In re Miller, — B.R. —-, 2010 WL 5184798 (Bkrtcy.S.D.Fla.2010)

Assume Husband "A" and "B" are both recent widowers. Husband "A" inherited $100,000 from his wife. Husband "B" was completely cut out of his wife’s will, but after claiming an elective share of his wife’s estate (30% of the elective estate), he too received $100,000 from his wife’s estate.

Now assume Husband "A" and "B" both declare bankruptcy shortly after their respective wives pass away. Who’s financially better off?

According to the linked-to bankruptcy court opinion, Husband B is clearly better off. Why? Because it’s legal for Husband B to intentionally delay his elective-share election until it’s too late for his creditors to go after these assets, while Husband A’s inheritance is automatically exposed to his creditor claims. Is this good public policy? I have my doubts. But apparently it’s the law. Here’s how the bankruptcy court explained its ruling.

[1] Why Husband A’s inheritance is automatically exposed to creditor claims in bankruptcy:

With limited exceptions, § 541 of the Bankruptcy Code provides that property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Pursuant to § 541(a)(5), this includes property that the debtor “acquires or becomes entitled to acquire within 180 days” of the petition date “by bequest, devise, or inheritance.” 11 U.S.C. § 541(a)(5).

[2] Why Husband B may intentionally time his elective-share election to cut out his creditors:

Under Florida law, the right of election is a personal right of the surviving spouse. See Harmon v. Williams, 615 So.2d 681, 682 (Fla.1993). As such, the “right of election, itself, is not a property interest of the debtor, and thus, not property of the estate.” In re Brand, 251 B.R. 912, 916 (Bankr.S.D.Fla.2000). Moreover, although an elective share interest “would constitute property of the estate[,]” “an elective share interest does not exist until the statutory right of election is properly exercised.” Id. at 915-16; see also In re McCourt, 12 B.R. 587, 589 (Bankr.S.D.N.Y.1981) (“Until the debtor exercises his personal statutory right to the election, no rights in his deceased wife’s property are ascribable to the debtor.”). ……………

Although the Trustee asserts that the Debtor intentionally delayed filing the Election to avoid the 180 day period under § 541(a)(5), a review of the record indicates that the Trustee never filed a motion seeking to require the Debtor to file the Election. Even if the Trustee had filed such a motion, the Trustee cites no authority indicating that the Court has the power to require a debtor to exercise a right of election. Relevant case law indicates that the Court has no such power. See McCourt, 12 B.R. at 589 (denying trustee’s motion to force the debtor to exercise the right of election).