the person who provides health insurance remain on a family plan after a divorce. Reason #3 – Estate Rights Inheritance rights between spouses are completely different from those of non-spouses. This is a very complicated area of the law that can be related to whether a claim for marital property. Examples of potential rights upon the death of a spouse include an allowance of money, the right to a share of the assets if there is no will, and the right to contests a will. Designation as a spouse or former spouse can involve Social Security benefits, military benefits and other survivor’s benefits. Reason #4 – Liens Against the House Married people are sometimes protected from creditors if only one of them created a debt in his or her sole name. For example, the innocent spouse who did not sign a credit card application is usually, but not always, protected from money judgments that would otherwise become a lien against the marital residence. The moment the innocent spouse becomes an ex-spouse, this can trigger a lien against the property even if the debt (such as credit card debt) is not...

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Collaborative Family Law: Are You Both on the Same Page?

Collaborative Family Law: Are You Both on the Same Page?

Collaborative Family Law: Are You Both on the Same Page? In the traditional setting of court, the parties are adversarial. This means they are on opposing sides of an issue, each competing for a ruling from the judge. Court tends to be a win/lose scenario. Instead of being adversarial and working against each other, the objective for both parties in Collaborative Family Law is to find a win/win solution to their dilemmas. The parties collaborate in an effort to create the best settlement they can. All four people, both parties and both attorneys, brainstorm in a series of what are called four-way meetings. Because the parties aren’t adversarial, the attorneys and parties discuss things among themselves in a civil manner during the four-way meetings. There is no cross examination. Instead of the courtroom, they usually meet in an office of one of the attorneys. How Does Collaborative Family Law Work? Collaborative Family Law (CFL) is an alternative dispute resolution authorized by the NC General Statutes. It is used only by the agreement of both parties and can be used for almost any type of family law dispute, including child custody and support, alimony, and equitable distribution of marital assets and debts. The attorneys and their clients sign a CFL pledge. In traditional family law cases, the spouse with more money to spend sometimes drags out the process forcing the other spouse to settle because they can’t afford to go to court. The CFL pledge includes a commitment not to “starve out” the other party. If either party decides to litigate (i.e., go to court), the CFL process ends and both parties have to hire new attorneys. This a built in deterrent for starving out the other party. However, the parties can include in their pledge an agreement to use mediation or arbitration if they can’t reach an agreement. By doing that, their attorneys can represent them throughout all three processes, CFL, mediation and arbitration, if necessary, never going to court.  Am I Protected by My CFL Attorney? Yes. Attorneys facilitate the agreement meaning the parties take an active role in the case. If someone suggests a course of action that is not feasible or fair, the attorney advises him or her against it. Both attorneys meet with both clients in four-way meetings. But each attorney also meets with his or her client privately at his or her office. In fact,...

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Five Facts You Need to Know About Your House in a North Carolina Divorce

Five Facts You Need to Know About Your House in a North Carolina Divorce

Five Facts You Need to Know About Your House in a North Carolina Divorce #1 The names on the deed and the names on the mortgage debt can be two different things. People don’t always realize their ownership rights to property might be different from their mortgage obligation. As most people know, a deed conveys ownership of the property to the purchasers. However, the mortgage is a promissory note which can be signed by one or both property owners. Even when there are two property owners, as reflected on the deed, the bank or mortgage lender might make the loan in the name of only one property owner instead of both. This can happen when the other owner is self-employed and has irregular or sporadic income. Sometimes, the other owner has bad credit or a high debt to income ratio (too many debts for his or her income). When the mortgage note is only signed by one owner, only he or she is legally responsible for the actual payment of it, although both spouses might own the property together. In North Carolina, the mortgage note is secured by a document called a deed of trust, which is recorded at the Register of Deeds. It is the actual lien against the property. Sometimes the spouse who isn’t responsible for payment of the mortgage signs the deed of trust, allowing the lien to be placed against the land in which he or she has ownership interests. Just because the other owner signed the deed of trust doesn’t automatically mean he or she is also responsible for payment of the loan. In other words, we can’t usually tell whether the other owner is responsible for payment of the mortgage unless we see the mortgage note. #2 In the vast majority of cases, the only way to “remove” your name from the mortgage debt in joint names is to pay it off. When spouses separate and the mortgage obligation is in joint names, the person moving out of the house still has the mortgage debt on his or her credit record as an on-going debt even though he or she no longer lives there. If mortgage payments are delinquent, it is a problem for both spouses, not just the one who remained in the residence. Lenders won’t usually remove someone’s name from the mortgage note. The routine way divorcing spouses have one named “removed” from the mortgage debt is to pay off the debt. The two main ways to pay off a mortgage include selling the house and using the sales proceeds to pay off...

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Till Death Do Us Part: Life Insurance and Family Law

Till Death Do Us Part: Life Insurance and Family Law

Till Death Do Us Part: Life Insurance and Family Law Maintaining life insurance and naming the beneficiaries are common topics when dealing with family law cases. Just as no one likes to discuss divorce and taxes, no one likes to discuss death. The NC Department of Insurance has an excellent publication, the Consumer Guide to Life Insurance which includes a glossary, simple comparison of the advantages and disadvantages of the different types of policies, and other information in layman’s terms. When parents agree how the insurance will be dealt with, they can include it in a separation agreement or have their attorneys add it to a settlement to be signed by the judge to become part of a court order. Marital Property Cases In marital property cases, life insurance is merely an asset to be awarded to one spouse or the other. In those cases, the court generally assigns a value to the policy. For example, if the policy is a whole life policy, the court will assign a value based on the cash surrender value. If it is a term life insurance policy it has no value at all unless the person dies and the death benefit is paid, so the court will assign a zero dollar-value to the policy and award the policy to the owner. Child Support and Alimony Cases Life insurance is used to protect the stream of income for person receiving child support or alimony. In North Carolina, alimony is not payable after the death of either party, so a former spouse receiving alimony cannot make a claim against the estate for continued alimony. Therefore, life insurance is a tool that may be used to bridge the gap if the former spouse who was paying alimony dies. Likewise, in child support cases, life insurance can be used to protect the parent receiving child support. Different Options When reaching an out-of-court settlement, families can make all types of arrangements. If they are using life insurance to secure child support they might agree to keep the policy in place until the last child reaches a specific age. Or, the pares contract by mutual agreement to maintain the beneficiary designation permanently. Gradually decreasing the death benefits can secure child support while keeping the amount of the insurance premium down. In certain cases, owners have the ability to take loans to borrow against the value of the policy, so that issue should be addressed as well.  Beneficiary Designations If you have an estate plan in place, talk to an estate planning attorney for...

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Why Do I Have to Get All These Documents To Start My Case?

Why Do I Have to Get All These Documents To Start My Case?

Why Do I Have to Get All These Documents?  When a client hires us, the first order of business is to review documents. The typical list of documents we request includes tax returns and statements (i.e., W-2 or 1099 statements), bank and credit card statements, deeds and mortgage statements, health insurance and daycare costs, and vehicle registration or title, to name a few. Reason #1 – To Identify the Marital Estate Your attorney doesn’t know (with enough detail) what assets and debts you have. For example, a client might not realize a cash/sweep account is associated with an IRA or could forget there is an outstanding loan against the account. Only by analyzing the documentation can an attorney properly advise you or start meaningful negotiation with the other attorney. Reason #2 – Civil Discovery & Subpoenas Just because you don’t plan to take your case to court doesn’t mean your ex won’t file a lawsuit. Once a lawsuit is filed, either party can serve civil discovery  which is the process by which the documents are made available to the opposing party before court. In a family law case, your life is an open book so to speak. Subpoenas require people to testify and/or provide documents. An attorney has the ability to prepare and serve a subpoena on you and anyone else. Reason #3 – Court Rules Court rules now require mandatory disclosure of these records, regardless of whether there is discovery and/or subpoenas. Even if there is no subpoena or discovery in a child support case, state Guidelines automatically require: “Income statements of the parents should be verified through documentation of both current and past income.” They go on to say “Suitable documentation of current earnings . . . includes pay stubs, employer statements, or business receipts and expenses, if self-employed.” Documentation of current income must be supplemented with copies of the most recent tax return to provide verification of earnings over a longer period.”  Reason #4 – Documents Are Evidence If there is a lawsuit filed at some future date, you’ll have the proof to show the classification of assets and debts, whether assets and debts are marital, separate or divisible. Showing values of property and balances of debts and interest on specific dates is key, especially around the date of separation. For example, property in equitable distribution cases is valued as of the date of separation, but the mortgage payments made after the date of separation might also be a point of negotiation....

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