We last wrote about Bitcoins in late March, 2014. The principal concern we expressed at that time was that these cryptocurrencies might form a refuge from financial disclosure in the typical divorce setting. The specifics of how these assets work is in the earlier article and available on line as part of our archive (search: bitcoin). The one thing that had to discourage this medium of investment was its volatility. People who buy a currency tend to like it to have a stable price. And in 2014 bitcoin was offering a wild ride. When first offered Bitcoins traded for pennies. But in late 2013 they rose quickly to over $1000 per unit, then plummeted to just over $400 in April 2014. From then until late Fall of last year the “coin” traded between $200 and $600. But then off to the races it went once again. Today, the once lowly bitcoin is trading for about $2600 each. Great news for those who bought at $200 but again, most people are seeking stability and not volatility in currency holdings.

Enter a new crypto with the name Ethereum, launched by a college drop-out in mid-2015. The aptly dubbed “ether” has gained adherents much more quickly than its competitor. The coin was a bit more stable trading until February of this year at under $15. But, since then, it has also become highly sought, driving prices from $20 to $380 in just a couple months. In the past few months, the New York Times reports that 100 companies have signed on with the Enterprise Ethereum Alliance including several Fortune 100 companies like Merck and Samsung.

So, another form of asset for lawyers to monitor, which remains highly volatile but today, at least, is highly sought after.

We live in an age of instant information where there is constant temptation to share what one is doing and thinking. We are used to sharing our experiences and thoughts freely. The temptation becomes even greater when we are in times of stress. And, while this is a universal tendency that has always been prevalent, today we have a new means of making our thoughts known; through electronic writing.

A recent case outside the domestic relations realm informs us of the perils of this form of indulgence. The case in question involves a medical practice group that over a short period of time split into warring factions. The practice group encompassed different medical specialties and operated an acute care hospital in Greensburg, PA.

In 2010, rumors propagated that two physicians in the cardiology practice were performing surgical procedures which were not medically required or sound. The Chief Executive of the practice engaged an independent peer review group to evaluate these rumors. The preliminary report indicated that there were procedures performed that were not medically necessary.

Upon learning that their privileges were about to be suspended the two cardiologists resigned. The practice group then hired a second peer review organization to conduct a more complete study. Armed with a second report confirming that the cardiologists had performed unnecessary angioplasty, the physician group publicly announced its conclusion that there was wrongful conduct of the cardiologists.

The cardiologists subject to the report filed suit, alleging the reports to be false and the product of an effort by management to squeeze them out after the physicians had refused a buy out of their practice interests. The claims were cast as intentional interference in their relationships with their patients and defamation.

The practice group consulted with an attorney before deciding to publicly announce that the physicians had performed unnecessary surgery. The attorney shared her opinions on this subject with general counsel for the practice group. The practice group also hired a public relations firm to manage inquiries from the press and patients. General Counsel thought it provident to share the attorney’s opinion letter advising him about publicity with the public relations firm. This legal memo from attorney to client practice group was freely circulated within the public relations firm.

In 2013, the exiled physicians served the practice group they had sued with a request for “documents revealing any information related to your thoughts or plan to disclose to the media the conclusions of the independent peer evaluators.” The practice group asserted that this was an improper request for attorney-client communications. The physicians then scheduled the deposition of and subpoenaed the public relations executive in charge to bring any documents related to the public announcement made by the practice group about the physicians who were accused of improper practice.

No protective order was sought and the public relations executive was deposed. The deposition revealed that public disclosure had first been discarded as an option, but three days later those instructions were reversed and disclosure was authorized by management. The deponent had not revealed in deposition that she had been privy to the legal opinion independent counsel had provided to the employee-general counsel. That legal opinion surfaced as part of a privilege log. This prompted a renewed request for the opinion and all related correspondence. A discovery master reviewed the material in camera and decided the documents were privileged. The plaintiff physicians appealed. The Trial Court determined that transmission of the opinion letter to the public relations firm waived the privilege. The privilege is lost when protected communications are shared with third parties unless the third party is an agent of the lawyer acting in furtherance of the representation. Restatement of Law Governing Lawyers Sec. 70 (2000). In the Trial Court’s view the public relations company was providing service to the practice group, not the attorney advising that group.

The practice group appealed this order as collateral to the proceeding under Pa.R.A.P. 313. The application of privilege and work product doctrine is a question of law for which the standard of review is plenary.

The Superior Court opinion of Judge Mary Jane Bowes starts by noting that evidentiary privileges are not favored and need to be viewed to exclude evidence where there is a “public good transcending the normally predominant principle of utilizing all rational means for ascertaining the truth.” Key to this concept is that the client has not waived the privilege. Communications made in the presence of third parties or sent by the client to a third party lose their protection as privileged.

The appellate court distinguishes the facts in this case from situations where a law firm brings in experts on its own to assist in its representation of the client. If the third party is rendering advice to assist the lawyer in the representation, the communication is privileged. The third party’s access to privileged communications must be necessary or useful to the lawyer’s purpose. There was no link in this case between the opinion provided by counsel and the service that the public relations firm was engaged to provide. The deposition of the general counsel made clear that the public relations firm was not being consulted about whether to disclose the physician names or there alleged conduct.

As for claims of work product protection under Pa.R.C.P. 4003.3, the court notes that the purpose is to shield the mental processes of the attorneys so that they can prepare the case without fear that their theories of the litigation will be subject to discovery. But this rule is also subject to waiver. The Appeals Court devotes much attention to the Penn State University investigation that resulted in Bagwell v. Pennsylvania Dep’t. of Education, 103 A.3d 409 (Pa. Cmnwlth 2014). Bagwell had sought information provided to the state while he was affiliated with Penn State’s Board of Trustees. But the Bagwell court found that there had been no disclosure to a third party where the facts in this appeal show that the disclosure had been made for purposes not directly related to litigation or prospective litigation.

The takeaway is that what you give to and get from your attorney needs to remain confidential. Sharing that information with others creates the risk that the protection of that information may be waived. In this case a more thoughtful sequencing of who retained the public relations firm and when they were engaged (e.g., the independent attorney did the hiring) may have produced a different result.

Twitter, Facebook and other forms of instant messaging certainly do allow all of us to try to control the message or at least be first to relate it. But these methods have no legal protection. If you share the information you gave your lawyer or what the lawyer communicated to you, both the attorney client privilege and the work product doctrine will be jeopardized. If the matter you face merits engagement of counsel, counsel needs to be an integral part of any decisions about how the world learns your “news.”

Bousamra v. Excela Health et al.   2017 Pa. Super. 66 (March 13, 2017)

Child custody cases turn on the court’s determination of the child’s best interests.  As defined in Pennsylvania, this means having the judge apply evidence to Pennsylvania’s sixteen (16) custody factors and render a decision.  Evidence for a trial can come in a variety of ways and, with increasing frequency, the role of social media and public statements are among them.  Periodically, a case involving a public figure forces the courts to consider when an individual’s “public persona” or public statements are germane to the underlying family law issue.

In the case of Austin, Texas based “Infowars” radio host Alex Jones, his public persona and commentary are being relied upon by his ex-wife, Kelly Jones, to justify her pursuit of sole or joint custody of their three children.  The children have resided with Mr. Jones since the couple’s 2015 divorce.  Ms. Jones cites statements Mr. Jones has made on Infowars and a variety of associated public behavior, as well as some of the associated backlash to those comments and actions to demonstrate his unfitness as a parent. Based on published news reports, Ms. Jones claims that Mr. Jones’ home, which also serves as his broadcast studio, is inherently unsafe due to the attention his public persona draws and that the statements made by Mr. Jones demonstrate mental and emotional instability which demand the removal of the children from his care.

Mr. Jones’s counsel, in response, is arguing that his “persona” is akin to being an actor. He is playing a role that caters to a particular audience.  Consequently, you cannot hold his employment against him any more than you would an actor who portrays a particularly violent or controversial character. His lawyer makes the (dated) analogy that to use Mr. Jones on-air persona as evidence towards fitness as a parent would be like assuming Jack Nicholson’s performance as the Joker. This is a troublesome analogy, however, since no one would confuse “Batman” for a documentary about a wealthy man’s obsession with bats and the clown that hates him. There is a clear delineation between the actor and the character; reality and fiction.

Contrast that to another radio performer like Howard Stern.  Unlike Stern, there does not appear to have been any “fourth walls” broken in Mr. Jones’ radio or public performances.  Throughout Stern’s career, he frequently references the dichotomy between his on-air persona and his real life. He even produced a book and movie (“Private Parts”) showing this disconnect between his two worlds. Mr. Jones, on the other hand, does not appear to have ever revealed another side of himself besides the “Alex Jones of Infowars.” In fact, his ex-wife argues that they are one-in-the-same and argues that Mr. Jones is “not a stable person” who makes threats of physical violence towards celebrities and politicians.

Aside from trying to show an instability of the mind or lifestyle, are Mr. Jones on-air statements relevant evidence in a custody trial? As the trial heads into its third day, it appears that despite his defense on the grounds of art, they likely are. Another high profile case which used public statements to the detriment of the party was the Sherri Shepherd parentage case.  Ms. Shepherd and her ex-husband had a child by egg donation and gestational carrier. Leading up to the child’s birth, Ms. Shepherd was publically vocal in her excitement and anticipation of being a mother up until she and her ex-husband separated and eventually divorced. She lost her attempt at the trial level (a decision affirmed by the Pennsylvania Supreme Court) to invalid the gestational carrier contract and be removed as the child’s legal mother. At trial in the Montgomery County Orphan’s Court, her ex-husband presented a compelling montage of Shepherd’s public statements.

Mr. Jones’ commentary is certainly protected political speech, but whether Mr. Jones has the right to that speech is a separate issue as to whether his actions and behavior – of which his public statements are a significant part – make for a stable living environment or one which serves the children’s best interests.  Ultimately, the jury will parse out the “real” Alex Jones from his in-court demeanor, direct testimony, video and audio clips.

A standard provision in most written agreements establishes that no modification of the agreement shall occur unless the parties do so in writing (and usually notarized to avoid fraud). Recently, however, I confronted the issue as to whether or not a party may make a valid oral modification of a provision of an agreement.  In other words, was the “all modifications in writing” provision of the agreement as ironclad as it appeared?

The issue stemmed from the reimbursement of expenses related to the sale of property.  Over time, the reimbursable expenses grew and became substantial enough that the party responsible for reimbursing the other balked at the figure and tried in many ways to extricate themselves from the obligation.

It is common to include modification language in agreements to ensure that ad hoc revisions by the parties do not alter or create new obligations; or to avoid the chance that oral agreements are misunderstood or reneged upon by one or both parties. Interestingly, a commercial litigation case sheds light on the weakness of these clauses. The case of Crown Coal & Coke Company v. Powhatan Mid-Vol Sales LLC, 929 F.Supp.2d 460 (W.D.Pa. 2013) addresses whether a provision prohibiting modification of an agreement unless in writing precludes any modification whatsoever. The U.S. District Court, citing a variety of state and federal cases found that even where such a prohibition exists in the agreement, the parties may revise the agreement by parol (oral) negotiation: “[the] hand that pens a writing may not gag the mouths of the assenting parties.”

Modification of an agreement by parol negotiation, however, has the significant burden of being proven by clear, precise, and convincing evidence. This is a reflection of the general rationale behind written agreements: the need to eliminate ambiguity or confusion between the parties. Here, the Crown Coal court is articulating that in order to prove the validity of revised terms of the agreement, the party seeking enforcement must show that the terms are clear, unambiguous, and the evidence convincing enough to prove to the court that both parties intended to abide by the terms. Evidence along these lines includes the actions of the parties effectuating the terms.

This case reminds us that terms of an agreement are alterable by the parties so long as they satisfy the elements of being a binding contract. However, it is always advisable to work with a lawyer to make sure the revisions are in writing since the high burden of proving a modification by parol evidence – while not impossible – is difficult.

Any term of an agreement worth adhering to is best established in writing and amended to the Agreement. In the case of a Marital Settlement Agreement, it is also advisable to take the additional step to have the amendment incorporated into the Divorce Decree.  Once a MSA is entered as an Order of Court through a Divorce Decree, it really cannot be modified except by another Order of Court.  Consequently, if a revision to the terms has been made and both parties expect the other to adhere to the terms (or want the ability to compel enforcement), the best practice is to have a written amendment signed and filed for incorporation with the Divorce Decree.  This additional step might be the difference between easily enforcing the new term(s) or having to take a circuitous route to enforcement. MSA becomes a court order once incorporated into the decree and court orders can only be modified by the court.

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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.

The leading case from last year in family law was the Supreme Court’s decision in D.P. v. G.J.P. 146 A.3d 204, holding that Pennsylvania’s grandparent custody statute offended principles of privacy and was partially if not wholly unconstitutional.

This was an odd turn, in an age when it seemed as if more and more people were eligible to claim custodial time or rights related to children. But the decision earlier this month from the Superior Court in K.W. v. S.L. & M.L. v. G.G. indicates that the matter of who has standing to assert custody rights is being further limited.

K.W. and G.G. had a child out of wedlock in August, 2015. Their relationship had ended long before and it appears that K.W. was not informed of his status as a parent to be. Rather Mother contacted Bethany Christian Services in March, 2015 regarding placing the child for adoption.

When the child was born in August, G.G. relinquished the child to Bethany who placed the child with M.L. and S.L. Knowing that it would need Father’s consent for an adoption to be consummated quickly, the agency, with Mother’s cooperation attempted to contact Father. After a couple of months of reaching out to the Father through social media, Father responded in mid-September to attend a meeting. A month later, he stated clearly that he would oppose adoption.

Father’s next step was to file a custody complaint on October 30, 2015 in Centre County naming Mother alone as defendant. He also filed a demand that Bethany indicate where his child was and that produced a temporary order from Centre County giving the adoptive parents primary custody and partial to Father. Legal custody was joint. Centre County also transferred the case to Father’s home county, Lycoming, for further proceedings.

A month later the adoptive parents, S.L. & M.L. filed a custody case in their home county, York, where the child had been present since two days after birth. At the same time they filed an appeal to the Order from Centre County transferring venue to Lycoming County. This prompted Centre County to revoke its order of transfer and move the case from Lycoming to York County.

Father filed preliminary objections to the York County case asserting that the adoptive parents lacked standing. The adoptive parents asserted that they stood in loco parentis. At roughly the same time Father filed his own case in York County. The Court entered a temporary order maintaining the status quo of the Centre County order. Meanwhile Father asked for argument on his standing objections to the adoptive parents. It was held in August, 2016. The Court held a hearing and on August 8, 2016 found that the adoptive parents did have in loco parentis standing. Father promptly appealed.

The Superior Court found that the order conferring standing was an appealable collateral order under Pa. R.A.P. 313(a) citing the Supreme Court opinion in K.C. v. L.A., 128 A.2d 3d 774 (2015). That decision held that an order denying intervention in a custody case was appealable as standing in this kind of case assume a constitutional aspect.

The published panel decision of March 6 holds that orders allowing third parties to assert custodial rights “burdens the constitutional rights” of parents. Citing the Supreme Court of the United States ruling in Troxell v. Granville, the Superior Court noted that custody litigation itself disrupts family life, language echoed in Justice Baer’s opinion in D.P. v. G.J.P. The majority finds that failure to end the litigation and afford Father his custodial rights created both a financial and human burden in terms of facing continuing litigation with non-parents. Under these principles, the appellate court confirms that it must act on the collateral order appealed.

Turning to the merits of adoptive parent standing, the court notes that this is addressed on a de novo basis as it is a threshold issue. It notes that aside from parents and grandparent’s only persons in loco parentis have standing. Under T.B. v. L.R.M., the Supreme Court held that one cannot have in loco parentis statute without parental consent. In this case, Father never provided any consent to the placement antecedent to adoption proceedings. A third party cannot place himself in loco parentis without consent of the parents. Gradwell v. Strausser, 610 A.2d 999,1003 (Pa.S. 1992). In re C.M.S. was distinguished on the basis that the natural father in that case had allowed the placement to continue for more than a year before asserting his rights. 832 A.2d 457 (Pa. Super. 2003).

Parents are presumed to be fit. Hiller v. Fausey, 904 A.2d 885. The lack of fitness has its own mechanism for adjudication but those require all the elements of due process absent in what seems to be an aborted adoption proceeding. The adoption agency is taken to task for its labile approach to finding Father and pursuing his cooperation in the months before the child was born. The adoptive parents are to be dismissed from the case and it will proceed with Mother and Father as the parties in interest.

The takeaway here is that where a natural parent moves quickly to assert parental rights, third parties are going to have to stand down unless action is taken to show that the natural parent is somehow unfit. The problem in this instance is a practical one of longstanding. Adoption agencies have a child delivered. They need to make a placement and they do. Now we have an expectant family that risks loss of a child they have long awaited. If we are serious about the constitutional rights of parents, the adoptive placement should have ended after eight weeks and not more than a year. One can understand the reticence of giving a Father who has just appeared on the scene primary custody of an infant. But, it is the only intellectually honest choice given the constitutional issue involved.

K.W. v. S.L. & M.L. v. G.G   2017 Pa. Super. 56 (March 6. 2017)

This week we see a new case from a trial court on Long Island, which held that folks who adopt an open marriage that produces children might find the custody courtroom doors open when parts of the relationship have closed.

Follow along carefully. It is a bit more “complicated” than you might expect. Dawn and Michael Marano are married in 1994. In 2001, they form an intimate relationship with a neighbor Audria Garcia. The Michael/Audria relationship (yes, the extramarital one) yields a child in 2007. It appears that back in 2007 there was a common agreement among the three partners that they would raise the child together.

You can predict what happens next. Dawn files for divorce and seeks custodial rights to the child. Michael responds she has no rights because she is not a biological parent. Meanwhile, Michael and Audria are not getting along either. The Trial Court, looking at a growing body of precedent coming from the gay community where it is fairly common for one “parent” to lack a biological nexus to the child, decided that natural mother would have primary custody. Father would have weekends and Father’s wife would have weekly dinners and some summer vacation. The Court found that the child did have a relationship with all three adult parties.

The press coverage of this decision has been extensive. New York Magazine, Glamour, Cosmopolitan, Slate. The women are content with the ruling. Father professes that he will appeal. One can only imagine the trauma to a ten-year-old child innocently caught in this maelstrom of parental conflict and swirling publicity. On the adult side there appears to have been a “contract” whether written or not to raise the child communally. But suppose Michael and Audria expelled Dawn from the compact and admitted another man or woman as a substitute? If that subsequent relationship disintegrated, does the most recent exile from the “pact” have standing to request custody time as well? Is there a limit to how many contestants a custody dispute can have? And so long as I am asking questions; is there a time when the confusion associated with this litigation can be deemed to outweigh the merits of fostering and then judicially monitoring multiple relationships surrounding the same child? This may be the rantings of a curmudgeon. But thirty years ago, the mere existence of one extramarital relationship could cost a parent dearly in terms of custodial rights. And while the current crop of rulings on who can seek an award of physical time with a child seem to portend greater expansion of parental rights, I wonder whether children will ultimately pay the price emotionally because the greater the number of constituent parents, the greater the opportunity for conflict that undermines stability in a child’s life.

Some might argue: “We can just ask the child…” That is true but 10 year olds are not very adept at evaluating conflict. Moreover, they do not like to say no to anyone offering love and affection. One of the principles deemed most important in determining whether to award joint custody is the ability to cooperate. This author suggests that there should be a heavy presumption that two parents are enough and that if there is a strong sense that a third parent can and will cooperate to promote stability only then should a door be opened to admit a third party. Dawn might well be the best parent of the three but Michael and Audria enter the custody ring with constitutional rights. Those rights were judicially recognized long before Dawn stood back while her husband and another woman conceived and gave birth to a child. Yes, there are cultures including Native American ones where children were considered the property of the village and not the parents. But American culture is not wired that way and childhood is confusing enough without having three or more contestants battling out your best interests while you sit in the back of the courtroom wondering what a person dressed in a robe will decide is best for you.

Dawn M. v. Michael M., 00109/2011, N.Y. Supreme (Suffolk County)

Hopefully all of us know that Pennsylvania is an “increase in value state” meaning that under Section 3501(a) of the Divorce Code, the increase in value of non-marital assets during marriage (to final separation) is a marital asset subject to division. There are two sides to this equation in cases where a spouse brings a premarital home to the marriage. The first is the increase in value that may be brought about by market demand for real estate. In laymen’s terms, your spouse bought her house four years before marriage for $200,000. It was worth $225,000 on the day of marriage and at separation, it was worth $275,000. Voila, $50,000 increase in value that is subject to distribution.

The other side is increase in value brought about by reduction in the principal balance due on the mortgage of the non-marital home. This requires some documentary investigation but today more and more counties make copies of the mortgage instruments available on line. Obviously, the best way to show this is to have all of the mortgage documents including the note as the note specifies the interest rate. But our clients tend to either discard these documents or bury them deep in attics and garages.

If you can get a copy of the mortgage on line, there is a decent chance it might refer to the mortgage rate. It will tell you whether you are dealing with a 15 or 30-year term. If you cannot find the rate, try looking at a website called http://mortgage-x.com. It will provide national monthly averages for 1 year ARMS and 15/30 year conventional financings on a historic basis. Obviously, it does not have your particular mortgage but it is going to be reasonably close.

Armed with that information, then go to http://bankrate/com. and look for an amortization table. Plug in the mortgage amount, the term and the interest rate and it will give you an amortization table from which you can determine the balance due on the mortgage on the date of marriage and the date of separation. The tables default to an assumption that you are getting the mortgage the day you went to the website but print it out and then, by hand correct it for the actual dates relevant to your case.

Is this admissible in a formal sense? Well, to ask the question is to answer it but unless we start demanding that every mortgage company come to every courtroom where there is a claim for increase in value, it will get you pretty close to where you need to be.

 

Ours is an age where hyperbole has not only become accepted, it is almost universally embraced as a part of American culture, and among the chief advocates of hype is the financial service sector of our economy. We lived throughout the 1980s, 1990s and early 2000s in an age when one could not open a newspaper or magazine without reading the amazing returns on investment that could be achieved by investing with this fund or that. In 2008, when the stock market imploded there was some respite from this enfilade of data on returns. However, as the traditional mutual funds were beaten into retreat, they were quickly replaced by a new creature; the hedge fund. These new investment vehicles promised a faster, better, ride because they would trade with and, when right, against the market. Money fled to these funds despite some enormous loads and aggressive profit sharing demands on the part of the smart guys who established them.

2016 was a watershed. The Dow Jones index grew by 15%; the S&P 500 by 11% and the NASDAQ kept pace at 11%. Meanwhile Barclays Hedge Fund Index barely cracked 6% in a world where the “house” routinely takes 2% up front and 20% of performance. So the 6% hedge fund yield was probably closer to 4%. The three-year average for the Barclays is a measly 3%, making even Treasuries look attractive.

These are the elements of the market that get the hype. And they all have teams of public relations and advertising officials to spin the story their way. However, today’s big news comes from the seldom-heard giants of the investment industry; the defined benefit pension managers. They don’t advertise. In fact, they don’t take customer’s investments. They take public employee retirement contributions and are charged with the duty to make certain the government’s promise to pay monthly retirement payments are actuarially sound.

Today’s news is from CALPERS, the largest public employee pension fund in America. This California agency and its analogues throughout the US manage $3.7 trillion in funds. Their customers are governments that have promised retirees a specified payment every month for life. If they cannot meet their projections, they have to demand that state and local governments pony up larger tax payments to fill the gap. And those governments are already screaming at the large percentage of government budgets allocated to covering pension costs.

So what are the big boys saying? In California’s case, they expect annual returns averaging 6.2% for the next decade. Some years will be better, some worse as the projection is an average. After 10 years, they see returns moving back up towards 8%, but the lower returns in the short run will mean more stress on your local governments to increase taxes.

The Ohio Public Employees system has predictions not much different. 6.76% over the next 5-7 years but then a bounce back towards the 8% that California predicts. Canada and Europe in the past years had lowered their expected returns while the US pension plans retained more flowery predictions. The US plans did not anticipate how far and how long interest rates would crater. The long-term prognosis for higher overall rates of return is premised in large part on a gradual return to historic interest rates.

For public employees, the concern about underfunded defined benefit plans remains. Low rates of return in the past several years have a cascading effect because income projections were not met. The Rockefeller Institute reports that the likelihood of a shortfall in income to distribute is 10x what it was 30 years ago. Subpar returns mean that CALPERS pays out more in benefits today than it receives in retirement contributions. We wrote about this looming problem in May 2016. Recently we spoke with Mark Altschuler who runs Pension Analysis Consultants in Elkins Park, PA. While actuaries, like Mark can project things like present value, it is not within their customary orbit to try to evaluate whether pensions will be able to meet their contractual undertakings to pay each beneficiary the prescribed amount on time.

What does this mean for the divorce practitioner and the client? When looking at the historic rates of return on S&P stocks between 1928 and 2014 the average rate of return today is approximately 10%. Some of that return is consumed by inflation. The other factor demanding consideration is risk tolerance. In March 2000, the SP500 stood at 1,527. It did not return to that value until October 2007. It then fell by more than half and did not return to 1,527 until 2013. The only way to gird against these market fluctuations is to integrate investments in stocks with investments in less volatile bonds. This is strategy that major government pension and annuity managers must emulate. It is also a polestar for conservative money managers. The term “going for broke” can be a self-fulfilling prophecy in the world of investment. So while last year the S&P kicked out 11% and that is 1% more than the 1924-2014 historic average, it would be improvident to build a financial plan exclusively around indexed rates of return. If you choose to believe that kind of growth is sustainable on a long-term basis, we encourage you to read Robert Gordon’s Rise of American Growth (Princeton 2016). So, for the medium term, prepare for 6% returns and be thankful if you do better.

It was the Uniform Gift to Minors Act. Then it became the Uniform Transfer to Minors Act. The goal was the same. To permit parents to set aside money for their children until they attained their majority or to use it for their benefit along the way. A rainy day or a college fund for kids. Seems like a good idea.

Ah, necessity is the mother of invention and the road to hell is paved with good intentions. The last time we visited this issues was in 1993 when Mrs. Perlberger was ordered by the divorce court to reimburse her children’s’ then UGMA accounts.

In Perlberger v. Perlberger, 626 A.2d 1186 (1993) the divorce court found that a custodian had improperly depleted the children’s Pa. Uniform Gift to Minor’s Accounts by expending funds for non-necessities such as family trips, condominium expenses, child care, entertainment, pool expenses, legal representation in custody matters, and the custodian’s own therapy. In her appeal, she contended that the trial court utilized the incorrect standard when it assessed whether to order reimbursement based upon a determination of whether the expense was a necessity. Wife contends the correct standard is whether the expenses were for the benefit of the minor and relied upon section 5305(b) of the Pennsylvania Uniform Gift to Minors Act. The custodian in that case had taken $76,000. The Trial Court ordered that $52,000 be restored.

In Sutliff v. Sutliff, 528 A.2d 1318 (Pa. 1987), the Pennsylvania Supreme Court explained that, unlike a trust which must be used for a stated purpose, PUGMA property and proceeds may generally be used by custodians for the support of children. Id. 528 A.2d at 1323. It is, however, the custodian’s duty to use the [P]UGMA property for the child’s benefit. 20 Pa.C.S. § 5305(b). Sutliff prohibits a parent/custodian from invading the custodial assets to fulfill a parent’s own support obligation where the parent has sufficient means to discharge it himself. 528 A.2d at 1320. It does not, however, bar absolutely a custodian’s use of the funds in relation to a support obligation, court ordered or otherwise. Therein lies the challenge; where is that line drawn?

During the Perlbergers’ separation and divorce proceedings, the children may in fact have benefitted from trips to Washington, D.C. to visit relatives, or vacations and summers with friends at the beach house. “If economically feasible, whatever aspects of the children’s lives that can remain stable, should. The uses to which wife put the custodial assets she borrowed may be extravagant to one of conservative means or taste, but we cannot conclude from the sparse record on this issue that wife’s actions were neither reasonable nor for the benefit of the children. We do not dispute that certain expenditures were an invasion of the custodial assets and clearly were not used for the children’s benefit, i.e., wife’s therapy or legal fees.” Nonetheless, the appellate court agreed with wife’s argument that the trial court imposed its own standard in ordering reimbursement to the accounts. The appeals court remanded expressing. particular concern with the $30,000.00 which was used to pay the mortgage and condominium expenses for the vacation home in Margate, New Jersey. The vacation home was marital property. Wife testified that she paid the mortgage, fees and expenses to maintain the vacation home during the parties’ separation. So, the case was remanded and the ultimate result lost in the mists of time.

Now we have Werner v. Werner, a reported panel decision issued in early October. The Werners adopted two children and, in happier times, funded UTMA accounts for each. In 2009 they separated. It is axiomatic that for almost every couple, physical separation creates economic strain. It is equally true that most parents adopt the view that innocent children should not do without because their parents chose to separate, so we have children who have a lifestyle expectation, coupled with parents who face economic difficulty caused by the need to now fund two homes and an undesignated pot of money that could “bridge the gap.”

Ten months after separation Mrs. Werner, the custodian-mother, withdrew $253,000 of custodial funds and purchased a $235,000 home. A few months later she sued for divorce. The trial court quickly entered an order preventing further use of the UTMA funds.

In August, 2013, the child beneficiaries, then ages 18 and 19, (based on the opinion) sued to secure an accounting. The home purchased with the custodial funds had just been sold for double what custodian-mother paid for it and the court directed that the proceeds be escrowed except for $100,000 made available to mother. When the hearings were held on the claims for accounting and damages, the children also requested that they receive attorney’s fees on the basis that mother’s conduct was in bad faith. After hearing attorney’s fees were denied but the Court directed that the proceeds from the home be paid entirely to the UTMA account even though there was evidence that mother had put some of her own money (not defined) into the home.

While it was clear that the new home had been titled to mother and not the UTMA or the children, mother argued that this was not a breach of fiduciary duty and that the children suffered no harm while provided with a place to stay. She further notes that she could not afford to remain in what was the marital residence. The appellate court notes that one child never occupied the substitute home.

In the end the Superior Court affirmed the Trial Court ruling awarding to the child beneficiaries all of the proceeds from the sale of the home their custodian mother acquired with what was clearly “their money” in 2010 when she made the purchase. Ironically, mother spoiled her own case. First she certainly risked the money by titling the property in her name. Hopefully there was homeowner’s insurance to protect from a casualty loss. But retitling the home deprived the children of the asset protection UTMA otherwise affords. Second, mother kept no records of her contributions to the investment. She described improvements she paid for to the home but did not prove the value of those improvements. So, ironically, she doubled the value of the accounts through her somewhat risky investment but had to pass on all of the benefits, losing her contribution to it along the way.

The other tipping point that may have played into this was the fact that the children were 15 and 16 years of age when she drew the funds in 2010. Mother knew that college was not far away and the opinion tells us that the children had to essentially self-fund college while this case was decided because of mother’s investment choice. She did sell in 2013 which may have been undertaken to convert to cash and pay tuitions. The children’s’ suit intervened.

The children cross appealed claiming attorneys’ fees under Section 5319 of the UTMA or Section 2503(7) of the Judicial Code (Title 42). Mother’s response had been that she had not acted improperly. The Trial Court refused attorneys’ fees because the conduct of mother was not egregious. The Superior Court agreed and added that while mother’s legal positions were not commendable, they were not “legally untenable.” Pregnant in the ruling was the fact that the $250,000 UTMA account had appreciated by 15% per year from 2010 to 2015. Of course, the money would have doubled in an S&P index fund during the corresponding period.

The problem here is that we still don’t know where the line is drawn. Is it acceptable after separation to rent the same seashore cottage that was part of family lifestyle while the marriage was intact? If father won’t provide a car either alone or on a shared basis with mother, is it suitable to use UTMA funds to buy a car for a minor? The opinion in this case makes reference to an intention to use the funds for college. (fn 1). But UTMA does not really address that issue. And if a mature child is clear that he or she has no intention to secure post-secondary education, does the standard of how money is used become more lax. Obviously, the standard does not. But will the fiduciary be judged differently if post-secondary education is not in the cards? These are very real questions that attorneys and clients grapple with every day. Unfortunately, the appellate cases decided seem to provide little guidance. Meantime, we may be guided by the sage advice of Sergeant Esterhaus when his wife tapped the UTMA to pay for the scuba trip to Bimini: “Be careful out there.”

BLOG PIC

Just days before a separate panel of the Superior Court held that Pennsylvania courts may assume jurisdiction to dissolve civil unions, Judges Gantman, Bender and Panella issued a published opinion, In re Adoption of R.A.B., Jr., holding that an adult adoption consummated in July, 2012 could be annulled or revoked. 2016 Pa. Super. 295. The opinion was published on December 21, 2016.

In April 2012, 76-year-old Roland Bosee petitioned the Allegheny County Orphans’ Court to permit him to adopt his 40+ year life companion, Nino Esposito. Mr. Esposito was then 65 years old. The adoption was granted.

The stated purpose of the adoption was for these gentlemen to form a family relationship in a world where they could not marry in Pennsylvania. When that law changed in 2014, Mr. Esposito filed a petition to revoke the adoption. As one might suspect, his companion did not oppose but the Orphans’ Court dismissed the petition on the basis that there is no precedent to revoke or annul these proceedings. The Superior Court citing a 1957 Somerset County case, Adoption of Phillips, decided that adoptions may be revoked for good cause premised upon general principles of equity. 12 D&C 2d. 387, 396-97. See also Adoption of Hilton 2 D&C 2d 499 (Montgomery 1975) aff’d 369 A.2d 728 (Pa. 1977). The appellate court also noted family court precedent in both Delaware and New Jersey permitting such a proceeding where the stated goal was marriage.

The Allegheny County decision was reversed and the case remanded for the purpose of entering an order terminating the adoption.

We note that there is room for mischief here and in so doing we do not suggest that the litigants in this case having any such motive. Suppose one of the parties in a similar situation elects not to proceed with the marriage? Does the other party have the right to vacate the order vacating the adoption? The family courts have seen a marked uptick in cases where adult children are being asked to support their elderly parents? Is the revocation of an adoption a possible avenue to avoid that kind of support? Adult adoption is an area where courts need to proceed gingerly both in terms of their establishment and their revocation. Motivations are not always what they seem. Adoption was not recognized at common law and most laws in America and England have a little more than a century of precedent. These laws were created at a time when adult mortality was far higher and people were looking for a better solution to the orphan trains that carried 250,000 children to the mid-west between 1850 and 1920.