Invalid Divorce - Breaking Up Is Hard To Do
By Julian Block
Nowadays, most states have eased their divorce laws. But despite the general easing, it is not uncommon for a court of one state to invalidate a divorce obtained in another state. To the complications this can cause in your life, add some troublesome tax questions after you have gone.
For example, consider this estate tax problem. A married person's estate can completely sidestep federal estate taxes, thanks to a break known in legal lingo as a "marital deduction." No estate taxes fall due on property left to a surviving spouse.
For an estate to take advantage of a marital deduction, a person must leave a surviving spouse. But if a state invalidates a divorce obtained by someone who remarried in the meantime, who is the "survivor"?
Consider the case of Elizabeth and Charles Spalding, who lived in Connecticut until a disagreement prompted him to move to New York. Eventually, he went to Nevada; its divorce statute allowed him to obtain a divorce without an appearance there by her.
The divorce was ruled invalid by New York; but this did not dissuade Charles from a California marriage with Amy. The couple resided in California until the death of Amy, who left substantial property to Charles. Thanks to the marital deduction, the IRS was disinherited to the tune of about $400,000.
Somehow, the IRS got wind of the New York decision and insisted that Charles was still married to Elizabeth. Therefore, contended the feds, Amy Spalding's estate was ineligible for the marital deduction. But what counts, said a federal court, was how California, the state of both Amy's marriage and estate administration, viewed the relationship. Since their marriage went unchallenged by California, Charles and Amy were husband and wife there and her estate was entitled to the deduction.
But in other disputes, the IRS has triumphed. For instance, Gertrude and Leo Goldwater lived in New York when he obtained a Mexican divorce without an appearance by her -- a maneuver that caused New York to declare the Mexican divorce invalid. Leo, nevertheless, married Lee in Connecticut and the couple resided in New York until his death. Decision: Leo's estate could not claim a marital deduction for property left to Lee because his marriage to her was not recognized by New York, the state responsible for the probate of the estate.
The same approach was followed in another case that read like a script for "All My Children." Here, Crockett and Priscilla Lane lived in Wisconsin when she obtained a Mexican divorce on grounds not recognized by Wisconsin. Priscilla wed Wesley Steffke, and they remained in Wisconsin until his death, when he left most of his property to her.
For state inheritance tax purposes, Wisconsin determined that Priscilla wasn't Wesley's widow; she remained the wife of Crockett. The IRS then disallowed the marital deduction claimed by Wesley's estate for property left to Priscilla. Decision: For the IRS. It was immaterial that it was not until after the death of Wesley that Wisconsin invalidated Priscilla's unhitching from Crockett.