Eric Solotoff, a partner in our Roseland, New Jersey office and editor of our New Jersey Family Law Blog recently posted a blog entry on bad faith negotiating and its detrimental effect on settling cases. Eric's point is well taken: there are times in family law cases when people lose sight of their goals and try to land a (proverbial) shot on the other person. Empty demands, veiled threats, and open hostility become the rules of the game rather than honest discussions on finding a resolution and that rarely leads to a satisfying outcome for either side or their counsel.
Jenice Armstrong of the Philadelphia Daily News wrote a column about Beth and Daniel Shak’s divorce. The Shaks divorce was finalized in 2009, but recently Mr. Shak filed a petition to enforce the parties' settlement agreement and is seeking 65% of Mrs. Shak’s extensive (and expensive) shoe collection. Mr. Shak contends that this collection is an asset that was not disclosed as part of the parties’ property settlement agreement and that Mrs. Shak did not provide a “full and fair” disclosure of this collection nor did she list it in an inventory of her assets.
Ms. Armstrong column actually highlights a broader issue that family law attorneys come across at some point in many divorces: what is someone’s personal property worth and is it worth pursuing? For the most part, attorneys shy away from getting too far into a couple’s personal property dispute; what you pay your attorney to try to get your living couch often could have been used to go out and buy a whole living room set. It can be a cost-benefit analysis, but it can also be an important and highly emotional component of equitable distribution because it may represent a marriage’s worth of memories and experiences.
The Shak case also sheds some light on the question as to when “personal property” becomes an “asset.” How should people deal with a situation in which someone’s personal property cost them tens or hundreds of thousands of dollars (or as alleged in Mr. Shek’s lawsuit, $500,000.00 to $1 million) during the marriage? Valuation can be as difficult a question to wrestle with since it is not uncommon for someone’s collection to have more value to them than it does to the “market.”
Make no mistake, however, Mr. Shak is not seeking his fair share of Mrs. Shak’s shoes and handbags; he is seeking 65% of their value as a lump sum payment from his ex-wife (plus his counsel fees and costs). If Mr. Shak’s petition was about stocks or a checking account instead of women’s shoes then it would not seem as unusual to ask the Court to recognize that Mrs. Shak failed to fully disclose a martial asset and award him a portion of the value.
Last month we discussed a few issues that couples should consider when they begin to live together, but don't plan to or anticipate getting married very soon. This month, we will look at some other important life decisions which may have a huge impact on people's lives and relationships:
5. Medical Insurance. As we covered above, living together does not equate “married” especially in the eyes of a medical insurer. Do not add your long-time, live-in girlfriend to your medical insurance as a “spouse.” The rationale that “everyone at work thinks we’re married” will not keep you from being sued by the insurance company when you eventually get caught. You just committed fraud and insurance companies have lawyers by the thousands to make sure you don’t get away with it.
If you need to find a way to get coverage, check with your insurance company and your benefits administrator. Same-sex couples have actually paved the way for committed straight couples in some companies and in some Pennsylvania municipalities to obtain coverage on their partner’s benefits.
6. Beneficiary Status. Retirement and investment accounts allow you to designate beneficiaries on retirement accounts in the event you die. If you pass away without designating a beneficiary, the plan administrator will then follow either Federal law (i.e. ERISA) or your state’s probate laws for the estate. Without designating your partner as the beneficiary of your account or on an insurance policy, there is no way the state or the plan administrator will issue the proceeds to your partner; in the eyes of the law and the plan, your relationship to you may as well not exist.
7. Emergency Contacts/Next of Kin. Stories have circulated in the media where a partner is barred from a hospital room because he or she is not the patient’s next of kin. Estate planning documents such as a durable power of attorney or living will can help ensure that a partner is afforded the access they need, while identifying your partner on emergency contact forms with your insurance company will only bolster the paper trail confirming their role in your life.
8. The Break-Up. Getting all of the above in line will help plan for emergencies, contingencies, tragedies, and the peaks and valleys of a life together. It also means that you have to undo all of it if the relationship ends. This may be the single greatest deterrent to people from undertaking these tasks in the first place. Yet, what is the alternative? Protracted litigation with your partner’s family over beneficiary rights to a retirement account? A battle with your ex-partner over who gets to stay in the house; who pays the mortgage; will the house be sold or can you be bought-out?
The ugliness and long legal fights that can arise from each of these points should be sufficient justification to put aside the fear of difficult conversations or putting too much pressure on an otherwise satisfying relationship. Spend a few hours honestly discussing these issues and understandign what both people need to feel secure in comingling lives and finances. Once you have your plan together, you can move on with living your lives. There may even be the added benefit of silencing the (sometimes) well-intentioned, but (always) nosy comments from your family about your relationship's "stability."
In August 2011, an article was published in the New York Times about “decision fatigue.” John Tierney, a frequent columnist for the Times, describes a series of studies examining the effects of making multiple decisions over a period of time and experiencing what has been coined “ego depletion” whereby as human beings we have finite amount of energy with which to make thoughtful decisions. This energy gradually depletes as decisions accumulate until the “decider” finally finds themself making snap decisions with considerably less consideration than they had before. Basically, it is possible that a person finally reaches a point where they will make a decision less on their wants and needs and more just to have the question out of the way and to move on.
As a series of experiments described my Mr. Teirney indicate, people become indecisive because they fear losing options. The anecdotes provided in the piece demonstrate how mentally fatigued people are less likely to make trade-offs and will, instead, seek to preserve the status quo or eliminate the nuance the decision (i.e. compromise or make trade-offs) and make the decision one dimensional. The status quo is not always the best decision for the situation, but it has familiarity in its favor.
The article is fascinating for a lawyer because our clients have undoubtedly been through a “Rubicon”-like scenario as described by the scientists Mr. Tierney’s interviews. After repeated analysis, decision-after-decision, negotiation, explanations, more decision-making, it is not surprising that a client at 4:30 p.m. is more amenable to settlement, than he was at 8:30 a.m. They can feel worn down. That is not to say that the decisions are wrong, but the science indicates that the decision-making has changed as the mental fatigue increased. Lawyers are not immune to this physiological effect, either.
There is no real “cure” to ego depletion, merely a few things to mitigate its effect. Ultimately, when a client is faced with an important decision late in the day, the relationship between the attorney and the client will be a critical element to ensuring the “right” choice is made and not just “a” choice is made.
Following up on Mark Ashton’s “celebrity” themed blog entry on the Los Angeles Dodgers’ ownership, another high profile individual is having a residual effect on divorces: Bernie Madoff.
Mr. Madoff’s crimes are well-documented and high profile. His arrest has given rise to a media niche on scan artists, including Montgomery County’s own “Madoff”, Robert L. Krikorian, who was recently convicted of a Ponzi scheme and sentenced to three to seven years in jail for bilking investors out of (a paltry) $870,500.00 over about four years. If you rip off your investors you are labeled a “Madoff.”
But in being duped, should people get the chance to redo the a Marital Settlement Agreement negotiated and executed years before the fraud was discovered? That is the question being asked in New York where a well-heeled couple split their assets in 2006, including a large investment account with Madoff. Wife pulled her money from the investment, while Husband kept his in. You probably can guess what happens next: Husband’s money gets lost in the Madoff scandal while Wife continues to live well in her Upper East Side apartment.
The question before the New York bar is whether Husband can sue to have the Marital Settlement Agreement reopened and the funds Wife retained redistributed to account for his Madoff loses. Sides are being taken in this dispute and many practitioners view a favorable outcome to Husband as having wide reaching implications to contract law and beyond; it calls into question whether a deal is ever really “done.”
The crux of Husband’s case rests on the argument that the parties’ Agreement (contract) is nullified by “mutual mistake;” they were both mistaken by the existence of an account with Madoff. It appears that Husband is arguing in that they were both mistaken their belief that they had an account containing millions of dollars with Madoff. – the Madoff fraud proves they, in fact, had no “account” with Madoff. So, even if they had moved $1 million dollars over to Madoff, they really weren’t investing it. Madoff stole just stole it…except for the $6.6 million cash payment Husband swung over to Wife from the account.
This case basically sets up the possibility that events subsequent to an agreement could allow for a total reexamination of the deal. Interestingly, we had (have) a national crisis over real estate values (many would argue millions of frauds were committed), yet I am not aware of any parties successfully trying to re-litigate a deal in which they kept the marital residence and off-set its equity value with cash assets. No one is successfully re-litigating their stock holdings that tanked. In my experience, a client and her husband split their stock account when they separated; my client moved her money into cash, while Husband – allegedly a financial guru – keep his in stocks. Two years later, my client has retained most of her money in cash, while husband has lost all of his money to his lifestyle and stock market. Husband unsuccessfully argued that Wife should bear some of the liability because the assets were marital in nature, but the court held that he was responsible for his portion of the money.
In New York, Husband’s case looks, in many respects, as a brazen attempt to capitalize on a highly publicized crime for which neither party had any knowledge or control over. The only control they had was how they decided to invest their individual pieces of the marital estate after the divorce. Wife chose to pull her money out; Husband opted to keep his in. Wife mitigated her risk; Husband appeared to have raised the stakes.
After a trial court dismissal, the New York appellate court reached a 3-to-2 decision in favor of Husband’s right to sue to revise the deal based on “mutual mistake.” Whether he will successfully revise the deal remains to be seen.
We are often asked whether the negotiation process in divorce is admissible in the proceeding. “If I agree to take the house at $400,000, will that bind me if we can’t close on that number and the case goes to trial?” “If we said we would take 30 months of alimony at $3,000 can I demand more later if my spouse does not accept?” The answer to both questions is yes. Negotiation is meant to be an open set of transactions and one is not bound until a contract (offer and acceptance) is reached. Furthermore, in order to encourage these kinds of negotiations, the Rules of Evidence forbid the introduction of what proposals were made during negotiations. Thus if my client says: “Dear husband, I will buy out your interest in the house at $400,000, if you will pay me thirty months of alimony at $3,000” the offer will not be admissible to prove that the house is worth $400,000.
But there are times when Courts will hear testimony about negotiations where the purpose is not so much to prove the terms of a negotiation as the fact that the negotiation was conducted in bad faith. The classic example is in the realm of custody. Many counties send the parties to mediation before a custody hearing is held. The mediation is supposed to be confidential; the rules say so. And this means that you can pretty much say what you want in mediation. But let us say that on Monday you go to mediation and you spend an hour or two negotiating over whether your spouse gets the kids Thursday to Sunday or Friday to Sunday. No settlement is reached. Five days later you are in Court. Your “court” position is that your husband is a drug addict and a pedophile. Unless you just learned of his wayward ways in the days between the date of the mediation and the court appearance, you will probably be asked pointedly how you were willing to agree to overnights on Monday at mediation when it was your official position that there were substance and sexual abuse issues hanging in the wings. The purpose of admitting this testimony is to show that you are an unethical negotiator willing to make false threats to advance your legal position. Not good.
This does not come up so much in the economic side of the divorce. It can in situations where a spouse offers to “take” an asset for one value but demand a completely different value for the same asset if he is “giving” it. The fun here usually revolves around household contents and their value. Let’s say husband has moved out and left most of the contents behind. In negotiation he asserts that the contents were worth $20,000. Wife counters saying that she will give him the contents in exchange for an additional $20,000 in cash or retirement. If husband rejects that proposal, the offer may be used to show that attorney’s fees and time were wasted on frivolous negotiations. It does not however, help us determine the value of the contents.
One other point should be considered that does not have to do with the law but the ethics of negotiation. Negotiation is intended to narrow issues. As issues narrow, doors should start to close. Wife wants 62% of the assets. Husband offers 52%. Wife wants 4 years of alimony. Husband offers two. For purposes of trial, no one is bound by these assertions. But if Wife’s next offer is that she wants 62% and five years of alimony, and I am husband’s counsel, I stop the train and announce that my client and I are getting off. The only credible basis to increase a demand during the negotiation process is if there is new information that makes the reversal of position fair or appropriate. If wife discovers that she has a health condition, that might justify negotiating backwards and increasing her demand. But absent new information, a party should recognize that in negotiation, as issues and positions narrow, one cannot go backward without losing credibility and putting your lawyer in a similar position. This problem often arises in negotiations over property in tandem with alimony. It often occurs that months will be spent working out an asset split. When agreement is finally reached, one party re-opens the door and suggests that it is now time to discuss alimony. The other party responds that the whole basis of making a disproportionate split of assets was premised upon the fact that there would be no alimony. If alimony or counsel fees are going to be part of the negotiation, get those terms “on the table” early in the process so time is not wasted creating a false hope that settlement is near.
We are involved in a relatively simple case. Wife is a homemaker only recently returned to work. Husband is a mortgage broker. Like many couples they became a bit over committed in the real estate market of the last few years. They wanted to participate in the real estate gains of the last few years and some of their investments had not panned out. This is a classic work out settlement of the type we see with increasing frequency. The smart move is to realize the problem and negotiate a settlement that preserves assets.
We have been litigating this case for the past 18 months. In our judgment almost all of the litigation was not only unnecessary, but detrimental to preservation of the marital estate. We entreated our opponents that more litigation was the last thing the parties needed. Still the other side insisted that the battles go on. We fought over support for a full day in a world where the incomes of both parties were either agreed upon or plain from the information provided by the employers.
Next we received a counsel fee petition. The dependent spouse owed her counsel tens of thousands of dollars even after securing a substantial retainer. We resisted this request vigorously arguing that the facts were apparent from the beginning and the litigation almost completely unnecessary. When the request for attorneys fees did not go in the direction she aspired, the opposing counsel filed a petition to withdraw.
The wife filed an answer professing that she had wanted to settle her case all along but that her attorney had told her the litigation was necessary and that her husband would be required to pay her attorneys fees.
We don’t know whether these allegations are true. But we can state almost without exception, that if an attorney tells a client in a domestic relations proceeding that he or she is certain to secure attorney fees in that proceeding, a second opinion should be secured. Even in cases where there is a contractual undertaking for a party breaching an agreement to pay attorneys fees, we have found that courts award such fees on a very conservative basis. And in situations where attorneys fees are sought by reason of statutory allowance (i.e., the law expressly allows award of attorneys fees) such awards are usually a fraction of what is sought.
When can one ask for attorneys fees? Absent an agreement, attorney awards require a statutory basis. Such awards are referenced in the divorce law. 23 Pa.C.S. 3702. Where there is a battle over custody jurisdiction, the statutes provides that counsel fees shall be awarded unless there is a finding that such an award is inappropriate. 23 Pa. C.S. 5452. In support cases Courts “may” award attorneys fees either to the oblige (the person securing support) or that person’s attorney. 23 Pa.C.S 4351 but a subsequent case interprets the statute to mean that the awards should not be a regular part of support proceedings but limited top extraordinary situations. Contempt of any kind of a divorce or alimony order invites a claim for counsel fees. 23 Pa. C.S. 3503(e)(7) and 3703(7). But this does not appear to be the case in a custody ( See Pa. R.C.P. 1915.12) or support case (See Pa. R.C.P. 1910.25)
The statutes and rules say one thing, but courts remain chary of such awards.
Couples planning to marry often want to know if they need a Pre-Nuptial Agreement (also known as an Antenuptial Agreement). One may ask their estate or corporate lawyer what he or she thinks and the answer may be "yes" in many situations, but three very common ones are if:
- It is a second marriage for at least one of the spouses and there are children of one or both people who will inherit instead of the spouse,
- If there is an existing business to be kept out of the marriage, or
- If the parties about to marry do not want to share their assets or the increases in value of those assets after they marry. Frequently, people want to protect their homes or their retirement accounts for themselves or their children.
If the parties fit into these general categories, they may benefit from such a Pre-Nuptial Agreement.
For such an agreement to be valid in Pennsylvania, there must be full and fair disclosure of all of the assets and liabilities owned by each party and a knowing waiver of rights without undue duress. Duress in Pennsylvania is the threat of physical force, not one party saying to cancel the wedding unless the document is signed. Although not required, the best way to ensure that these requirements are met is for each person to have their own lawyer, to sign such an agreement at least 30 days before the wedding, and to have all the assets, their values, and the basis for the valuations, listed in the document. Once properly executed, the document is a contract, the same as if you were buying a house - and its enforceable.
If all of this sounds too expensive or too complicated, the chances are the parties do not need the Pre-Nup!