Tag: divorce

Using an LLC to Protect the Family Vacation Home

Vacation homes offer a retreat from daily life, providing a sanctuary to relax and create cherished family memories. Many owners envision passing down their vacation home for future generations to enjoy, but the lack of proper planning can often lead to intra-family disputes. Leaving a vacation home outright to children or other family members may be the easiest option, but the potential for discord over the control and usage of the property only increases as ownership is passed from one generation to the next. A limited liability company (LLC) can mitigate the risk of conflict and provide a tailored solution to the meet the specific needs of a family.

When a vacation home is owned by an LLC, the membership interests in the LLC are passed down to younger generations, which allows for the continued use and enjoyment of the property by the family. The structure also provides a framework for management through an operating agreement, which governs the LLC. An operating agreement allows the original owner to create a plan for how the property will be used and managed as additional owners are added. The agreement can determine who is responsible for property management, how expenses should be proportioned and paid, how decisions should be made and provide guidelines for scheduling family usage. By establishing clear rules and procedures, an LLC can reduce the likelihood of disputes and encourage fairness among different generations.

Another benefit of an LLC is the ability to prevent unwanted transfers of ownership thus ensuring that the property stays in the family. A well-drafted operating agreement can prohibit membership interests from being transferred to third parties, protecting the family as a whole from an individual’s divorce or creditor problems. The LLC can also hold additional assets, including rental income and deposits of other funds earmarked for property expenditures, which facilitates the proper management and use of resources to cover expenses.

An LLC offers an efficient structure to avoid intra-family turmoil and preserves the spirit of the family vacation home for generations to come.

© 2024 Chuhak & Tecson P.C.
For more news on Protecting Real Estate Ownership, visit the NLR Real Estate section.

Premarital Agreements and the “Voluntary” Signature

Premarital agreements offer persons contemplating marriage the ability to plan for the distribution of their assets and liabilities in the event of separation and/or divorce.

While the concept of planning for divorce may seem counterintuitive for persons pledging promises of life-long fidelity and companionship, premarital agreements offer solutions for a variety of scenarios, including estate planning protection and the protection of interests in closely held businesses in the event of separation and/or divorce.

In many cases, the signed agreement will become a distant memory as the routines of married life evolve. Yet years later, the agreement will be retrieved from the file cabinet by the party seeking its protection when one or both spouses conclude that the marital contract should be dissolved. The agreement may then be challenged by the spouse, who concludes that enforcement of the bargain made decades earlier will produce egregiously “unfair” results.

As will be shown below, the burden to be met when challenging a premarital agreement is steep. It is, therefore, imperative that persons being asked to enter into such an agreement fully and completely understand its legal consequences before signing on “the dotted line.”

Legal Framework for Premarital Agreements in North Carolina

In North Carolina, premarital agreements are governed by the Uniform Premarital Agreement Act. See N.C. Gen. Stat. §§ 52B-1 through -11.

To avoid enforcement of a premarital agreement, the party challenging the agreement must prove either that (1) she did not execute the agreement “voluntarily” or (2) that the agreement was unconscionable when it was executed and before its execution she (a) was not provided, (b) did not waive the disclosure of, and (c) did not have, or reasonably could not have had, adequate knowledge of the property or financial obligations of the other party. N.C. Gen. Stat. § 52B-7(a).

In this article, we will review two North Carolina cases that shed light on what is meant by the term “voluntary” when it comes to the execution of a premarital agreement.

CASE STUDY 1: HOWELL V. LANDRY

In Howell v. Landry, Mary Landry challenged the enforcement of the couple’s premarital agreement. She challenged the agreement on the grounds that her execution of the agreement was not “voluntary.” She complained:

  • that her husband first presented her with a draft of a premarital agreement which had been prepared by his attorney without the wife’s knowledge at 8:00 pm on the day before they were to travel to Las Vegas, Nevada for their wedding;
  • that her husband told her that if the agreement was not signed, they would not get married;
  • that she had never seen a premarital agreement before, and she advised her husband that she wanted her own attorney to review the document;
  • that she advised her husband that she did not want to sign the agreement.

Ms. Landry argued that these facts support a conclusion that the agreement was the product of duress and was, therefore, unenforceable. The case came before Judge Russell Sherill in Wake County. Judge Sherill agreed with Ms. Landry and ruled in her favor, concluding that the Agreement was the product of duress and therefore invalid.

Mr. Howell appealed Judge Sherrill’s ruling to the North Carolina Court of Appeals. The Court of Appeals rejected wife’s argument that the agreement was the product of duress. The Court’s ruling is instructive. The Court observed that:

[d]uress is the result of coercion. It may exist even though the victim is fully aware of all facts material to his or her decision.

* * *

Duress exists where one, by the unlawful or wrongful act of another, is induced to make a contract or perform or forego some act under circumstances which deprive him of the exercise of freewill. An act is wrongful if made with the corrupt intent to coerce a transaction grossly unfair to the victim and not related to the subject of such proceedings.

* * *

The mere shortness of the time interval between the presentation of the premarital agreement and the date of the wedding is insufficient alone to permit a finding of duress or undue influence . . . . The shortness of the time interval when combined with the threat to call off the marriage if the agreement is not executed is likewise insufficient per se to invalidate the agreement.

* * *

Here, the threat to cancel the marriage and the execution of the premarital agreement were closely related to each other. The marriage would have redefined the respective property rights of the parties, and the premarital agreement would have avoided that re-definition to some extent. Indeed, the cancelation of a proposed marriage would be the natural result of failure of a party to execute a premarital agreement desired by the other party.

In summary, Ms. Landry’s decision to sign the agreement was deemed to have been a voluntary decision despite the fact that it was presented to her the night before the couple was to leave for their wedding and despite her request to have an attorney review it for her.

CASE STUDY 2: KORNEGAY V. ROBINSON

Our second real-life example contains facts that appear even more favorable to the complaining spouse than those presented in the Howell v. Landry matter. In Kornegay v. Robinson, the wife signed a premarital agreement that included a waiver of her spousal share of her husband’s estate.

When her husband passed away without providing for her in his will, she challenged the premarital agreement in an attempt to receive a share of the estate. Ms. Kornegay claimed that the premarital agreement had not been voluntarily executed because:

  • She had only a high school education;
  • She learned that her husband wanted her to execute a premarital agreement only after she had moved in with him and obtained a license to marry him;
  • She was presented with the agreement in her husband’s attorney’s office on the same day that she and her husband were to be married; and
  • She did not have the opportunity to review the agreement with independent counsel before signing it.

The trial judge who heard the case ruled against Ms. Kornegay. She appealed the matter to the North Carolina Court of Appeals. A majority of the panel who heard the case were persuaded that the trial court’s ruling was improper. However, one member of the panel filed a dissenting opinion and concluded that Ms. Kornegay’s claim to set aside the Agreement was properly denied. The husband’s estate appealed the matter to the North Carolina Supreme Court.

In a unanimous opinion, the Supreme Court adopted the dissenting opinion, which rejected Ms. Kornegay’s argument. The dissenting opinion adopted by the Court is informative.

Plaintiff (Ms. Kornegay) now contends she did not voluntarily sign the premarital agreement due to the totality of the circumstances existing at the time of execution of the Agreement. Plaintiff argues her lack of legal counsel and lack of an opportunity to obtain legal counsel are important elements in the circumstances surrounding her execution of the Agreement. Plaintiff acknowledged in her deposition she never requested “(1) additional time to read the Agreement; or (2) another attorney to be present to explain the Agreement before she signed it.” This case fits squarely within the facts and holding of Howell ….

This Court has held contract rules apply to premarital agreements.

Absent fraud or oppression . . . parties to a contract have an affirmative duty to read and understand a written contract before signing it.

Plaintiff’s argument that her execution was not voluntary because she did not read the agreement was without merit. Plaintiff had an affirmative duty to read and understand the premarital agreement before signing it. Plaintiff provided no evidence she was prevented from reading the agreement or that she sought separate counsel prior to signing the agreement. Plaintiff admitted both in the agreement and at her deposition that she voluntarily signed the agreement.

* * *

Plaintiff asserts no inequality in education or business experience between her and her husband. Plaintiff did not assert she made any disclosures to Defendant of her pre‑martial assets to any greater extent than her knowledge of Defendant’s assets on the date of the agreement.

* * *

Plaintiff’s chief complaint of unfair appears to be based upon the current value of her husband’s assets, from which she has received and enjoyed the income over the fifteen years of their marriage, and not her knowledge of the nature and extent of the decedent’s assets on the date of the agreement. The value of decedent’s assets on the date the contract was signed controls. Plaintiff’s bootstrapped claim that her execution of the agreement was not voluntary does not create any genuine issue of material fact to overcome the plain language in the agreement or her sworn admissions during her deposition. The trial court’s judgment should be affirmed in its entirety.

* * *

The fact that the decedent’s assets grew during the marriage does not make the agreement unconscionable or unfair.

The North Carolina Supreme Court rejected Ms. Kornegay’s claim the agreement should be set aside. Once again, not even the presentation of the agreement in the husband’s attorney’s office on the day of the wedding was sufficient fact from which to find that the Agreement had not been signed “voluntarily.”

Lessons Learned

The Howell v. Landry and the Kornegay v. Robinson decisions reveal the steep climb required to meet one’s burden of setting aside a premarital agreement on the grounds that it was not executed “voluntarily.”

Persons asked to sign a premarital agreement on the eve of the wedding should be aware that the “last minute” presentation will more than likely not be sufficient cause to set aside the agreement. When it comes to premarital agreements, the following advice is in order:

  1. Timely ask your prospective spouse whether he or she is considering the use of a premarital agreement;
  2. Advise your prospective spouse that you will need time to have an attorney of your choice review the agreement before you will be able to sign it;
  3. While inconvenient and potentially embarrassing, consider postponing the wedding ceremony if an agreement is presented at the last moment.
© 2024 Ward and Smith, P.A.. All Rights Reserved.
For more news on Signing Premarital Agreements, visit the NLR Family Law / Divorce / Custody section.

Joint Trusts: A Useful Tool for Some Married Couples

Though not a silver bullet for every situation, in appropriate circumstances, a Joint Revocable Living Trust (“Joint Trust”) can provide a married couple with significant benefits and simplify the administration of assets upon death or incapacity.

The Probate and Estate Administration Process

In order to illustrate the benefits that can be achieved with a Joint Trust, it’s helpful to first understand the typical probate and estate administration process that occurs when a person dies.

When a person dies with a Will, the designated Executor in the Will typically submits the original Will for probate in the Estates Division of the Clerk of Superior Court in the county where the decedent resided at the time of death.  “Probate” is the legal process by which the court validates the submitted document as the legal Will of the decedent.  When offering the Will for probate, the designated Executor typically also files an application with the court to be appointed as Executor of the estate and granted Letters Testamentary, which is the legal document confirming the Executor’s authority to act for the decedent’s estate.

If a person dies without a Will, the decedent’s spouse or nearest relative typically files an application with the court in the county where the decedent resided at the time of death seeking to be appointed as Administrator of the estate and granted Letters of Administration which is the legal document confirming the Administrator’s authority to act for the decedent’s estate.

Once the court appoints an Executor or Administrator of the estate, as the case may be, that person is referred to as the “Personal Representative” of the estate and is charged with several duties and obligations.  Actions required of the Personal Representative include:

  • Taking control of the decedent’s assets;
  • Filing an inventory with the court identifying the value of all of the decedent’s assets to the penny;
  • Publishing a notice to creditors giving them three months to file claims with the estate;
  • Satisfying any creditors’ claims;
  • Distributing all remaining assets to the decedent’s beneficiaries; and,
  • Filing an accounting with the court to report to the penny what occurred with all of the assets.

The court supervises the process at every step along the way and must ultimately approve all actions taken in the course of the estate administration before the Personal Representative will be relieved of their appointment.

Movement Away from Probate

Over the last few decades, a trend has developed in the estate planning community to attempt to structure a person’s affairs so that no assets will pass through a probate estate supervised by the court.  That trend has developed in response to a public perception that the court supervised process is not only unnecessary but also yields additional costs.  For instance, additional fees must be paid to attorneys and other advisors to prepare the inventory, accountings, and other documentation necessary to satisfy a court that the estate was properly administered.  Also, in North Carolina, the court charges a fee of $4 per $1,000 of value that passes through the estate, excluding the value of any real estate.  Currently, there is a cap on this fee in the amount of $6,000, which is reached when the value of the estate assets equals $1,500,000.

Additionally, all reporting made to the court about the administration of an estate is public record, meaning that anyone can access the information.  The public nature of the process is why news organizations often are able to publish articles soon after a celebrity’s death detailing what assets the celebrity-owned and who received them.  Such publicity causes concern for many people because they fear that their heirs will become targets for gold-diggers.  This has further strengthened the trend away from court supervised estate administration.

Several techniques are available to avoid the court supervised estate administration process.  These include:

  • Registering financial accounts as joint with rights of survivorship;
  • Adding beneficiary designations to life insurance or retirement accounts; and,
  • Adding pay-on-death or transfer-on-death designations on financial accounts.

However, because it is rarely possible to utilize those techniques to fully exempt a person’s assets from the court supervised estate administration process, the most commonly used avoidance device is the Revocable Living Trust.

The Revocable Living Trust

A Revocable Living Trust is essentially a substitute for a Will.  To create a Revocable Living Trust, a person typically transfers the person’s assets to himself or herself as trustee and signs a written trust document that contains instructions as to what the trustee is to do with those assets while the person is alive as well as upon death.  The trust document also identifies who should take over as successor trustee when the person is no longer able to serve due to death or incapacity.

During life, the person’s assets in the trust may be used in any way the person, as trustee, directs, and the person may change the instructions in the trust document in a similar manner as one can change a Will.  If the person becomes incapacitated, the successor trustee is instructed to use the trust assets for the person’s care.

At death, the successor trustee wraps up the person’s affairs by utilizing the trust assets to satisfy all of the person’s liabilities and distributes the remaining assets to the beneficiaries identified in the trust document.  No court supervises the process, so no court fees are incurred.  Moreover, advisors’ fees related to preparing court filings are avoided.  Also, the administration of the trust is a private matter with nothing becoming public record.  This process often results in a much better outcome for the person’s beneficiaries as compared to having the assets pass through the court supervised estate administration process.

The Joint Trust

Typically, when a married couple utilizes a Revocable Living Trust-based estate plan, each spouse creates and funds his or her own separate Revocable Living Trust.  This results in two trusts.  However, in the right circumstances, a married couple may be better served by creating a single Joint Trust.

A Joint Trust tends to work best when a couple has the following characteristics:

  • The couple has a long, stable relationship;
  • Divorce is not a concern for either spouse;
  • The couple is willing to identify all assets as being owned one-half by each of them;
  • No creditors’ claims exist, whether current or contingent, for which the creditor could seek to collect from only one spouse and not the other;
  • Neither spouse has children from a prior relationship;
  • Each spouse is comfortable with the surviving spouse having full control over all of the assets after the death of one of the spouses; and,
  • The value of the couple’s assets is less than the federal estate tax exemption amount.  For deaths occurring in 2022, this amount is $12.06 million (or $24.12 million per couple) reduced by any taxable gifts made during life.

A couple who meets these criteria could establish a Joint Trust by transferring their assets to themselves as co-trustees and signing a trust document to provide instructions as to what the co-trustees are to do with the assets.  Typically, while both spouses are alive and competent, they retain full control over the trust assets and can change the trust document at any time.  If one of the spouses becomes incapacitated, the other spouse continues to control the trust and can use the trust assets for the couple’s care.

After the death of one of the spouses, the Joint Trust will continue.  The surviving spouse would continue serving as trustee and have full control over the trust assets.  No transfers of assets are required at the first death because all assets are already in the Joint Trust.

Upon the death of the surviving spouse, the designated successor trustee wraps up the surviving spouse’s affairs by utilizing the Joint Trust assets to satisfy any liabilities and distributes the remaining assets as directed in the trust document.

The following are some of the benefits afforded by a Joint Trust:

  • Throughout this entire process, there is no court involvement.  This minimizes costs and promotes privacy.
  • The couple no longer has to worry about whether a particular asset is owned by one of the spouses or by one of the spouses’ separate Revocable Living Trusts.  All assets are simply owned by the Joint Trust.
  • Since only one trust is ever created, no transfers need to be made after the death of the first spouse to die.  This simplification in the administration process minimizes advisors’ fees and other costs and is a key advantage of using a Joint Trust.

A Joint Trust can possibly yield even more benefits in certain situations.  For instance, it may be possible to characterize some or all of the assets in a Joint Trust as community property.  The benefit of having assets characterized as community property is that such property will receive a full basis adjustment for income tax purposes (commonly referred to as a “step-up” in basis) at the death of the first spouse to die as opposed to only one-half of the property receiving such a basis step-up.

Additionally, it may be possible to include asset protection features in the Joint Trust so that any real property owned by the trust would be afforded the same protection as real property owned by a married couple as tenants by the entireties.  Such protection prevents a creditor of just one spouse from enforcing the liability against the real property owned by the couple.  Though the details of these benefits are beyond the scope of this article, they demonstrate that a Joint Trust potentially can provide additional advantages beyond those listed above.

Conclusion

In the right circumstances, utilizing an estate plan that involves a Joint Trust can simplify a married couple’s affairs and, as a result, make the administration process easier after death and ultimately lower costs.  Any couple interested in a Joint Trust should contact competent counsel to assist them in evaluating whether the technique is appropriate for them.

Article By Zachary F. Lamb of Ward and Smith, P.A.

For more family, estates and trusts legal news, click here to visit the National Law Review.

© 2022 Ward and Smith, P.A.. All Rights Reserved.

Excessive Spending During Divorce

Once a divorce is looming, some people change their spending habits.  Some start excessive spending expending money on purchases that they never did before, while others start taking trips or signing up for classes. Is any of this spending appropriate during the time you are going through your divorce?

I often run into clients who have been counseled to spend a lot more, apparently to show what that person’s needs are and to validate the request for more money.  I think it is fair to say that this is an emotional time for everyone, and some people are not acting in the right way.  You shouldn’t be spending any differently during a divorce then you would typically  The law in Illinois-domestic relations division, wants everyone to maintain the status quo.  If you always spent $400 a month getting your hair done, then it is not a problem.  But if you never used to go and now you start, the court is going to look at the reasonableness of what the person is doing.

Spending in Ways Not Beneficial to Your Marriage?

If you believe that the excessive spending your spouse is doing is not beneficial to your marriage, you might have a claim for dissipation.  When the court divides the marital property in your divorce case, dissipation is something that is considered by the court.  What exactly is dissipation?

Is it the Dissipation of Marital Assets?

Dissipation is the spending of marital monies for the benefit of one spouse for purposes unrelated to the marriage while the marriage is undergoing an irreconcilable breakdown. The party alleging dissipation must first demonstrate that dissipation has occurred, and once that hurdle is met, the burden shifts to the other party to prove the money was used for a legitimate purpose.

Illinois law requires that you file a document, called a Notice of Intent to Claim Dissipation.  That document must be filed 30 days after discovery closes and no later than 60 days before the trial.  The notice has to tell the court when the breakdown in your marriage occurred.  This is an important element that many people overlook.  People are allowed to spend money however they like, and just because you did not like it that your spouse spent $45,000 on a race car, does not necessarily mean it is dissipation.

Is the Marriage Irretrievably Broken?

The first question you need to ask is whether your marriage has irretrievably broken down. Although you might not have been happy with the expenditure for the car, were you still a couple?  Were you still going out with friends or going out to dinner together?  I have had a couple of divorce trials that had to examine the sexual nature of the relationship.  Are you still engaging in marital relations?  Share the same bedroom?  These all need to be examined if your spouse indicates that you were still a couple and there was not a breakdown.  Without a break down in the marriage, an irretrievable breakdown, you cannot allege dissipation.

But let us say you can prove that your marriage underwent an irretrievable breakdown.  You can prove that your spouse has been living in the basement for a year, you never go out together, you take separate vacations and you have different friends.  Then you have made it through the first hurdle and an examination of the spouse’s expenses needs to be looked at.

One thing the court always asks is “how long has this been going on?”  I once had a case in trial where the wife claimed that the husband’s weekly bowling was dissipation.  My client testified that he had been bowling weekly for over ten years.  The continuation of his bowling habit continued while they were married and after they separated.  The judge did not find dissipation.

Spouse Commits a Criminal Act?

What about when a person has a spouse who commits a criminal act?  The spouse is arrested and spends money on a lawyer?  Loses his job?  The money the spouse spent on a lawyer could be considered dissipation.

Is There an Extramarital Affiar?

What about a claim for dissipation filed by the wife when she found out her husband had had an affair and was paying child support to the other woman?  Or if the wife found out that her husband had been cheating on her for the past 5 years?  If the family continued to go on vacation and act like a couple, and their marriage had not broken down, then no dissipation.

I remember when golf pro Tiger Woods was going through a divorce and his wife found out about his extramarital affairs and the money spent on them.  There could not be a claim for dissipation because her marriage had not broken down, but you have to wonder if it would have broken down a lot earlier if she knew.  We can speculate as to the answer and it seems unfair that if your spouse hides something from you, that it cannot be dissipation.  If you had known, you would likely have broken up.  But that is not the way our law works — you have to be irretrievably broken in order to claim dissipation.

I have had trials where the parties had been separated for 20 years, but neither had gotten around to filing for divorce. Each side made claims of dissipation going back 10 years or more.  These types of cases resulted in a change to our statute and now you have a time limit on the claim for dissipation.  No dissipation shall be deemed to have occurred prior to 3 years after the party claiming dissipation knew or should have known of the dissipation, but in no event prior to 5 years before the filing of the petition for dissolution of marriage.

Watch Your Marital Finances for Excessive Spending

Marriages require some trust between the two, so it is hard when your spouse ruins the trust you placed in them.  But if you do not pay attention to your finances, or what is on the credit card statements, you could be in a position where dissipation cannot be claimed by you for the excessive spending in the event of a divorce.

If you decide to go to trial on the issue, then you will need to establish which expenditures are dissipation.  Is paying the mortgage from the spouse’s retirement account dissipation?  Typically, you would not think so. But each case is fact-specific.

 

 

Anderson & Boback Copyright © 2020 All rights reserved.
This posting is for educational purposes only to give you general information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney-client relationship between you and the National Law Review and/or the author, and the opinions stated herein are the sole opinions of the author and do not reflect the views or opinions of the National Law Review or any of its affiliates.

Could the COVID-19 Pandemic Impact Child Custody and Relocation?

As a result of the COVID-19 pandemic, many face uncertainty about their jobs and careers. The last week of March saw 6.6 million Americans applying for unemployment benefits, and many more experienced reduction in their compensation. The uncertainty could lead to more people choosing to relocate closer to family or take jobs that may require them to relocate for different economic opportunities. If you share physical custody of your children with their parent, what should you consider before making the decision to relocate?

Under Michigan law, a parent is prohibited from relocating a child, whose custody is governed by a court order, more than 100 miles from the child’s legal residence at the time of the original court order. As a result, parents who share custody of their child and want to relocate will need court permission. MCL 722.31. The court analyzes a parent’s request to move with a child in four steps. The first is to determine whether the relocating parent can support the move of the child by analyzing the following factors:

  1. Whether the legal residence change has the capacity to improve the quality of life for both the child and the relocating parent.
  2. The degree to which each parent has complied with and utilized his or her time under a court order governing parenting time with the child and whether the parent’s plan to change the child’s legal residence is inspired by that parent’s desire to defeat or frustrate the parenting time schedule.
  3. The degree to which the court is satisfied that, if the court permits the legal residence change, it is possible to order a modification of the parenting time schedule and other arrangements governing the child’s schedule in a manner that can provide an adequate basis for preserving and fostering the parental relationship between the child and each parent, as well as whether each parent is likely to comply with the modification.
  4. The extent to which the parent opposing the legal residence change is motivated by a desire to secure a financial advantage with respect to a support obligation.
  5. Domestic violence, regardless of whether the violence was directed against or witnessed by the child.

MCL 722.31

What impact, if any, does the COVID-19 pandemic have on a court’s analysis of the above factors? First of all, as far as the COVID-19 pandemic relates to the potential quality of life of a particular geographic region, as more and more data becomes available regarding the outbreak, certain regions of the country that found themselves more susceptible to COVID-19 may be less likely to increase the quality of life for a parent and child. Certain geographic areas may pose more of a health risk to families until the development of a vaccine. Second, many parents, although acting reasonably and in the best interests of their child, have informally agreed to modify their parenting time due to Gov. Whitmer’s Stay Home, Stay Safe order. Although it is difficult to imagine a court would criticize a parent for putting a child’s health first, lapses in parenting time and parental absence can dramatically impact a child’s relationship with a parent, which a court may be hard pressed to ignore, despite good intentions. At the end of the day, a parent’s desire to provide more stable financial and family support during this uncertain time may not necessarily result in a court approving the move.

© 2020 Varnum LLP

For more on family & other laws affected by COVID19, see the Coronavirus News section of the National Law Review.

Family Law and COVID-19: Alimony and Child Support

What do you do if the novel coronavirus has shut down your employer, caused a furlough or your termination, or has otherwise suddenly left you without income to pay child support and/or alimony? What do you do if you are the recipient of alimony or child support and now have to figure out how to pay bills and make ends meet without support from your child’s parent or ex-spouse?

A pandemic like this has far reaching economic consequences in these family law issues and can significantly strain both the payor and the payee.

In general, New Jersey law states that a temporary change in economic circumstances does not qualify for a change in the alimony or child support obligation of the payor, even temporarily.

However, given the worldwide attention and knowledge as to the widespread and unprecedented economic effect this pandemic has already shown, and the sudden closing of many offices and businesses through the state, a court of equity, such as the Family Court, may very well provide relief to the payor.

This is particularly likely if both the payor and the recipient of support are equally struggling. A look at the totality of each parties’ financial circumstances would be required.

Compromise may be appropriate, though you must take care to properly articulate the entire agreement to avoid interpretation or enforcement issues later, and legal counsel is strongly advised.

However, in cases where parents cannot reconcile their differences and find compromise, those parents may need to seek court intervention or some form of virtual alternate dispute resolution, and should also seek legal counsel immediately.

COPYRIGHT © 2020, STARK & STARK

For more on COVID-19 effects on Family Law & other sectors, see the dedicated National Law Review Coronavirus News section.

End of the Year Bonuses – Do They Have to Be Shared with My Ex?

The end of the year is coming, and for many employees that means end of the year bonuses will be included in their paychecks this month. Many question whether their bonus should be included as “income” for the purpose of support obligations, as well as equitable distribution in the context of a divorce.

A baseball manager from Arizona, Anthony DeFrancesco, recently faced issues surrounding his year-end bonus and how it related to his support obligations. Mr. DeFrancesco, the manager of the Houston Astros AAA minor league team, was given a $28,000 bonus in 2017 when the Astros won the World Series. The Arizona Appeals Court recently found that the bonus was considered a gift, as opposed to earnings, and he did not have to provide a portion of the bonus to his now ex-wife.

This result is not typically what happens in New Jersey when courts consider whether bonuses are a part of income. In the vast majority of cases, bonuses are awarded to employees for their exemplary work during the preceding year, often resulting from meeting specific targets, going above and beyond the work of a typical employee, and sharing in the success of the company without which the company would have not have otherwise reached. While employees are not legally entitled to bonuses in most cases, bonuses are most often the result of the employee’s hard work. Thus, in the eyes of most courts, the bonus was earned. Any earned income is considered by courts when setting support obligations.

In connection with equitable distribution, money that is earned during the marriage is considered an asset of the marital estate. Therefore, even if the complaint for divorce has already been filed, an end-of-year bonus may be considered a part of the marital estate. For example, if a complaint for divorce is filed on July 1, and an employee receives a bonus of $50,000 at the end of the year for work performed during the previous calendar year, half of that bonus would be attributable to time spent during the marriage.

New Jersey is a court of equity. Arguments can be made that bonuses, or portions of bonuses, should or should not be considered for support and equitable distribution purposes.

Several years ago there was a case in New Jersey in which a private company had been working for many years to go public. One of the company officers had been a long-time employee and, in fact, his dedication to the company to the exclusion of all else contributed to the failure of his marriage. Two years after the divorce complaint was filed, the company went public. The SEC filings noted that the employee received a bonus in excess of $1 million for his dedication to the company and work over the last five years. His wife was successful in her application to reopen the divorce and obtain a portion of that payout due to the evidence that it was for work conducted during the course of their marriage. While this case may be unique, it speaks to why each case has to be evaluated on its own merits, and why each case may have a different result.

COPYRIGHT © 2019, STARK & STARK

For more on spousal support obligations, see the National Law Review Family Law, Divorce and Custody law page.

Mental Illness in Family Law & Divorce

According to the National Institute of Mental Health,

Not surprisingly, mental health issues come up in the context of a divorce in a variety of ways. They arise when mental health issues contribute to the breakdown of the marriage or relationship. For instance, a partner may suffer from a condition which causes him or her to behave in ways that are detrimental to the relationship. This can manifest itself in aggression, narcissism, and self-centered behavior to the detriment of the other partner or children, excessive spending impacting family finances, to engaging in dangerous behavior with a partner, and/or their children.

What happens when someone believes that their partner’s actions are caused by a mental illness? After a complaint for divorce has been filed, or other court process started, attention needs to be focused to the behavior, and steps should be taken to:

  1. Ensure that children are safe;
  2. Assets of the marriage are protected; and
  3. A plan is created to provide treatment options if children are involved.

If a spouse or partner is suffering from mental illness to the extent that he or she cannot make rational decisions, the court has a variety of options to protect that person, both personally and his or her property. The court can appoint a guardian for the person, particularly if the illness is so extreme as to cause a person to be incompetent.

If the litigant is ill, but not to the point of incompetency, the court can appoint a Guardian Ad Litem.

If a partner or spouse’s illness is creating a risk of assets being dissipated, a court can freeze accounts, and limit access to funds. A court may allow a third party to make payments on behalf of a litigant such as rent, etc.

There is little question that difficult issues arise when a parent suffers from mental illness. The courts, acting in the best interests of children, must make sure the child is safe, while at the same time safeguarding a parent’s rights to have a relationship with a child. When custody is an issue and one parent is alleging that the other suffers from a mental illness, the court will typically order an evaluation by a licensed mental health provider with experience in custody cases. The court may enter an order limiting, or prohibiting contact with the children pending the outcome of the evaluation. Then, depending on the outcome of the evaluation, the court may order therapy, medication, or other recommended treatment as a condition to parenting time. While the parent is undergoing treatment, the court can order supervised parenting time to make sure the children see the parent, but also making sure they are safe.

If substance abuse is part of the illness, there are options to make sure a child is not with a parent who is intoxicated. In addition to random drug testing, which the court can order as a condition of parenting time, there are devices, similar to mini breathalyzers to detect alcohol and certain other substances. These can be carried on someone’s person, in a pocket or purse, and they will be sent a random text instructing them to blow into it. A report will then be sent to the custodial parent, who can take steps to protect the children.

Sometimes, a child will suffer from a mental illness and the parents may differ as to the existence of the illness or for its treatment. This often results in a health care provider refusing to treat in the absence of agreement. In that case, either parent can petition the court for assistance, and an order allowing treatment.

COPYRIGHT © 2019, STARK & STARK.

This post was written by Jennifer Weisberg Millner of Stark & Stark

Read more about Divorce & Family Law on the National Law Review’s Family Law, Estate Planning and Personal Injury Legal News page

Amazon 2-Day Free Shipping to Serve Divorce Papers: The Bezos Divorce through the Lens of New Jersey Law

Earlier this month, Amazon founder Jeff Bezos and his wife Mackenzie announced their plans to divorce, setting off speculation as to what would occur with their estimated $138 billion in net worth.

From a first glance, you may assume that the Bezos divorce would be much more acrimonious and hard fought than a case involving the typical John and Jane Doe case as the thought may be that there is more to fight for financially.

However, wealth in these incredibly high net worth cases actually removes many of the most challenging issues in divorce like payment of legal and expert fees or trying to continue the lifestyle for both parties with insufficient income from both parties to same to occur. The world’s richest couple will not have these challenges.

Instead, high net worth divorces have a whole different set of challenges that middle-class families typically do not need to consider.

First, the logical step-wise process in any division of assets and debts in a divorce is to ascertain, account for and value all of the assets and debts owned by either or both parties. For the Bezoses and other high net worth divorcees, this will likely be a complex, incredibly time-consuming process.

Beyond typical assets like cash, brokerage accounts, and retirement assets, parties like the Bezoses likely have ownership interests in many separate enterprises, corporations, partnerships, subsidiaries, investment trusts, along with extensive real estate, private equity holdings, and even art and jewelry collections all of which need to be accounted for and valued. Trusts and incredibly complex ownership structures will need to be investigated, digested and analyzed.

The Bezoses are going to need all sorts of professionals supervising and drafting documents to make sure that any kind of asset transfer will be well drafted and will protect both parties. If we do find any details about the Bezoses settlement (which I expect to remain private, as further outlined below), it will not likely be completed for years to come.

The most expensive part of the divorce process is not likely to be legal fees, but rather fees and costs for experts and appraisers who must figure out how to divide up the largest tranche of personal assets in the world.

Privacy is paramount in cases dealing with prominent figures and celebrities such as the Bezoses. Millions are chomping at the bit to hear about what they have, how it will be divided, and whether the fight will get ugly. In fact, this blog relies on the assumption that those of you reading this have at least some interest as to their personal lives and the theater of their divorce.

For this reason, it is very unlikely that the Bezos divorce ever sees a courtroom. It’s all but guaranteed that the divorce will be resolved through a private negotiated settlement, mediation or a private arbitration, or some combination all held behind closed doors with gag orders and strict confidentiality.

Lastly for this article, Jeff Bezos’ majority stakeholder status at Amazon brings about its own challenges, as would any high net worth divorcee with controlling interest in a business enterprise. Since the vast majority of Bezos’ wealth is tied up in his ownership stake in Amazon, which he started after marrying his wife, providing for equitable distribution may need to become creative.

Jeff and Mackenzie Bezos are based in the state of Washington, which is a community property state. This means that each spouse equally owns all of the assets either party has acquired over the course of their marriage, including their corporate shares. This differs from equitable distribution states like New Jersey, where division of the assets and debts of spouses are determined by a host of statutory factors meant for a fair allocation, which may not be an equal allocation.

Jeff Bezos, according to Forbes, owns 16% of Amazon, by far the largest shareholder. With major stockholders in a divorce, you want to be sure to effectuate division of the assets in such a way that does not divest control from that shareholder. For example, in the Bezos case, Mackenzie may be entitled to 50% of the total shares (remember, they live in a community property state where 50/50 splits are the presumption).

However, if 50% of Jeff Bezos’ shares are conveyed to Mackenzie and she liquidates a portion, shareholder control of Amazon could be significantly affected and the Bezos may lose their controlling stake. This could stagnate the family fortune which would benefit the Bezos’ children and legacy, which is unlikely to be MacKenzie’s goal or desire.

Instead, what is more likely is that Mackenzie will get “constructive ownership” of 50% of the shares, with Jeff retaining control of the business enterprise. Mackenzie will get the dividends from her portion of the shares and if there is a liquidity event, she might get bought out, but there would not likely be an actual transfer that would divest the family of control of Amazon.

There also may be a division based on exchanging values, meaning that perhaps an agreement is made wherein Mackenzie receives a much larger share or the entirety of other assets that would equal the value of her potential portion of her 50% right to the Amazon shares. However, this option appears to be less likely given that the majority of the Bezos net worth is tied to their Amazon holdings. Depending on how diversified they are, perhaps Jeff can convey more of some other assets and less of Amazon.

Time will tell whether we will ever know the result of the Bezos divorce, but we can be assured that the world will be watching to see what we can in regard to the world’s highest net worth divorce on record.

 

COPYRIGHT © 2019, Stark & Stark.
This post was written by Louis M. Ragone of Stark & Stark.

Are There Alternatives to Traditional Divorce?

Traditional fault divorce is generally viewed as a time consuming, expensive, and very public way to end a marriage. Couples who once shared homes, finances, and families suddenly find themselves as adversaries, fighting to divide the life they built together. Finances, and families, are often shattered by divorce. Divorce arbitration has been used for many years to resolve various legal issues.

Divorce attorneys are increasingly viewing arbitration as a viable alternative to a court divorce trial. Divorce arbitration can help couples avoid a time-consuming, expensive, public trial in return for the efficiency, privacy, cost-effectiveness, and informality of arbitration.

Divorce arbitration helps couples retain control over life decisions, limit expenses, and prioritize their children’s well-being.

Divorce arbitration is a structured process that in some ways is similar to a court room divorce but with more control retained by the parties themselves. Divorcing couples are powerless to alter the structure of a court room proceeding. Nor can they choose the judge who will hear the case. However, parties to a divorce arbitration can set up the structure, timing, and location of the arbitration from the outset, and can choose the arbitrator. The parties agree in advance as to which issues will be arbitrated, whether and how the rules of evidence will apply, and the manner that the proceedings will be recorded.

The arbitration itself involves testimony of witnesses and the submission of documents into evidence. At the conclusion of an arbitration hearing, the arbitrator will usually render a decision within 30 days. A typical court room divorce often continues for several weeks or months.

Divorce arbitration is recognized by the New Jersey Supreme Court as an effective method of dispute resolution that provides an alternative to conventional divorce litigation. Unlike a court schedule, the parties to a divorce arbitration schedule the dates of the arbitration sessions. Instead of court dates scheduled in different weeks over a period of weeks or months, scheduling arbitration sessions results in more convenience, fewer lost work days, and a speedier resolution.

Read more legal analysis at the National Law Review.

This post was written byJohn S. Eory of  Stark & Stark.