We ran into a very sad story the other day. Tom, age 38, died after a relatively short illness. He had been divorced from his first wife, Pam, for about four years. Pam and Tom had two young children. Fortunately they were relatively civil and worked to take care of their children in a cooperative manner. Tom remarried about two years ago. His new wife, Monica, and Pam got along as well as could be expected in the circumstances.
Here comes the bad news. Although Pam deeded the marital home to Tom as called for in the Divorce, Tom never got around to refinancing the home or having Pam removed as a borrower on the mortgage. Tom also never got around to putting Monica on the title of the house. Tom had no will or other estate plan whatsoever. Finally, Tom had very little life insurance.
There is some equity in the house, but not much.
As a result of Tom’s failure to plan four people now have real problems.
First, Monica is living in a house that she cannot afford, and to which she has no claim until a probate estate is opened. If a probate estate is opened the house may well need to be sold because the minor children may have some claim to it. The more likely result, however, is that the Bank will ultimately foreclose on the house because it doesn’t make economic sense to to anything else.
Secondly, Pam may wind up with some blemishes on her credit rating because the house may well go through foreclosure. Because of the lack of Life Insurance and the lack of any real incentive on anyone’s part to open a probate estate, foreclosure will be the likely result. It is likely that she will owe on any deficiency resulting from the foreclosure, should there be one.
Finally, and the most disturbing, the two minor children have not only lost their father, but Pam will now struggle to provide for them for years to come.
How much trouble would it have been for Tom to take care of things? Relatively speaking, very little. He should have seen an attorney about planning for his estate. He should have purchased Life Insurance to take care of his minor children, as well as Monica. He was healthy just a short time ago and term insurance would have been relatively inexpensive. He could have structured it so that Monica could keep the house should she chosen to do so, and that the children would be provided for and financially protected. Many of these items are outlined in our Special Report for New and Young Parents.
Pam is not without fault, either. She should have taken care of business after the divorce to assure that Tom had refinanced the house. She certainly should not have signed off on her interest until the knew that this had been done. Finally, she could have purchased Life Insurance on Tom as well.
Monica should have seen to it that Tom took care of his responsibilities as to the house.
In other words, three people could and should have taken care of business. Now the survivors will all suffer for years to come. Very sad. Very preventable.
Contact us if you want help in preventing this from happening to you.