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Brewing Up a Cure 2011

by bvertz on Oct 9, 2011 • Comments Closed •
Brewing Up a Cure 2011

This event was so much fun, I decided to post a picture. Here’s me with two members of the Steel City Derby Demons, a Pittsburgh women’s roller derby team that competes in the North Hills. They were some of the featured guests (along with dozens of home-brewed and local craft beers) at “Brewing Up a Cure 2011,” a cystic fibrosis fundraiser organized by the Three Rivers Underground Brewers (T.R.U.B.).

At times, fundraisers can be stuffy, but not this one! No tuxedos or chardonnay here. A rockabilly band called “Highway 13″ played live music while guests tasted beers made in the garages of TRUB members, as well as well-known craft beers like Dogfish Head, East End Brewing, and FullPint Brewing. Meanwhile, some others bowled a few frames while enjoying their beers and snacks. I lost my bids on Penguins tickets but at least I came away with a tee shirt and tasting glass. Plus, a sense of well-being from contributing to a worthy cause.

Look for the website again next year, and do yourself a favor by buying VIP tickets. Some of the best brews are only available during the VIP hour, such as a barleywine that won the first ever TRUB Throwdown and a great home-brewed ginger beer. Tickets are modestly-priced, which makes it easy to bid on the silent auction items. A great time in Oakland!

Text Messages as Evidence in Child Support and Divorce Proceedings

by bvertz on Sep 30, 2011 • Comments Closed • , , , ,

The increasing use of electronic communications, from Facebook to text messaging, has challenged our courts to determine what is admissible evidence in family law hearings. The Pennsylvania Superior Court has recently considered that issue in a criminal proceeding where text messages were introduced to prove the defendant’s intent to deliver illicit drugs in his possession. In Com. v. Koch, 2011 Pa.Super. 201 (September 16, 2011), the Superior Court acknowledged that text messages and other forms of electronic communications are not inherently unreliable, despite their relative anonymity and the difficulty in connecting them with their author. Yet, the litigant who offers such evidence must prove that they are authentic and overcome hearsay objections. Usually, this must be proven through circumstantial evidence.

It is not enough to prove that a text message was transmitted from a particular phone number, because anyone could have been using that phone, unless the circumstances or the message itself prove that the phone’s owner was the actual author of the message. A text message might contain factual information or references that are unique to the author. Or, perhaps it can be established that the message was transmitted while the phone was in the owner’s possession. The same standard applies to emails and instant messages. In addition to proving that the message was transmitted from the owner’s account, it must be proven through circumstances that the owner of the account was the author of this particular message. If the authenticity of the message can be proven, the text message or email can be used as evidence.

In the Koch case, the police found the defendant’s mobile phone in his home and reviewed his outgoing text messages, some of which were incomplete or deleted. The police offered no proof to show that the phone’s owner was the author of the messages, some of which referenced the defendant in the third person. There was also evidence that some persons other than Defendant sometimes used that mobile phone. The Superior Court in Koch held that the text messages should not have been admitted into evidence in the criminal proceeding until they were properly authenticated. The Court reversed the conviction for a new trial.

Pennsylvania Child Support Guidelines Amended

by bvertz on Sep 22, 2011 • Comments Closed • , , ,

The Pennsylvania child support guidelines were modified slightly on August 3, 2011, effective September 3, 2011.

1. Shared Custody Adjustment. The guidelines grant a reduction in child support for parents who have custody of their children 40% to 50% of the time. (No adjustment is authorized if a parent has custody less than 40% of the time.) Still, the guidelines did not explain how to apply this adjustment when there were multiple children with different custody schedules. Now, in cases where there is more than one child, and each child spends different amounts of time with each parent, the Rules require the court to take an average percentage. If the average percentage is more than 40%, then the reduction in child support will be applied. The modified rules also clarify that high income cases are subject to the shared custody adjustment.

2. Medical insurance premiums. A sentence has been added to the medical insurance provisions of the child support guidelines to clarify that the insurance premium paid by the parent who owes child support shall not be allocated between the parents.

3. Social Security benefits. The guidelines previously provided that Social Security benefits being received by a child would be added to the parents’ net incomes and then deducted from the child support award. A sentence has been added to state that this applies only if the parent who receives child support is receiving the Social Security benefit for the child. If the parent who pays child support receives the benefit, the benefit is added to that parent’s income and is not deducted from the child support award.

4. Right to initiate support. The new rules provide that a parent or spouse who owes support may initiate the action, which is a significant change from the past that allows a support-owing spouse to obtain the tax advantages of a written order. The parent who has primary custody is the parent who will receive child support. In cases where custody is shared equally, the parent who has less income will receive child support.

Additio

Child Support Contempt Defendants Not Entitled to Counsel, Says U.S. Supreme Court

by bvertz on Aug 16, 2011 • Comments Closed • , , , , , , ,

Child support contempt defendants are not entitled to court-appointed representation even in cases where incarceration is threatened, says the U.S. Supreme Court, but the state courts must follow procedures that ensure the fundamental fairness of contempt proceedings. In Turner v. Rogers, Docket No. 10-10, June 20, 2011, the Court considered the rights of a South Carolina defendant who had been held in contempt of a child support order five times in three years. Each time, the Defendant Michael D. Turner (“Father”) paid the purge condition, twice without being jailed and twice after being jailed for a few days. In the fifth proceeding, Father did not pay and served a six month sentence in jail. Just weeks after his release, Mr. Turner received another hearing notice to show cause why he should not be held in contempt.

At the sixth contempt hearing, Father testified that he had been addicted to meth and marijuana, broke his back, and applied for disability and SSI. He was approximately two years behind in child support payments. He asked the trial court for an opportunity to catch up. The trial court held him in contempt, sentencing him to one year in jail with no good-time or work credits, but eligible for work release if he could find a job. The trial judge’s ruling did not explicitly address Father’s ability to pay and left blank the areas in a preprinted form where the court could indicate whether the defendant was working and had the ability to pay.

While serving time, Father filed an appeal with the assistance of pro bono counsel. The South Carolina Supreme Court rejected his argument that he was entitled to court-appointed counsel at his civil contempt hearing under the U.S. Constitution, distinguishing civil contempt proceedings from criminal contempt. The U.S. Supreme Court granted certiorari, noting a split among state supreme courts concerning the right to counsel in civil contempt proceedings.

The U.S. Supreme Court first considered whether the 14th Amendment due process clause guarantees indigent contemnors the right to court-appointed representation in civil contempt proceedings that may lead to incarceration, a novel federal question[1] distinct from the 6th Amendment right to counsel in criminal proceedings (including criminal contempt). The Court reiterated the well-known principle that civil contempt proceedings are intended to coerce the defendant to comply with a court’s order, rather than to punish, and that a defendant may not be held in contempt where he or she lacks the ability to comply. The defendant “carries the keys of his prison in his own pockets” and is purged of civil contempt when he complies with the order. Id.

The Court acknowledged that the 14th Amendment due process clause offers fewer procedural protections in civil cases than the 6th Amendment in criminal cases, which is why the defendant may bear the burden in civil contempt proceedings to prove their inability to comply. See Hicks v. Feiock, 485 U.S. 624 (1988); Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 442 (1911); accord, Barrett v. Barrett, 470 Pa. 253, 368 A.2d 616 (1977); Travitsky v. Travitsky, 534 Pa.Super. 1081 (Pa.Super.1987).

Next, the Supreme Court examined the role of civil contempt proceedings in family law, which is to ensure the payment of funds necessary for the support of children, often to reimburse welfare funds paid by the states to indigent families. The Court observed the complex network of regulations and agencies established to regulate and monitor child support collections, including expedited procedures, statewide guidelines, mandatory wage attachment, and interstate reporting and enforcement.

The Court in Turner also referenced its earlier decision in Matthews v. Eldridge, 424 U.S. 319, 335 (1976), which established three criteria for measuring the fundamental fairness of civil proceedings under the 14th Amendment due process clause: (1) the private interest to be affected in the proceeding; (2) the risk of erroneous deprivation of that interest with and without additional or alternative procedural safeguards; and (3) the governmental interest involved, including the fiscal and administrative burdens the additional procedural requirements would entail. Accord, Corra v. Coll, 451 A.2d 480 (Pa.Super. 1982). Applying those criteria, the Turner Court found that the defendant’s private interest in personal liberty was a strong factor in favor of court-appointed representation, particularly in ensuring accurate decision-making on the issue of the defendant’s ability to comply. The Court stated that “an incorrect decision (wrongly classifying the contempt proceeding as civil) can increase the risk of wrongful incarceration by depriving the defendant of the procedural protections (including counsel) that the Constitution would demand in a criminal proceeding.” Id.

Yet, the Supreme Court held that three other considerations weighed more heavily in favoring of not requiring court-appointed counsel in civil child support contempt proceedings. Those considerations were: (1) the relative simplicity of judging the contemnor’s ability to pay; (2) the risk of assymetry in a category of cases where the custodial parent seeking enforcement is equally likely to be indigent; and (3) the availability of alternative procedural safeguards, including notice to the defendant that “ability to pay” is a critical issue in the hearing, the use of forms to elicit the defendant’s financial information, the opportunity for a defendant to testify about his or her ability to pay and an express finding by the court about the defendant’s ability to pay. Ultimately, the Court held that these procedural safeguards might be an adequate substitute for court-appointed legal representation in child support contempt proceedings.

Interestingly, the Supreme Court noted that its decision did not apply to Title IV-D cases where the primary purpose of the contempt hearing is the collection of child support to reimburse welfare payments made to the custodial parent. Comparing those cases to “debt collection proceedings,” the Court found that the state is likely to have legal representation. The Court did not specifically rule on that category of cases, but its silence is not mute. The Court also declined to rule on complex cases “where a defendant can fairly be represented only by a trained advocate.” These clarifications greatly limit the scope of the Court’s decision in Turner.

Turning to the facts of the case, the U.S. Supreme Court found that Father was neither afforded counsel nor the benefit of alternative procedural safeguard to ensure fundamental fairness. He did not receive clear notice that his ability to pay was a critical issue, nor a form to elicit his financial information. The trial court had left blank the portion of its order where a finding of the defendant’s ability to pay should be completed. The decision was vacated and case remanded for further proceedings.

Four Justices, led by Justice Thomas, dissented from the majority opinion authored by Justice Breyer. First, Justice Thomas wrote that even the Sixth Amendment does not guarantee the right to court-appointed counsel in criminal proceedings, but merely “the right to employ counsel,” as it was “originally understood.” Justice Thomas also noted that Father had cited no binding authority requiring the appointment of counsel in civil contempt proceedings. (This portion of the dissenting opinion was not joined by Justices Roberts and Alito.)

Justice Thomas went on to say that even under the Court’s “modern interpretation” of the Constitution, the Due Process Clause does not require the appointment of counsel for indigent defendants facing incarceration in civil contempt proceedings. The Gideon protections afforded to criminal defendants under the Sixth Amendment does not extend beyond criminal proceedings under existing law and precedent. Gideon v. Wainwright, 372 U.S. 335 (1963). The Justice rejected Father’s argument that due process requires the extension of those protections to civil proceedings where imprisonment is possible. Justice Thomas cited a string of cases where the Court had rejected pleas for the appointment of counsel in civil cases on the grounds of due process and fundamental fairness, including Lassiter, Gagnon, and Middendorf, supra.

Finally, Justice Thomas attacked the majority’s ruling that civil contempt proceedings require procedural safeguards in lieu of court-appointed counsel in cases where imprisonment is threatened. The Justice expressed his opinion that the issue had not been argued or developed in the state court proceedings, and was first raised by the Solicitor General in an amicus brief. No substantive argument was offered by Justice Thomas in opposition to this aspect of the Court’s decision, other than carping about the manner in which the issue had been raised on appeal. The Justice concluded his dissent by remarking on the hopelessness of attempting to collect child support, and the immorality of parents who do not raise their children within the confines of intact marriages.


[1] The Court noted analogous, but not controlling, decisions in civil cases involving juvenile delinquency, In re Gault, 387 U.S. 1 (1967); involuntary hospitalization of inmates, Vitek v. Jones, 445 U.S. 480 (1980); and termination of parental rights, Lassiter v. Dept. of Soc. Srvcs. of Durham Cty., 452 U.S. 18 (1981). While these cases held generally that defendants facing incarceration are entitled to legal representation, the Court also noted cases where the threat of imprisonment did not create a right to counsel. Gagnon v. Scarpelli, 411 U.S. 778 (1973) (revocation of probation); Middendorf v. Henry, 425 U.S. 25 (1976) (court-martial).

Double Dip and Goodwill Considered by Wisconsin Supreme Court

by bvertz on Aug 15, 2011 • Comments Closed •

Last month the Wisconsin Supreme Court weighed in on two issues that are important to family lawyers and their clients who operate professional practices like physicians, lawyers, dentists and accountants. In Marriage of McReath, the Wisconsin Supreme Court ruled that “saleable” goodwill would be considered marital property, in a case where a dentist argued that “personal” goodwill should not be counted as part of the marital estate. The Court also held that it was not double dipping to include the dentist’s business earnings as part of his income for post-divorce alimony, after dividing the fair market value of the business based on capitalized earnings.

Lawyers, judges and valuation professionals use many different terms – often imprecisely – to describe goodwill, the intangible value of a business that exceeds the value of hard assets like inventory, equipment and receivables. Some courts distinguish between “enterprise” goodwill and “personal” goodwill; other refer to “professioinal” goodwill. As lawyers and judges have advanced along the learning curve, their usage of these terms has improved. Still, the historical record remains a fertile source of confusion.

Wisconsin’s highest court, and the advocate who must have guided the Court’s analysis, Richard J. Auerbach, Esq., of Madison, admirably honed in on the most important aspect of goodwill: whether it is transferable to a buyer. In this case, the husband had purchased two dental offices for a purchase price of more than $900,000. Thirteen years later, Wife’s expert opined that the practice was worth just under $1.1 million and testified that much of the value would be associated with a noncompete clause. While recognizing that some of the saleable goodwill might be fairly characterized as “personal” goodwill, the Supreme Court refused to assume that personal goodwill is necessarily nontransferable. The fact that Husband purchased his practice from another dentist, in a transaction where most of the purchase price was allocated to goodwill, was proof enough that personal goodwill may be transferable.

Unfortunately, the Wisconsin court’s analysis of double dipping was not especially well-reasoned. The Court made little effort to rebut Husband’s argument that it should not include earnings from the dental practice in his income when determining post-divorce alimony, after having divided up the fair market value of the business based on capitalized earnings. The Court cited its own precedent where it cautioned about an inflexible application of the prohibition against double dipping, given the “infinite range of factual situations facing circuit courts in dividing property.” The Supreme Court found that a business is more like an income-producing investment than a pension.

Actually, that analogy does not hold up upon close scrutiny. The value of an investment is equal to the account balance on a particular date, and any interest income generated after that date would be counted as income to the owner of the investment because it can be consumed without decreasing the principal of the investment. If the interest or dividends generated by an investment are counted as income, there is no double dip. On the other hand, a pension is valued by taking the net present value of the future annuity payments. Theoretically, the value of the pension is diminished as payments are received. Therefore, pension payments cannot be counted as income if the pension has been divided as property.

Generally, a business is valued in the same manner as a pension. The value of the business is equal to the net present value of the cash flow or profits that the business generates. A business valuation is a hypothetical sale of the businessin which  the owner sells the business to a hypothetical buyer, who might retain the owner as a employee (paying “reasonable market compensation”) or simply hire a new employee to do the owner’s job. If the business is sold, the owner is not entitled to receive profits, so counting those earnings as income for alimony purposes is clearly double dipping. The Wisconsin court got it wrong.

To get even more sophisticated, the courts might have examined what a dentist like this gentleman was capable of earning as an employee of someone else’s dental practice. Alimony based on earning capacity would not be a double dip. It may be reasonable to believe that a professional could sell his practice and go to work for someone else. The salary that the professional could earn elsewhere might be equal to the “reasonable compensation” that a hypothetical buyer would pay to a replacement employee, or it might be more or less (depending upon the hours, duties and skills that the owner would bring to his new job).

Furthermore, the court might consider the investment return that the owner, having sold his business for cash, would earn on the sales proceeds. That argument might have gotten more traction ten years ago than today (when CD’s pay less than 1%) but it is still worth considering.

IRS Eliminates Two Year Limit on Innocent Spouse Equitable Relief

by bvertz on Aug 5, 2011 • Comments Closed •

In July 2011, the IRS changed its policy that once imposed a two year limit on innocent spouses seeking certain forms of relief from tax penalties and interest caused by their spouse’s misreporting on joint tax returns. A recent article from the Washington Post explained:

Under the innocent spouse umbrella are three types of relief — the innocent spouse provision itself (a tough enough contention to prove), plus categories for separation of liability and equitable relief. The removal of the two-year limit only affects requests under the equitable relief provision.

You have to meet several conditions to qualify for the innocent spouse relief provision, which relieves you of responsibility for paying tax, interest and penalties if your spouse did something wrong on your joint tax return. One of the conditions is that you have to establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understatement of tax.

Under separation of liability, the IRS essentially allows the innocent spouse to pay the taxes he or she is responsible for and then pursues the other spouse (or former spouse) for his or her understatement of taxes, including interest and penalties.

If you do not qualify for either of the first two provisions, then you can try for equitable relief, which is a sort of catchall provision that allows the IRS to consider additional factors. For example, you didn’t know your spouse or former spouse misappropriated money intended to pay your joint tax bill for his or her benefit.

The third form of relief described in the article – called “equitable relief” – was previously banned if the innocent spouse did not apply within two years from the date when the tax deficiency was identified. Today, innocent spouses may apply for equitable relief even if two years have passed. Innocent spouses who previously applied and were denied due to the two year limit may re-apply. More information is available in IRS Publication 971.

Hello world!

by bvertz on Aug 1, 2011 • Comments Closed •

Welcome to WordPress. This is your first post. Edit or delete it, then start blogging!

Why Hire an Expert for Child Support or Divorce Litigation?

by bvertz on Jul 19, 2011 • Comments Closed •

From my experience as a matrimonial lawyer, I can easily understand my clients’ perspective on legal and professional fees.  They want to spend as little as possible, and that is what I want for them. The more efficiently we can settle or litigate their divorce, the more money they will have to support themselves and their families. Not surprisingly, some clients are reluctant to incur the expense of hiring expert witnesses, such as real estate appraisers, forensic accountants, vocational evaluators and valuation experts. Yet, hiring an expert makes good sense if it will increase the chances of obtaining a favorable settlement or judgment: a larger share of marital property, a more accurate valuation, or a better child support or alimony order. Working hand in hand with my clients, our shared goal is to preserve their net worth and cash flow. Hiring an expert can be a good investment that does, in many cases, justify the expense.

In court, expert witnesses have certain advantages over lawyers and their clients: (1) they have expertise in a field or specialty that the client, lawyers, and judge may not have; and more importantly, (2) they can express opinions and the foundation on which their opinions are based, including hearsay. Unlike other witnesses, who cannot repeat out of court statements made by others, expert opinions are permitted to discuss their investigation of facts (including hearsay) and the result of scientific or specialized analysis or testing. Their special status in court allows expert witnesses to “connect the dots” between information from different sources, and to guide the judge in understanding its meaning. For instance, a vocational expert can testify about the employee’s qualifications, the relevant employment statistics, and how the employee fits into the job market. Even though the expert is a paid witness, most experts are viewed by the courts as objective witnesses. Without an expert, most clients could not offer sufficient evidence about certain subjects, like valuation, because some of the testimony necessarily would be hearsay. Expert witnesses can synthesize information, form opinions, and testify about them. In divorce settlements and litigation, that is the value that expert witnesses bring.

 

5 Settlement Documents that Divorcing Business Owners Must Have

by bvertz on Jun 8, 2011 • Comments Closed • , , , , , , , , , , , ,

When business owners get divorced, their settlement may have profound consequences for the business and other owners. Often, one spouse “sells” or gives up a share of the business to the other spouse. Since most small business owners do not have enough cash to pay a lump sum for that share, they might have to make installment payments over months or years. It is critical to structure the divorce settlement properly with documents that will minimize tax consequences, quantify and secure the payments to be made to the spouse who is leaving the business, and preserve the company’s ability to operate and obtain financing. These are the top five documents that a business owner should have when finalizing a divorce where a spouse is “selling” his or her share of the business to the other spouse:

1. Marital Settlement Agreement. Divorce courts rarely issue orders containing sufficient detail to adequately protect business owners who are divorcing. Settlement provides the best opportunity to resolve important financial and tax issues that a divorce court might overlook. A settlement agreement should contain a clear description of the stock, partnership or LLC membership units, and other business interests being sold or waived, how much is being paid, when it is being paid, and what happens if the payments are not made in full and on time. Unincorporated associations are tricky because their assets and liabilities are often intertwined with the owners’ personal assets and liabilities, so be as clear as possible. When setting the price, the business owner must consider whether the price is consistent with the value reported to tax authorities for estate planning purposes. The spouse who is making payments might be required to maintain enough life insurance, retirement assets, or investments to pay off the obligation in full upon death or default. The other documents related to the sale of the business (installment note, security agreement, etc.) can be attached to the marital settlement agreement and signed at the same time.

2. Installment Note. The installment note states the price that a business owner must pay for a spouse’s share of the business, the timing and amount of each installment payment, and the consequences for late payments or default. If the payments will be made over a period of years, the note might include interest (particularly for late payments). An acceleration clause might make the entire balance due immediately upon sale of the business, death, bankruptcy, or other major events. In some jurisdictions, a confession of judgment clause might avoid the delay and expense of a collection lawsuit if there is a default. The majority owner might be required to provide a personal guarantee. The note can also be secured by a mortgage against real estate or lien on business assets, such as equipment and receivables.

3. Mortgage/Security Agreement. An installment note can be secured by a mortgage against real estate or lien on business assets, such as equipment and receivables. The lien against business assets can be recorded publicly by filing a UCC-1. In some cases, the business might want to subordinate the mortgage or security agreement so that trade creditors and lenders who demand higher priority will not withdraw their credit.

4. Pledge of Stock. A pledge agreement creates a lien on the stock of the business. The pledge agreement might contain representations and warranties about the financial condition of the business or give the selling spouse a right to vote the pledged stock or inspect the books until paid off. If dividends or distributions are paid, the pledge agreement might direct the proceeds to be paid toward the loan. The pledge can also restrict the sale, gifting or dilution of the stock.

5. Consent and Waiver. If the business owners have previously signed a buy-sell agreement or right of first refusal, giving the company or other owners a right to buy their shares, then they should probably obtain the consent of those other owners before transferring stock between themselves. A consent and waiver confirms that the company and other owners will not exercise their rights when divorcing spouses transfer their stock.

Military Divorce Law

by bvertz on May 7, 2011 • Comments Closed •

Recently in one of my cases (several, actually), I have encountered complex issues involving military retirement benefits for retired servicemembers. Fortunately, there is a lot of information out there, from the Department of Defense website to MOAA to Military.com. One of the best (read: most understandable) resources is a book published in 2006 by the American Bar Association, entitled “The Military Divorce Handbook.” For years it has sat on my credenza behind my desk as a handy reference.

I recently had the pleasure of meeting the author, Attorney Mark E. Sullivan, during the annual meeting of the American Academy of Matrimonial Lawyers in Chicago. Not only is Mark the expert on military divorce, but he can clarify the issues and present the alternatives without confusion or doubletalk. This post is a shout-out to Mark, who recently explained to me the nuances of the SBP.  His book is just as clear as his personal explanations; I can highly recommend it.