Header graphic for print

Pennsylvania Family Law

Updates, Events & Useful Tips Surrounding Family Law Issues

The Defined Benefit Pension Crisis Is Here And Very Real

Posted in Divorce, Practice Issues

This is not a major news story for most Americans, but if you participate in a defined benefit retirement plan, one where you are due to receive regular payments of a fixed amount monthly when you reach retirement; pay heed: Bad things are happening.

The current news relates to the International Brotherhood of Teamsters and their Central States Pension Fund. Ironically, irregularities in the fund’s investment strategies are part of what caused Congress to codify pension reform in the 1970s with the Employee Retirement Income Security Act (ERISA).

The Teamsters started to collect and invest pension funds in the 1950s. In the 1970s it came out that many of these investments had lots to do with the needs of union management and little to do with those of pension beneficiaries.  One of the reforms brought about by ERISA was a requirement that pensions be separately managed from the unions or businesses which collected and invested the money.

The ideal pension plan collects contributions and has them independently and intelligently managed so that funds are there to meet all of the obligations the employer or union has promised. It all should make sense except that some assumptions once considered reliable just aren’t reliable any more.  In the 1960 and 1970s when many contributions were made, the assumption was that most retirees would not collect beyond age 70 or 75 at the latest.  That’s when people died back then.  Of course today, the number of retirees living and collecting into their 80s and 90s grows every day.  Problem 1 is that the plans were modeled on the wrong life expectancy assumptions.  Problem 2 is the stock market and its brother the real estate market.  Historically, pension contributions have been invested in securities and/or real estate because these investments could be relied upon to increase 7-8% per annum over the long term.  At these assumed rates, money doubles in value every 8 to 9 years.  Yes, we all know that some years are up and some are down but in the long term the 7-8% returns were thought reasonable.

Using the Standard & Poor 500 stock index as a benchmark stocks reliably increased from 1985 to 2000 when we had the Enron crash. They did not recover their 2000 values until 2008 and as soon as they did, that crash caused another huge decline.  Again it took us six years to get back to 2008 values or, as some would say, back to 2000 values.  Stocks snapped back and rose quickly until August, 2015 but since that date, values have been bouncing, bouncing, bouncing.  From February 2014 to February, 2016 the index made no real headway.

Pension plans need to liquidate investments like real estate and securities to pay benefits. They don’t get to tell the retiree, “Hey we will pay later this year when stocks recover.”  The money is due every month no matter what condition the market.

Today, the Central States Teamsters Pension Fund pays out almost $3.50 for every dollar it takes in. In theory, that should not make a difference because today’s dollar in should not be paid out for many years.  But, some of the dollars paid in overtime not only haven’t earned their 7-8% returns.  In fact some “lost” value, particularly those invested in hedge funds during the past 10 years.  What that means is that huge swaths of defined benefit plans are grossly underfunded.  The crisis the Central States Plan faces is that it has no place to go to secure enough to pay the benefits it promised.   So, there is now a very acrimonious debate underway involving Congress, crisis manager Ken Feinberg and the Teamsters over who will pay.  The Teamsters say the taxpayer should make up the shortfall.  Needless to say, Congress is not viewing those prospects with any contentment and Feinberg is saying top end benefits in particular need to be cut or the whole ship goes down.

State pensions are another animal. A state obligation to pay a retirement benefit comes with the guarantee that if the state lacks the money, the taxpayer will be assessed.  Pennsylvania has some of the worst funded pension plans in the United States.  The effect is that state contributions to pension payments have quadrupled in the past six years.  Underfunded obligations to public employees were 1.5% of state expenditures in 2010.  By 2019 it will be 10% by 2019.  If you think that’s a problem take a look at Philadelphia’s situation.  Today 20% of the city’s budget is devoted to paying retirees.  At the state level, the pension fund actually declined in value in 2015.  When bond agencies see these kinds of problems, ratings are downgraded and interest rates soar.

So, why is this part of a divorce law blog? Because, if you or your spouse are due money in the future on a monthly basis, there is a very real possibility that you won’t see all of it.  Yes, we just wrote that by law states cannot cut pension benefits because these are contracts for deferred compensation on services the state already got from its employee.  But much as with the situation in Puerto Rico and Atlantic City where governments are verging on default of their bond payments and other general obligations every day, these problems do not present easy solutions.  Taxpayers earning $4,000 a month are not going to quietly accept large tax increases to pay unfunded retirement obligations that often are double that amount.

If you are an attorney dividing a defined benefit pension, get your client to investigate how well funded that obligation is. And if there is a reason for concern, the retirement model for settlement or trial should consider sharing that risk.  This is not an easy evaluation in any circumstance.  Let’s say that wife is a teacher with a defined benefit plan that has a $300,000 cash value, but she is five years away from retirement and the plan is only 70% funded.  Does that not arguably make it a $210,000 plan? Conversely, suppose she is married to a spouse with a $300,000 IRA who is also five years to retirement. In theory, during the next five years she can still be accruing benefits, albeit underfunded benefits, while spouse’s IRA undergoes a 10% market correction that reduces his $300,000 to $270,000.  He may also be self-funding IRA contributions but they could decline as soon as they are funded if he invests in oil and gas or department stores or office supply chains.  There is no happy solution here but there is reason to model a retirement distribution where the risk is shared.  In other words, perhaps both the IRA and the defined benefit plan should be divided even though they are today, technically of equal value.

 

The Guidelines are Coming!

Posted in Practice Issues, Support

For those of you who practice in this area or are “regulars” in the child support system, you know that every four years, the statewide child support guidelines are due for an update. The purpose is to try to keep pace with the economic times and the cost of raising children.  For the 2008 and 2012 revisions, the Domestic Relations Procedural Rules Committee retained Dr. Jane Venohr of the Center for Policy Research in Denver, CO. to compile economic data.  Dr. Venohr is again involved in the 2016 process.

The Rules Committee published its proposed guidelines on April 21. For now, they are subject to comment from any interested individual and should be directed through Bruce Ferguson, Esquire (domesticrules@pacourts.us) as counsel to the Committee.  Once the comment period closes, a final version will be sent to the Pennsylvania Supreme Court for its review and decision.  Because the guidelines typically do not present policy issues, the Court has usually adopted the proposal without amendment.

The current draft guidelines make no substantive changes to the procedures by which a support order is established or modified. At the same time there is another proposed substantive modification to Pa. R.C.P. 1910-16-4(d) which may be adopted by the Supreme Court known as Recommendation 146.

Generally, the news is that costs have increased and so have the guidelines. The self-support reserve has increased 5.1% to $981.  Support for children has also increased.  Using two children for illustrative purposes, the amount of support to be allocated between the parents looks like this:

Combined income                              2012                      Proposed

5000                                                    1369                      1415

10000                                                  1981                      2044

15000                                                  2532                      2586

20000                                                  2997                      3052

25000                                                  3425                      3492

30000                                                  3836                      3902

Above 30,000                                      11.6%                    11.8%

Generally the increase ranges from 3.3% at the lower end to 1.6% at the top. The data analyzed to arrive at these values comes from September, 2015 data.  During this period the CPI for all Urban Consumers in the Northeast rose from 243.323 to 252.922.  One could suggest from this that the guidelines are not keeping pace.  But then the guidelines do not include the costs of health insurance and related expenses, which are allocated by net income “on top” of the guideline amount.  Needless to say, a major driver of consumer prices is the cost of health insurance and related care.  The same can be said for day care costs, which also travel outside the guideline amount.

Disclosure Lives In The World Of Prenuptials: Or Does It?

Posted in Practice Issues, Prenuptial Agreements

To some readers, the title of this blog may seem yesterday’s news. Drilled into our collective heads since Simeone v. Simeone (581 A.2d 162) was decided in 1990 is the mantra that “For any prenuptial to be valid there must be a fair disclosure.”  The 2005 amendments to the Divorce Code brought some ambiguity to the matter.  The statute passed that became effective in January of that year contained a section related to prenuptial agreements (Sec. 3106).  It said that a party could “voluntarily and expressly waive, in writing, any right to disclosure…beyond the disclosure provided.”  Then it added another clause essentially allowing the party defending an agreement to assert that the contesting party did have “adequate knowledge of the property or financial obligations” of the spouse defending the agreement.

One of the challenges when legislation is written by committee is finding clarity in the language. Section 3106 is a kind of classic example. First, it is written in the negative.  Then there is the dangling language about “beyond the disclosure provided” and “adequate knowledge.”  Suppose the disclosure is incomplete or inaccurate?  Can that still be waived?  And when does knowledge of your future spouse’s financial affairs rise to the level of adequate?

In recent years we have been approached to draft prenuptial agreements by clients who were not really interested in making a disclosure. Typically, these are folks who sincerely believe that if their future spouse knew just how wealthy they were, it might unleash spending problems or produce other sources of friction.  In each instance, we have resisted temptation because the statute talks about waiver but ends the sentence with reference to a “disclosure provided”.  This can produce some testy interactions with clients who want to focus only on the waiver element of Section 3106(a)(2)(ii).

A recent Chester County ruling in Mandler v. Mandler, 64 Chester Co. L.R. 159 (2016) underscores our concern through its interpretation of the statute.  In April, 2005, groom presented bride with a prenuptial agreement that he had secured from a website called Lawdepot.com.  Bride took the agreement to a local attorney who suggested changes, one of which related to either the absence or paucity of the disclosure.  Roughly three weeks later the agreement was signed with some changes.  Its disclosure provision said that the parties waived any rights to further disclosure because they were satisfied with what had been disclosed.

A month after the prenup was presented and about 10 days after it was signed, the not so blessed union was formed. We should add that bride, now wife was employed by some of groom/husband’s businesses both before and after the wedding date.

To describe husband’s financial picture as Byzantine would be an understatement. Residential and investment real estate were coupled with medical management and consulting companies. Meanwhile, husband claimed to be unemployed during the two years prior to marriage.  Financial records did not square with filed tax returns and expenses were funded with a labyrinth of “inter company” loans more related to cash management than business lending.  Sitting atop this empire were unpaid federal and state tax debt of roughly $6,000,000.

Wife sued for divorce in 2013 and moved to set aside the agreement in June, 2014. Hearings consumed five days over the course of ten months.  As one might expect given the facts described thus far, husband appears to have had great difficulty explaining his own financial situation even after asserting that his spouse had adequate knowledge of the same facts to permit her waiver to be deemed valid.

The opinion of the Honorable David Bortner marches through the statute noting early on that there is no judicial or statutory precedent for “adequate knowledge” sufficient to overcome a disclosure that otherwise fails in completeness or accuracy. He then makes the point that as he reads the statute full disclosure must be waived prior to rather than contemporaneous with execution of the agreement.   His reading cannot be faulted although it opens a second door for statutory interpretation: viz., Is the waiver a separate transaction that must be documented and how much time must elapse before the execution for it to be valid.

But the primary focus of the opinion is on the words in Section 3106(a)(2)(ii); “beyond the disclosure provided.” The Court notes that if disclosure could be entirely dispensed with the statute should have read “beyond the disclosure provided, if any”.  The conclusion is that absent “a disclosure” a waiver cannot be upheld.

There being no actual disclosure attached to the Mandler agreement, the trial appears to have been consumed with proving bride’s actual and adequate knowledge of husband’s financial situation at the time of execution. This is more often than not a “fool’s errand.”  As the opinion notes, it is the burden of the person attacking the agreement to show by clear and convincing evidence that she did not have adequate knowledge. See Section 3106 (a)(2)(iii).  To accomplish that in a meaningful way would require her to undertake discovery of financial data created a decade earlier to gain the knowledge she is asserting she did not have then and to conclude her testimony by stating that she knew none of it then or what she knew was not adequate.  In this case, it wasn’t difficult to meet her burden because it appears that husband could not, himself, convincingly describe what he owned “then.”  Effectively, his argument was:  “Judge I’m not clear what I owned when she waived disclosure of my assets, but my Wife sure did.”

One of the more interesting aspects of the opinion is its analysis of Lugg v. Lugg, a 2013 Superior Court reported decision. (64 A.3d 1109)  Mr. and Mrs. Lugg were negotiating a divorce agreement and Mrs. Lugg tended to wander away from her attorney’s counsel and negotiate on her own.  Husband’s father and brothers were lawyers so they happily did the drafting.  One day, Mr. Lugg and a secretary from dad’s firm arrived at Wife’s home with an agreement.  This does not appear to have been a surprise but after 90 minutes, voila, an agreement was executed.  The parties then started to process of signing car titles and deeds consistent with the document.  Mrs. Lugg later contested the agreement noting that no disclosure had been provided.  Meanwhile the agreement stated that disclosure was waived.  The trial court in Clinton County and the Superior Court affirmed the agreement.  The Superior Court opinion states “ If there is no allegation that {a party} misrepresented his financial resources and ….{the other party} was aware that {no disclosure was made}, the Court cannot find …fraud or misrepresentation.  The Superior Court states that it was deciding this under Section 3106.

The question of whether prenuptial and post nuptial agreement cases should be decided differently may still be an open one although all of the case law says they should be treated the same. But in this instance the Superior Court held that financial disclosure may be waived in its entirety because that is what the legislature intended under Section 3106.  Bear in mind, the legislature adopted Section 3106 and applied it to prenuptial agreements alone even though case law had long held prenuptial and post nuptial agreements to the same standard  See Holz v. Holz, 850 A.2d 751, 757 (Pa. Super. 2004).  So we have an interesting question.  The Superior Court says waiver may mean waiver of any disclosure.  Judge Bortner’s holding appears to be stating that where a statute says “beyond the disclosure provided” those words must be given their plain meaning which is to say that a disclosure must be provided.

 

Divorce Code Amendments: But Not What We Expected

Posted in Divorce, Practice Issues

For some time now, the General Assembly has been working towards amendment of the Divorce Code to reduce the waiting period for an unconsented no-fault divorce from two years to one. That legislation (House Bill 380) has passed committee and is awaiting final action.

Meanwhile another amendment to the Divorce Code quietly slipped through the legislature and was signed into law by the Governor on April 21, effective June 21, 2016. It is an odd piece of legislation; a kind of fault based no fault divorce ground.

Under House Bill 12 of 2015 (printer’s No. 2404) if one spouse has been convicted of a misdemeanor or felony involving

Criminal homicide

Assault

Kidnapping

Human Trafficking

Sexual Offense

Arson

Robbery

Victim/Witness Intimidation

Homicide by Vehicle

Accident Causing Death or Personal Injury

AND the Plaintiff sues for a mutual consent no-fault divorce, the consent of the convict is “presumed” if the Plaintiff is the victim of any of these crimes.

This is the first time this writer has seen the bill and I begin by confessing that I have not studied this subject very carefully. But if I am the victim of homicide or an accident causing death, one of the formalities I can dispense with is a posthumous divorce from my perp spouse.

I do offer that perhaps the intention is to include attempts at homicide or personal injury but the statute is not very clear on this subject.

I also note that for more than a century Pennsylvania has conferred divorces for “treatment” endangering the life or health of an innocent and injured spouse (Section 3301(a)(4) and conduct amounting to “indignities” to an innocent and injured spouse such as rendered the life of the victim intolerable and burdensome.(Sec. 3301(a)(6). Conviction of any of the above specified crimes in a case where the victim was a spouse would have res judicata effect in the subsequent divorce proceeding.  The only plausible defense would be that the victim was not innocent and injured.

The new statute requires a conviction to create a presumption. The statute does not make the presumption irrebuttable so, one must assume that a defendant spouse can still force the victim to trial so that the offender may rebut his presumed consent.  Even more vexing would be the task left to the trier of fact.  Husband attempts to kill or rape wife.  He is convicted but somehow draws a sentence of less than two years (another divorce ground under Sec. 3301 (a)(5).  Wife sues for divorce and tenders her own consent and the “presumed” consent of her spouse.  The offender spouse appears and testifies under oath that he does not consent.  What now?  Can the Court hold that he consented when he didn’t?  Wasn’t it just easier the old way, where the injured spouse tendered a certified copy of the conviction and rested her case?  Yes, the offender spouse could argue and present a case that his wife/victim was neither innocent nor injured, i.e., she deserved her beating or rape or robbing or burning.  But, I think that I like my chances of getting my client divorced better this way than relying upon a presumed consent that may be rebutted.  I know how to cross examine a person who claims the spouse got what she deserved. I’m not so sure how to cross a guy who says simply “I don’t care about the statute, I do not consent.”

So we have a change in the law, but I am not certain it can be termed an “advance”. One small consolation is an amendment to Section 3302.  This is the counseling provision and it now states no counseling can be ordered where one party has a Protection from Abuse Order or where one of the specified crimes listed above has resulted in a conviction.  Of course, one can still insist on the counseling while the criminal charges are pending unless a PFA found its way onto the docket.

No Lawyers Allowed – Discovery Rule Decision Bars Counsel from Observing Evaluation

Posted in Evidence, Practice Issues

123rd.com ostillThe Discovery Rules account for all manner of need for obtaining evidence. Many of these rules are seldom, if ever, utilized by family law attorneys because either they are not germane to a family law case; not permitted by the Divorce Code (i.e. prohibition against discovery in simple support cases), or; family court cases have their own procedure for obtaining the information. One example would be Discovery Rule 4010 which provides for the examination of a party where their mental or physical condition  has been called into question. As demonstrated by the case below, you will commonly see this Rule used in a personal injury case. This rule would not necessarily come into play in the Family Court since the Custody Code and associated Rules of Civil Procedure, for instance, outline how and when a custody or psychological evaluation will occur.

Still, though this rule may not crop up often, if at all, in a family law case, it is still a rule and understanding it may help an attorney whose client is undergoing some form of physical or mental evaluation to be familiar with the Court’s holding in Shearer v. Hafer, 2016 WL 910146.  At issue was whether the trial court erred in granting Hafer’s request for protective order which prevented Shearer from having counsel present during Hafer’s neuropsychological evaluation pursuant to Discovery Rule 4010.

The background to the case is that Hafer was sued by Shearer for injuries sustained in an automobile accident. Shearer underwent a neuropsychological evaluation and the defendant in the case, Hafer, sought to have an independent evaluation conducted setting up a case of dueling experts. Shearer, as the plaintiff and party seeking damages, did not generally oppose the request, but insisted on having their counsel present for the test.  This demand was objected to by the independent physician hired by Hafer on, among other reasons, professional ethics grounds. Hafer filed for a protective order to keep Shearer’s attorney out of the evaluation. Their justification for the exclusion was that Shearer’s attorney, through observation, could create areas of cross-examination of the expert’s eventual report, particularly when viewed against the doctor’s written statements. The concern, it would seem, is that in watching how the sausage is made that counsel attacking pieces of the process on cross-examination could unfairly invalidate a conclusion by focusing on one of numerous elements which in isolation may not lend themselves to that outcome. Having an adverse audience, it was argued, could lead to invalid or biased results.

So while the party being examined under the rule can have counsel present – for, among other reasons, to avoid any self-incrimination – the rule is silent as to the access of the opposing counsel.  The Superior Court’s decision established the prohibition against the presence of outside observers during a neuropsychological evaluation and found good cause for the protective order.  The Trial Court made a careful consideration of the issues and opinions and ethical issues of the governing bodies for neuropsychology professional associations and potential for an invalid or biased outcome.  The Trial Court also expressed a concern that the doctor’s written statements could be used for impeachment purposes if the examination were conducted in the presence of a third party.

Those concerns led to the conclusion that having the “requesting” party’s attorney in the room carries more risk to the process than reward and for that, counsel is excluded and left wait until the report is issued and wait to cross-examine the physician at trial.

(Photo Credit: 123rf.com / ostill)

****************************************

Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

C.A.J. v. D.S.M. A Mixed Due Process Message

Posted in Custody, Practice Issues

My colleague Aaron Weems reported this case on April 12. In the spirit of our U.S. Supreme Court, I offer the following concurrence with his blog but spirited dissent from what the Superior Court ruled.

In this published decision, a panel led by former President Judge Bender decides that so long as a reference is made in the pleading to custody modification it does not matter how the pleading is captioned. The problems presented by such precedent are worth some examination.

Contempt in custody is a statutory creature. 23 Pa.C.S. 5323(g). It offers five very specific remedies, none of which involve modification, In many Pennsylvania counties, the procedure for contempt is entirely different than that for custody modification. Scheduling is also handled in a very different way because the issues are typically quite limited.  The Court personnel who schedule these matters do not customarily read beyond the caption of the petition to gather what the petitioner really wants.  So it would be fairly common for a court administrator to direct a contempt petition to a hearing list where several matters are scheduled for disposition in a single day.  A custody modification requires a pretrial statement under Rule 1910.4-3.  Request modification under the contempt rules and you can skip that step.

The next question involves what goes on in the Courtroom. Most judges are going to look at a petition such as the one in this case and tell the petitioner that he or she will hear the contempt but not the modification. But pity the poor litigant who finds himself defending a contempt with a request for modification in a setting where the judge has the time to hear a custody case.  That litigant better walk into contempt court ready to try a modification and to cover the sixteen factors that must be evaluated under 23 Pa C.S. 5328. See S.W.D. v. S.A.R. 2014 Pa. Super. 146 (2014). In the case decided here, the case was remanded because the contempt court failed to cover all of the enumerated factors.

So what have we accomplished? A party can effectively sandbag the opponent if the trial judge permits it.  Both bench and bar face the prospect of stepping into court not knowing what issues will be tried on the date that a “contempt” hearing is scheduled.  Obviously a judge can stop this but it seems clear, that is not required.

The opinion correctly observes that the right to due process was not wholly violated. As the opinion notes, the request for a change in custody was written into the petition filed by the Father. But both the legislature and the judiciary have made it very clear that child custody matters require a full exposition of the facts before any modification is made.  The idea that modification can be “bootstrapped” into a petition premised upon violation of an existing order works against the very principles both the laws and the rules espouse to promote.  And the defense that contempt can be a springboard for a wholesale modification of custody because it is in the “best interests of the child” to do so, is not a strong one.  The opinion goes to some length to describe “signals” that the trial was going to be addressing modification and not merely a contempt petition. The difficulties presented, especially to pro se litigants by reliance on signals rather than the plain caption of the pleadings presents its own problems.  We have published volumes of statutes and rules intended to make clear what judicial avenue a court is taking.  We reported a decision in November, 2012 where a panel of the Superior Court affirmed the concept that modification was a distinct proceeding from contempt.  See P.H.D. v. R.H.D. The idea that a parent suffered a significant change in custody of a child where there are clearly marked legal procedures which distinguish contempt from modification and where there was a “right” way to go about it which was not heeded, creates a disturbing trend.  Moreover, it opens the door to more appeals where the Superior Court will be asked whether the notice of intention to change custody pursuant to contempt powers is “enough”.  This will be fertile ground for appeal but not productive ground. Ironically, from the opinion it appears that the contempt that had been filed was never disposed of, which begs the question of whether this case was appealable in the first instance.

In sum, we have an opinion where substance triumphed over procedure, leaving procedure badly mauled and wondering “What next?”

2016 Pa. Super. 40 (2/18/2016)

 

 

The Do It Yourself Syndrome

Posted in Custody, Divorce, Practice Issues

There was a time not so long ago when clients would unload their domestic troubles on lawyers like a cord of rotted wood. They might take care in shopping for the right fit in terms of who would represent them. But once the selection was made, the answer was “Let the lawyer do it.” That’s what they get paid for, right?

True enough, but as the quantity and quality of on line resources have proliferated, legal advice has started to be viewed as an indulgence. Anyone can tell you it’s expensive, and it is. And, there is a huge array of free information on the internet (like this blog) calibrated to be useful.

Millennials, in particular, like to do it themselves. In domestic affairs, they see this as their relationship and they should be able to regulate how it ends. They may grudgingly tolerate advice from others but they see that as a plot to abridge their right and their power to manage their own affairs. Their parents tend to be more practical at least in their own view. “For what I pay a lawyer, I could go to Disney, replace a car or some other entirely useful thing.” All true. Until it bites you in the backside.

In the past couple of weeks here are some of the internet myths we have had to detonate for true believers in the power of the web. Divorces are granted automatically in Pennsylvania after two years. Custody courts automatically impose shared physical (50/50) custody arrangements. The person paying the child support always gets to deduct the children. There is no alimony in Pennsylvania. Every child over 10 gets to decide where he will reside. Courts can’t divide pensions because they belong only to the employed spouses who earned them. All of these myths contain a kernel of truth but are more wrong than right. Not any of the websites we have seen actually misrepresent the law. But none of us relies exclusively on the net for information. We dose it with the information we get from the yoga instructor, the bartender at the favorite restaurant or the well- meaning advice of great uncle Ellwood who left his horrible first wife in 1978 to marry your not so great aunt.

So, does this mean forego Disney, the new car, or the 72” flat screen? Perhaps yes. But if you are doing a divorce where money matters or it is going to affect whether your kid spends two non-consecutive weeks or half the summer with his dope smoking mother, some legal counsel may be in order. There are times when we actually do advise clients that the battle is not worth the personal or economic price. But we had people come to us with agreements they have signed or court orders they never appealed that promise them a lifetime of pain. Like the spouse who assumed that lifetime alimony meant “until he retired”. Or the parent who thought that if she just let father relocate to San Diego with the child, she could always go back to her local court to undo it later. This has become more true over time. We now commonly see executives who once could easily afford the college commitment they signed up for in 2005. Ten years later, their child has been admitted to a college with tuition that consumed more than half of their downsized net income.

Lawyers are not retailers devoted to crafting a “happy” shopping experience. Like physicians we sometimes have to report unhappy results. But the results you get will be directed toward your assets, your children, your experience and not some well-crafted avatar which might seem to be similar to your life experience, but really does not.  Your domestic affairs are about your skin and, like it or not your skin is a custom made suit, not something you found on line or at Kohl’s or Boscov. If you must do it yourself, at least find out whether  it needs to be done, and how best to do it.

 

Contempt Case Deemed Sufficient Notice for Custody Modification

Posted in Custody, Practice Issues

Tools of the TradeSince the child custody statute was updated in 2010, a considerable about of time and effort on the part of the Superior Court has been spent clarifying various aspects of the law. Among the more pertinent issues related to how the statute was to function is the trial court’s obligation to consider and opine on all of the custody factors. Previous appellate cases have shaped this requirement (or, conversely, the absence of the requirement) where “discrete” issues of custody are being considered or where a substantive change to the custody schedule is occurring.

It is the latter where the Superior Court has recently remanded a case back to the Trial Court with an order for it to fully explore and articulate how they have addressed the custody factors in a given case. In that case, C.A.J. v. D.S.M., 2016 WL 685169, Father filed a contempt petition on the parties 2013 agreed custody order. Within that petition, he sought a significant modification of the custody schedule to award him primary custody.

Their original 2013 agreement provided that Mother had primary physical custody during the school year, and the parties had 50/50 custody from May until September on a week on/week off basis.  Eventually issues arose and Mother relocated without judicial or Father’s approval as required by the Custody statute.  Father filed for contempt of the 2013 custody order and sought to modify custody to have primary physical custody. He did not file a separate modification petition. A 2015 Order was entered by the trial court after a hearing whereby the parties were to share physical custody on a two week on/two week off schedule.

Mother appealed on the basis that the trial court did not consider all of the custody factors, nor did she have notice sufficient to satisfy the due process clause of the Constitution. Her theory was essentially that whether or not the Trial Court can modify a custody order during a contempt hearing rests on the responding party having sufficient notice of a request for modification.  When modifying custody, due process rights attach to the responsive party.  Without sufficient notice, modification cannot occur.  In this case, Father’s contempt petition included a request to modify physical custody of the child.  The Court directed the parties to custody conciliation which both parties participated in and which, by extension, demonstrated mother’s constructive knowledge that the custody order was at issue. Essentially, mother knew that within the contempt the underlying custody order was in contest and potentially subject to change. Accordingly, the Superior Court upheld the Trial Court’s ability to modify the custody order within the contempt action. The Superior Court also relied on case law and Rule 1915.15 which allows for modification of custody/visitation Orders where it is in the best interests of the child.

So while the Superior Court would not disturb the Trial Court’s ability to modify the order, it did take exception with how it addressed the custody factors. The Superior Court found that the Trial Court’s truncated list of custody factors identified in its opinion was insufficient, citing Pennsylvania case law for the requirement that all custody factors be considered.  On that basis, the Superior Court remanded the case back to the trial court for the limited purpose of issuing an opinion addressing all custody factors.

This case does establish that a contempt action with sufficiently pled averments for a modification of custody will be sufficient to establish notice for due process purposes and avoid having to file two petitions or pursue custody and modification on two separate procedural tracts.

************************************************

Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

 

Reverse Mortgage Redux

Posted in Divorce, Practice Issues, Taxes

This is not a money management blog but what we increasingly find is that many divorce clients simply “trusted” that their resources would be sufficient to carry them through retirement. The great awakening comes when they discover they are now splitting what looked like a comfortable retirement and that their ability to make up for lost time has been lost amidst the sands of time.

So today, lawyers need to help clients be creative, and based on an article in the March 22 Wall Street Journal, there is reason to take a second look at a device invented a few years ago called the reverse mortgage. When first introduced, they were disparaged as a kind of sleight of hand trick. The number of them issued spiked just after the Great Recession but then eased off as the economy (or at least the stock markets) recovered.

A reverse mortgage is what it sounds like. You have equity in a home that is essentially a trapped asset. A reverse mortgage involves your pledge of that equity to a lender who gives you your own trapped money. The true economist would dismiss this as absurd. If you need cash out of your home, don’t pay anyone fees or anything else to tap it; just sell, downsize and take the cash from the settlement proceeds. That’s why economics is called the dismal science.

The problem with today’s older divorced couples is that they want everything to stay the same. Sure, it’s only you living in the house that once held three or four. But you like it, you like the neighborhood, and besides, moving means dealing with 30 years of accumulated things that you call treasures and your child dismiss as “crap” when they come for Thanksgiving.

I typically advise clients that they should at least consider downsizing. The response is the same. A longing look like I told them they need to put the dog down unless his health improves and either a testy “Maybe next year” or even more challenging “Must I?” In the end, we assess matters and give clients options. No pets have met their demise on my watch but I have told several clients that unless they reduce their housing costs in the near term, they may need to consider a shorter life.

Reverse mortgages can be a way to ease the pain. At their worst, people borrow them to speculate. This is pure foolishness. But the mortgage in reverse can be a very effective tool, especially to cover late life rainy days. The best example is a sustained down market. If you are retired and drawing $4000 a month while getting $2,000 in social security, when the market tumbled, your $4,000 is coming out of a measurable smaller pool. If you had $300,000 in retirement and drew $3,000 a month in January, 2008 you had  100 months of retirement assuming no increase in value and no inflation. Your draw was 1%. By late Fall, your $300,000 was now $150,000 which mean your pool had halved and your draws were 2% a month.  The market quickly shot back up to 11,000 but if the trough had been sustained and you didn’t halve your expenses, you were burning retirement fast.

If you had a line of credit associated with a reverse mortgage, you could have reduced the impact on your portfolio by drawing on your home equity. Then you would have had more on hand to ride the market back to some form of equilibrium even though your home equity would have been reduced. There was a time when home prices could be said to keep pace with the market. But that is not a recent trend. A tract home in the Philadelphia region with 3,000 square feet  sold in July, 2008 for $400,000. Six years later it sold for $420,000 and it today draws estimates for $410-425,000.  Had you known in Fall, 2008, you could have borrowed $100,000 in home equity; stuck it in a Dow index fund and today your $100,000 would be worth $251,000. But, alas, that would require speculation.

But there are good times to draw on home equity. You sit, happily in your crap filled house burning through $3,000 a month of retirement. The roofer tells you “It’s time for me to get $20,000.” That roof can come out of home equity much more readily than an investment portfolio because the house is not really gaining value.

Now for some of the trickier strategies; tricky but solid if done in the right way. You are on a fixed income. You have $300,000 in equity but $200,000 in mortgage debt. The monthly mortgage of $200,000 plus $600 a month in real estate taxes is really crimping your ability to see the grandkids. Why not take a reverse mortgage on the equity to service the real mortgage you owe. This cuts expenses while leaving your investment portfolio intact. Yes, your real estate portfolio is going to decline but that wealth right now is trapped in housing and not really increasing.

Another strategy. We are told that if you delay drawing on Social Security from ordinary retirement to age 70, the monthly benefit payable rises by 7% a year. That’s a pretty solid return and it’s guaranteed unless you conk out along the way. But, you may look at the pension and retirement money you now have and say, I can’t really make it to 70 without tapping my social security. Why not consider a reverse mortgage to fund the “gap” of payments you might otherwise get if you applied early or at normal retirement age.

Your employer lays you off in December 2015. Because you are not a kid it is going to take time to find a job, which means that your 2016 income will be low. Financial planners will suggest that the off-year is a prime time to convert a traditional IRA to a Roth because your income will be low. But you do still have to pay the tax on the conversion. Why not take that out of a reverse mortgage to cover the taxes.

Typically, reverse mortgage payments come without tax because the payment is not income but a reduction in home equity. You are effectively getting your own money. Federal regulations now make it so that a steep decline in home equity such that the amount you took out exceeds the equity does not open the door to liability on your part. So this is now a tool and not a toy. It can be abused but it has options that can make your retirement far more comfortable.

Telephone Travesty; Rule 1930.3

Posted in Practice Issues

Just over 20 years ago the Pennsylvania Supreme Court embarked on an experiment when it passed a rule of civil procedure permitting trial courts to allow testimony by telephone audiovisual or other electronic means “with court approval.”

The rule really came out of nowhere. Often there is a movement by the bar for a rule such as this. But that was not the case.  There is a Supreme Court Rules Committee that helps to draft rule changes and often they will publish a comment explaining why a modification or new rule like this was proposed for adoption.  Telephone testimony has also been adopted in the context of unemployment compensation but there the rules are much more explicit as to how and when this procedure may be substituted for live testimony.

This author has had occasion to work with the rule. Typically the controversy is over two matters. (1)  How and when court approval needs to be secure and (2) how trial exhibits, which are typically presented to the witness while testifying are managed when the witness is not in the courtroom.

I recently witnessed a trial in which I was merely the spectator waiting for my own hearing. It was a contempt hearing before an experienced common pleas judge.  The judge had advance notice of the fact that the Respondent was in another state and granted the right to appear by telephone subject to the requirement that all documents which might come into evidence be exchanged several days in advance.

The controversy related to an order directing the parties to sell their home and divide the proceeds. The house was in Respondent’s name alone and she sold the house and appropriated the proceeds.  When challenged about the sum due, she mailed her former spouse a check for 35% of the net proceeds based on the fact that she had moving costs to pay. The court order said nothing about how the moving costs were to be addressed.  Petitioner filed to enforce.  After a court order and an appeal to the Superior Court as well as a petition for a supersedeas to stay the order to pay 50%, the Petitioner sued for contempt.  The Respondent cited health reasons to secure an order for her testimony to be taken by telephone.

Chester County, Pennsylvania has a modern court house with state of the art telecommunications. So it was easy for the judge to boot up the system and make the call.  But the system appears to require the judge to initiate the call so that instantly, it is the trial judge who appears as supplicant as she identified herself to the Respondent and informed her of the status of the proceeding and who was listening.  The Respondent announced that this arrangement was fine with her, as if the trial judge was asking the Respondent’s permission to proceed by phone.

The other feature instantly made plain was that with her voice being broadcast through a number of speakers in the Courtroom was that the Respondent’s voice dominated the proceeding based on the volume alone. The Respondent’s demeanor was not the problem here but the amplification system transmitted through the phone made her voice much louder than that of the attorneys or the judge.

Less apparent was how witnesses not in the courtroom miss what is going on. They also miss the opportunity to have their attorney whisper to them that it is not time to blurt out that the other side is lying or “That never happened.”  They may be instructed (as this witness was) that the sequence would be that parties would each have a turn to speak, but that doesn’t really register when you are giving testimony from a chair in your living room somewhere in Nevada before a dozen or more people you have never met.  For nearly three centuries the administration of a testimonial oath has been a ritual in Pennsylvania Courts.  People in the courtrooms raise a hand and place another on a Bible.  Telephone witnesses typically receives the perfunctory instruction: “You know your testimony is under oath.”

The most glaring problem is that it is well-nigh impossible to manage a witness to give telephone testimony. Certainly we prepare witnesses to testify by calling them in advance on the telephone all the time.  But once they set foot in a Courtroom, even poor witnesses understand that a courtroom is not a bar or even a lawyer’s office.  Even in an age when courtroom ceremony is dismissed as antiquated, a judge’s arrival is typically announced and greeted by all present rising to their feet.  The business of the court is usually announced.

The telephone witness gets none of that ceremony and, as I watched today, it showed. The Respondent was not openly rude.  She was clearly “ignorant” of the purpose and flow of the proceeding.  The judge had to admonish her that it was not her turn to talk.  But the highlight or, to my mind, the lowlight, was how the witness thought she controlled the proceedings.  Her legal position was that she had tendered a check for 70% of the amount due and that if the Petitioner had failed to cash the check that was Petitioner’s problem because the money she received from selling the house was gone now.  At one point she blurted out that she wanted all of this nonsense resolved as well and that she would give Petitioner one-third of the amount due under the agreement.  When asked how much money she had to comply with the order she said she had in her accounts 2% of the amount due.  When asked how she could offer one third of the amount due when her cash deposits were 1/16 of her settlement offer she groused. “I have means.”  On cross examination she openly acknowledged having put down most of the money to buy her mother’s house (where she resided) but then added that she was probably going to move.

Every trial lawyer has at least one or two stories about witnesses who are openly hostile to everyone in the courtroom. Those people are out there.  I recall watching a witness tell a very forceful judge that the judge was well advised to think twice before suggesting the witness reconsider what he had said under oath.  But today’s Respondent was not rude.  She just had no idea where she was or what she was doing.  The easy route is to blame her lawyer. But to my mind, the real culprit is a technology that allows people to “phone in” their legal disputes in the same way they would order a pizza.  Having said that, there was sound reason for the Respondent to not travel across the continent to appear in Pennsylvania.  But I suspect that had she been told her testimony would be taken via Skype or video graphed in Clark County Nevada’s Court House both her words and her demeanor would have been more circumspect. In the end, I felt badly for the judicial system and especially for the Petitioner, who had put on a suit and tie and driven more than an hour to personally appear so that his ex-spouse could boom out from her Nevada living room that her noncompliance with their agreement was his “too bad” since she had offered him a settlement and he stupidly insisted on his contractual rights.  In the end, the Petitioner won but the process itself was a loss.  Telephone testimony threatens to demean a system it was intended to help.