Pennsylvania Family Law : Pennsylvania Divorce Lawyer & Attorney : PA Family Law Blog : Fox Rothschild Law Firm : Family Law Serving Philadelphia, Pittsburgh, Bucks County, Montgomery County, Chester County

The Wall Street Journal edition for August 22, 2009 features a fine article by John Freeman which the author describes as a “manifesto for slow communication.”  What made it all the more real was the experience of the past two days.  The most memorable moments of that period were: (1) a colleague telling me that a client’s effort to start a new business was gravely set back by an errant “reply to all email” and (2) the experience of watching a family of six sit down to a Saturday night dinner in a local restaurant whereupon half the family immediately reached for their hand held devices.

I defer to Mr. Freeman:

“The ultimate form of progress… is learning to decide what is working and what is not; and working at this pace, emailing at this frantic rate is pleasing very few of us.  It is encroaching on part of our lives that should be separate or sacred; altering our minds and our ability to know our world…”

While acknowledging that this new technology has its merit Freeman notes that for the first time since the Industrial Revolution the concept of time “away” from work has begun to steadily erode.  In our new search to remain connected he notes that we now endure flotillas of unnecessary jabbering that makes it difficult to distinguish “signal from noise”.

The new phenomenon we experience today is what I will term “drive by lawyering.”  With increasing frequency clients ask to skip coming in for a personal interview in favor of a phone call. Better yet, get an answer on the fly by email. These are indeed useful devices for both lawyers and clients but they are handled without perspective.  The goal is to put your economic house in order or to formulate a new living arrangement with your children.  This kind of goal is rarely advanced in increments of ten or twenty minute conversation let alone a five minute email exchange.

Your divorce involves your family and your money.  Take the time to do your best to get it right and give your lawyer the tools and the time to do so.

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Lawyers are not financial advisers but we do lots of real estate transactions and for most divorce clients, the largest asset in the portfolio is the family home.  So in just about every matrimonial case, there is the inevitable question.  Should we hold or is it time to fold?

It’s always good to study the data.  And the news for our region for the second quarter of 2009 is relatively good.  Prudential Fox and Roach reported the first region wide increase in housing prices in two years.  The biggest increase was in the city (6.8%) while the suburban increase was less than half that (2.7%).  There had been a sharp decrease in the first quarter of the year.  We have also weathered the storm well compared to other large cities. Philadelphia prices have declined 12% from their peak while average declines in the ten largest cities was closer to 30%.

Inventories (homes listed for sale) are leveling off and there is an increase in the rate of sale of those houses in inventory.  This has meant a reduction in the number of days it takes to sell a house.

So, does that mean the end of the downturn is over.  Even the experts a Fox & Roach hasten to note: “Those expecting a near-term return of 2005’s peak prices will be sadly disappointed.”   Within the region, the worst sales markets were Camden and South Jersey (down 10-11% in the past year) while Trenton area fared best (down 0.5%).  The Philadelphia market fell 5.31%.

While the second quarter offered an uptick in the rate of sales, it still took 20% longer to sell a home in June 2009 than it did June, 2008.  The average house sold was on the market more than three months.  If no new homes were listed, the 2,500 homes on the market would still take almost a year to clear at the current rates of sale.  That number has changed very little from last June.

Homes are not just places to dwell in.  They are an investment.  And since the collapse of the dot-com bubble of 2000 Americans have invested heavily in their homes.  We have been taught and there is data to show that homes can be a good investment.  What most of us tend to ignore is the fact that value is a moving target. And in markets like Phoenix and LasVegas, where prices have declined an average of 33% in the last 12 months the picture is especially clear.

Let’s use LasVegas as an example.  Let us say that in April you owned a house in that market in which you had equity (price $300,000 –debt of $200,000) of $100,000.  A buyer approaches you and offers you $300,000.  But you bought the house for $450,000.  So you decide to wait and turn down the offer.  Between April and the end of July, the data show that you lost another 2.6% on average.  Now suppose you took the offer and took your equity of $100,000 and put it in an S&P index fund, it would have risen to $130,000.  So your decision to hold cost you $40,000 between the loss on what you had and the money you failed to make.

Home equity is an engine of potential wealth.  We are not advocating irresponsible borrowing but home equity is trapped wealth except in times when home prices are rising. And with the inventory of homes still out there, it is going to be a long time before we see prices rise.  Bear in mind also that the increases reported earlier in this piece come at a time when interest rates are at historic lows.  As interest rates rise, price increases in homes will inevitably face the headwinds of increased interest rates.  So, if you bought at the height of the market, realize that in your quest to recover your losses, you may be foregoing the opportunity make real money in other investments.

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If you are not one of those people anxiously awaiting the latest revision to the Pennsylvania support guidelines, you may be in a minority.  We have no news to report on this subject except that the recommendations of the rules committee have been sent to the Supreme Court for their review and approval.

The Pennsylvania guidelines are based on models for child costs developed by the Center for Nutrition Policy and Promotion at the US Agriculture Department.  That agency has just issued a report on its assessment of what it costs to raise a child in 21 century America.  Here are the numbers in the raw:

For families with annual household       The cost is estimated to be     Per annum

Income of:

Less than $57,000                                              159,870                                       8,882

57,000-98,000                                                      221,190                                     12,288

98,000+                                                                 366,660                                      20,370

 

The study, which involves monitoring expenditures of 5,000 families shows that there are economies of scale as families get larger. The average couple spends 27% on one child; 40% for two children and 47% for three. Costs tend to center on the first five years of childhood and during the consumer nightmare years of 15-17.  Kids in elementary school up through middle school are more affordable.  Curiously, this rule did not apply to folks in the lowest income bracket. Their expenses remained relatively flat throughout the child’s minority.

 

These numbers are averages.  They assume no support obligation after high school so college is not part of the equation.

 

The breakouts are also of some interest.  The study found that one-third of the cost of raising a child is spent on housing.  Food comes in at about 16% and is closely followed by transportation costs of roughly 14%.  Clothing consumes about 6% of the total cost and is overshadowed by healthcare which 7.8%.  Day care and education are lumped together and consume another 16%.  The final 8% is the dangerous “miscellaneous” category that probably includes, lessons, cell phones and itunes downloads.

 

For households with more than $98,000 the expenses are about the same except that education/day care jumps from 16 to 21%.

 

The numbers are premised upon the costs of a second child, not the first so they are tending to understate the real costs of Baby No. 1.

 

The report is available on line from the USDA.  It is miscellaneous publication no. 1528-2008 and was issued in July, 2009. The data are drawn from surveys completed in 2005-06 but the expenditures were then adjusted based on changes in the Consumer Price Index (CPI).

 

Two other details to add to the pain are worth mentioning.  The 2008 baby is estimated to cost just under $300,000 before he or she reaches high school graduation ($484,000 for the upper income bracket of $98,000+) and the urban northeastern states have costs that are almost 20% higher than the national average.

 

So how bad is this in a relative sense.  The USDA has been tracking these types of expenditures since 1960.  In real dollars (inflation adjusted) the child of today costs 18% more than the child of 50 years ago.  Ironically, housing has almost nothing to do with this even though the house of today is far larger than it was a half century ago. The biggest change is in child care and education growing from 2% to 16% today.  Health care is next.  It has doubled in cost over time from 4% to 8%. Transportation clothing and food have all declined as a piece of the pie with the cost of feeding a child reduced by 1/3 and clothing costs cut almost in half (11% to 6%).  But the miscellaneous costs have increased from 8% to 12% as the child of fifty years ago had to occupy himself with Lincoln logs, Barbie, bicycles and teen magazines.

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As one might expect family court is a pretty emotional place to be and at least once or twice a year a distressed litigant with an unhappy result is heard to utter the words found in this title.

We thought it might be of some interest to report on how appeals work and if the Supreme Court is a place where relief can be had.  The discussion necessarily starts with: what Supreme Court?  There are two of relevance here.  The Supreme Court of Pennsylvania is the Commonwealth’s highest appellate court and the oldest such court in the nation.  What most citizens do not realize is that, by and large, it is a court of discretionary appeals. This is to say that the Court decides what cases it will hear based upon orders granting allowance of such appeals.  You have to ask the court to review your case and the justices actually vote on whether to do so.  There are published appellate rules stating that the criteria used to decide when they will exercise their discretion in favor of hearing an appeal.  The most commonly invoked rule is that the appellant presents a unique question of law not previously decided and which the court believes of sufficient importance to merit review.  The second route to the state Supreme Court is to show that a ruling of the Pennsylvania Superior Court strays from existing law and is inconsistent with established precedent.

Now, what about the “nine” who inhabit that building behind the Capitol in Washington?  The United State Supreme Court is also a court of limited jurisdiction.  Ordinarily it will grant “certiorari” (also an allowance of appeal) in cases where there is a federal question, meaning a question involving laws passed by Congress and interpreted in the federal judicial system.  Each state and the District of Columbia have both federal courts and state courts.  The United States Supreme Court may also grant an appeal in matters where state courts have abridged rights which the US Supreme Court views as fundamental.  Common examples of this are found in the area of criminal law where states have adopted laws or procedures the US Supreme Court finds inimical to well established freedoms such as the right of privacy, the right to a fair trial or the right to hold property.

It is exceptionally rare for the United States Courts including the federal district courts in each state or the US Supreme Court to hear family court matters.  There is actually authority holding that family law matters are best left to the states themselves to decide.  The US Supreme Court has ruled that the rights of a parent are “fundamental” but except in circumstances involving termination of parental rights (in contrast to regulation of them) the United States Courts are to abstain from hearing matters involving family law.  This general rule has some exceptions but they are tiny.  In a word, the US Supreme Court is not going to hear an appeal of your divorce, custody or support case unless you can show that the procedure the state has established to regulate those cases is so flawed that it denies you fundamental rights like due process of law.

As for the Pennsylvania Supreme Court, it has much broader powers to decide what cases it will hear.  We recently asked the Supreme Court to review a decision of the Pennsylvania Superior Court where we believed the Superior Court had misconstrued both the state law governing support and precedent laid down by the Supreme Court in the 1990s regulating what constituted income for support purposes.  A 1984 statute had established the definition of income for purposes of support.  The Supreme Court had ruled in Humphreys v. DeRoss that income did not include gifts or loans that a party received unless a party had a plain right to the gift. Almost all gifts are given in the discretion of the donor and not a matter of “right”.

In our judgment the Superior Court had strayed from established precedent when it reversed a trial court ruling holding that money our client had received as a gift was not income for support.  We filed a request for allowance of appeal asking the Supreme Court to review the matter and, in June of this year, it not only adopted our position but instantly reversed the Superior Court and reinstated the trial court ruling.  This is uncommon because, the standard procedure is to grant the appeal and then review briefs and hear argument from both sides.  

But because there was already statutory authority defining income and Supreme Court had recently interpreted that statute, it appears to have decided that further debate of the issue was not required.

Appeals are, and have always been, a slow and expensive process.  Customarily they are heard only after all of the trial court proceedings are concluded.  One has the right to appeal any final ruling of a trial court, but that appeal is to the Pennsylvania Superior Court.  The party appealing must prepare a record copying all of the relevant pleadings and exhibits material to the ruling of the trial court and write a brief (of not more than 50 pages) summarizing how the trial court either failed to follow existing precedent or abused its discretion in ruling as it did.  Disposition of an appeal customarily takes nine months from the date the appeal is first filed to disposition by a three judge panel of the Superior Court.  Because appellate briefs must contain citation to applicable law and the transcripts and exhibits used at trial it is fairly common to take an hour to write each page of an appellate brief.  Appeals are ordinarily disposed of after oral argument by a written opinion evaluating the merit of the appeal.  The Supreme Court does this only in cases where it decides that the appeal merits consideration in the first place.

So if you are “taking this up” to a higher court, it is helpful to know where and how an appeal is processed.

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As Congress finally tackles the larger issue of health care reform, many Americans are struggling with a small but vital issue; their own health insurance.  This has become a tough commodity to find at any price and each change in coverage offers the risk that existing illnesses or conditions may be excluded from coverage.  For some time now, federal law governing employers with 20 or more employees required that continuation coverage be afforded for 18-36 months to any employee or eligible dependent who would otherwise lose insurance coverage by reason of a job termination or divorce.

Problems emerged if the business had fewer than 20 employees, the federal law (known by the acronym COBRA) did not apply. So, employees who worked for small businesses often found that they would not be able to continue their health insurance coverage.

Earlier this Summer, the Pennsylvania General Assembly sought to address the problem with a “mini-COBRA” bill directed to insurance providers.  A summary of the bill was prepared by our Labor and Employment Law Department members Erin Fitzgerald and Steven Ludwig.

Effective July 10, 2009 Pennsylvania’s new state law requires that the opportunity to continue group health coverage be provided to employees of small employers with 2 to 19 employees.

The law requires insurers to provide the opportunity to continue group health coverage to certain employees and eligible dependents who would otherwise lose coverage.  An employer is required to notify former employees and others of their right to continue group health coverage.

The motivation for the legislation was the federal stimulus bill which provides certain employees who are involuntarily terminated from employment on or before December 31, 2009, and their dependents, with a COBRA subsidy.  The subsidy allows the employee to pay only 35% of the health insurance premium with taxpayers picking up 65%.  The Pennsylvania legislation will extend the subsidy to reach eligible employees and their dependents at employers with fewer than 20 employees.  Although the federal subsidy is scheduled to end, the Pennsylvania law has no sunset provision.

Under the new law, a covered employee or eligible dependent who suffers a “qualifying event” causing the loss of health coverage is eligible to elect continued coverage for up to nine additional months.  However, the employee or eligible dependent may only elect continued coverage if he or she was covered under the group health plan for the entire three-month period preceding the “qualifying event.”  Qualifying events include, but are not limited to, the death of the employee, termination of employment for reasons other than gross misconduct, and divorce.  Employees who are eligible for Medicare or who are eligible for or covered by other group health insurance are not eligible to extend benefits or to receive the federal subsidy.

After electing continued coverage, premiums (which can be increased to 105% of the cost of group health coverage) must be remitted monthly.  If the cause of the loss in coverage is involuntary termination of employment between July 10, 2009 and December 31, 2009, the 65% federal subsidy is available for up to nine months for eligible participants.  Involuntary termination generally means severance from employment because of the unilateral decision of the employer to terminate the employee.

Employers have several obligations under the new law.  Employers must notify the administrator of the group health plan, the covered employee and the insurer of any qualifying event, within thirty days of the qualifying event.  The notice given to the covered employee must include notice of the employee’s right to continue group health benefits.  This notice should be given in writing and should include contact information for the health insurer.  The U.S. Department of Labor has provided a “Model Alternative Notice” to provide to employees eligible for state continuation coverage.  However, the model notice will need to be modified to conform to Pennsylvania law and a different notice will need to be used after the subsidy is no longer available.  That model notice can be found at: http://www.dol.gov/ebsa/COBRAmodelnotice.html.  Employers will need to closely coordinate with their health insurer so that proper notice is provided to covered employees.

After the covered employee has been properly notified, he or she has 30 days to notify the Plan Administrator of the decision to elect continuation coverage.  Within 14 days of receiving the employee’s decision, the Plan Administrator must notify the insurer of the employee’s decision.

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Clients have a sixth sense for things that are problematic. Unfortunately, that sense is coupled with a tendency to freeze and avoid talking about the problem. Often times, clients prefer to ignore the problem, or assume that it will solve itself. 

Lawyers fancy themselves as problem solvers and good lawyers have a knack for doing just that. Unless the lawyer knows and understands the problem, however, solutions are not easily found. When a client senses a problem, there are three places where clients tend to move quietly and not tell their attorneys what their plans are: tax returns, home sales, and asset transfers and sales.  As one might expect, the failure to examine these transactions with an attorney can be harmful, or even fatal, to the financial interests of the client.  Let’s take a look:

                Tax returns.   Joint tax returns make for joint liability. Every year by April 15, private taxpayers must file their income tax returns and tax payments for the previous year. For example, the 2008 tax year closed on December 31.  So, tax returns and taxes were due on April 15, 2009. Historically, almost all couples file joint returns because that is what they have done in the past. Also, there are usually tax savings associated with a joint return.  For Americans who are paid wages, there are not many options in terms of tax avoidance.  Where one or both of the taxpayers are self-employed, however, there is room for mischief. Unfortunately, clients tend to assume that tax fraud is something that affects the other “self employed” guy, and that nothing bad will ever happen to them. As a result, every year clients end up signing joint income tax returns without realizing that if the return “blows up” and is challenged by the IRS, any resulting liability is what attorneys call joint and several.  That means if your spouse puts false numbers on the return, the tax law says that, with few exceptions, you agree that your assets can be seized to pay the tax and penalties arising from the matter.  The fact that you are separated is not itself and impediment to collection efforts by the IRS. The classic case is Duff v. Duff, 510 Pa. 251 (Pa. Supreme 1986).  Although there are ways to try to address this problem, the starting point is to realize that joint returns make for joint legal responsibility. Your oath that the return is accurate extends beyond your own income to that of the spouse with whom you file.

                Home Sales.   If husband and wife own a home as joint tenants or tenants in common, neither can sell the property without the consent of the other.  In order to sell the property, the co-owner must join in the deed to convey a clear title to property.  So, when we are asked whether a spouse can sell a house out from under the other, the answer is no, unless the house is held in the name alone of the spouse having title.  That’s good news.  But, it is fairly common for a separated husband and wife to agree that they want to sell their joint property.  They sign the listing agreement together and the broker/agent attempts to sell the property. Let’s say, for example, a couple lists for $400,000 and they receive and offer of $375,000, which they find attractive.  Again, the tendency is to not solicit legal advice. So, they agree to take the $375,000 and they sign the agreement of sale tendered by the prospective buyers. This is major because they are now “under agreement.” Although these agreements usually contain conditions allowing for an “out” by the buyer e.g., home inspection, mortgage contingency), they rarely allow the seller to back out.  Once the agreement is signed, the sellers are legally bound to convey title at settlement upon tender of the contract price.  This is a good thing, right?  Yes and no.  Without further agreement between the sellers, the title agent will issue the proceeds in a single check that mirrors the title to the property. This means that neither party will have access to the proceeds from the sale unless there is an agreement. If you are planning on using these proceeds to acquire a substitute residence, you may find that you have no access to the funds until you “agree” with your spouse on a distribution or the court otherwise decides your case. Without an agreement, the proceeds will be left in escrow until there is an agreement or court order disposing of the same.

                Assets Transfers and Sales. The law seems clear that unless a court order prevents an individual from selling or moving assets from an individual account, each spouse can buy, sell or transfer assets as he or she pleases.  We find that clients tend avail themselves of these powers.  This is not bad in and of itself.  Clients, however, tend to ignore the fact that each time sales and transfers are effected, there is a likelihood that the spouse not in possession of the account will want to “trace” each transaction or transfer in order to insure that no proceeds were skimmed from the transaction.  This process requires expensive accounting, which tends to consume time and money, as well as slow down the divorce process.

                If you are signing legal documents of any substance while going through a separation or divorce, let your attorney know.  If you are signing a document with your spouse from whom you are separated, it is imperative that you understand the legal consequences before you sign.  As a rule, assume that you cannot “undo” a document once you have signed it.  

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In the past, I have blogged extensively about the legal, medical and value-based decisions made in the case of the unmarried California woman who gave birth to octuplets, while having six other children at home. Enough!

I just returned from an ABA conference in Baltimore regarding the legal aspects of assisted reproductive technology (ART). It was an interesting conference, as I got to meet other lawyers who practice in this area of law. We talked extensively about the issues surrounding egg, sperm and embryo donation. I learned a good deal about the pitfalls that can occur and the many different ways of approaching the problem of infertility, depending upon medical, legal, financial and geographical issues.

The most important fact that I can share is the importance of having experienced people involved in the transaction—both legally and medically. This area of practice keeps growing and becoming more and more sophisticated. There are many people who hold themselves out as experienced, but may not have the level of experience that leads to deep knowledge of the complications that arise. 

If you are looking for assistance, do your homework. Make sure your medical and legal team practice frequently in this area. Interview several potential people before making any decisions. Contact medical practices associated with the teaching hospitals in the area: Temple, University of Pennsylvania/Pennsylvania Hospital, Cooper—to name a few.

While most surrogacy/infertility agencies are legitimate, you should choose an agency with a long and successful history. Use Google or other web-sites to investigate. Several useful sites are: http://www.sart.org/; http://www.asrm.org/;http://www.cdc.gov/ART/. A case in which I represented a surrogate mother and the Estate of her dead child established a legal precedent that agencies are responsible to intended parents and surrogates for negligence in some specific sets of circumstances. Huddleston v. Infertility Center of America , 700 A 2d. 453 (Pa. Super., 1997) provides a guide as to what can go wrong. While such circumstances do not occur regularly, you do not want any problems with your family. Surrogacy or other similar agreements are very complicated. I am happy to provide a consultation to educate you as to the issues will face in these circumstances.

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It was Monday morning in Media, Delaware County, Pennsylvania. The daily “list” of special relief petitions had almost thirty matters on it for disposition. The good news was that ten of them had either been withdrawn or “continued” to a later date. The bad news was that an unscheduled “emergency” would mean that the judge would be delayed by an hour in ascending the bench to hear the twenty matters left for disposition.

My matter had evolved into a dispute over $60,000 in interim distributions. But in Courts, matters do not proceed in order of the amount in controversy.  Often there is no rhyme or reason in what order matters are heard.  Judges prefer to dispose of any settled matters first because it lessens the list.  Some will take the cases in the order on the list.  Others will ask how long the parties will take to present their cases and proceed first with those matters requiring the least amount of time.

Sit in any courtroom in Pennsylvania and you will obtain an education.  You will see lawyers and their clients fight over matters of great magnitude.  Others will grapple over the ridiculous and then move on to the sublime.

In court today and ahead of my matter were two lawyers whom I respect. Alas, the fight of the day did not warrant their level of skill. The dispute?  How an affluent couple would divide their summer cottage between them for the season ahead. By the time the Court reached them on the list each client had an investment of $ 1,500 in legal fees.

Great news for the lawyers, right? Really, no. All but the greediest of attorneys would have happily avoided this morning of watching and waiting for their fifteen minutes of fame.  This is what lawyers term a “power fight”. It rarely has to do with the merits of the summer schedule.  Take each party aside and ask them why they are there and the answer is: “He/She has pushed me around enough.

I want my six weeks this summer when I want it.  I have been dictated to enough.”

We have previously written that there are times when “principle” warrants a courtroom battle.  This is not one of them. There is very little principle attached to whether husband or wife gets the last week of August or the fourth of July. Certainly, even wealthy people will not be happy to see their invoice for May legal services include $2,000 for the battle for Independence Day. One other thing.  Rarely does any litigant win a clear victory in these battles.  Compromise is what judges do except where they perceive huge injustice.

So what needed to happen? As we stood in the back of the Court waiting for the proceedings to begin, the comment was made that almost any lawyer in the Courtroom could have resolved the controversy fairly in 10-15 minutes after hearing both sides out. The parties did not need a jurist to decide this matter.  They just needed someone neutral who would hear both sides out and make the decision. Instead, the parties sat for three hours waiting for the judge to reach them.  When he did, the job was done and fairly.  But lawyers sat and client’s paid for hours of waiting.

We have previously suggested that in a world of expensive legal services clients should pick their legal fights carefully.  If the dispute does not require specialized skill but only a brief argument and a prompt disposition ask your lawyer whether you and your spouse can appoint someone to dispose of it quickly. Chances are you will pay that person.  But that will get you a result and your neutral will put you to the head of the line.

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In this changing economy, how will the courts value your business? Will the Court use the date you separated from your spouse or the date that the assets and debts are divided?

Unless one of the limited exceptions exists, the courts will value a marital business as close to the date of distribution as possible. While the Divorce Code does not explicitly state the date to use to value the marital assets, the courts hold that using the date of distribution value effectuates economic justice between the parties. Sutliff v. Sutliff, 543 A.2d 534, 536 (1988); Smith v. Smith, 904 A.2d 15, 18 (Pa. Super. 2006); Nagle v. Nagle, 799 A.2d 812, 820 (Pa. Super. 2002) citing Diamond v. Diamond, 519 A.2d 1012 (Pa. Super. 1987). In Sutliff, the court stated that “a valuation date reasonably proximate to the date of distribution must, in the usual case, be utilized” because “it is inconceivable that the requirement that the distribution be made in such proportions as the court deems ‘just’ could be satisfied without reference to the current values of the assets.” Sutliff v. Sutliff, 543 A.2d 534, 536 (1988).

The court recognized the importance of using the date of distribution value, as opposed to the date of separation value, by commenting, “to distribute property without regard to those fluctuations would be illogical, and would undermine the legislative intent of making the equitable distribution process responsive to the contemporaneous needs and financial situations of the parties” Sutliff v. Sutliff, 543 A.2d 534, 537 (1988). This is particularly important in this economic climate given that the values for most assets have decreased.

Additionally, the court can only value the marital assets on the date of separation when limited circumstances exist. Smith v. Smith, 904 A.2d 15, 19 (Pa. Super. 2006); Litmans v. Litmans, 673 A.2d 382 (Pa. Super. 1996). The court confines the exceptions to situations where (1) one spouse consumes or disposes of marital assets or (2) there are other conditions that make a current valuation difficult. Smith v. Smith, 904 A.2d 15, 19 (Pa. Super. 2006) citing Benson v. Benson, 624 A.2d 644 (Pa. Super. 1993).

For example, in McNaughton v. McNaughton, 603 A.2d 646 (Pa. Super. 1992) the court valued the marital real estate as of date of distribution, but valued the husband’s marital business at the date of separation because the husband controlled the business, the business was difficult to value after separation, and the husband influenced the business’s value by lowering its value. See also Benson v. Benson, 624 A.2d 644 (Pa. Super. 1993).

Additionally, in Adelstein v. Adelstein, 553 A.2d 436, (Pa. Super. 1989), the husband owned one-half of a corporation, but after the date of separation, the other owner received additional shares of stock (without consideration), granting him a much larger ownership percentage of the corporation. The court noted that the existence and nature of marital property is determined as of the date of separation and that an attempt by shareholders to rearrange their respective interests did not affect the ownership interest that existed on the date of separation. Thus, the court valued the husband’s ownership interest as one-half of the corporation as of the date of separation and would not support the husband’s efforts to minimize his ownership interest.

So, unless one of the limited exceptions exists, the court will value a marital business as of the date of distribution.

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More and more clients are asking us whether they should “mediate” their divorce. It is clear from the nature of the way the question is posed that they perceive mediation as both more fair and, lower in cost. This can be true. But before we select an option, it would be wise to examine what mediation means and how it compares to the rest of the menu.

Mediation is probably best known in the field of labor law.  School districts do it all the time in their labor contracts with teachers and staff.  Each side selects one or more informed representatives. They select a  neutral mediator to “lead” the discussion of their differences in the hope of reconciling them.  The mediator is not an advocate for either side. In fact, he or she must remain scrupulously neutral in order to retain the confidence of both sides to the negotiation. The mediator’s job, is essentially to keep the discussion focused and to record understandings that are reached by the parties for later review with their constituents. 

One of the keys to successful mediation is what we termed informed representatives. If you are no thoroughly familiar with what you are negotiating you are often at a huge disadvantage.  Using our school district paradigm, if one party is unfamiliar with data concerning teacher salaries and benefits the mediation is skewed from the start. This is true in divorce based mediations as well.  If both parties don’t come to the table equally familiar with the assets they are dividing and how they work, it is very difficult  for mediation to work. Under principles of mediation, the mediator is not supposed to “help” either party in the negotiation process.

If your case is simple, meaning that the assets are easily understood, mediation can be relatively easy.  But even in the simple cases, clients often misapprehend what they are doing.  They assume that each party must get half of the assets and often ask questions like: “How do I get my half of the house?” This is the type of question that needs to be addressed before mediation can be meaningful. Just as important are questions that aren’t demanding an answer.  Should there be alimony in addition to a division of the assets? Has household debt been acceptably proportioned?  They create some interesting ethical dilemmas for mediators as well? If a dependent spouse never thinks to raise the question of alimony, is that the mediator’s responsibility?  As Julia Malloy-Good, an attorney specializing in mediation in West Chester, PA. observes, this is where lawyers can help the mediation process by insuring that the clients come to mediation with lists of issues that may require consideration. 

In complex cases where there are tricky assets or assets laden with tax issues or complex debt arrangements (e.g. one spouse’s car was financed as part of a second mortgage), it is all the more important that both sides come equally prepared.  We often find that parties will have spent considerable time and money with the mediator only to see the resulting document memorializing what they have agreed upon to find that the deal they have made can’t be done. Good mediators who are experienced with complex financial assets will try to steer the parties away from these problems but that can sometimes create “neutrality issues”.  Let’s say that my spouse and I make a deal. She gets the house and I get the car and the pension.  If the experienced mediator points out that the house is burdened by the debt for my car, don’t I have the right to snap at the mediator for pointing that out to the other side?

The second, and more nettlesome issue involves emotional intelligence.  Again, we have spoken about  “informed representatives”.  But divorce and money are both highly charged emotional issues. Some folks can’t really negotiate clearly because they are emotionally unsuited to the process. Other couples come to the process with wildly disparate negotiation skills.  Many people are employed in jobs where they negotiate for a living.  Homemakers can be effective negotiators as well  but they are often not the equal of the person who works as a buyer for a company, a salesperson or a contract administrator. Anyone can be taught to box but few of us are ready to spar with professionals. Mediation is based on the premise that each side will select informed negotiators who are well schooled in the facts and the dynamics of negotiation.  The problem with divorce mediation is that  “you” are the one doing it and you don’t get to appoint someone to act for you.

This may sound like a diatribe intended to discourage mediation. It is not intended as such. Where two well informed, motivated and emotionally balanced people mediate, they are often very happy with the process because “they”  made their deal instead of the lawyers and because they may have saved some money along the way. They walk out with a memo of understanding written in language they understand and which their lawyers are directed to turn into a legally binding instrument.

If mediation is not your cup of tea or you try and fail, a second alternative is to arbitrate. Arbitration is a different animal. The “parties” don’t decide on their arrangement. Rather they each present their best case to a neutral person  who “decides” once and for all how a matter will be concluded.  The judicial system works in the same way, but there are some key differences.  Almost any judicial ruling is subject to review by a higher authority. In most counties in Pennsylvania, a divorce case will go to a master or hearing officer. His or her report is appealable to a judge. The judge’s ruling is appealable as of right to the Superior Court of Pennsylvania. Unhappy there? You can ask the Supreme Court of Pennsylvania to look at the decision. In theory, you can even appeal from that and ask those nine guys in Washington DC to take a look at what ails you.

Arbitration does not allow for that. With very few exceptions, an arbitrator’s ruling is final and not appealable.  That can be scary but ask anyone who has seen his or her spouse exercise all rights of appeal and that can be scary as well. But it does mean that you should select your arbitrator carefully because that person is going to control it all; for better or worse. If you arbitrate, you need an arbitration agreement that makes clear how the arbitrator’s ruling fits into the judicial process. Only a judge of a court can divorce you. Arbitrators can decide financial issues and can even hear and decide custody disputes but Pennsylvania law is clear that judicial courts can undo a decision affecting child support or custody where the court is convinced that the child’s interest was not protected.

Usually, arbitration is quick. File for something in court; you wait in line like at the airport. The people ahead of you in line are trying to get to a place too. Arbitration is like owning a fractional interest in your own jet. You and your spouse pick the time and the arbitrator makes time for you to get you where you want to go.  The other advantage of arbitration is that usually the hearings move very quickly. In the judicial system, the court is making a stenographic recording of the process. The court reporter is taking down everything that is said. The exhibits must be marked so that a reviewing court can see precisely what happened. In arbitration there is no reviewing court so there usually is no record to keep. The focus is on having the matter concluded; usually with a 25 to 50 page written report in which the arbitrator recites what he or she heard and how they assess it. That report also will direct who gets what assets and liabilities and on what conditions. It is ordinarily agreed that the report becomes a court order by agreement of the parties.

Arbitration is not free. Use the judicial system and ordinarily you pay a few hundred dollars in court costs and the taxpayer picks up most of the rest.  It is important to understand the arbitration process thoroughly before you start. Some arbitrators such as Philadelphia’s Michael Fingerman control the hearing very closely and conduct almost all of the questioning themselves. Others, such as West Chester’s Alita Rovito tend to favor allowing counsel to try their case much as they would in an ordinary judicial hearing, without the burden of making a record. Because arbitration is private one can negotiate the rules of the road. But, the arbitrator is going to charge the parties the same rate as a skilled lawyer to do the work. Sometimes the cost is equally split. Sometimes the parties allow the arbitrator to allocate his/her fee between the parties. Smart arbitrators demand to be paid before they issue their reports as most folks are unhappy with at least some part of an arbitrator’s ruling. But with arbitration you will usually be finished in a matter of a few months where the judicial system  easily takes a year or more to chop through the same morass of paper and argument. That often makes arbitration worth the extra investment. It also saves the costs of transcripts that most litigants find prohibitively expensive. 

So, that’s the menu. You make the choice.

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Until 2005 and a series of amendments to the Pennsylvania Divorce Code the law of Pennsylvania was quite clear. If one party died before a decree of divorce was entered and all appeals had expired, the divorce was over. In re Estate of Bullotta, 798 A.2d 771, 774 aff’d 838 A.2d 534 (Pa. Supreme (2003). The effect was as if no divorce was ever filed. If property was jointly held, it went to the surviving spouse even though divorce grounds were established. Claims for economic relief would dissolve. Even where the matter had been disposed of by the trial court, if an appeal was pending, death of a party still ended the divorce for all intents and purposes.

Recognizing that this produced some highly inequitable results, the General Assembly sought to remedy this in 2004 when Divorce Code amendments were considered. Section 3323(d.1) was added providing that where divorce grounds have been established, the divorce action would proceed with the executor for the decedent being substituted as a party for the decedent.

To establish grounds the statute established the following rules. If a fault divorce was pending the Court needs to have found that divorce grounds were established. It is unclear what the effect would be if a trial court found that grounds were established only to have that finding reversed by an appellate court. If both parties consented to the divorce, grounds were established. Finally if an affidavit of two year separation was filed without contest or the court found two years of separation had elapsed and the marriage was irretrievably broken, grounds were again said to be “proven”.

Where grounds are not established as of the date of death, the old rules apply. The divorce ends and each party resorts to those rights created by federal laws like the Retirement Equity Act, the rights of joint owners to the decedent’s interests and the rights to take against the will under the Probate Code. Taper v. Taper, 939 A.2d 969,973 (Pa. S. 2007)

What does this mean? If there are no grounds established, the survivor will get all of the qualified retirement benefits such as 401(k) plan. Where property is held as a joint tenancy, the survivor gets all. Even if the decedent prepares a will leaving it all to the non-spouse, the Probate Code permits the surviving spouse to take “against” the decedent’s will, thereby claiming portions of certain assets classes.

In a case decided last December a divorce action was initiated in 2001 by husband. In July 2006 Husband had a heart attack and lapsed into a coma. He died later that year. A year later Wife asked that a personal representative be appointed for Husband so that the divorce could proceed. The trial court declined because ground were not established as of the date of death even though they probably could have been proven. Because they were not “established” by the date of death the trial court lost jurisdiction to proceed. Gerow v. Gerow, 962 A.2d 1206 (Pa. Super. 2008)

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Over the past twenty years the landscape of executive compensation has changed markedly.  One new feature is the appearance of executive stock options as a form of compensation.  Stock options are a device by which key employees are granted the right to purchase shares of stock at a given price.  The “option” is to acquire a fixed number of shares of the employer’s stock at the closing price on the date the options was granted.  On the day the options are granted, they have no value because the price of the option stock is equal to the closing stock price that day.  The theory is that as the employees work and improve the state of the company the stock will increase in value.  If I am granted the option to buy stock in my company at $10.00 a share and the stock price goes to $12.00 a share, my option has an intrinsic value of $2.00 per share. If I have 10,000 such options, the options are worth $20,000 before tax. If the price of the stock goes to $20.00, those same options have a value of $80,000.  Options are usually granted so as to vest over three years following the grant.  Once vested, they are usually exercisable for a period of ten years.  These terms can vary based upon the language of the grant.

Alas, the last nine months have not been good to option holders. Many stocks have lost 40% of their value or more.  When the purpose of the option is to incent employees to drive stock prices higher, there is very little incentive to work hard and produce results in a world where the options are exercisable at $10.00 and the stock is trading for $6.00. As the option holder I have to drive the stock price back to $10.00 before the option has any hope of creating value. In some extreme cases options are out there at prices in excess of $50.00 where the stock is trading for less than $10.00.

Hope may be on the way.  The Wall Street Journal reports that companies as diverse as Google, Toll Brothers and Starbucks are developing programs to either re-price or exchange options so that incentives are re-instated. The reason is that two-thirds of public companies have 75% of their options “underwater”; meaning that the options are more expensive than the stock itself and that they have no value.

While these schemes are picking up speed, they are not approaching the level of re-pricing that occurred after the stock market nosedive of 2001. What has changed is that under new accounting rules options need to be reported as expenses by the offering businesses.  This hurts already meager earnings. Second, companies are chary to re-price options until they feel certain that stocks have reached their low ebb.  Otherwise, the incentive is again taken out of the option pricing system.  Finally, some companies are moving away from options in the direction of restricted stock.

The question in a divorce proceeding is whether an exchanged or re-priced option is a post separation asset or a marital asset recast into a new form. Let’s say an employee spouse is granted a series of options just months before separation at $10.00 a share.  After separation the stock drops to $3.00 a share.  The employer decides to redeem the options and substitute the same number of options with a price of $3.00 a share. Are these new options marital? Would it be a different result if the old options were canceled? Suppose the substitute options have a revised vesting schedule?

There is no law on this in Pennsylvania today. There is a reason to try to anticipate this issue and address it in the context of negotiating a property settlement agreement by providing in the agreement that if options are retired and substitute or re-priced options issued, these options should be treated as marital as well. The same principles may be applicable to options granted by a new employer as a device to compensate a new hire for marital options that were left on the table when the employee changed jobs. Again, the law in this regard is not clear, but the point is one that merits discussion in any divorce negotiation.

For more information. Online.wsj.com “Underwater Stock Options Not Dead Yet” 3/18/09; 7:53PM

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The purpose of a blog is not to recount war stories.  But war stories can be illustrative.  We represent a client whose wife is a homemaker.  She has the skill set to seek employment as a teacher but, for a variety of reasons, some reasonable, some not, she has not sought employment. On behalf of Husband, we have calculated the support due and advised our client to pay it.  We did so on the basis of wife having a -0- earning capacity, even though time has made that position more and more unrealistic on wife’s behalf. Wife is represented by a smart attorney.  We know that if she thought her client was undersupported she would take the matter to court.  After more than two years of proceedings she has threatened court but never filed. Some might argue that because she did not file, our client must be overpaying.  In our judgment those people are not in business of assessing the cost of litigation and offsetting that against the broad range of possible outcomes if the case was litigated. Experience tells us to follow our gut after running several series of calculations.

In recent months wife has begun an email campaign to convince her husband to pay more.  We have told our client not to dismiss that request but the only reason to pay more than our recommended amount would be if Wife came through with a comprehensive proposal to settle the entire case.  That would save the cost of further litigation and allow our client to formulate his own “plan” to right himself financially.

This week, the email campaign went into high gear.  The client forwarded to us an email proclaiming that the $5,500 in monthly child and spousal support she was receiving was insufficient to meet her needs.  Some readers will dismiss such claims as ludicrously high.  Others would disagree. Our client has net income of roughly $12,500 per month.  Forty-five percent is the “right” amount due based upon our calculations. This estimate is based upon the guidelines now in effect in Pennsylvania for primary custodians who are not working and have primary custody of two children. The email noted what the children were not doing and how disappointed they were to not be going to particular activities where a fee is involved. The email even alleged that there was no money to take the children to the dentist.

This drove our client to the edge. The client began to chain email us and then to call.  What would we do? The family employs a psychologist to help them deal with child custody issues.  Our client phoned the psychologist, who, appropriately told our client that children should not be immersed in financial issues.  The client forwarded this advice to his spouse.  The reply was that he could tell their elementary school daughter that she would miss out from her upcoming activity as there was no money.

The client shared his reply to this with us.  He started out well.  He was paying what his lawyers told him was appropriate support.  He did not tee off on his wife about her ability to secure employment.  But then he slipped over the edge. “Tell Nancy (their daughter) to call me.”

Nothing good could come of this, so we stopped our other projects and intervened.  The psychologist had just told our client to keep the children out of support decisions. The only reason he was going to speak to his child was to address the “need” for the upcoming activity. If he took the call he was going to get a crying kid.  Not many fathers can say no to a crying child who is not in their custody.  They give in.  And in so doing they send two “wrong” messages.  The first is that the key to getting money out of a spouse is to use the kid.  Bad precedent for the child and for the custodial parent. The second message is more invidious.  The message to the child is that the real power is not with the custodial parent but with the spouse with the money. The message to the child is that “Mom is powerless, Dad is the one who makes things happen.” 

We advised our client to do nothing.  He was paying adequate support.  No one was in any real distress. We had a child who, like all children, was needy.  If he stepped forward and satisfied the need, he was creating a cycle of demands without a foreseeable end. The child learns to call a parent and cry for whatever was her need.  The dependent spouse learns to couch any need as a child’s need and let the child carry the water. 

Is this always the answer? Yes and no. There are times when an event is so unique or so important that exception should be made. But the basic premise of all support is that “needs” of divorced couples should be planned and budgeted, not handled extemporaneously. Costs are difficult to manage in a world where parties live together.  Once they split and occupy two homes, costs are all the more problematic.

There is collateral damage as well.  Seven or more emails and a phone conversation all made the cost of divorce more unmanageable. In an age when a phone is always at one’s side and text messages offer instant access to attorneys, clients tend to forget that they are spending real money.  Last week our client was ruminating about the fact that his divorce costs were mounting. Today he racked up charges that did not bring him any closer to concluding his divorce.  Rather, he came perilously close to making it last longer by creating a cycle where both his spouse and his child could increase their household budget by resort to claims of dire need.

Instant access can be a good thing.  But it is also an expensive thing.  It is not uncommon for clients to be staggered by a legal bill where they have indulged in hours of instant access legal counseling over relatively innocuous issues.

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Attorneys in our firm recently taught a seminar on the preparation of marital settlement agreements.  The seminar touched upon the subject of bankruptcy and its effect upon obligations undertaken as part of a divorce settlement.  We have noted also that in reviewing property settlement agreements prepared by our colleagues at the bar, many have not become familiar with the changes brought about in this area by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.  This statute effectively changed the law relating to bankruptcy as it affected divorce in ways that should be familiar to every attorney practicing domestic relations law.

               

The most sweeping change is found at Section 523. In a nutshell it declares that any discharge under Sections 7, 11,12 and 13 of the Bankruptcy Code shall not affect any debt to a spouse, former spouse, child of the debtor that is incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of court.

 

This language is not discretionary and abandons the “balancing test” by which Bankruptcy Courts could examine debts in proceedings before October, 2005.  It says plainly that the debtor cannot alter this kind of debt no matter how onerous the obligation may be.

 

A 2007 US District Court case from Arkansas underscores the point.  In re Tommy N. Douglas involved a debtor who had been ordered to pay off certain debts on behalf of his spouse and he as part of their divorce.  He encountered emotional and financial problems following the divorce and eventually sought relief under Chapter 7, the liquidation section of the Bankruptcy Code.  Among other things he asked for relief from the obligation to pay the joint indebtedness.  But after analyzing the statue and commentary offered by the Hon. William Houston Brown in his treatise titled Bankruptcy and Domestic Relations Manual (2006), the Court held that even though this kind of obligation would have been dischargeable in proceedings before the divorce, once it became part of the divorce decree, the Bankruptcy Court lost any power to discharge it. The Court notes that as part of the Chapter 13 filing, the Court can alter the payment in accordance with an approved plan.

 

The core point to be taken from this case is that divorce obligations take on a higher significance than almost any other form of debt.  And even in situations where the duty to pay was not direct contractual one, but derived through the action of the divorce court , the stamp of the divorce court or the taint of a domestic relations obligation takes the obligation out of a bankruptcy court’s jurisdiction to alter.

 

The interesting wrinkle to the language is the avoidance of language encompassing obligations in a premarital agreement. Is a debt undertaken by a person before marriage an obligation “in connection with a divorce”?  This appears to be an open question and one that may spawn future litigation.

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Do I stay or do I go? This is not an easy question to answer. If you are contemplating a divorce and your spouse says “If you leave, I will bury you”; or  “If  you continue to see her, you will never see your children again”.  What do you do? Are these reasons or statements enough to cause you to remain in the marriage; or, do they have the opposite effect making you say to yourself  “I better leave now because it’s now or never”. Two sides of the same coin. What to do? Don’t expect the Judge to resolve these issues if it gets that far. Family Court is not always “just”. Family Court is a Court of contentious litigation, highly emotional, and slow to respond. One should not stay in a marriage because of fear! Harsh words are symptoms of a failed marriage. However, don’t expect to resolve these issues in a courtroom. A courtroom only serves as the legal battlefield for the clients and their proxies (the lawyers) to engage in combat consistent with certain rules. The Judge is the umpire – however, in calling “balls and strikes”, the Judge may miss a few. Divorce litigation is hand to hand combat where everyone gets hurt. Attempt to resolve your problems out of Court, if you can. The process is highly charged – both emotionally and economically. 

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For those contemplating divorce, pre-divorce planning is essential especially in these difficult economic times.  Before meeting with a lawyer, the first issue is “How do I select one?”  Talking to friends who have gone through the process is an excellent start as well as checking out lawyers by reputation.  This can be done by talking to friends, family or other lawyers in the community.  It is important to ask other professionals who they respect and who they would choose in such a matter.  Selecting a lawyer who knows the “legal terrain” of the court system of the county where the divorce will take place, and who is experienced, are important considerations.  The next step is collecting data.  Obtaining income tax returns, insurance policies, banking information, copies of stock and brokerage accounts, automobile titles, etc.  All of this is essential in developing your case.  Understanding your monthly costs as well as annual costs and your individual needs are most important.  What does it cost to maintain the house?  Tuition bills for the children?  Medical expenses?  Summer camp costs?  Tutoring and other special needs?  What does it cost to live? The next thing is to prepare a list of questions to be addressed when you meet with your lawyer.  Most initial interviews take approximately 1 to 1½ hours.  That time goes by quickly.  It is important to have a list of questions prepared ahead of time so that you don’t get distracted during the course of that initial conversation and go beyond the time allotted. List your priorities!  Your goals need to be shared with your counsel and shaped with counsel consistent with the facts and the economic realities of the case. It is up to your lawyer to guide you and explain whether or not your goals and objectives are realistic.  Also, if you are undecided as to whether or not you wish to pursue a divorce at that time, it is important to meet with a lawyer, anyway.  This will allow you to understand the law and how it is applied in your jurisdiction consistent with the facts of your case.  There may be other issues or questions which may need to be addressed by your lawyer before you decide to divorce.  Picking the right lawyer is key to the process.  Lawyers have an important say in what happens and in what does not happen in divorce matters.  His or her relationship with opposing counsel is also of consequence.  You do not want two lawyers who have “bad blood” between them which then bleeds into your case and distracts and limits your ability to resolve your matter involved in the dispute.  Remember, it should not be a war between the lawyers; but, rather a dialogue with your spouse through the lawyers which leads to resolution. You must keep your emotions out of it! Emotions only serve to fuel the fires of divorce and cause everyone to suffer – especially the children.

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In a recent blog we wrote about the liability that attaches to filing a joint tax return. It is an important issue to consider. But there can be relief from joint liability if one qualifies as an ”innocent spouse”, a term defined by the Internal Revenue Code. Relief from tax liability requires that a taxpayer file Form 8857. Our partner in New Jersey, Eric Solotoff has written about this subject and for those who are concerned about liability for past filings, it is a subject worth review.

The process for seeking Innocent Spouse Relief, a provision for individuals concerned about the accuracy of tax returns filed by their current or former spouses, has become a potential minefield.

 

In June 2007, the IRS published a revised Form 8857 - Request for Innocent Spouse Relief. Prior to that time, the form was short and simple. This one-page form asked the name and address of each taxpayer, whether the relief seeker had been a victim of domestic abuse and feared that filing a claim would result in retaliation, if the IRS had determined an underpayment of tax, and whether the understatement was due to erroneous entries by the spouse. (see note 1) The new form, however, is four pages long and the questions are far more in-depth. Given the possibility for self-incrimination, the form must now be completed with great care.

 

Often, when preparing a party's financial statement or budget for a divorce action the conversation turns to tax returns. When the parties involved lack substantial debt - consumer or otherwise - and yet still cannot explain how spending exceeded the level of income and asset draw downs, the accuracy of tax returns is brought into question. Often, and particularly in divorce cases, one spouse was not aware that the tax returns were inaccurate when filed. In such cases, that party may be entitled to Innocent Spouse Relief from the IRS.

 

So how does it happen? How can a spouse not know that the tax return was inaccurate when it was filed? Didn't the spouse sign the return under penalty of perjury? Some common answers clients may give include: 'It was April 15 (or August 15, October 15 if on extension) and my spouse shoved the tax returns in front of me and told me to sign them because we had to get them in the mail that day,' 'I trusted my spouse that the returns were right and just signed them,' 'My spouse told me they were correct, and I signed them,' 'I have no idea of the finances, my spouse handles everything,' and so on. On occasion, 'My spouse forged my name' also has been used.

 

During divorce actions, it is not uncommon for parties to still file joint tax returns. Hopefully, this is done after the non- or lesser-earning spouse has had his or her attorney and accountant review the returns. Also, it is common that Indemnification Agreements are signed to protect one spouse from the inaccurate income reporting and/or improper deductions taken by the other spouse. However, the agreements are only binding between the parties, not with the IRS or state taxing authorities.

 

What should a spouse or former spouse do when the IRS comes calling and he or she really did not know that the tax return was inaccurate? It goes without saying that the individual should immediately contact his or her attorney and tax professional - especially now that the new form asks for more and deeper personal information.

 

The new form asks for more and deeper information than the original, much of which appears as if it could trigger the trap door precluding Innocent Spouse Relief. Worse yet, the responses to many of the questions could possibly be self-incriminating, which is why representation is essential.

 

Some of the new questions seek the following information:

 

-your highest level of education

-whether you were a victim of spousal abuse during the years that you are seeking relief (and further asks for a description and documentation such as police reports, restraining orders, doctor's notes, etc.)

-whether you signed the returns, and if so, whether you were forced to sign under duress, threat of harm, etc., or if your signature was forged

-whether you had mental or physical problems both at the time the returns were signed and at the time you are filing the form (and documentation is requested)

-how involved you were in preparing the returns and whether you reviewed them before they were signed

-whether you were concerned that the returns were incorrect or incomplete when they were signed, and, if so, whether you just said nothing or made inquiry

-what you knew about your spouse's income when the return was signed; and further, if your spouse was self-employed, whether you helped with the books

-when the returns were signed, whether you knew that tax was due, and if so, how you thought the tax was going to be paid

-whether you were having financial problems when the returns were signed

-your involvement in the household finances during the years you seek relief, including whether you had access to information and decision-making power regarding finances whether your spouse ever transferred any assets to you

-a listing of your monthly income and expenses

 

Since the form has to be signed under penalty of perjury, a wrong answer not only could preclude granting of Innocent Spouse Relief, but also could be used to assert - if not prove - tax fraud given a person's knowledge and involvement when the returns were filed.

 

The bottom line is that great care should be taken when completing this form.  A person seeking to do so should consult with an attorney and tax advisor, in advance, so as to not incriminate themself. 

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In case you are one of those driven under a rock by the economic news of the past few months, you may have missed the latest news.  One of Wall Street’s most prominent investment advisers appears to have walked off with $50 billion dollars in what may qualify as the largest Ponzi scheme in world history.  For once, it wasn’t the little guy that got hit.  The client list for Madoff Investment Securities included some of America’s wealthiest investors. Sadly it also included some of the charities underwritten by those investors.

So why are the divorce lawyers writing about this? Because every day we are meeting with folks who don’t understand their investments and tend to buy based on “reputation” instead of the facts. Worse, they own things like hedge funds or derivatives without knowing what these things are.  These “country club investments” (based on the locale where they tend to be sold) can and often do transform rich people to middle class in a hurry. 

The defenses we commonly hear aren’t very good.  1. My spouse handles all of this.  2. We wanted to please a customer or client.  And worst of all:  3. The returns were too good to pass up.  Ask Mr. Madoff’s clients.  Indeed, they were too good to be believed.

It is pretty common during an initial interview to ask a client about an investment only to discover that the client doesn’t know how it works. It is common to see clients who have millions in life insurance but not a penny of disability insurance.  It is not uncommon to see 80% or more of an employee’s retirement invested in the stock of the employer. Presumably, this means that the collapse of Enron could not occur again.  Until Bear Sterns and Lehman Brothers did it again in 2008.

Certainly, it must be conceded that even the blue chip securities took it on the chin in the fourth quarter of 2008. And the Lipper Indices shows that the pain was felt across the board among the mutual funds.  But there are plenty of companies that have seen 80 -90% declines in their stock prices.   Are you qualified to decide when to hold and when to fold?

There are two kinds of money in this world; gambling money and retirement money.  Investors tend to ignore the distinction. If you have made it to age 40, there is a good chance you will live to 90.  That makes for 25 years of retirement.  At 40 we see little reason why we can’t work until we are 90 if we need to.  But, ask the person who is 70 what employment options he or she has. And if you are 40 with little saved for the golden years, investments in satellite radio or Philippine gold mining are not the way to make up for your refusal to save earlier.

The corollary to this rule is that if you are married to one of these riverboat gamblers you need to realize that you may be lashed to the mast of the boat. If I save and my spouse does not, there will be only one retirement fund to live on.  And should my nonsaving spouse decide to dump me and move in with my wealthy neighbor, chances are we will be dividing my retirement savings.

So what are the rules?

1.       Save for retirement like you mean it.

2.       Make your spouse do the same as soon as realistic

3.       Find a professional to manage your retirement money.  Make certain that professional

is SIPC insured and that every aspect of the investor operation appears transparent.

4.       Challenge your professional to produce returns.

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Divorce lies at the confluence of Character and Money; two streets that don’t intersect snugly. Time and again, as lawyers we are asked to “expose” the character of the other spouse so the Court may fully appreciate what a lowlife you chose as your life partner.  Read that last sentence a second time and realize its inherent inconsistency.  With some limitations we will attempt to do what you ask because we are the lawyers and this is your divorce that we are handling. But before spending a king’s ransom on this illusory goal, take some time to think about a couple of factors.

First, since 1980 Pennsylvania is a “no fault” jurisdiction.  Marital misconduct, weird behavior, kinky obsessions do not matter. The evidentiary term is that these things are irrelevant. There is one exception. Marital misconduct is supposed to be a factor in deciding alimony. The Divorce Code says so.  But ask trial judges and hearing officers how they evaluate marital misconduct and more often than not the response is a shrug. “If husband cheated on wife but husband testifies that wife would not have sex with him for years before the event, what am I supposed to do?” How much is adultery worth?  Judges feel comfortable trying to assess things like how much a person can earn and what expenses or needs are reasonable but if a wife belittled husband in front of their friends for ten years, should she get less.  So the result is that while marital misconduct is “relevant” in deciding and alimony award, it usually means very little.  There is one exception and it actually affects asset distribution as well. If one spouse burned through assets while in the course of “entertaining” a love interest, those assets are often treated as an advance to the spouse who spent them.  We have represented both the victims and the perpetrators in these cases.  Most recently, a husband lost his job and, while telling his wife that he had secured alternate work as an independent contractor, the fact s turned out to show that he was spending their life savings while he flew around the country and entertained a number of different women. Not modestly either.  Limousines, four star hotels and daily floral deliveries all turned up on the credit cards. By the time we added all of these indulgences and tallied them as advances to the husband, Wife ended up with 90% of the remaining assets.  Husband decided that he preferred not to sit through a trial where these various trips and engagements would be explored in detail and the case settled.  But this is the exception and not the rule.

In most cases, what we hear is that one spouse refused to work, or spent money too freely or demanded that the couple buy the stupid timeshare in the place that no one ever goes to. If this behavior represents a complete shift in character it may get some consideration from a court.  But, more often than not, when lawyers try whining about these issues to judges they are told (outside the open courtroom) “So what do you want me to do; he married her and they stayed together for ten years in a state of perfect antipathy.” After all, it’s no fault.

So the argument that the court will side with one party versus the other once a court gets the flavor of just how evil your ex has become really tends to be oversold by clients. At the end of the day, the real factors that matter are how much each party can expect to earn between now and retirement, how much there is to divide now and what each party contributed to creating the marital pot. Parties obviously love to fight over the last subject with the higher earning spouse pointing out that he or she made most of the money. But, if the other spouse stepped away from the economic wheel of fortune to raise children, most courts will view that as a major contribution on par with 10 hour work days and constant business travel. Character does matter, but not in the way that most litigants would like it to.

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 Lawyers have not been well-regarded since the days before Shakespeare suggested that we should all be executed. The lament has been the same; we do too little, charge too much.  We foment dispute.  But, as much as the American public ranks lawyers right down there with Congressmen and carjackers when it comes to popularity, the short of it is that we have more lawyers than ever before and we are told that demand is projected to continue to increase in the years ahead.

Divorce lawyers reside in a special place in Lawyer Hell. The usual lament is that we break apart families and cause unnecessary conflict at enormous financial and human cost. This is not a defense of all lawyers. It is not a defense of divorce lawyers either. Even we can’t defend some of our kind. They trouble us too.

But the plain truth is that divorce is a soft center of doing business wrapped in a hard coating of pure emotion. Even making custody decisions is a form of doing business. There are relative merits of deciding how many days a month a child spends with each parent and where the child should go to school; whether after school time should be spent practicing football or flute. Intact families make these decisions every day; not always gracefully, but rarely with the need to call in the execrable “lawyers”. But once a couple separates, parents often tend to focus on their “rights” in contrast with their children's’ “interests”. A couple years ago, a judge dispatched my opposing counsel and me with an admonition that the conflict du jour had to be settled. That night was Father’s mid-week visit. He saw that night as inviolate because he cherished his time with his kids. Mother noted that the night in question was their son’s night to meet and greet a local minor league baseball team and warm up in a real stadium. Father said his schedule wouldn’t allow him to get to the game and therefore he wanted the children to be told to forget it. When we sat down with our clients, my first question was what each parent thought the children wanted most. We got the two conflicting answers; both wrong. Ask any judge what they get out of interviews with children in custody cases and they will tell you to a person: “I want the fighting to end.” With little kids the refrain is even more sad. They dream their parents will get back together. But they are even more frayed by parental conflict because little kids see themselves as the center of the world and they think they are responsible for everything that happens.

So, if you want to save yourself some money. Stop. Look. Listen. What are you really fighting about? Is there a way to compromise this? Perhaps one child goes to the baseball game with Mom.  The other child has a special night where she has all of her father’s attention. Perhaps a make-up night would solve the problem although make-ups are the kinds of things that are best confirmed in writing in advance as many parents have difficulty recalling that they owe the other parent a make-up. If there is no compromise; put your fanciest robe on and pretend you are the judge. If you had to decide; what would you do? Think about this as well. Suppose you were the former starting running back for Ohio State. You want your kid to enjoy what you had, so you justifiably sign him up to play football.  But alas, you married the sissy woman who abhors all forms of contact sport. Of course your son should play football.  But did it ever occur to you how much angst you are creating for your ex and, more importantly, for your kid when his mother spends weeks in terror that her child will be the one carried from the field and put into the ambulance. Does that make you wrong?  No, but thinking about how your kids are enmeshed in these conflicts and trying to help them through them is one of the healthiest things you can do to make their childhood special even after it has been marred by a separation.

Does this mean you should always turn the other cheek. Not really. We all know that parents do try to take advantage of each other and sometimes they must be held to account. But when you spend an afternoon watching two intelligent adults fight for three hours over who got the odd day in a 73 day summer vacation (and a noon day transition on the odd day was “out of the question”) you realize that clients can lose all sense of perspective. And when they do, kids are hurt; deeply. So save yourself some money by making certain that you pick your fights carefully and make certain that when you do fight, it is for the child’s interests and not so much for the vindication of your rights.

Now onto Lesson 2. There is lots of free advice out there. It used to just be from friends and family. But, now we have the internet. You can look up the law or you can log on and chat with 500 other people each of whom thinks their ex-spouse is screwing them. And you can have lunch with your neighbor, the patent lawyer who took Family Law 101 fifteen years ago when he was in law school. Or you can check in with your dry cleaner who just got divorced three years ago. Her lawyer made it so her husband only saw the children in leap years in months when there was five weekends and not four. How come your lawyer can’t get the same results?

These folks are well meaning. They want to feel part of a community and so do you. But seriously, what do they really know about your family, your ex, your kids and the current state of the judicial system that will decide your case if you can’t settle it? Even people in positions of some expertise often make mistakes. We just had a client contact us. Her former husband has been acting strangely. People who know them both have made comments to her that he has become erratic. She then learned that he was trying to order an assault rifle over the internet. When she contacted us she had already been in contact with local police. They told her she needed to sue her ex for Protection from Abuse. When we reviewed the facts, she certainly had a reason to be alarmed. But there had been no threat to her or the children, no stalking, no harassment or any of the other components required to make out a claim for Protection from Abuse. Of course, she challenged us. The police told her to file. But, in this instance the officer was not aware of the formal requirements of the law.

Free advice does come without a price. But you often get what you pay for. And time spent telling your lawyer the custodial arrangement your dry cleaner secured or how your poker partner got off from contributing to private school is time that you will pay for with very little result. If you think your attorney is inexperienced or if he/she is indifferent to your concerns, then spend a few bucks and get a real second opinion from another specialist in the field. Family law matters involve your children and your money; two things that people like to keep close. They merit getting expert help. But when you think you know more about the law than your lawyer, you are either poorly represented or deluded by misinformation or your own sense of entitlement. If it is the former, get another lawyer. If it is the latter, get a grip and realize that as evil as Shakespeare said we are, we are the ones who are going to walk with you through the jungle called divorce.

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All married couples should have an estate plan. For those with special needs or large estates estate planning often involves the creation of trusts.  Trusts are a device by which the owner of property conveys it to others to hold for a defined purpose. It is often a means of avoiding estate tax, personal property tax or even creditors who might otherwise claim an interest.  Trusts have been around for centuries, most often used as a means for the grantor (the donor) of controlling property after his lifetime.

There are many forms of specialized trusts.  Some are used to allow the property to gain value without that value going into the taxable estate of the grantor.  A classic example of this is something dubbed QPRT or Qualified Personal Residence Trust. You own a piece of real estate.  You anticipate that it is going to appreciate substantially in the future. Your taxable estate is already at the point where the federal government is going to want a slice (beyond $2 million currently). The plan would be for your kids to inherit the real estate anyway. For this a QPRT may be an answer.  You convey the property to a trust set up to hold it.  You can continue to use the property and pay the expenses associated with it. After you have left in the trust for a period of time, typically ten years, the property goes to your kids (or other beneficiaries you name). Any appreciation that occurred during the ten years the property was in trust is not in your estate but is something your kids will have to deal with. So long as the property you conveyed was worth $1,000,000 or less at the time you established the trust, there is no federal estate tax associated with the gift to the trust. And in valuing the gift, the IRS discounts the value of the house because it was conveyed subject to your right to occupy it for a term of years. If you want to stay in the house after 10 years, you will have to pay a fair rental value to your kids in their capacity as new owners

As with all good tax strategies, there are quirks. Don’t die before the property gets transferred to the kids because the property will still be considered part of your estate, including the appreciated value. Stay friendly with your kids because once the trust term has expired and they get title, they don’t have to rent it to you or let you use it.  It’s theirs.

So having described this cute but otherwise legal tax scheme, why do we discuss it in the context of divorce. Because the transaction is a nightmare.  At one point (pre trust) there was a $1 million asset to divide.  Now, there is a completed gift subject to a right to occupy for a fixed term of years.  The only asset left is the value of the 10 year lease and that can be tough to calculate especially if the property is in a volatile resort market.

In a similar vein, we are working with a situation where our client decided that he would be generous to his second wife and her kids from her first marriage by putting a vacation home in trust for her benefit. The trust was to give her income for life and provided that the property could be disposed of to meet her financial needs. Once she died, whatever was left from the property was designated as a gift for wife’s children.

The house tripled in value in the past 15 years. But while the estate plan was well mapped out it did not include a divorce contingency. The parties are separated and wife has chosen to occupy the house and sue the husband for support. When husband suggested that the $1,500,000 in equity could help to support her and pointed to the trust instrument’s income provisions, wife responded that she has only a life estate and that is all that could be valued as “hers” for purposes of equitable distribution.  Now the trustee (wife’s son from the prior marriage) has mortgaged the vacation house to acquire another $500,000 residence for his mother but the claim is still made that she has almost no interest in the home and that her husband (who created the trust for her support) must supplement her needs including the cost of the house that he put in trust to support her. The estate planning aspect of this transaction was masterful.  That is, until the divorce intervened. 

So the message is that if you are doing estate planning ask your attorney about the “divorce” contingency. And if you are in a divorce, make certain that your counsel understands trust property as well as marital property.

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Ask any divorce lawyer in Pennsylvania to specify the two most common questions he or she might encounter in an initial interview and the answer will inevitably include one or both of the questions recited in the title.

The second question is easy to answer. It is pretty safe to say that it is impossible to be divorced in the first ninety days after a divorce is filed.  The law is clear. For the first ninety days after a divorce complaint is served (and service must come after the complaint is filed) neither party is eligible to consent to divorce. And for a divorce to move forward it is pretty much necessary for both sides to file affidavits of consent.  Complicating matters is the common fact that many people who file for divorce will for strategic reasons refuse to consent to the same divorce.  Absent the consent of both parties a divorce can move forward based upon either fault based grounds (adultery, cruelty, an ambiguous term called indignities and some other obscure grounds) or a legal separation of two of more years. Only after divorce grounds are established can a divorce be granted.  And in almost all situations the divorce will not come until claims for distribution of property and alimony are resolved by the parties or decided finally by a court. So there is no divorce after 90 days unless the parties are cooperating and there is no divorce even after a two year separation unless the economic issues are resolved. It makes the process slow and expensive but the lawmakers in the General Assembly have passed laws that favor delay in the hope that it may prompt reconciliation.

We have noted that a divorce can proceed even without consent where there has been a separation of two or more years. The question of when a couple is separated for purposes of the Divorce Code is one of the most difficult to answer.  In 2005 the legislature helped to clarify the separation by declaring that there was a rebuttable presumption that a couple was separated when a divorce action was filed. But the presumption is rebuttable where one party can show that there has not been a complete cessation of cohabitation.

An end to cohabitation does not require a separate household. The law as it has evolved in the courts that cohabitation ends when the parties show a clear intention to no longer be together.

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While anecdotal reports seem to indicate that divorce is on the rise because of the current economic situation, Fresno County, California and Comanche County, Oklahoma are both reporting a substantial drop in the number of divorce filings this year. According to data published by the county, Miami-Dade County, in Florida, was experiencing an eighteen percent drop in divorce filings in the first half of this year as compared to 2007. 

It seems logical that as financial markets drop and couples face tighter finances, divorce filings will rise. After all, squabbles over finances are often the main cause of marital dissolution. Issues in a marriage involving money which may have been simmering under the surface, will likely boil over when the pressure of the economy bears down and money gets tight. Following logic, one would think that the number of fights over money would increase and the number of couples separating and divorcing would increase.

 

Why then are so many areas experiencing a drop in divorce filings? One reason may be that couples can not afford legal representation in the current economic market. The thought of paying an attorney when it has become increasingly difficult to meet basic obligations may be unappealing. In addition, couples may not have the financial ability right now to split their existing household into two. It is clearly cheaper to stay together in one household than to support two households. Finally, the thought of dividing assets between spouses when those assets have dropped so substantially in value over the past year may be less appealing than remaining together and keeping the entire asset. Individuals may have to get over the shock of watching the market claim almost half of a retirement account before they are ready to address the shock of having to distribute half of the remaining balance of that account to their spouse. The thought of selling a house incident to a divorce was a much easier pill to swallow when there were potential proceeds associated with the sale and there was some confidence that the parties would each be able to obtain a mortgage to purchase separate homes following the divorce. But with the drop in home prices and the instability in the mortgage market, staying put may make more sense.

Yet Pennsylvania seems to buck both trends, seeing neither a steep increase or decrease in divorces in hard economic times. The statistics published by the Pennsylvania Department of Health, Bureau of Health Statistics and Research show an almost steady number of divorces in the state each year. 

See http://www.dsf.health.state.pa.us/health/lib/health/mardiv/mardiv2006.pdf

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Having been through a spate of trials and hearings over the past few months, it has come to our attention that many clients have little familiarity with how courtrooms actually work.  Ironically lawyers assume that clients know how trials work.  Litigation is what we do every day.  Clients also tend to assume they know more than they actually do.  Their experience with trial comes from television. Unfortunately, they miss a crucial distinction. Judge Judy and Judge Joe and all the other television judges are there to provide amusement. Real court is much more formal and is directed toward exploring all the relevant facts in a question and answer format.

In Pennsylvania, real court can come in the form of proceedings before a master or before a judge.  The difference is not terribly different if you are a litigant.  Masters are lawyers appointed by elected judges to take evidence and publish recommendations concerning support and property issues.  We are commonly asked whether these folks are “real judges.”  Technically, they are not because they have not been elected to their positions. But, they have their jobs because judges respect their viewpoints. Even though a master’s ruling can be appealed to the judge, many judges rely heavily on what their masters have recommended.

Whether trial is before a judge or a master, the procedure is usually the same. The party who filed first (the plaintiff) puts on his or her evidence first. Evidence usually comes in two forms.  Testimony and documents corroborating testimony. As the plaintiff goes first in starting the trial, the plaintiff has the right to choose what witnesses appear in what order. That can even include situations where the plaintiff starts the case by calling the defendant as a witness. It can be very unsettling to be told by your attorney that your spouse will proceed first only to find out one minute later that your spouse has elected to make you the first witness to testify.

Trial is like a baseball game.  Let’s assume that you are the plaintiff.  Your team is up to bat first.  Your testimony is conducted by your lawyer, It’s the lawyer’s job to cover with you every salient fact that needs to be put into evidence. Once your examination is completed, you cannot bank on getting another chance to tell your side of the story to the court. With rare exception, the excuse that you left the documents at home or at the bank or at Aunt Sadie’s does not work.  The court wants the documents when the witness it testifying.

Once you finish telling your story under the direction of your lawyer, your spouse’s lawyer gets to ask you questions in what is called “cross examination.” During what lawyers simply term “cross”, that lawyer can ask you questions that are leading. “Isn’t is true that…..” “You never told your spouse that you borrowed from your retirement account, did you?” The point of cross examination is to allow the opposing side to test your credibility or to show you documents or other evidence that may appear to contradict what you are trying to say.  It is often pointed and unpleasant which is how it is intended to be.  Every witness must be prepared to tell his or her story and to have that story challenged.

Once the other attorney has had his way with you, your attorney gets a second shot at asking you questions. That comes with a major limitation.  He or she must limit questions to subjects on which you were cross examined.  This “re-direct” examination is not an invitation to repeat the testimony you already gave.  It is to give your attorney a chance to clear up things where cross examination has created misunderstanding or ambiguity.  Take for example the question: “Did you ever discuss taking money from the retirement account with your spouse?”  You answered that you had not.  The fact is that you had not discussed the subject avoided the fact you had left the retirement withdrawal form on the table for your spouse to sign and that she had signed it. This testimony clears up the subject so the court has all the facts.  So your lawyer gets to ask you questions about this subject because it is ground not previously covered.

The other side can then “re-cross” you.  Again the limit is what you spoke about in re-direct.  With each stage the scope of the questioning is limited to the prior set of questions. Once the sponge called the witness has been thoroughly wrung out, it’s time for a new witness. The same rules apply for all witnesses.  It can be very annoying to be a party. Direct examination of a key witness (usually one of the two spouses) can go on for hours or even days.  That means you have to wait and wait for your lawyer to get a chance to cross examine your lying spouse.  It will be even longer until you get the chance to set the record straight with your own testimony.  Sorry. The rules are that the plaintiff gets to present his or her entire case before the defendant gets a chance to go forward. Some see that as a big disadvantage. All of that testimony goes unrebutted except for cross examination until it comes time for the defendant to present. But, remember, much as one party see advantage in being the first to present, the other party may see it as an advantage to be the last to present.

The defendant presents his or her case in the same way as the plaintiff. Direct examination of the witnesses followed by cross examination and then re-direct and re-cross.  Until the defense sponge is wrung dry just as the plaintiff’s was.

Is it then over?  Not quite. Suppose subjects come up in the defendant’s case that the plaintiff never discussed when he presented his case. The plaintiff is given a chance to rebut what the defendant presents.  Again, this is not a chance to rehash testimony already given. Rebuttal is limited to subjects that have not been fully explored.

Equitable distribution proceedings can be unwieldy because people own lots of assets and many of them (stock options, timeshares, nonqualified retirement plans etc) are complicated. All too often clients don’t really understand these assets as well as they should and that can make proceedings both long and frustrating. We have had witnesses with advanced education degrees confounded when asked what is reflected on their paystubs.  The key is to understand the process but, perhaps just as important, to understand the assets and the income that are unique to your case.

In these proceedings both sides are supposed to share their exhibits with the other side in advance of the trial.  It is usually productive to sit down with your attorneys in the days before complex hearings to review what you will have to tell the court and to try to anticipate how the other side will respond.

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Many of our clients either own their own businesses or are married to people who do.  In divorce the value of the business is a material aspect of equitable distribution and needs to be considered both for the income it produces and the value the business has.  Figuring out the answers can be complicated and expensive depending on how honest the books and records of the business are.

It may not come as a surprise to many readers to learn that some people use business accounts to pay utility bills for their homes, cell phones, college tuitions, car payments and personal travel expenses.  It is not unheard of for a boy or girl friends to be a paid employee with benefits.  Over the course of years, we have seen it all.  The highlight or lowlight of this author’s experience was the business owner who put an addition on his home and booked it as an asset of the business. The same owner deducted his annual four month stay in Florida as a business travel expense even though he could not identify any work that he ever secured while enjoying the warmth of the Florida sun.

So should everyone in a situation where the spouse owns a business hire accountants and appraisers?  The question is not easily answered. A forensic accountant is one with specialized training to uncover fraud or misrepresentation. His or her job is to ferret out whether income is fully reported and whether all the expenses paid by the business are reasonable and necessary.  If I buy your business chances are that I will not be paying your child $2500 a month to go to college or covering the Escalade you use to commute to work and charge to the company. Those are what are called “add backs” because they are added back to what should be the real income of the business.

The business appraiser takes what income and expenses are “real” and attempts to determine what willing buyers and sellers would pay for the business.  Thus, if your business earns $100,000 a year and pays your kid’s college and your Escalade, the real benefit of owning the business is probably closer to $150,000 a year.  The business appraiser asks that question: “What would a willing buyer pay to own a business that spins off $150,000 in income?” That is a function of many different integers. What is a reasonable rate of return?  How much capital needs to be replaced each year to sustain the business?  Is the compensation paid to the business owner fair given the work he or she supplies?  What “hard assets” does the business own? And, most importantly, what does the future look like in terms of potential growth.  These are complex questions and the price for answers is not insubstantial.

But reason needs to be part of the process. A business with one employee selling product using a desk and a phone rarely sells for a lot of money. You don’t need a forensic accountant to successfully argue that the children’s cell phone bills are not business expenses. But if the matter is complex and the business appears to have a value that a buyer would be interested in paying a substantial sum to take over, clients need to examine seriously the need to employ talented experts to tell the story in court.

The starting point before engaging experts is for both the lawyer and the client to get the core financial documents and review them before the accountants and valuators become involved.  Clients bring information to the equation that experts will never develop alone. The fact that valuation is a cooperative enterprise involving coordination and a common understanding of the objects at hand.  Failure to do so produces an expensive and often unintelligible result.

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Events of this past week have revealed a dangerous trend. For those with children who are school age psychologists are reporting an epidemic of conduct they term cyber-bullying.  The concept that one child could effectively bully or coerce another through computer or cellular phone contact seemed attenuated. Until this week anyway. Because what this writer has seen in the past week is three instances where adults have been completely intimidated by a spouse or former spouse. In each instance the method employed was either email or, perhaps more ominously, text messaging.  In each instance the victim was a highly educated professional; the very kind of person one would think least likely to fall prey to bullying of any kind. 

But in three separate instances involving six bright people, we have seen one person drive another to the edge of distraction.  In two instances the core element was a dispute over management of children born to a relationship.  In the third however, we saw nothing more than a dating relationship gone bad and one participant’s efforts to use email and text messaging as a means to try to keep the relationship going.

Could this really occur with adults? Picture yourself in a situation where you are coming out of a painful divorce.  You have recovered your own time; time to work; to think; to reflect; to relax. But just as you are trying to do those things; your phone is ringing.  Each time it is a demand, a direction, a demeaning comment. Often it is a challenge to whether the parent receiving the message cares about the children.  Sometimes it is just a terse dismissal seeking to deny the recipient the dignity of self worth. Any one of these messages; any two or three could be dismissed.  But when the messages do not stop the sense that one is in control starts to slip away.  The fact that these messages come electronically is almost more insidious. There is no ability to instantly respond.  Yes, one can type and send a reply.  But that does not mean the response was received or read. The attacks can be unrelenting as one can send dozens of messages every hour.

A month ago I would have been skeptical about this.  After all, one can simply turn the machine off.  But we are addicted to mobile communication devices.  Sit in any meeting today and watch the adults as they reach for the Blackberry or the cellphone and until we learn to master these devices People will take advantage of them to hammer away at others.

We pride ourselves on being current.  Electronic devices allow us to do that.  Whether it is the Yankee Oriole game, when a child gets off the bus or the price of gold on the Comex, we want to know and know now. But those of us who are adults can remind ourselves that 95% of the information we are recovering is fairly useless background. We boarded buses at 7:30 AM and our parents did not hear from us until 3:30 PM.  We found out about the game by reading the paper or watching the news. We did not even know what Comex was.

The purpose is not to inveigh against the Blackberry or email. In fact they can be extremely useful tools in communication. But, in the wrong hands these devices are being employed by manipulative and angry people to control your life. The result is that intelligent and well educated people lose all sense of perspective because others insist on using these devices for no purpose other than intimidation. We need to master technology before others use it to master us.

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This is written on September 17, 2008 the day of a 500 point drop in the Dow Jones Industrial Average and a little more than a week after two of the largest financial institutions in America entered government receivership. Two of our best established investment banks have disappeared and a little more than twelve months after the 2007 mortgage crisis came into focus, it is still not clear whether we are headed into the storm or the worst is behind us.

As attorneys we have little to offer by way of predictions. But it seems fairly clear that market price volatility will continue for the near term. This requires that saner heads to prevail and precautions should be taken to preserve wealth. Clients may be in the middle of separation or divorce. But even in war, there are common interests that need to be attended. Failure to do so threatens the financial health of both spouses with rare exceptions.

It is not unusual for modern couples to know very little about the investments they have made. Sadly, we are taught very little about modern finance and the recent events in world financial markets make it clear that even the experts can fall prey to what Allen Greenspan coined as “irrational exuberance.”
Whether you are in the process of marital dissolution or not, Rule 1 is to review what you own and understand the product. If you don’t understand the product, reach out to find out about it. It may seem embarrassing but unless you are willing to join the ranks of the hundreds of thousands of Americans who will lose their homes to variable rate mortgages or hedge fund investments they did not understand.

Rule 2 is to understand the importance of diversification. Seven years have passed since the collapse of this nation’s largest energy company. With Enron’s demise tens of thousands of employees saw most if not all of their life savings disappear because their entire investment pool including their retirement was entirely invested in one security. We still see clients who come to us with investment portfolios where 50% or more of family wealth is concentrated in one or two stocks; usually those of their employers or assets passed from generation to generation as a legacy. As recently as two years ago a portfolio of blue chip bank and automotive stocks would be considered the solid foundation of any portfolio. Today that portfolio could be said to have lost half or more of its value. Even traditionally risk adverse havens such as precious metals are experiencing stunning levels of volatility. In May of this year we wrote about gold prices of $1000 an ounce. Since reaching that high, they have declined by 30% in just a few weeks. Today, gold shot up 10% on the basis that the stock market was so hard hit. There is no single safe investment with the possible exception of US Treasuries or insured bank accounts.

It does not make sense on a long term basis to invest entirely in savings institutions and treasury offerings. The rates of return are often at or below the rate of inflation. But there is a fair distance between risk free investment and concentrated investment. The point is to be judicious and balanced in your investment planning.

Rule 3 is to actually pay some attention to what is in your portfolio, especially if is not professionally managed by mutual fund managers. Certainly, funds are not immune from losses or excessive expenses but they at least offer the benefit that “someone is watching” your investment pool on an hourly basis. Most of us have neither the time nor the inclination to manage these assets as they should be managed. There may be a temptation to avoid selling because the market is down. But, as noted above, we don’t know whether the market has bottomed or not. Many Bear Stearns shareholders could not stomach a sale of stock at half what they paid for it. Many of those same shareholders saw that half reduced to -0- in the weeks following their decision to defer selling. This does not endorse panic sales. But if dollar cost averaging is a smart way to build a portfolio, a similar routine is probably a smart way to unwind an investment.

If you are in the process of dissolving your marriage there is a Rule 4. Make certain that any agreement you have to divide investments takes into consideration the investment experience of what you are dividing. Even if you had invested in a broad based index fund if your investment was $500,000 and you were equally dividing it by an agreement made in May, 2008, that division could be considerably less today. If I held the fund in May and promised to pay my spouse $250,000, the risk of the loss fell entirely to me. This can be especially important with ERISA based retirement assets for while most such plans move money relatively quickly retirement plans have a statutory right to take as long as eighteen months to approve the instruments which allow the asset to be transferred on a tax deferred basis.

If you are selling appreciated assets (where there have been gains) it may make sense to sell them jointly and share the tax consequence. If I sell an asset which has appreciated by $200,000 so that I can make a lump sum payment to my spouse of $200,000, I will be paying the tax on the gain. If I transfer the asset into joint title, we will each share half the tax burden upon sale.
Once again, attorneys should not be relied upon to choose investments. Our training has nothing to do with that field of endeavor. But while we lack the wisdom to decide what to buy experience has taught us that clients tend to not fully understand their holdings or to so concentrate them as to create rather than minimize risk. In markets as volatile as those we have experience in the past twelve months, prudence dictates that all of us need to better understand and evaluate those things we have assembled in our portfolio of investments.
 

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It is a thirty year marriage and the parties have one child. They have been separated for approximately one year. In addition to their principal residence, the parties own a beach property in Maryland. The parties have been alternating use of that property for the last two summers. 

Wife went to the beach property one weekend (her weekend) and discovered that the master bedroom door had a new lock; and that Husband had moved his girlfriend into that bedroom. What to do? 

Obviously, divorces are stressful and at times, hurtful. If Wife had done the same thing and had moved her boyfriend into the master bedroom, her Husband would certainly have kicked down the door and placed new locks on that door. However, self help is never beneficial to anyone. 

The parties should have cooperated with one another before the situation happened and should have entered into a written Stipulation confirmed by the Court relating to the disposition of that vacation property. 

In this instance, Wife, despite her emotional need to do something, should call her lawyer who, if an agreement could not be reached with Husband's lawyer, would then make a decision whether to file a Petition for Emergency Relief requesting Court intervention in this situation. Wife will have to weigh the cost of the drafting and prosecution of such a petition against the fact that, although the Court may not condone Husband’s actions, it may choose to “look the other way” and let the parties fend for themselves. 

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Like most litigants, the end result and the cost of legal representation are among the most important concerns of anyone involved in a family law dispute. With these concerns in mind, clients frequently ask me if there is anything they can or should be doing to reduce the time I need to spend on their case or to help move things forward. The answer is a resounding “Yes!”  Here are 14 tips on how to be a good family law client and, at the same time, help your attorney achieve the best possible result without incurring excessive cost:

1. In advance of the first meeting with your attorney, assemble as much relevant documentation as possible. For instance, in a typical divorce case, this would include (at a minimum) complete copies of recent tax returns, pay stubs for both you and your spouse, a detailed list of all assets and liabilities, and any legal paperwork already filed and/or served upon you.
2. Speaking of documentation, organize every piece of paper that you give to your attorney.  Documents should be stapled, labeled and assembled in an orderly fashion.  Keep in mind that your attorney and his/her staff will do whatever is necessary to organize the documentation that you provide to him/her if you don't do so. It will, however, take time and cost money.
3. Keep a detailed diary of all significant events pertaining to your case and make sure to share copies with your attorney. A "Week-at-a-Glance" calendar often serves this purpose well.  This may be especially important in a custody case.  Your memory may fade with time, but a well-kept diary can be used to refresh your recollection prior to and/or during a hearing.  Additionally, your attorney can use your diary to assist in preparing your testimony in advance of a hearing.
4. A picture is worth a thousand words.  Besides documenting things in your diary, document what you can with photographs and/or videos.  For instance, if you decide to move out of the marital residence, take photographs of the condition of the residence and all property that you left behind.
5. Ask questions.  There is no such thing as a stupid question.  More often than not, questions from clients are highly relevant and serve as a basis for helping to frame out the issues and develop strategies.
6. If you need to discuss non-legal issues with someone, you may not want to call your attorney.   His/her hourly rate is probably much higher than a therapist's, and the therapist probably is better equipped to handle the issue.  While your attorney may be a very good listener, it will be to your economic and emotional advantage to discuss non-legal issues with your therapist, family members, friends, priest, rabbi, pastor, etc. 
7. Do your best to pay your attorney’s bills on a timely basis.  If you cannot pay a bill within a reasonable amount of time, call your attorney and ask to work out some payment arrangements.  If you are making a genuine effort, most attorneys will be understanding and work with you.
8. Promptly respond to calls and inquiries from your attorney. If it was not important, your  attorney would not be contacting you. Furthermore, if you are not being responsive to your attorney, he/she will have no choice but to spend his/her time and your money trying to get a response. 
9. When you leave a message for your attorney (either on voicemail or through a secretary) leave your phone number and the time when you will be available to speak. While your attorney likely has your number, it will take less time for your attorney to call you back if he/she does not have to find your number. This is especially true if your attorney is not in his/her office. 
10. If you have left messages for your attorney and have not received a response in a reasonable period of time, realize that there is probably a good reason why he/she has not returned your call (i.e., tied up in court or meetings, or handling an emergency situation). If the reason for your call is of an urgent nature, do not hesitate to explain the situation to your attorney’s secretary and/or ask if you can speak with another attorney in the firm. If your call is not urgent, ask your attorney’s secretary when she expects the attorney to be available so that you can call again or ask if an appointment can be placed in the attorney’s calendar for a phone conference. 
11. Do not believe everything that you hear from your spouse, family and friends as it pertains to your case and the law. Even though your spouse may act like he/she is trying to be accommodating, the reality is that he/she is likely out to get the best possible result for himself/herself. Similarly, realize that every case is different. Just because your friend’s cousin got a particular result does not mean that you will get a similar result. 
12. Do not sign or agree to anything without first speaking with your attorney. Attorneys are usually in favor of parties speaking and trying to reach amicable resolutions between themselves. An attorney, however, can and will help you determine if the terms discussed are in your best interest. There is nothing wrong with telling the opposing party that you need some time to think about it and will get back to them after speaking with your attorney. If the opposing party is pushing you to sign something on the spot, be suspect. 
13. Be discreet and resist the urge to deliberately annoy or antagonize your spouse. If you do or say something that you know will annoy your spouse, be prepared for appropriate retaliation. Also be prepared to pay your attorney who will, no doubt, get a call from the opposing counsel when your spouse calls to complain about your behavior. 
14. Last, but not least, be candid and truthful with your attorney. Attorneys do not like surprises. If your Attorney is well-informed, he/she can be fully prepared to deal with potentially damaging information if and when it is raised by the other side.
    

 

 

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Whenever people start to think about divorce, they think about all the money they have—or don’t have—and why their spouse should or should not get any of it. Many of our firm’s blog entries, as well as those on other sites, discuss specific assets or they discuss why people may not get what they think is fair. If you understand the reasoning behind the rules (written by legislators far, far away) what may happen to you makes a bit more sense.

The first idea to grasp is that marriage is a legal partnership. No matter if both spouses work, both are unemployed, or only one works, this partnership arose on the day of the wedding and will end at death or the filing of a divorce Complaint. Because both husband and wife (or both partners in some states) are equal, whatever is earned or saved during the marriage belongs to both of them.

For example, if one married partner earns $100,000 per year and from that amount saves $30,000, all the money saved is marital. It belongs to both partners (as does all of the money earned). If the other partner earns $25,000 per year and uses all or almost all of that money to pay the mortgage on the couple’s condo, all that money and the couple’s condo are marital.

There are exceptions. Anything that is owned before the marriage takes place is not marital. But in Pennsylvania, the increase in value of the non-marital asset from date of marriage until date of filing of the Complaint in Divorce belongs to both spouses. So too, the increase in value of a business that was started before marriage, or the increase in value of one partner’s Picasso which she inherited from her mother. Because the marriage is a partnership, Pennsylvania will view any increase in value during that partnership as belonging to both spouses , no matter whether the increase during marriage is passive (it earned interest in the bank) or active (a spouse grew the money by cleaning up and re-modeling an investment property). How the asset is titled does not matter. The $5 million Picasso may belong to one partner if she inherited it, but all of the increase belongs to both of them. So if it was worth $5 million on the date of marriage, and now it is worth $7 million, $2 million will be divided between the spouses

This is why it does not matter in Pennsylvania if the asset is owned only in one person’s name, which always is the case with retirement benefits. You must look at when the money or the asset was acquired or grew. If it was during your marriage, each of you has the right to some of that money!

The other thing you need to know is that there is the concept of an understood agreement during marriage. Let’s take a look at that spouse who earns $100,000 per year. The parties agreed that he would put $30,000 each year into her 401K. Even without the agreement , it is marital. But they never agreed that she could use $1,000 a month to go shopping with her girlfriends. However, for the past 17 years, she has been doing so. When her partner wants to end the marriage, that $12,000 per year she spent shopping becomes disputed. However, the law presumes that this was agreed to. Remember the partnership idea? If one of the partners did not like the arrangement, they could have liquidated the partnership (divorced). 

The last idea to remember is that in Pennsylvania, there is no presumption of a 50-50 split of marital assets, as has been explained previously on our blog. Each state has its own ideas as to what is a marital asset and how these assets should be divided. Our blog discusses Pennsylvania law. Whether in or out of Pennsylvania, it’s a good idea to speak to a lawyer about how the law of your state applies to your situation.

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As practitioners, clients often ask us about filing for a "Legal Separation". While Pennsylvania does recognize the term, the "factual" date of separation may be important in valuing assets (non-marital assets are generally valued from date of marriage to date of separation) and for setting the date for when the grounds for a divorce may exist . So, what determines the "date of separation"?

The date of separation is the date upon which it is determined that the parties are living “separate and apart”.  23 Pa.C.S.A. § 3103 defines "separate and apart" as "the cessation of cohabitation, whether living in the same residence or not.  In the event a complaint in divorce is filed and served, it shall be presumed that the parties commenced to live separate and apart not later than the date that the complaint was served".  

Cohabitation is defined as the "mutual assumption of those rights and duties attendant to the right of husband and wife".  Mackey v. Mackey, 545 A.2d. 362 (Pa. Super. 1988). 

When the parties are physically separate, they generally will agree on the date of  separation. However, when the parties reside in the same residence and no divorce complaint has been filed, the court can still determine that the parties live separate and apart. To do so, the courts, on a case-by-case basis, look at some of the following to determine whether parties have been living "separate and apart":

The "spouses' intent to dissolve the marital relationship must be clearly manifested and communicated to the other spouse, before the spouses can begin to live 'separate and apart'".  Sinha v. Sinha, 526 A.2d 765 (Pa. 1987)

Some factors which have been considered in determining the parties' intent have been:

1. How much time the parties spent at the marital residence.
2. Whether the parties slept in the same room.
3. Whether the parties ate meals together.
4. Whether or not the parties took vacations and outings together and whether or not those outings were for the child's benefit only.
5. Whether or not the parties gave the appearance that everything was fine for their child's sake.
6. Whether the parties lived separate lives. 
7. Whether the parties had sexual relations.

Frey v Frey, 821 A.2d 623 (Pa. Super. 2003).  See also Mackey v. Mackey, 545 A.2d. 362 (Pa. Super. 1988).

It is important to advise your clients regarding the date of separation if there are non-marital assets or if the other party will not consent to the divorce.  If you want to make the date of separation clear, the best way to do so is by filing the divorce complaint.

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For good reason, most people have concerns about their children during their divorce proceedings.  No parent wants their child to be affected by divorce, so here are some tips from a divorce attorney’s perspective to help minimize the effect on your children. 

1. Remember that your spouse is your children’s mother or father. This will help put things in perspective – even though you no longer have a relationship with your spouse, your child has a right to that relationship. One of the things we always remind clients is "but for that person who right now you detest, that beautiful child who you would not trade for anything in the world, would not exist".
2. Never speak badly of your spouse. Children are adept at recognizing the undertones of your comments, and any negative inference regarding their mother or father by you could alienate you and your child. 
3. Never let money affect your relationship with your children. Your relationship with your child is independent from the finances, whether you are paying or receiving child support. 
4. Do not send your spouse notes/information through your child or your child’s backpack. This is a small part of putting your child in the middle, and it will only get worse. In this age of technology, e-mails are an easy, appropriate and private way to communicate directly with your spouse, so that the children do not have to be involved. (Although remember to be careful what you write in your e-mail – see Charles J. Meyer’s blog dated April 20, 2007). 
5. Be reasonable. I am a firm believer that even if your spouse is not reasonable that, in the long run, you will be better off if you are reasonable.  Your children will recognize it, and if it comes down to it, the court will recognize it.

There are lots of resources for parents these days to help with their children during and after divorce – books, psychologists, co-parenting counselors, etc.  If you need to do so, utilize the resources available to you.  And of course, you can always ask your attorney’s opinion.

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Generally, Pennsylvania law provides that the parent who has primary physical custody of the child is entitled to claim the dependency exemption, and the child tax credit, on his or her income tax return.  If the parents share physical custody, the parent who earns more income is entitled to claim these tax benefits. However, this is negotiable in divorce and child support actions.

The ability to claim the child on your income tax return can benefit a parent by changing the filing status from “single” or “married filing separately” to “head of household”, a more beneficial filing status under the tax code.  This may decrease the amount of tax you owe.  However, the dependency exemption may be a greater benefit to the non-custodial parent and, therefore, may be worth negotiating in a divorce or support action.

For example, if claiming the child as a dependent will save the non-custodial parent $5,000.00 in tax, but will only save the custodial parent $1,000.00 in tax, then the non-custodial parent should claim the child as a dependent and pay the custodial parent the $1,000.00 she would otherwise would have saved.  The net savings to the non-custodial parent is $4,000.00. (And, a good lawyer could even negotiate sharing this $4,000.00 tax savings between the parties!)

A second benefit for the parent claiming the child is the Child Tax Credit.  The Child Tax Credit allows you to claim $1,000.00 for each qualifying child. So, in a family with three children, the credit is worth $3,000.00.  This credit also reduces the tax you owe.  However, the Child Tax Credit is phased out for certain higher income tax payers.  Specifically, the amount of the credit allowable is reduced by $50.00 for each $1,000.00 of modified adjusted gross income above a threshold amount.  That threshold amount is $110,00.00 on a joint return, $75,000.00 for single and head of household filers, and $55,000.00 for married individuals who file separate returns.  This means, for example, that a married couple filing jointly who have one qualifying child would be entitled to a credit of $950.00 if their modified adjusted gross income is more than $110,000.00, but not more than $111,000.00.  They lose the credit completely if their modified adjusted gross income is more than $129,000.00.

It is important to understand how the Filing Status, Dependency Exemption and Child Tax Credit can affect your personal income tax return.  It also is important to understand how they can affect the other parent’s income tax return. Your accountant and attorney should discuss these tax benefits and how they will affect your tax returns before you file your 2007 taxes, and in the foreseeable future.  There are very specific financial benefits that could be negotiated in your divorce and support actions, in a way that positively affects both you and your spouse or former spouse.  It always feels good to find a way to pay less taxes, even if it saves your "ex" some money too.

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It is common knowledge that 50% of all marriages end in divorce. However, what most people do not realize is that 50% of all marriages – not people – end in divorce.  This statistic is so high due to the divorce rate in second, third (and if you dare, fourth, fifth, ...) marriages.  One question many people ask is, “How do I protect myself in the event my marriage does not last?”.  The answer is with a Prenuptial Agreement. Prenuptial agreements are not just for the rich and famous anymore.

So, who needs a prenuptial agreement? Anyone can benefit from a prenuptial agreement, but I strongly recommend one if you:

• Have been divorced before
• Have children from a prior relationship
• Own your own business
• Have ownership in a family business
• Have family money
• Are expecting a significant inheritance or monetary gift
• Are marrying someone of significant less net worth
• Earn significantly more income than your partner
• Are the beneficiary of a trust
• Acquired significant assets prior to your marriage

The purpose of a prenuptial agreement is to prevent divorce litigation and provide the couple the ability to agree, in advance of any emotion or conflict inherent in a divorce, upon the distribution of their separate and marital assets, the payment of support or alimony, and the allocation of costs in the event of a divorce.

A prenuptial agreement should be drafted well in advance of a wedding, preferably at least three months.  This gives the parties and their attorneys the opportunity to fully negotiate and draft the document.  However, nothing in Pennsylvania law prevents a prenuptial agreement from being signed the day before a ceremony if advanced planning was not possible.

There is a presumption in Pennsylvania law that prenuptial agreements are valid if they are signed voluntarily and with full disclosure of the assets and income of both parties.  Before any meeting to discuss a prenuptial agreement, I advise my clients to prepare a list of all of their assets and debts, and suggest that they have their partner do the same.

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In some cases, I am the 2nd lawyer in a case.  The "new" client comes into my office and asks what I can do because obviously the courts "favor the other sex".  I say this because many women cannot believe how the family courts favor men, and many men cannot believe how the family courts favor women.

What are the scenarios where one sex may feel cheated?  They include some of the following:

• Alimony is awarded for a substantial period of time (Women are obviously favored).
• Alimony is awarded for a short period of time (Men are obviously favored).
• The asset division is 50-50 (Depends who you are or how big the estate is to figure out who was favored).
• The percentage of the asset division is tilted toward one spouse (Obviously the court favored the sex of the spouse with the higher percentage).
• The Court awarded the father shared and equal custody (Men are favored).
• The Court awarded Mother primary custody (Women are favored).

I don't know about you, but this list looks silly to me.  My experience is that neither sex wins more than the other - that courts do their best to try to figure out what is right.  Are "mistakes" made?  Sure they are.  Even more reason, as I have written in prior blog posts, to hire an experienced, reasonable lawyer, who knows what he/she is doing, and to hope that your spouse does the same thing, so that you can work toward an amicable settlement and get on with your life.

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The following is my "Top 7" list of "family law misconceptions" that I frequently hear from new or prospective clients.  The list is by no means exhaustive and assumes that there is no pre or post-nuptial agreement in place which might already address the issue.  Likewise, as other states have different laws and procedures, this list is limited to Pennsylvania.

1. “There is no alimony in Pennsylvania”.  I am constantly amazed at how many new clients believe that alimony does not exist in Pennsylvania.  Let me set the record straight: alimony is alive and kicking in Pennsylvania.  Section 3701(a) of the Pennsylvania Divorce Code provides that “[w]here a divorce decree has been entered, the court may allow alimony, as it deems reasonable, to either party only if it finds that alimony is necessary.”
2. “If my spouse committed adultery, I will not be obligated to pay him/her alimony”.  Of the clients who are aware of the existence of alimony in Pennsylvania, many believe that adultery is a bar to a claim for alimony.  Marital misconduct occurring during marriage is only one of 17 factors under §3701(b) of the Divorce Code to be considered in determining whether alimony is necessary and in determining the nature, amount, duration and manner of payment of alimony.  It is not a bar, just a factor.
3. “It only takes 90 days to get a divorce”.  Under even the best possible circumstances, it will take more than 90 days from the date of filing a divorce complaint until the entry of the decree.  I usually tell people that the best case scenario is 4½ to 5 months, assuming that both parties fully cooperate, there is a signed agreement disposing of all economic issues, the court is not backed up,  and, most importantly, the stars are in perfect alignment.  The worst case scenario could be several years or more depending upon the circumstances.
4. “My spouse is not entitled to any of my pension”.  Many clients believe that his/her spouse is not entitled to any portion of their pension since they worked for it.  To the contrary, if the pension was acquired or increased in value during the marriage, then it is marital property (in full or in part) and the other spouse has a claim to it.
5. “My spouse is not entitled to any asset that is titled solely in my name”.  How an asset is titled has very little to do with whether or not it is subject to division and/or distribution in a divorce.  The general rule is that if an asset is acquired or increases in value during marriage, then it is marital property (in full or in part) and the other spouse has a claim to it.
6. “The marital property gets split 50/50”.  While marital property is often divided between the parties on a 50/50 (equal) basis, the circumstances may warrant a disproportionate division.  Pennsylvania law requires that the marital property be divided in an equitable fashion based upon a consideration of 11 factors set forth in §3502 of the Divorce Code.  "Equitable” means fair, not equal.  Therefore, if the equities weigh in favor of one spouse, he or she will likely receive more than 50% of the marital property.
7. “If I quit my job, I will not have to pay support”.  This is one of the more popular misconceptions.  Support obligations (i.e. support for a child or spouse) are determined based upon actual income or earning capacity.  If someone quits his or her job without an extremely good reason, their support obligation will be determined or will continue based on their established earning capacity.  A frequent response that I hear when I tell people this is, “then they can just put me in jail.”  That, however, it not a misconception for someone who deliberately takes action to avoid their support obligations.  It may take some time, but under the right conditions, jail may be a reality.
   

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Accountants and estates attorneys can serve an important role in advising their clients how to plan for their financial futures.  One thing to consider is whether the client will be married or divorced.  If your client receives an inheritance or gift from a third party while they are married, the client should be advised what to do with the funds. The client, without thinking, may automatically deposit the money into a joint account or use the money for the benefit of the marriage.

However, if the marriage has deteriorated or may deteriorate, then your client should think about what to do with the inheritance or gift in the context of a possible divorce.  Generally, marital property means all property acquired by either party during the marriage, regardless of whose name it is in.  An exception arises for property acquired by gift (except between spouses), such as an inheritance.  23 Pa.C.S.A. § 3501. The court will only consider the increase in value of the inheritance or gift, unless the money has been co-mingled with marital property.  Therefore, If a client deposits their separate property into a joint account or spends it on a joint asset, then the separate property loses its status as separate property and becomes marital property.  And if it is marital property, its in the "pot" and will be divided like any other asset.

 

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I posted a blog last week discussing a recent decision in which a marriage was declared invalid because it was officiated by an internet-ordained minister.  Interestingly, a subsequent decision by the United States District Court for the Western District of Pennsylvania indicates that a marriage ceremony, regardless of whether it is religious or secular in nature, can be valid without having it solemnized by any 3rd party. Rather, the parties can just do it themselves.

In Knelly v. Wagner, instead of having their marriage solemnized by a minister or judge, the parties had a self-uniting marriage ceremony in which they simply exchanged rings and vows before a gathering of family and friends. According to Pennsylvania law, parties can solemnize their own marriage in a religious ceremony, without officiating clergy, provided they obtain a self-uniting marriage license and the marriage is witnessed by at least two witnesses. 23 Pa.C.S.A. §§1502-1504.  However, in this case, the parties planned a secular, rather than a religious, ceremony.

In preparation for their wedding, the parties went to the Register of Wills in Allegheny County, Pennsylvania and requested a self-uniting marriage license. They were told that they could not get a self-uniting license unless they supplied documentation evidencing that they were members of the Quaker or B’Hai faiths (two religions that do not have officiating clergy).  Not being able to provide that documentation, they sought an injunction to compel the Allegheny County Register of Wills to issue them a self-uniting marriage license. In support of their request for an injunction, their attorneys asserted, among other things, that the Establishment Clause of the First Amendment to the United States Constitution bars government from providing a benefit to members of one religion that is not provided to members of other religions, or of no religion. The Court agreed with the couple, and issued a Temporary Restraining Order requiring the Register of Wills to issue them a self-uniting marriage license. Two days later they married.

It is ironic that this self-uniting secular marriage is valid, while the marriage officiated in York County by the internet-ordained minister was not.  In the one case, the court overlooked the statutory requirement of a religious ceremony based upon the First Amendment.  In the other, the court found that the officiating minister was not qualified because he did not have a regularly established church or congregation. Reading the cases together, it is reasonable to conclude that, had the York County couple married in a self-uniting ceremony, they would not have needed a third person to solemnize their marriage, and the fact that their minister was internet-ordained would have made no difference. Therefore, if you want to get married and do not want to take any chances that the person solemnizing your marriage is qualified, just do it yourself.

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“Marriage ceremony: an incredible metaphysical sham of watching God and the law being dragged into the affairs of your family.” - O.C. Ogilvie.

Despite googling  “O.C. Ogilvie,” I was unable to determine for what he was famous, other than the above quote.  However, a recent decision by a Pennsylvania court proves that Mr. Ogilvie is, indeed, insightful and worthy of recognition.

On June 30, 2006, Dorie E. Heyer and Jacob T. Hollerbush made application for a marriage license in York County, Pennsylvania. A license was issued by the Clerk of the Orphans’ Court on July 3, 2006. On August 28, 2006, Heyer and Hollerbush were married at a ceremony officiated by their friend, Adam Charles Robert Johnston.

Less than a year later, Heyer filed a motion in the York County Court of Common Pleas asking that her marriage be declared invalid. In support of her motion, Heyer asserted that Johnston was not qualified to solemnize the marriage under Pennsylvania law as he was ordained via the internet. 
At the time of hearing, Johnston testified that he was ordained by making application at Universal Life Church’s website.  Within five to ten minutes of making application, Johnston received his certification.  

The Pennsylvania Domestic Relations Code sets forth a list of persons qualified to solemnize a marriage.  Essentially, the Code authorizes Pennsylvania judges, mayors of any city or borough of Pennsylvania and ministers, priests or rabbis of any regularly established church or congregation to officiate at marriage ceremonies.

Based upon Johnston’s testimony, York County Judge Maria Musti Cook found that Johnston was not qualified to solemnize the marriage between Heyer and Hollerbush.  Specifically, she found that Johnston was not a minister of any regularly established church or congregation because Johnston was not a member of the Universal Life Church prior to his internet ordination, he had not attended any meetings at any office of the Church, and he had no congregation with which he regularly or occasionally met at any place of worship.  Judge cook noted that, “[a]t the very least, the statute purports to require an activity that occurs on a habitual or patterned periodic basis at a place of worship (church) or a group of individuals gathered together for the same purpose (congregation).”   Accordingly, Judge Cook found that Johnston was not qualified to solemnize the marriage and, therefore, she declared the marriage void.

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Everyone is relieved. The case has been resolved, hopefully through negotiation, but maybe through litigation.  The work is not done!

At the end of every case, the lawyer should prepare a "List of Obligations", which outlines what needs to be done to implement the Agreement/Order.  The list might include:

• Drafting and Implementing QDRO's for the Retirement Plans
• Modifying Support Orders to Account for Alimony Payments.
• Transferring Investment Accounts.
• Drafting, Executing and Recording Deeds.
• And, last but not least, Making Certain the Divorce Decree is Entered.

Clients need to understand that there may be additional fees incurred even after it seems like the process is over.  The attorney needs to manage expectations on that issue.

And the attorney needs to make sure the obligations are completed.  Many things could impact the assets post-divorce, not the least of which is the death of a party prior to the finalization of the obligations. 

Dot your "i's" and cross your "t's". 

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23 Pa.C.S.A. 3323(d.1) was added to the divorce code in 2007, and states that where grounds for the divorce have been established prior to the death of one of the parties, the parties' econmic rights are to be determined under the divorce code, not 20 Pa.C.S.A (relating to decedents, estates and fiduciaries).

In Yelenic v. Clark, an April 2007 decision of the Superior Court, it was held that where Husband died prior to the execution of a settlement agreement and prior to the entry of the divorce decree, Section 3323(d.1) required that the parties assets be distributed pursuant to the divorce code, but that no "posthumous divorce decree" would be issued.

The Estate of the husband made an interesting argument, claiming that the failure of the court to enter a divorce decree might permit a "double dip" by the surviving spouse.  She could be entitled to additional property as the beneficiary of insurance policies and retirement accounts that were not updated prior to the death of the husband.  Even though the agreement of the parties or the court's order might hold that the deceased was to retain property, if the named beneficiary on the policy or account was the surviving spouse, the surviving spouse would receive those funds as the named beneficiary despite the equitable distribution scheme.

The Estate concluded this argument, pointing out that if a divorce decree were issued, this unfair result would be avoided.

The Superior Court's response was interesting.  In upholding the trial court's conclusion that Section 3323(d.1) only permits the resolution of the economic rights, and not the entry of a divorce decree, the Superior court went on to say:

"... parties to divorce actions would be well advised to change their wills or prepare a will before grounds for divorce are established." [emphasis added]

This is good advice - clients should be advised that they should be looking at their estate plans during their divorce.

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I recently read an article about a Canadian Divorce Lawyer who charges $2,500 prior to his initial consultation.  I could not tell from the article whether that amount was for the initial consult, of if he was charging a flat fee for the entire divorce case.  But the article did describe a lengthy consultation process, including the completion of a survey, a multi-media presentation, and parting gifts for the client, including a 2 hour dvd, a cd-rom of the initial interview (with a disclaimer), and an indication of whether the client was a "A" Client (yes, we'll take your case) or a "D" Client (Sorry, but here are names of other lawyers who might be willing to represent  you.

While this certainly won't work in most divorce practices, it does raise several questions:

1. If an attorney charges a reduced fee or no fee at all for the initial consultation, is the attorney under-cutting herself? 
2. What is the purpose of the initial consult?  Is it a "get to know you" or are you providing significant information and developing strategy?
3. How do you handle the prospective client who might be "shopping", or worse yet, looking to conflict out attorneys from representing his spouse.

These are only a few of the questions which come to my mind.

Recently, I have had discussions with several lawyers and the question arises as to whether it makes sense to charge a premium for the initial consult.  At least in my case, I spend 60-90 minutes with the new client, get a lot of information, give my 15-20 minute "shpiel" on the process, and begin to develop a strategy with the client.   The client's expectations are discussed and formed.  It is very valuable time. 

Not necessarily in the southeastern part of Pennsylvania, but in some other locales, I have heard of initial consult fees ranging from $1,000 to $2,500.  Does this make sense?  I don't know, but it is something to think about.

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A woman in Chicago received an award in her divorce case of $184 million.  It is thought that this award is one of the largest in U.S. history.

This is a rags to riches story, as the parties came to the United States from Eastern Europe with only $500.  Husband became a huge success in the energy business, and later sold his business for several hundred million dollars.

The balance in the case related to whether Husband's creation of the wealth was worth more than Wife's contributions as homemaker, confidant and supportive spouse. 

The Judge in the matter held for Wife, and counsel for Husband says they intend to appeal.

Read the full article at CNN

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Divorce rates hit an all time high in 1981.  According to a recent article on the CNN website, rates are continuing to drop.  But there are differences in opinion as to what really is going on in American families.

Several theories exist:

• Divorce rates are down because less people get married.  Rather, they live together.  In fact, the number of couples living together has increased by a factor of 10 since 1960.
• Divorce rates are falling in couples who are college educated.  The rationale being that in such families both parties may work, reducing financial stress, and allowing the couples to remain married.
• In some areas, the stigma of being divorced has increased.  Couples in these areas may be working harder to stay married. 

One thing to think about is that it doesn't matter to the children whether their parents are married or just live together when they split.  Either way, the children suffer the loss of their family.

Click here for a link to the CNN Article

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Let the lesson be learned: In this day and age of technology, what you say, in whatever format, could be used against you later.

This morning's news story relating to Alex Baldwin's voice mail message to his daughter, who I believe was reported as being 11 years old, should be a lesson to every person going through a divorce and to every person who may now or in the future have a possible custody issue.  

While many states have laws limiting the recording of conversations, whether in person or on the phone (and you should consult an attorney about this issue before ever attempting to make such a recording because it could be a crime), if a person voluntarily creates a recorded message or statement, whether on a voice mail system or by sending an email, the statements made likely are admissible in a court proceeding. 

I tell my clients all the time to be very careful in emails.  In many situations I also ask to review many emails before they are sent.  Finally, I have clients keep every email, in bound and out bound, so that I can review them prior to hearings and make sure there are no surprises waiting for me in the courtroom.

If the recording of Alex Baldwin is accurate, it is wrong on so many levels.  Even if his allegations are true that his former spouse is attempting to alienate his child from him, it is up to him to take the high road and keep his daughter out of the middle of, what should be, an argument between the adults. 

Think before you speak and before you write.  That is the message for the day.

 

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The new client walks in the door, obviously nervous about his or her case being the subject of a public trial in the county courthouse.

The first thing I tell them is that most third parties are not interested in their divorce case.

The second thing I say is that most of the cases I handle resolve without the need for substantial litigation, although there may be a hearing or two along the way.

However, most recently I have found that I am trying a few more cases than usual, and I'm winning.  I'm not saying that so that readers will think: I've got to have Charlie Meyer as my lawyer.  My real point is that, while I have written in the past on the importance of professionalism and civility in the practice of law, especially in domestic relations practice, I now am finding that lawyers are taking positions they cannot possibly defend and upon which they cannot prevail.

I am reminded of the time when, as a young lawyer, I met with an "experienced" (read "older") lawyer in his storefront office to discuss a support matter.  It obviously was a case which would be decided under the Guidelines.  But to my surprise, his position was that "he didn't use 'those' guidelines".  Needless to say, we went to court, and the guidelines were applied.

This story is illustrative of what I am finding more and more in my practice.

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In Kulp v. Kulp, No. 269 MDA 2006 (Pa. Super. 3/12/07), the Superior Court was given the difficult job of deciding which party could decide where an urn containing their son's ashes would be placed.

The Trial Court ordered that the ashes be divided into two urns, and that each of the parties could decide on their own what to do with them.

After reviewing some procedural issues (i.e. whether the order was collateral), the Superior Court decided the matter, reversing and remanding the case to the trial court, with the instruction that the trial court was to follow the factors set forth in two prior matters, Pettigrew v. Pettigrew, 56 A.878 (Pa. 1904) and Novelli v. Carroll, 420 A.2d 469 (Pa. Super. 1980).

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Last week I posted an article on 12 things to think about before you separate.  Here's a "what not to do in a divorce"  story.

A husband in Germany, who was unable to reach an agreement with his wife as to who was to retain their summer house, got out his ruler, measured the house, cut it in half with his chain saw, and carried his half away on a fork lift.

I always say that I think I have seen it all, and then something like this comes along. 

I strongly recommend against learning from this story

Read more at CNN.

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My fellow blogger, Al Nye, the author of Maine Divorce Law Blog, recently sent me the following article.  Its a nice primer relating to things to think about as a client in making the decision whether or not to separate and divorce. 

Al writes the following:

You know the numbers.  It's projected right now that about half of all new marriages end up in divorce.  It's a horrible statistic that doesn't begin to suggest the emotional and financial strain that it puts on families.  Other than the death of your spouse, divorce is probably the most stressful event you'll ever face.  I've had women discussing their divorce in my office become violently ill.  I've seen hardened fishermen cry in open court during their divorce hearing.  Make no mistake – divorce is hell.

 

So what have I learned after being a lawyer for nearly 30 years and helping many folks go through this difficult process?  If you believe that a divorce is in your future, here are 12 things think about:

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In Rimel v. Rimel, 913 A.2d 289 (Pa. Super. 2006), the Superior Court addressed an issue of first impression: whether husband was entitled to a social security set-off against the value of his Federal CSRS pension where he had worked not only for the federal government, but also in jobs through which he did contribute to the social security system.

The Court decided that Husband was entitled to such a set-off, but remanded the matter for additional testimony, as the facts had not been developed which would allow for the determination of what amounted to be a "partial set-off".

The Court cited the following cases:

Cornbleth, 580 A.2d 369 (Pa. Super. 1990)

Twilla, 664 A.2d 1020 (Pa. Super. 1995)

The Court distinguished the following cases:

Elhajj, 605 A.2d 1268 (Pa. Super. 1992)

McClain, 693 A.2d 1355 (Pa. Super. 1997)

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Massachusetts is the only state to permit same-sex marriages.  So what happens when the residents of another state go to Massachusetts, get married, and then decide to get divorced.  Because the couple lives in another state, there is no jurisdiction over the divorce in that state.  So will the parties' home state take juridiction over the divorce.

The Rhode Island courts now must decide that issue.  Stay tuned.

To read more about this issue, see the article on CNN

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H. Beatty Chadwick, a corporate attorney, has been jailed for contempt since 1994 in Delaware County, Pennsylvania.  It is alleged that he transferred more than $2.0 million off-shore, and that he has refused to return the funds despite being ordered to do so by the Court.  Now he has made national news, as CNN issued a report on the story on September 17, 2006.  To read more, click here to see the CNN article.

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Where a Pennsylvania Dentist was murdered just days before signing the documents necessary to finalize his divorce, the Court found that the request of his Estate for the divorce to be granted posthumously must be denied.  In so holding, the Blair County judge quoted from a 1927 case, stating:

"A man can no more be divorced after he is dead than he can be married or condemned to death. Marriage is the union of two lives which can be dissolved either by death or by process of law, but after it has been dissolved in one of those ways, you cannot dissolve it again; you cannot untie a knot which has already been untied, ..."

To read more, see the article in the Pittsburgh Tribune-Review.

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For various reasons, a woman may want to re-take her maiden name after a divorce.  Interestingly, under the Section 704 of Title 54 of the Pennsylvania Code, a person party to a divorce may resume using her prior surname (last name) prior to or subsequent to the entry of the divorce decree.  A judge does not even have to sign the form.  Most people thought the divorce had to be final before this could be done, but a few years ago the law was changed.  The form is a simple one, and is filed with the Prothonotoary in the county where the decree was issues.

Once the form is filed, a "time-stamped" copy needs to be given to official agencies, banks, etc. in order for the "new name" to be used.  The things you will want to change include:

• social security
• drivers' license
• bank accounts
• credit cards
• children's school records
• medical records, including health insurance cards

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A line of credit on a house can be a dangerous thing.  Parties may have secured the line during their marriage, but may not have used it, or only used part of it.  Then they separate.  Who is responsible for the payment?  Can either party write a check from the line?

The party living in the home secured by the line has everything to lose.  Think about this:

• If there is a huge line on the house, since the party in possession of the house is presumed to be responsible for paying the mortgage and any other similar expense, this may be a huge added bill that has to be paid each month.
• If the line exists but has not been drawn down, the party in possession of the house does not want the other party to create a debt for which he/she may be responsible.

What can be done to protect yourself in this situation? 

• Control the check book for the Line.  Simple, but effective.
• Freeze the Line - Call the bank and find out what can be done.
• Close the Line - This may require paying the balance, but it can be done.
• Find out if the bank will permit the Line to be modified so that two signatures are required to draw.
• Seek a an agreement from the other party that no draws will be taken.  If no agreement can be reached, a Court Order may be necessary.

Not everything necessarily requires legal action.  Sometimes common sense can save the biggest headaches.

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