Archives: Divorce

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

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

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

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

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

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

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

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

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

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

 

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

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

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

Criminal homicide

Assault

Kidnapping

Human Trafficking

Sexual Offense

Arson

Robbery

Victim/Witness Intimidation

Homicide by Vehicle

Accident Causing Death or Personal Injury

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

On October 5th of this year, the Superior Court disposed of an alimony modification request that was decided by the trial court in October, 2014.  The facts and the ruling present a tale of how divorce practitioners need to pay heed to language when modifying an order of alimony.

Egan v. Egan, 2015 Pa. Super. 2013 was decided in Montgomery County, Pennsylvania but began as a divorce in Montgomery County, Maryland.  In 2002, the Maryland Court issued a divorce decree with an alimony order providing for one year of alimony at $4,000 per month and then alimony of $3,000 per month “thereafter.”   In 2004 the former husband filed to register the alimony award in Montgomery County, Pennsylvania and in April 2005, the parties formed a stipulation that transferred both the alimony and child support to Pennsylvania.  The Pennsylvania order made several modifications to alimony, child support and arrearages.  The Pennsylvania Order contained a provision that should father succeed in reducing his child support, his alimony obligation would have a corresponding increase.  We have seen these kinds of arrangements in agreements for many years, but this is the first time we have seen this discussed in an appellate case.  If Father petitioned to decrease child support, the agreed upon increase in alimony was also to render the revised alimony number, non-modifiable.  This agreement was made an order of court in April, 2005 in Pennsylvania.

In February, 2013 Husband/Father filed in Pennsylvania to modify the alimony.  Wife/Mother countered that the alimony was non-modifiable because what was submitted in 2005 was a stipulation or “agreement”.  In a ruling made without a hearing, the trial court ruled as a matter of law that the 2005 document was an agreement under Section 3105 of the Divorce Code and therefor was not subject to modification.  It also held a hearing on Wife’s counterclaim and held Husband in contempt for failure to comply with the 2005 stipulation.  Husband or rather ex-husband appealed.

Because the Maryland divorce decree mandated payment of indefinite alimony, it appears that the Pennsylvania court viewed the alimony award as modifiable as registered here in 2004.  But the “agreement” to modify the alimony and child support provisions of the Maryland decree after registration in Pennsylvania was “agreed”.  The Superior Court ruling is a determination that in resolving the modification of alimony by “agreement”, the parties took an order that otherwise was subject to modification under Section 3701(e) and converted it to an agreement under Section 3105(c).

Section 3105 (c) states that an agreement regarding disposition of existing alimony shall not be subject to modification absent “a specific provision to the contrary.”  In this case, husband argued that Section 3105 governed only those cases where there was a comprehensive agreement.  The Superior Court rejected the argument that agreements under Section 3105 need to be comprehensive, holding instead that if he wanted his 2015 modification to continue to permit further modification, that language needed to be written into the modification instrument.  His argument that alimony was modifiable because he never did seek a modification in child support was rejected for similar reasons.  By reaching the agreement embodied in the 2005 stipulation, husband took an otherwise modifiable alimony order and transformed it into a non-modifiable agreement.

The opinion discussed at length the policy reasons behind the difference in modifiability between Court ordered and agreed alimony.  In a word, the view expressed is that parties to an agreement understand that non-modifiable alimony under Section 3105 is a fundamentally different animal than agreed alimony under Section 3105, and that the parties have to understand that when they negotiate agreements.

The net of the ruling is that a party seeking to modify judicially ordered alimony needs to understand that unless the right to modify again is clearly enunciated, the right is lost where an agreement is reached.  This might be said to have a chilling effect upon such agreements, but the Superior Court found the statutes in controversy to be unambiguous.  It also found the argument that the unmodifiable alimony obligation was onerous (62% of payor’s net monthly income) to be unworthy of consideration.

To the practitioner, the lesson is to draft alimony modifications with great care. To the layperson, the lesson is, do not try to modify your own alimony orders without someone with experience looking at your modification documents.

 

 

In April, 2014 the Federal Reserve Bank in St. Louis published a monograph on financial status of older Americans.  It corroborated a trend that has been evolving for several decades. Beginning with the advent of Social Security old Americans began for the first time to preserve and in many cases grow their net worth in retirement where historically, they had become dependent on their children for financial support as their earning years ended.

The Fed study reported on data last compiled in 2010 and found that by 2010, the median wealth of older age groups (ages 70+) were more than twice as large as the median wealth of a middle-aged family (ages 40-61) and close to 20 times as large as the median wealth of a young family (under 40).  What made this data all the more startling was that it came just after a major economic downturn which typically would be expected to hit older investors harder than middle and younger aged income earners.

Another interesting piece of datum comes from the Center for Disease Control and was published in an article about “graying divorce” published by the Washington Post on October 8 2014. The CDC statistics tracked divorce filings between 1990 and 2012 among various age groups. Among those aged 34 and younger, the rate of divorce actually declined over 20 years. Among those over 34-45 it rose slightly. But once we look at folks over 45 the rates have doubled. And yes, this was true for even those aged 65 and older where a length marriage was once considered a sign of stability today more than half the divorce filings are by individuals who have been married 20 or more years.

While, there is no direct correlation to be had from these facts, as practitioners we see a developing trend. In a word, old people have money that young people do not. Younger people perceive that their parents and grandparents don’t really need a lot of the money they have. So when mom and dad find that their marriage is no longer working for them, a growing number of younger Americans are insinuating themselves into the economics of their parents’ divorces. A generation ago, children typically became involved in providing emotional support to one parent to allow him or her to “stand up” to the spouse. Today, children appear to have their own agenda; whether it is private school/college for their children or to finance a business or some other project. In some situations we have had clients express fear that access to their grandchildren may become a bargaining chip if the divorce does not proceed as the adult children would like. This makes an emotionally tense world, doubly so. Much as the first World War began, once one adult child decides to become a participant in a parent’s divorce, siblings tends to wade in either to thwart that child’s agenda or to introduce one of their own. Then the acrimony really heats up with accusations like: “Mom never worked so how is it that she is entitled to so much of Dad’s money” and “There would be more to divide if you hadn’t spent an extra year getting your degree and spent a month in rehab.”

If you are an adult child of a parent getting a divorce, perhaps there should be a neutrality compact early on. And if you are the mature adult getting a divorce, it may make sense to agree with your spouse that adult children are not invited to the party. It’s bad enough going through a divorce without bringing the entire family through it with you.

Last month brought the revelation that someone had managed to hack the database of Avid Life Media’s primary source of revenue; the AshleyMadison.com website.  The report that some 34,000,000 names were now available for discovery has prompted a huge controversy and a lot of angst among its subscribers.  As the scandal progressed it claimed the job of CEO and founder Noel Biederman, who resigned on August 27.

But the big news today is not about “Avid Life”  but life itself.  Reports are circulating that because women never really were interested in having an affair, they formed only about 5% of the subscription base.  So, how does one run a dating business with 19 men searching in a pool for each woman?  Reports on sites like Salon and Gizmodo are suggesting that the easiest way to accommodate was to create something called a feminine robot or “fembot”  who used programmed titillating “chat” to allow male customers to think that they had the interest of a live woman who was giving consideration to having an affair.  Needless to say, this conversation did not have to go very deep to keep an electronically aroused male customer interested in keeping his subscription current.  The article posted on Gizmodo contains a letter from the California Attorney General asking Avid Life to respond to a customer fraud complaint.  The customer complaint is also revealed and he does seem to make a point when asserting that some of the women with whom he was corresponding were reportedly logged on all day Christmas.  Even the most licentious married woman typically takes off Christmas morning, if only to see her spouse and kids open their gifts, right?

So, it would appear that while the website may have promoted adultery, it not clear just how much product was delivered, so to speak.  Now the question becomes, is it enough to intend adultery?  Under Pennsylvania law, that’s a problem.  Back in the day when adultery was a crime, the requirement was a “carnal connection.” As we know, Ashley Madison did not keep track or even charge for carnal connections.  Fees were charged based upon electronic ones.  For a person to secure a divorce premised upon adultery the evidence needed to be “direct and clear”.  And while Pennsylvania adopted the English rule that adultery could be proved by circumstantial evidence, this produced what is called the “inclination and opportunity rule.”  This was a three step test that required proof of the inclination of the defendant; inclination of the co-respondent and circumstances which established that the two had the opportunity to fulfill their shared desires.  But, while that test seems quite loose the Courts were also emphatic that suspicion was not a substitute for proof.  Thus in a 1921 Allegheny County case, man and woman were found registered in the same room of a hotel but before they reached their assigned room, a hotel detective intercepted the woman and ordered her to leave.  Yes to inclination; yes to opportunity but the commission of the “act” was thwarted.  Had they been discovered leaving the room together the following morning, another result would have been certain.  See Naylor v. Naylor 59 Pa. Super. 547, 554 (1915).

But, for those who discover a male spouse as a registered customer of Ashley, the road will not be easy even though paved with bad intentions.  The “intent” is clearly there where the website shrieks that “Life is short.  Have an Affair.”  But the intent of the co-respondent is not so easy to gauge if the co-respondent is little more than an algorithm written to make suggestive comments and ask cutesy questions.  One can’t have carnal connection with an algorithm no matter how spirited the attempt.  Computer programs don’t have intent and certainly don’t offer much “opportunity” for physical connection.  So before loading up your subpoena to the Toronto based owner of Ashley, think twice.  The rumors are the girl just doesn’t deliver.

N.B.   We should also mention that rumors have circulated that Avid Life Media did not do much to verify who was on its website.  This creates an authentication problem under the recent Superior Court decision in Commonwealth v. Koch, 29 A. 3d 996 (2013).  Of course, credit card or other confidential information was provided to open an account, the authentication issue may well disappear.

 

iPad Texts?
iPad Texts?

We have written about electronic discovery and Pennsylvania’s wiretapping law on this blog before. For family law attorneys, they are issues which can be critical to your case, but also present a minefield of ethical and evidentiary issues. How information may be collected and in what manner can be unclear; similarly, it can be ambiguous to counsel and the courts how to weigh evidence collected electronically and presented to the court in a manner which makes it difficult to authenticate (i.e. text messages).

The criminal courts are, as always, the great laboratory of evidentiary law and last June the Superior Court issued a ruling in a case involving text messages from an iPad. Specifically, whether the Pennsylvania Wiretapping and Electronic Surveillance Control Act was violated by police when had an informant relay text messages to them from the defendant in a drug deal.  The trial court in Commonwealth v. Diego suppressed the text message evidence.

The Wiretapping Act was originally passed in 1978 and has been periodically updated to address evolving technology, though probably not quickly enough. This case presents iPad communication as a case of first impression.  The Superior Court cited a 2001 case (Commonwealth v. Proetto) which found that there was no reasonable expectation of privacy in sending emails or chat-room messages to third parties. Basically, using email and text services renders moot any expectation of privacy. Not unlike arguments used with social media; once released, an email or text may be forwarded, modified, and read by anyone the recipient chooses to disclose it to. Knowledge that the message was being recorded by text or email was sufficient notice to keep it from within a protected category of communication.

An iPad is not a telephone under the common understanding of the relevant term, the Superior Court reasoned, and no one would misidentify an iPad for a telephone.  The Superior Court’s decision, however, did not ultimately hinge on the type of device more so the method of intercept. The informant cooperated with police and relayed to them the contents of the text messages he received from Diego. Rather than observing them before the informant received them – which the Court identified as being a separate and distinct legal issue – the informant was voluntarily disclosing them to the police after he received them.  Accordingly, the evidence collected which lead to Diego’s arrest was legally obtained.

The take-away, as always, is that anything placed in a digital format poses a threat of being repurposed, passed along, or disclosed to unintended third parties. Maintaining solid “e-security” is difficult, if not overwhelming, but as this case indicates, you cannot be certain that texts and emails are not going to be discoverable or accessible to third parties; you can never be sure the recipient’s eyes are the only ones on them.

(Photo Credit: 123rf.com; Dirk Ercken).

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

Ashley Madison Data Breach only Slightly Less Obvious
Ashley Madison Data Breach only Slightly Less Obvious than Lip Stick on the Collar

 

When I first heard of the Ashley Madison data breach, I seem to be one of the few family law attorneys who felt somewhat cool to the idea it was going to result in a crescendo of divorce filings. First, due to Ashley Madison not having an email verification protocol, the presence of an email on the list is not in any way a confirmation that the legitimate owner of the email registered it with the website. Secondly, I had to assume that anyone with common sense was not using a “real” email and the chance for exposure would be minimal. Thirdly, I assumed that of the millions of identified users, perhaps a smaller percentage were active users and a portion were fake emails or users who registered as a goof; I imaged a much smaller pool relative to amount of registered users. Finally, I considered the other spouse and whether they would have the wherewithal or suspicion to search for their spouse’s email (emails?) among the users. Overall, I imagined a smattering of “Ashley Madison motivated divorces” being reported, but nothing that would move the needle on average filings.

If initial reports are accurate, I clearly overestimated the common sense of many Ashley Madison users and grossly underestimated their laziness in not opening anonymous, dedicated email accounts to register to the site.

Now that the data has been dumped and various websites are combing the data for notable users and email suffixes, I am much more certain that there will be some serious fall-out for relationships, certainly, but also for the employment of users. The news coverage surrounding the breach also brought to light what might end up being the most relevant aspect of the breach for any future divorce cases: the expense. Again, while the presence of an email is not dispositive of use, the credit card records are pretty conclusive.

Based on the price scaling reported, a motivated philanderer could rack up a fairly significant bill on Ashley Madison before they ever get to their first illicit rendezvous. When you factor in the costs of carrying on an affair (i.e. meals, travel, and gifts) the expenses increase exponentially. Each dollar applied to the affair is a dollar inappropriately dissipated from the marital estate.  Once the affair is exposed and a case is in litigation, a forensic accounting of bank accounts and credit cards will occur and eventually the financial scope of the affair will emerge.

The affair, in of itself, may not have a tremendous impact on a case since equitable distribution in Pennsylvania is blind to the bad actions of parties (unless those actions have a financial impact on the estate). For members of the armed forces, however, adultery is a punishable crime which could lead to dishonorable discharge and loss of financial benefits, such as pensions. Losing a pension adversely impacts not just the service member, but the service member’s spouse. Losing a retirement account due to such behavior would undoubtedly be argued as a dissipation of that marital asset and with the value of the lost pension being assigned to the service member and corresponding assets given to the spouse (assuming there are any).

Other people may be in sensitive positions involving confidential data or public positions where the appearance of impropriety from an exposed affair has a greater impact than whether the affair affects their ability to do their job. Losing a job over an affair could be interpreted as a “voluntary decrease” in income, not unlike being fired for cause or voluntarily taking a lower paying position to avoid a support obligation.

The real story about Ashley Madison data drop is not the salacious exposure of people seeking out affairs, but the breach of security for an organization relying so heavily on confidentiality – their entire business model and marketing campaign hinges on it. Go see our blog on data security for more information on such topics.

What will continue to generate news for the coming weeks, however, will be the cases where Ashley Madison data will be presented as evidence for economic loss in divorce or support cases, and the jumping off point for investigations into certain registered users. After the initial fireworks of the disclosures, this will be a slow burn story as more people are exposed and the repercussions are felt. The easy joke is that this is a boon for divorce lawyers, but I think it will be the family therapists and accountants who end up the busiest in the end.

(Photo Credit: Copyright a href=’httpwww.123rf.comprofile_toniton’toniton  123RF Stock Photoa)

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

On April 15 of this year, a company called ETSY went public offering 111.25 million shares of stock at $16 a share. This produced what in stock parlance is called a market capitalization of 1.78 billion.  That means what the world thought ETSY was worth.  Once offered to the public it quickly shot to almost $30 a share, doubling its market capitalization. Today, the stock trades below $15.

Sometimes stocks rocket to levels that make them difficult to trade. In 2006 Mastercard went public at just under $40 a share. By 2014, it has risen to more than $800 a share. In order to make the stock more attractive to buyers in January of that year, the company announced a 10:1 split. Thus a person who owned 100 shares of the stock on January 21, 2014, awakened the following morning with 1000 shares.  Eureka! Right? Well not really, because when a stock splits, the price is divided commensurate with the split. So the 818.00 closing price on the day before the split was an $81 price the next morning. The market capitalization did not change. The investor was not enriched. Now typically, Mastercard at $81 a share is an easier stock to buy than at $818 but lawyers and clients need to understand that splits do not themselves create value.

There is also something called a reverse stock split. We saw some of these in the wake of the 2008 recession. When a stock plummets so low that buyers start to equate it with a penny stock, discussion turns to pumping up the price by reducing the number of shares. In 2009 the insurer AIG announced a 1:20 split. The AIG owner who went to bed with 200 shares on one night woke up the next day with 10. Again, the market value of the investment is not changed but the stock now has a price that seems more “dignified”.  Radio Shack is struggling with this issue as we write this. RSH trades for under 10 cents.

When tracing securities holdings this can be important to know.  If husband held 20,000 shares of AIG when he married in 2006, how come he owns only 2,000 today? Dissipation? Transfer to another account to hide the asset. Sometimes a quick check at a website like StockSplitHistory.com can clarify this issue.  Some of the on-line market charts will actually reference a split on the chart. But most charts simply adjust the chart as if the split never occurred because it is the most efficient way to show changes in market price over time. We ran into this recently when a client received a securities account that was 10% lower than the date of trial value in a market that rose 3-5% over the corresponding period. As we examined this, two matters became clear. First, husband’s stock in Apple had undergone a 7:1 split in Summer, 2014 and his heavy reliance upon the future of Russian and oil based stocks had wiped out the gains his other investments had experienced.

There are several sites that provide information on stock splits. It is worthwhile to note this tool in valuing a marital estate.