Briefs

By Tom Noble
8080 N. Central Expressway
Suite 930
Dallas, Texas 75206
214-692-1888
fax: 692-8577
tnoble28@hotmail.com
www.tnoble.com

7.25.06

Three Tools for Settling Divorce Cases¹

1.  The Residence Restriction Trust²: As far as I know I dreamed this one up all by myself, so (disclaim, disclaim) it lacks the stamp of approval of multiple seminar speakers and the scholars among us who feed the coffers of West Group, the 300 pound gorilla of legal information services.

Here’s how it works: Let’s say two parents are trying to settle their divorce case; Mom has primary possession; Dad wants to make sure that she sticks around Dallas County; he has heard that “domicile restrictions” in divorce decrees are modifiable; and, frankly, he is willing to pay a little extra to make sure that she does not take his kids and move to Baghdad because that is the only place she can find a job, or he speculates that the trial judge may not be wild about his history of using and abusing certain substances.  What we do is form a trust for the benefit of Mom and fund it with enough to provide her a financial incentive to stick around with the kids.  The trust will direct the trustee to make monthly or yearly distributions to Mom so that it amortizes over the period from the year of divorce until the kids graduate from high school.  If Mom tries to move the kids, she loses the remainder of the corpus.  That means, of course, that as the children mature into adolescence³ Mom will have less incentive to move, which makes sense because most parents value pre-adolescent children more than post.⁴

2.  529 Plans:  529 Plans are tax-advantaged accounts, which allow the contributors to gift more than usually allowed to what is basically an IRA account for educational purposes for kids and grandkids.  It’s a good financial planning tool, not only for the wealthy, but for most of the rest of us as well.  Instead of a handful of toys for Christmas that will become obsolete, if not fully depreciated, rendering neither capital gains nor ordinary income, except for a possible garage sale for those who really don’t care about their neighbors or, perhaps a modest amount on EBay in 20 or 30 years. . . Where was I? Oh, yes. Well, what I really want to talk about is how to use 529 Plans to settle divorce cases and, along the way, we can learn something about them.

The obvious example of when divorcing parties should consider a 529 Plan is if they are fighting over a chunk of money or an asset or two, and they have kids or grandkids, and it is nice if they value education, which is a good question for mediators to ask and one that is hard for people to say no to.  “Do you give a damn if your kids get a decent education, Mrs. Smith?” You may want to soften that if Mrs. Smith is a scowler⁵.  Instead of fighting over the money, they agree to put it into a 529 Plan or two.  Between the two of them they can sock away $110,000⁶ in one account for one beneficiary in one year with no gift tax consequences.  You can take that much out of dispute for each potential beneficiary.  For big families, well, you get the point.  Like an IRA, the money grows on a tax deferred basis, and, what’s really cool is that if you actually use the funds for educational purposes, instead of lying to the government like most of us usually do as much as possible, you don’t have to pay any tax whatsoever when you withdraw the money.  Did you hear what I said? We’re talking tax free income, dude!  Why, those boys in Washington are almost paying people to be rich these days.

You can also use 529 Plans to quell the rough waters of a custody dispute.  Poetic, n’est-ce pas?  Two parents are fighting, fighting, fighting over kid issues, particularly paying for college.  See if one or both of them will agree to contribute to a 529 Plan.  Even agreements on small contributions can create momentum, which often leads to resolution of other issues.

How about the “Elder Divorce”, which I seem to be seeing more and more of?  These cases have all sorts of interesting issues about lack of capacity, guardianships, powers of attorney, disproportionate division, and even service of process.  And, unless you get a Tony Randall, they are all about money. Instead of fighting over it, perhaps there is a grandchild or step-grandchild who could use a little help.

3.  Non-Binding Arbitration: I never see lawyers using this tool, and I wonder why.  Summary jury trials were a big deal for awhile in the civil courts and, as I understood it, were relatively successful in helping litigants settle cases.  But, for most family law cases they are too cumbersome and expensive.  But, what about this idea:  Let’s say that you have a tough case, and you have tried mediation, and nothing seems to be working, and you are looking forward to a week or two of trial.  Why not agree to half a day or so of non-binding arbitration?  Each side would get a couple of hours or so to put on a case, and then some shaman who is selected by agreement would render a non-binding opinion.  After hearing from a lawyer, say, who has substantial trial experience or even good problem solving skills, who knows? If any of my colleagues have tried or will try this, please send me feedback.

Best Fiction

I think this isworth repeating.  The New York Times Book Review recently⁷ announced the “best work of American fiction of the last 25 years”.  Here are the results:

The Winner: Beloved by Toni Morrison (1987).

Runners Up: Underworld by Don DeLillo (1997); Blood Meridian by Cormac McCarthy (1985)
Rabbit Angstrom: The Four Novels by John Updike (1995); American Pastoral by Philip Roth (1997).

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¹ Which may not have occurred to you.
² “Housing Trust” may sell easier.
³ There’s an oxymoron for you.
⁴ I expect that to draw some ire.  This is based upon my anecdotal research and findings that most parents don’t fight over teenagers.  Like puppies, kids are cute when they are little.  Then, they start chewing up stuff in your house and defecating wherever and, well, you get the point.
⁵ More about body language coming soon, including scowling, flatulence, and purple face syndrome.
⁶ I believe that it is $120,000 in 2006. Please check that out for yourself before employing this technique. 
⁷ May 21, 2006.