Archives: Practice Issues

Last week Newsweek published its annual rankings of America’s Top High Schools.  This is a much awaited publication for those with children of that age and it is undoubtedly well circulated in the admissions offices of our colleges and universities.

These compilations also commonly hit the family lawyer’s desk whenever there is a hot dispute over primary custody or relocation. In reading the recent history of relocation cases, the decided focus of Superior Court cases is on the matter of how the relocation benefits the child and in many instances we are given these rating compilations by custody litigants who want to show that a new school would be “better” for the child or the present placement is “fine.”

Many judges and hearing officers deciding these cases will admit these magazines “for what their worth.” Technically, there are myriad evidentiary problems with any “ranking.”  The content of the magazine is itself hearsay.  The person making the statement that “Quaker Valley is the 271st best high school in the nation.” is not a named person at all.  It is a magazine.  So we don’t know the identity of the person who decided that Quaker Valley was No. 271 while Penncrest was No. 276.  We also don’t know the specifics of how this was decided.  The article will tell you about general parameters employed such as college matriculation and graduation rates and average SAT scores.  But the typical editors who do the ranking don’t tell us how these metrics are weighted or whether a planetarium is a plus while a ceramics kiln is neutral.  Lawyers who stand up and object to the admission of these rankings have excellent reasons why the objection should be sustained and most law school professors would harshly grade any student of Evidence who would admit “speculative hearsay compiled without ascertainable scientific foundation.”  Of course you could subpoena the editors of Newsweek to explain all of this but, alas, they rarely come to court.

What really happens? Most judges this author has seen will admit the document over objection noting that the actual “value” of this as evidence is not easily ascertained.  I suspect they then lug the magazine back into chambers and scan it first to see whether their high school got in.  Then they will glance at the schools the litigants want to compare and spend a couple of minutes seeing what data there is that they can assess (e.g., grad rates and SAT scores).  Because, even they realize that Newsweek and other magazines of its ilk don’t really spend the other 51 weeks of the year studying America’s 18,000+ high schools. Americans love rankings of all stripes and a magazine’s job is to amuse its audience.

The other thing that happens in chambers after the dust of a school enrollment fight settles is lamentation. I suspect that what most judges would privately tell the litigants is that if they truly wanted a positive outcome, the best thing two parents could do would be to agree on a school placement and support the child together in that placement.  For most children a custody war is a diversion from life and education over which they have no control.  In many instances it is clear that No. 36 ranked Conestoga High School is a superior school to No. 168 Fox Chapel.  But outstanding kids from Fox Chapel go to Harvard too and in the vast majority of custody disputes, Harvard is not really on the horizon.  There are always special cases where a child has really unique gifts (not as much as their parents think) or special educational challenges where a special educational “fit” is called for.  But, most judges grade on the “curve.”  They are not trying to raise young venture capitalists or nuclear physicists.  They want children who will not commit crimes and pay taxes when they grow up.  Judges get to see plenty of adults who are very bright but never mastered the “no crimes” or “pay taxes” thresholds of adult life.  So often they are put off by parents who think that a child custody trial is a sound means of securing maximum educational achievement.  Parents are often disappointed to discover that “The judge doesn’t seem to care.”  Ironically, judges do care, but from their elevated view on the bench they often see quite clearly that moving a child from No. 284 Haverford High to No. 126 Kiski will not vastly improves the chances for post grad studies in math at Stanford.

The ratings wars will go on because we love quick answers to complex questions. And if you have a custody case where you want to enroll Eloise in No. 113 Upper St. Clair while the useless father wants to keep her at a school that doesn’t even have a ranking, be certain to get the August 11 edition of Newsweek and bring it to Court so the judge can see that you are a concerned parent.  But don’t bet the down payment on a house in western Pennsylvania on the belief that the magazine is your ticket to a new life in a new town.  It’s not how the cookie crumbles.

In recent years much has been written about the “marriage penalty” when it comes to federal income tax. As a group known as the Tax Foundation states it “An unmarried couple with equal incomes that earn a combined $300,000 would have a total tax bill of $83,232.50 ($64,374.50 from the individual income tax and an additional $18,858.00 from the payroll tax).  If they were to get married, they would be hit by a marriage penalty of $3,806.50.  The penalty has declined in significance over recent years but it still exists.

A year ago the US Court of Appeals for the 9th Circuit (i.e., the west coast) decided Voss v. Commissioner.  Voss and his life partner Sophy owned a house together on which there was a jumbo mortgage exceeding $1,000,000.  Section 163(h)(3) of the Internal Revenue Code limits home mortgage interest deductions to those attributable to not more than $1,000,000 in mortgage debt if used for acquisition and $100,000 of home equity loans.  The purpose of this law was to capitate home mortgage deductions for the wealthy and, in the case of the home equity cap to discourage people borrowing against home equity to fund activities unrelated to savings.

Personal interest is generally nondeductible. The government allows interest on qualified residences to be deducted with qualified residences being up to two taxpayer’s homes, each being used as a residence.  The statute also states that individuals filing separately are limited to $500,000 each and $50,000 in the case of a home equity loan.

Taxpayer Voss and his partner Charles Sophy who are registered domestic partners under California law. And, together they own two homes with mortgages for which they are jointly liable.  For the tax year involved, their mortgages and home equity debt were about $2.7 million and were recorded on their primary residence in Beverly Hills.  They filed income tax returns separately for the tax years involved and each claimed averaging about $90,000 per annum.  The IRS reviewed the returns and assessed tax premised on the conclusion that any interest associated with debt above $1.1 million ($1 million acquisition and 100,000 home equity) was not deductible.  Messrs. Voss and Sophy filed in Tax Court asserting that the $1,100,000 limitations were not calculated per “residence” but per tax taxpayer.  The Tax Court agreed with the IRS and upheld the limitation on interest to $1.1 million.  But in a decision premised upon the express language found in Section 163 (h)(3) the US Court of Appeals held that the limitation is per taxpayer.  The Court notes that this is probably not what the Congress intended but it is what the statute says and, as such, the clear language trumps legislative intent.

The decision was rendered on August 7, 2015 and undoubtedly, the IRS has hoped that the Congress would adopt a technical amendment to correct this. But, that amendment has not been adopted and on August 1, 2016 the IRS issued something called an AOD (Action of Decision: 2016-2) stating that it accedes to this approach to home interest deductibility until Congress adopts a statute saying otherwise.  So big mortgage deductions for couples not filing jointly are there to be had until Congress finds the time and energy to close the door.

Voss v. Commissioner    796 F3d 1051 (9th Cir. 2015)

Listen to the rhetoric of any political campaign and you will hear the familiar refrain. “Family business is the backbone of the American economy.”  Factually, true enough but history has taught us that families that play together don’t always stay together.  So here is the common scenario: a couple forms a business. They do it on the dining room table of their first apartment and without thinking about any consequence, husband takes 80% of the stock and gives wife 20% because she is going to do the books and scheduling the appointments. Or perhaps they do it 50/50.  But as time evolves one spouse clearly becomes the “active” manager and the other moves on to other things.  The business grows and today the board room of the business is 4x the size of the dining room it was started in.

You represent the “outsider” spouse. She owns 20% of the business and you ask for the tax returns and other related documents in modest proportion.  You are ignored.  You ask her to contact the family accountant who now does the accounting she once did and when she asks them for the same records, she is ignored.

You can always file motions to compel in family court. Sometimes effective; sometimes not. But there is another avenue worthy of consideration.  You not only represent a spouse, you also represent a minority shareholder who has statutory rights under Pennsylvania’s business corporation law.

That law does a better job of defining rights than anything we have in the Divorce Code, where the business involved is not already required to file disclosures under federal and state law with securities regulators. For example, every shareholder has the right to annual financial statements including income statements and balance sheets.  They are to be mailed to the shareholders 120 days after close of the fiscal year.  If independent analysis is done in the form of a compilation, review or audit, that report is also to be published once the accountant has completed the work. The applicable section is 1554 of the Business Corporation Law and the comment to it states that failure to comply is clear evidence of conduct sanctionable under 42 Pa. C.S. 2503(7).  These rights are not really subject to limitation by the shareholders agreement unless it was adopted prior to 1991 and even then it applies only to shareholders who had that status in 1991.

There is also the right to examine the books and records of the corporation. This includes, stock registers, shareholder address records and the bylaws and minute books.  The right is to be exercised at the place where the records are kept during normal business hours and includes the right to have copies made.  Section 1508.  There is a good faith standard here but that is intended to keep shareholders from essentially occupying the business with a limitless set of demands.

Failure to comply with a written request within five days invites a petition directed to the court to order the inspection. The burden falls on the corporation to show improper purpose in proffering the request.  Pennsylvania corporations are required to hold an annual meeting every 12 months. Section 1755.  If a meeting has not been held in 18 months any shareholder has the right to demand one.  In addition, special shareholder meetings can be called by any shareholder or group holding 20% or more of the voting stock.

Unless “written out” of the corporate documents, cumulative voting is permitted. This allows each shareholder to vote all of his shares for one director candidate even though there might be three open seats.  This allows minority shareholders to aggregate votes to assure that one of their candidates can secure a seat on the board.  So, in a setting where there are three board positions open and six candidates, a shareholder with 2,000 shares can cast 2,000 votes for one candidate.

Section 1791 allows for judicial supervision of corporate governance. One such right is to secure a summary order for a corporate meeting where the bylaws designate an annual meeting date but management fails to call the meeting.  Section 1793 allows anyone to raise issues of improper corporate conduct.

Majority shareholders have a fiduciary duty to act for the benefit of the corporation in contrast to their own individual benefit. Ford v. Ford, 878 A.2d 894,905 (Pa, S, 2005); Viener v. Jacobs, 834 A.2d 546,556 (Pa.S, 2003).  A majority that acts to its own benefit to the oppression of the minority may be liable in damages.  This can include conduct like refusal to pay dividends where there are profits and reasonable cash flow, appropriation of business assets or payment of unreasonable salaries.  It also includes withholding information from shareholders.  The same is true of officers and directors, Sections 1712(a)&(c).

Indeed, much of this disclosure is available through the divorce process. So why spend any time thinking about it?  To this writer’s mind, the rights and remedies are much more clearly articulated and not really subject to the “it’s just harassment” defense commonly seen in discover court.  Second, when attacked from a corporate governance viewpoint, you may find other shareholders of the business will rally to your cause or apply pressure to the uncooperative spouse to “get this solved, it’s costing the corporation money.”  These tools may open some doors to resolving not only the discovery but the case itself.

Having just finished one of these, I searched our database and noted that we had written very little about it.

In my case earlier this week, my adversary and I had been negotiating a child support order. After several rounds, we reached a mutually acceptable conclusion. When I wrote to confirm our “terms” I received a responsive email that the child’s father wanted to claim the child as a dependent on his federal income tax returns “every other year.”  My client would justly ask:  What does that concession mean and what is it worth?”

If you do your own income taxes at the federal level, you know that on page 1 of the return you are asked to name your “dependents” and on page 2 you can claim a deduction reducing your taxable income by $4,000 for every eligible dependent including yourself. So if Mr. and Mrs. Hubbard are living in the same shoe and they have two minor children, they can take a total of $16,000 in exemptions (i.e. deductions) from their income ($4,000 x 4).  But what happens when Father Hubbard splits to live with another storybook character?  Clearly, if the Hubbard’s continue to file joint returns, nothing much changes.  But Father Hubbard is now paying some deductible alimony to Mother and he needs to file separately in order to claim it.  And since he is paying child support as well why can’t he deduct at least one of the kids?

Well the Internal Revenue Service is on this and since 1984 they have taken the position that the deduction associated with a child goes to that parent who had primary physical custody.

The parties can agree to split the deductions (one parent takes each child) but absent an agreement, the deduction stays with the parent who has the kid most of the overnights, even though the non-custodial parent may be paying most or all of the freight. More recently as we have seen increases in shared physical (50/50) custody, the service has held that the deduction in that instance goes to the parent with the larger adjusted gross income.  See our blog on this 11/1/12.

As we have noted, the deduction can be traded and the IRS has a Form called No. 8332 that allows parents to do that. So what is the deduction worth?  $4,000 right?  Well, not so fast.

The real value of the deduction depends on your taxable income for single folks with taxable income under $10,000; the deduction is only worth 10% of the face amount or $400. But for a head of household with taxable income over $50,000 it is worth 25% or $1,000.  Get that taxable income up into the $200,000 range and the deduction accelerates to 33% or $1,320.  The value of the deduction tops out at 39.6% or $1,584 but your taxable income has to top $400,000 to get that amount.  Beware that as adjusted gross income (AGI) starts to exceed $150,000 the IRS begins to nibble away at the value of the exemption through a “phase out.”  For many high income taxpayers, there is effectively no personal exemption to deduct because of the phase out.

One other thing to know. Assigning the exemption to another does not affect a taxpayer’s right to be a head of household and to use those slightly lower tables in determining the actual tax due. But one thing is clear; while dependency exemptions do reduce your taxes, they do not do so dollar for dollar. An exemption is, at best worth the equivalent of $110 per month and, at worst worth about $35 monthly.

N.B. IRS Publication 504 is the best place for a layperson to consult on line.  Every one of the rules described above has a plethora of exceptions.

A Friendly Amendment To Our Blog On Dependency Exemptions:

I heard from one reader with a very apt point. As income rises, into levels above $150,000, the dependency exemption does phase out and there is a level where it disappears completely.  So I was incorrect to suggest that it has a minimal value.  It can be zero and you certainly don’t want to get into a fight over “nothing.”

Each month we get a report from our own marketing folks on how many people read and subscribe to our blog. On June 29, we received an email from Adelaide in South Australia in which a law firm has taken the time to evaluate the 100 best divorce blogs in the world.  It was a bit of a shock that someone actually tracked 100 blogs and attempted to rank them but we can happily report that we ranked No. 18 in the WORLD.  We were praised for “Fresh and useful posts, regular updates and a professional approach to a common situation.”

For those who practice in the domestic relations world, one of the great frustrations comes when a client asks us to extract a sometimes appropriate pound of flesh as compensation for the “pack of lies” contained in a divorce related court pleading. Although it comes in an unpublished opinion the July 14, 2016 opinion in Morley v. Collazzo, the analysis contained in Judge Patricia Jenkin’s opinion merits attention because it explains what “lies” are compensable and which are not.  2852 EDA 2016.

For a bit more than three years the parties were involved in a romantic relationship. It ended in early spring, 2013.  A few months later, a senior executive at girlfriend’s employer began to receive anonymous mail that included nude photos of the girlfriend accompanied by letters alleging that she was guilty of larceny and illicit use of opiates.  Girlfriend, when notified of this correspondence filed a police report.  She next filed a Protection from Abuse claim.  The PFA claimed that boyfriend was the source of the letters to the employer, that he had revealed details of their sexual relationship at a local bar and had demanded sex from girlfriend.  It was also alleged that the boyfriend was depressed and that he was verbally abusive.  The appellate decision waffles on the next question of “What result?” stating only that a temporary order was entered.  One must infer that the PFA must have been withdrawn.

Almost a year later, boyfriend filed a defamation case including claims of false light and abuse of legal process. Girlfriend filed objections challenging the complaint on the basis that her court pleadings were absolutely privileged whether true or not.  This prompted boyfriend to file an amended complaint suggesting that her pleadings were published outside of Court and that there was a wrongful use of civil proceedings.  Girlfriend renewed her preliminary objections but these were overruled in early 2015.  When girlfriend filed her answer to the tort complaint she again asserted that her pleading was privileged and true and did not proximately cause any injury to boyfriend. She also included an abuse of process claim of her own.  With pleadings closed boyfriend noticed girlfriend’s deposition and demanded all correspondence she had with a state agency that licensed her and all correspondence with her employer.  The response was a protective order request saying the documents were not relevant.  This protective order was granted.  Next came a motion for summary judgment by girlfriend.  In August, 2015 the motion was granted.

Boyfriend appealed, claiming that the protective order precluded him from access to evidence that might otherwise have proved his case.

The standard here is error of law or abuse of discretion. The sum of the appeal is built around Pa. R.C.P. 4011 which precludes discovery that is either irrelevant or not having a proper purpose.  The Superior Court recites that discovery matters are to be resolved by the trial courts and that reviewing courts will employ an abuse of discretion standard.  No abuse found here.

As for whether the content of the abuse pleading was defamatory the court noted the 2012 decision in Richmond v. McHale, holding that statements by judges, attorneys, witnesses and parties made in the context of judicial proceedings are absolutely privileged.  35 A.3d at 784 (Pa. Super).  From the Superior Court opinion it appears that girlfriend may have told her friends that boyfriend had sent letters to her employer and that she feared for her life.  The appellate court found nothing defamatory in those statements.  The plaintiff also had filed for a claim under the “false light” theory of invasion of privacy.  This tort occurs where the fact related from one party to another about a third may be true but there were no bona fide reasons to publish the fact to third parties except to make a false impression. Krajewski v. Gusoff, 53 A.3d at 806 (Pa. Super. 2012).

Lastly the courts disposed of the wrongful use of civil proceedings claim under 42 Pa.C.S. 8351. The Superior Court affirmed the trial court finding that there was nothing grossly negligent in the filing of the Protection from Abuse claim. The statute requires that in order to recover the petitioner seeking relief has to have proceeded for a purpose other than prosecution of a legitimate legal claim.

The takeaways? Clients need to understand that a litigant can say just about anything in a court pleading without fear of liability although the allegations in girlfriend’s Protection from Abuse complaint test the outer limits of relevance in the context of 23 Pa. C.S.A’s 6102’s definition of abuse. At the same time, they also need to be reminded that faxing a copy of their complaint to the local newsroom or even bringing a copy for the family to review after Thanksgiving dinner has no privilege associated with it, even though the document has been time-stamped as a judicial document.  Recall the ruling in Post v. Mendel, where a lawyer’s post trial missive to a judge attacking the trial conduct of his adversary prompted the Supreme Court to observe that not all communications with the court are immune from liability for defamation.  Abuse of process requires the instigation of legal action with a corrupt purpose for which it was not designed.  Wrongful use of civil proceedings is an action filed for which there is no good faith basis.

 

 

 

This writer only wishes he could wear the mantle of constitutional scholar. The best he can do is claim the appellation: constitutional observer.  Today, I picked up the majority opinion decided by Justice Elena Kagan with the intention of reporting upon how the Court interpreted Maine’s domestic abuse statute in the context of the federal crimes code and its generation long prohibition against allowing persons convicted of misdemeanors of “domestic violence” from possessing a firearm.

There are few subjects of greater controversy today than whether the second amendment can or should have limitations. This is not the place to vex that issue.  My intention was simply to report upon how this 4-2 decision would affect Pennsylvanians.  But that can wait another day. What captured my eye and my imagination today was how the highest court decided this case and what politicians of all stripes can learn from the rather oddly structured institution we call the Supreme Court of the United States.

Today’s decision has two dissenters. Even they do not agree on all points but when I saw that the dissenters were Justices Thomas and Sotomayor, I could not help but race to read the dissent crafted by these two politically disparate individuals.

The dissent is written by Justice Thomas. The term “domestic violence” is one pregnant with judgment.  Congress attempted to limit that term by stating that before a gun would be denied to a person convicted of a misdemeanor involving domestic violence, the violence had to involve the use of “physical force” or an attempt at same. 18 U.S.C. 921(a)(33)(A).

The case decided today has a history. It has been to the Supreme Court before in the form of Armstrong v. U.S. 572 U.S. (2014).  The Supreme Court had remanded the case and it came back this time as Voisine v. U.S. with the question being whether a misdemeanor conviction based upon “reckless” rather than intentional assault in domestic violence setting was sufficient to deny the misdemeanant the right to a weapon under federal law.

Kagan’s majority opinion offers a wonderfully useful paradigm. If a gun owner slips while washing a plate and the plate shatters hitting and cutting his spouse, he may have been negligent but he cannot be said to be reckless.  If, however, in a fit of anger he throws the plate at the wall and it happens to hit and cut his spouse, he has now acted recklessly.  People who throw plates intentionally must accept the fact that their act is reckless and can do substantial harm.  That is a use of force that warrants removal of gun rights if the spouse is harmed even though the intent to harm itself was never shown.  The majority opinion says that if a defendant loses his grip on a door such that it strikes his domestic partner in the face, he has not employed physical force.  But if his anger causes him to slam the same door and it happens to strike her in the face, his reckless behavior is physical force sufficient to allow courts to revoke second amendment freedoms.  The majority concludes that reckless conduct is “no less” forceful than conduct undertaken knowingly and intentionally.

This is where strange bedfellows Thomas and Sotomayor jump out of the semantic sack. They reply that the angry plate thrower and the door slammer knowingly unleashed physical forces but observe that by definition, their conduct did intend harm.  But the harm was directed at inanimate objects.  To “use force” means to intend the force as a device to punish or control the conduct of another person.  The door slammer and plate thrower described by the majority are not using force.  As the dissenters put it, the majority conflates volitional conduct with intentional conduct. An intentional act is designed to inflict harm.  A reckless person acts in derogation of understandable risk.  To the dissenting justices the term “use” coupled with “force” means with the intention to cause harm, not merely conduct that happens to cause harm.

All of us know that we live in polarized times when it becomes more and more difficult to “reach across the aisle” in search of understandable consensus. We also know that there are few issues more polarizing than gun rights; a fact borne out by the votes in Congress last week following the tragedies in Orlando, Florida.  What is remarkable about this ruling is the fact that on this most important of constitutional issues a Bush Republican and an Obama Democrat would set aside ideological differences to find common cause in the language we call “English.”  It is what makes the Supreme Court as crafted by Justice John Marshall, a fascinating institution.

 

 

One of the things the Pennsylvania Bar Association makes a part of its mission is to review and, where appropriate, comment on legislation introduced for consideration by the General Assembly. These proposed laws cover a large swath of public policy territory.  Earlier this year the legislature passed a bill creating a presumption of consent to divorce where a violent crime had occurred between spouses.  Today there is a bill to reduce the separation period required to obtain a consent divorce from 2 years to 1.  It may well pass before the end of the month. There is another bill to affect how custody proceedings may change upon a parent’s military deployment.

The Family Law Section was recently asked to comment on House Bill 1975, a bill introduced by Representative Todd Stephens of Montgomery County and 18 of his colleagues imposing interest on support arrears. While this writer sees limitations in the bill as currently drafted, the subject is one that certainly merits legislative consideration.

The nub of the problem can be described as follows: Two parents separate on January 1, 2016 and parent A has primary custody of their child.  Parent A applies to the court for a child support order and on March 1, a conference is held and an interim order of $1,000 a month is issued.  The Court instantly attaches the wages of Parent B and the matter is referred for a hearing to establish a final order.  That hearing takes place on June 1 and a decision is rendered setting support at $2,000 a month on June 30, 2016.  This means that the support account would be set at $12,000 (6x $2,000) against which there would be credits for the $4,000 for those payments collected under the interim order (Mar, Apr, May, Jun).  Thus the account would show what lawyers call an arrearage of $8,000.  The technical legal term is called “past due support.”  When it enters a final order, courts are also supposed to address liquidation of the past due support.  Typically, courts add 10% to the order to reduce the arrearage over time.  An award of $2,000 would be increased to $2,200 per month with $200 being applied to eliminate the $8,000 arrearage.

Those facile at long division and the “time value of money” will see the immediate inequity. Parent B paid no support for two months and half the correct amount of support for the next four months while the final order was being decided. At $200 per month it will take 40 months to pay off the overdue support.  At the legal rate of 6%, the interest that should be applied to this payout would be about $48 per month or $1,920.  But under prevailing law, Parent B gets the payout interest free.  So, the effective rate of the payout is not $200 a month but $152.

House Bill 1975 does not change this if Parent B unfailingly remits $2,200 per month as the June 30 order mandated. But if Parent B, fails to make the correct payment amount each and every month, the “past due support” becomes “overdue support.”  And that is not just the particular missed payment but all past due support (arrearages).  Under Bill 1975, if Parent B paid only $2,100 per month in September, 2016, all past due support would become overdue and subject to interest at the legal rate of 6%.*

*The proposed bill applies interest at 6% or Wall St Journal Prime +1%, whichever is greater.

The statute does not specify the date the interest would be calculated from. Should it be from the date the case was initiated; the date the order became final or the date of the default. There are meritorious arguments for all three dates.

But there is also reason not to apply these interest rates or to apply them at a rate that is today 25% above prime rate. One cannot reasonably defend an interest free loan of what the law defines as essential support for dependent minor children.  On the other hand, many if not most support obligors incur unusual expenses at separation (e.g., moving, rental or home purchase deposits and related soft costs) and the economies of one family under one roof are erased.  Another concern is the new trend toward spasmodic employment.  In the past decade employers have increasingly relied on computer models to instantly add and/or terminate employees.  Payor parents who find themselves terminated often forget to put on their “to do” list a visit to modify support based on unemployment.  So the employee who neglects to make $2,200 a month payment in the month immediately following his/her termination risks falling into the “overdue support” bin that would trigger interest rates at a time when the payor is least able to make the full payment.  Presumably, this might be rectified in subsequent modification proceedings but that requires recalculation of not only the support but any interest which began to accrue.

In a conference call of the state bar association’s family law section, the discussion focused upon the complex interest algorithms that would need to be written to trigger and calculate interest and to revise those numbers if, as, and when a modification is granted. In our example Parent B pays his $2,200 in July, August and September but is fired on September 30 and pays only $1,000 in October.  Now his past due support is overdue support and the computer calculates and adds interest to his arrearage.  In November, he applies for a reduction and in January, his support is modified to $750 a month because his income is vastly reduced.  Are we still charging interest on $7,400 arrearage balance at 6% despite his reduced condition?

Lest we be accused of shilling for the payor, the plain fact is that there are times when lengthy payouts of past due support should be subject to some form of interest. Often Courts routinely apply their unwritten 10% on arrears rule despite the fact that the parties have large deposits that could easily satisfy the arrearage.  At its worst, in one case, the arrearage on a $45,000 a month order was well in excess of $1,500,000.  Despite the fact that the payor had reported income 5x the arrearage, the Court ordered a token payment of $5,000 a month in reduction of the past due amount.  The effect was a 26 year interest free loan.  The Superior Court deemed this alleged error to be harmless.  See Karp v. Karp, 686 A.2d 1325 (Pa. Super. 1996)

Is there a middle ground? Encourage courts to award modest interest to incentive Payors to liquidate their obligation.  Apply it to all final orders but allow it to be suspended where justice would make such accruals inappropriate in the court’s discretion.  This might create the proper tension between interest free payment of past due support and debilitating interest assessments against those not really in a position to pay interest.  Research provided to us by Summer Clerks Eunice Kim and Kelsey O’Neil informs us that 28 states apply interest on past due support and 40 states charge it on overdue support as H>B. 1975 suggests.  When states such as Alabama, Mississippi, and Arkansas are charging 7.5-10% interest, one has to ask whether this is another example of “Carville was right” except that we might be a little less modern.

For a list of which states charge interest and how search http://www.ncsl.org/research/human-services/interest-on-child-support-arrears.aspx

 

 

An interesting and, yes, published relocation case was decided by the Superior Court on June 15. D.K.D. v. A.L.C. 2016 Pa. Super 123 involved custody of a child, age 8, who suffers from Pervasive Personality Disorder. The parents separated shortly after the birth of L.D.  They were not divorced until 2015.

L.D. showed signs of language and speech delays at 18 months and the formal diagnosis of an autism spectrum disorder was made at age 3. After separation the parents lived in close proximity to each other but father’s custody was limited to four hours during the week and alternate Saturdays for an additional three hours.  Whether rightly or not, mother appears to have insisted that visits be confined to her home because L.D. did not respond well to changes in location.

In February, 2014, father filed for larger blocks of custody and a holiday and vacation schedule. Mother responded with a request to relocate with L.D. to Florida where her mother resided. In March, 2015 with the trial of the conflicting claims concluded the relocation request was denied, the court noting that it saw the only change to be a possible improvement in mother’s life by living with her mother.  The Allegheny County court’s order also expanded father’s custody over time and instructed mother that L.D. could and should be taken from mother’s home during father’s visits.

The Order of March 23, 2015 prompted mother to file for reconsideration and special relief. One of the ostensible issues was the failure of the order to address custody for mother if she relocated to Florida without L.D.  Mother also sought a new order premised upon her securing a job in Florida with the US Dept. of Veterans Affairs.  Further upping the ante, mother expressed her intention to purchase a home in Florida for mother and L.D. to reside in.  The trial court took the bait, granting reconsideration and re-opening the record to take additional evidence in June, 2015.

The second hearing was the charm and an August 2015 order granted the relocation. This time the trial court found that not only would mother’s life be enhanced but L.D.’s as well.  The factors which previously weighed against relocation: stability for a child with learning/emotional problems, father’s inability to preserve a relationship following a 1,000 mile move and mother’s unjustified need to control father’s visits faded into the mists.  The remaining factors were adjudged neutral, which is to say favoring neither party.  Curiously, the trial court found that mother did a better job of providing for L.D.’s needs but also expressed confidence that father could step up to do more if mother would only permit that.  But the court found that, despite its prior findings, mother would probably be more cooperative if permitted to relocate away from father.

Father appealed and came out swinging with the canard that the trial court had resorted to the long reviled “tender years doctrine”, holding that young children belong with their mothers. The Superior Court axed that argument finding that the record showed no such prejudice.

But, the appellate court was troubled by the sudden shift in mother’s “circumstances” after losing the initial round of the case. Suddenly a $36-41,000 job appeared in Florida and equally suddenly maternal grandmother committed to acquire a $435,000 home for her daughter and L.D. to reside in.  From the opinion, these appear to be the only new facts underlying reconsideration.  Terming the new order of August 2015 a juridical volte face, the Superior Court found that the record did not support the new conclusions of life enhancement for the child.

In denying relocation during Trial 1, the Allegheny County court found that relocation would disrupt stability of school, neighborhood and friends for a child afflicted with a condition that made any adjustments extraordinarily difficult. The trial court also used mother’s professed willingness to leave the child with father in Pennsylvania if relocation were not granted as a tool to rule against father in Trial 2.  Thus, if mother moved and left the child behind, the child would inevitably have to move to father’s neighborhood and enroll in father’s school district.  Father’s offer to move into the child’s existing district if mother relocated without L.D., was not given any weight.  The trial court also found to have ignored the detriment of losing the existing health and behavioral supports in Pennsylvania that L.D. relied upon in addition to his parents.  In addition the Superior Court noted the inconsistency in finding that L.D. needed to preserve his relationship with his father in denying relocation during Trial 1 but finding that alternate weekend visits in Florida by father was an adequate substitute during Trial 2. In a telling observation, Superior Court Judge Bowes writes that aggregating blocks of visits around school breaks and summer is not a viable substitute for the regular twice weekly contact and alternate Saturday visits that L.D. had been accustomed to have with his father.

Mother’s conduct in relocating to Florida without L.D. while the litigation was still underway and sending L.D.’s grandmother back to Pennsylvania to assume primary custody also did not win her any favor. The appellate court saw this choice of not permitting father to have more time while mother was working at her new job in Florida as emblematic of mother’s insistence upon control.  Other inconsistencies also emerged.  Mother moved the Florida professing that she could find no work in Pennsylvania despite her law license.  She also professed that she could not afford to live in her current $290,000 home.  But with the help of her own mother she was able to secure a $435,000 home in Florida with only a $40,000 job and roughly $30,000 in support and alimony from father.  The Superior Court’s review of mother’s job search in the two years prior to her relocation revealed that it was almost exclusively in pursuit of employment in the Sunshine state.  The home acquired with grandmother’s support is two hours away from grandmother’s own home so that the wholesome image of a tri-generational family in one place proved to be illusory.

Finding that mother’s actions “expose her insincerity” the Superior Court reversed the order granting relocation and directed the trial court to hold a hearing to determine how L.D. could be transitioned to live with his father. If mother abandons Florida to resume residence in Pennsylvania the panel suggested she file a petition to modify the now “corrected” custody order.

This case is disturbing in many aspects. Experienced practitioners are used to seeing parents play that “You want more time, I’ll move away” card.  It would appear that even after a year to prepare a relocation case Trial 1 was an abysmal failure for mother; with little evidence of any real benefit to relocation.  But having burned both time and money failing with Trial 1, mother was instantly permitted to “double down” and change the entire theory of her case with new facts.  Reconsideration of a court ruling is supposed to be limited to correcting the evidence or understandings that were of record.  It should never be an invitation to “re-try” a different case employing different facts or theories.  In a world where custody cases are always fluid with ever changing facts, courts need to insist that absent truly compelling circumstances, litigants get one trial at a time.  A child who, by all accounts, fears change and needs stability has endured 2 years of litigation and will now experience two relocations and a change of primary custody because mother decided not to line up a credible case until after she had lost the first trial.  Both the bench and the bar need to realize that the quest for complete records and best interests can often produce enormous backlogs, huge legal bills and instability for the very children we are all tasked to protect.  The Superior Court appears to have done the right thing in reversing this chain of errors.

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.