Family Law
Maryland Joins the ‘Irreconcilable Differences’ States
Maryland will become a no-fault grounds state for filing for divorce on October 1, 2023. Maryland will be adding irreconcilable differences and six (6) month separation to its rule books while also retaining the ground of mutual consent. This eliminates all fault grounds for divorce in Maryland. What does this mean? Well, back in the day, pre-October 1, 2023, one could file for divorce based on a fault ground like adultery, desertion, conviction of a felony, insanity, cruelty, or excessively vicious conduct. In the past, to obtain an absolute divorce, parties had to live separate and apart before they could even file for divorce. The change permits the court to grant an absolute divorce based on the grounds of a six-month separation for those living separately or together. This is in line with the law in many other states. Grounds for divorce that had to be proven in the past can still be considered when determining issues of custody and/or the division of marital assets. In the past, many residents of Maryland could not live separately from their spouses for the requested 12-month separation period due to limited finances. That is no longer a necessary requirement. This will certainly assist low-income families that could not afford to maintain two separate households while waiting to divide their marital assets. And folks no longer have to allege that the other spouse has been cruel or has committed adultery to get divorced. Beginning October 1, 2023, a Marylander may file for divorce on one of the following grounds: 1) irreconcilable difference, which has not been defined under the new statute, but one can presume it will include any reason the parties want to obtain a divorce; 2) mutual consent, which means the parties have reached and submitted to the court an agreement resolving all issues related to the marriage; or 3) six- month separation, which can be during the period with the parties residing in the same home. Maryland is also completely eliminating the ability to file for a limited divorce, where the parties may live apart but remain legally married on October 1, 2023. This change in the law will make it easier for Marylanders to obtain a divorce.
September 6, 2023
Family Law
What Does "No Fault" Divorce Mean?
Originally posted on 6/01/2019, no content changes. The Pennsylvania Divorce Code provides two no-fault grounds for divorce: Divorce by Mutual Consent and a Divorce based upon a One Year Separation. In the case of a divorce by mutual consent, the parties often are able to reach an agreement and memorialize the terms in a writing known as Marital Settlement Agreement, in advance or at the same time as the Divorce Complaint is filed. Other times, parties may reach an agreement and memorialize the terms after the Divorce Complaint is filed but before the expiration of the required one-year separation. In such cases, the parties can obtain a divorce decree by mutually consenting to the divorce by filing affidavits no less than ninety (90) days from the service of the Divorce Complaint. For all other cases, to avoid the necessity of requiring parties to meet the proof requirements of the fault-related grounds for divorce, a party can move a divorce matter to conclusion through court intervention following a one-year separation. Parties can be separated and still living in the same household. Proof of separation includes termination of an intimate relationship, separation of finances and representation to the community that the parties are separated. While the service of a Complaint for Divorce is a clear threshold for establishing a date of separation, a party can attempt to establish an earlier date of separation utilizing the applicable factors. The Pennsylvania Divorce Code provides for six (6) fault-related grounds for divorce: Desertion, Adultery, Cruel and Barbarous Treatment, Bigamy, Incarceration, and Indignities. Even if a divorce complaint is filed alleging one or more of the fault-related grounds for divorce, the no-fault grounds are almost always also included in the complaint. For more information on this topic please contact Megan Smith at msmith@offitkurman.com.
September 5, 2023
Family Law
Hotel Travel Tips
Have you ever wondered how you might be able to make the hotel experience more pleasant? Here are some things you may not have thought about. Some hotels send out pre-registration emails, asking for your preference as to pillows and the like. If given that opportunity, respond to the options they make available and others. They may or may not honor them, but it’s worth the effort. You may want to call your hotel to ask about some options that most do not take advantage of. If you want to be close to the elevator, have extra towels in your room, and perhaps even have an early check-in, this is the time to do it. The hotel may have more flexibility to honor your requests before you arrive. The one person who rarely gets a tip is the one checking you in. Interestingly, if you slide a $20 bill to them when you first arrive, you may receive a better room. If you’re staying a week, $20 is a small expense but may be a great incentive for some special treatment. Ask about a concierge floor. It may not be much of an additional expense, and the concierge floor often offers breakfast, afternoon snacks and evening desserts. Tip your maid every morning. If you have to turn down service in the late afternoon, leave a few dollars. The maids can take special care of you, leaving you extra water or shampoo, for example. If you wait to leave the tip until the day you leave, you have missed an opportunity. To avoid confusion, leave the tip on the pillow on a turned-down bed. That way, the maid knows it is there to take. Ask for your bill the night before you check out, so that you have an opportunity to review all of the charges before you are in a rush on the way out the door. Ask for a delayed checkout if that will help you. Generally, if you ask early enough in your stay, you can get a few more hours before you have to leave your room. If you have a late departure for the airport, schedule a spa day at your hotel or the best hotel in the city in advance and spend the afternoon at the spa. If you book just one session, you can spend the entire day in the sauna or steam room. Check carefully before you leave your room. It’s not a bad idea to have a written checklist that you keep in your suitcase so that you remember to check the outlets and the refrigerator before you leave. Ask for bottled water when you check in, when you leave the hotel, when you’re in the gym, and when you check out. Most hotels provide bottled water upon request.
September 5, 2023
M&A Nuggets
M&A Nugget: To Split or Not to Split (The Tax Years)
The sale of the stock of an S Corporation raises a tax issue. The S Corporation is a pass through entity, that is, its net income or loss is passed through to its owners and included on their individual tax returns. When the sale of an S Corporation occurs effective the last day of the tax year, there is no tax issue – the seller owned the business for the entire year prior to the sale and therefore reports all income from that year. A sale in the middle of a year, however, raises an issue. Absent an agreement, the income of the company is reported using the “per share per day” method. Under that method, a pro rata portion of the income for the entire year is allocated to the seller. The pro rata portion is the number of days the seller owned the company during the year divided by 365. However, the purchaser and seller can agree to use what is known as the “cutoff” or “specific accounting” method. Under this method, the tax year is split into two years, the first year starting on the first day of the year and ending on the day before the closing date and the second year beginning on the closing date and ending on the last day of the year. Under this method, the seller is allocated one hundred percent of the income attributable to the first tax year. These two methods of allocating income (or loss) can result in substantially different tax impacts on the seller and the purchaser. When an S Corporation is sold in the middle of the year, the decision of whether or not to split the tax years must be carefully considered.
September 4, 2023
Franchise Law
What’s a Biz Op?
What’s a business opportunity or, as we often say, a “biz op”? The Federal Trade Commission (FTC) regulates biz op sales under its authority to regulate unfair or deceptive trade practices. The FTC’s definition of a business opportunity differs from the definitions under the laws of the 26 states that regulate biz ops, and the states themselves have varying definitions. These laws impose anti-fraud obligations on the sellers of biz ops, and some require registration and disclosure. This post covers the FTC biz op rule (16 CFR Part 437). A separate post will address state biz op laws. The FTC began regulating the sale of biz ops throughout the U.S. in 1979 with the issuance of a trade regulation rule on franchising and business opportunities. In 1995, the FTC began a regulatory review of the 1979 rule. That review led to a new FTC franchise rule in 2007 and a separate new FTC business opportunity rule in 2012 in light of the significant differences between franchises and biz ops. The FTC staff report of November 8, 2010, noted that “franchises typically are expensive and involve complex contractual licensing relationships, while business opportunity sales are often less costly, involving simple purchase agreements that pose less of a financial risk to purchasers.” Accordingly, biz op offerings are subject to less imposing and costly compliance requirements. A “business opportunity” under the FTC rule means a commercial arrangement in which (i) the seller solicits a prospective purchaser to enter into a new business; (ii) the prospective purchaser makes a required payment; and (iii) the seller represents, expressly or by implication, orally or in writing, that the seller or its designee will do any one of the following: provide locations for the use or operation of equipment, displays, vending machines or similar devices owned, leased or paid for by the purchaser; or provide outlets, accounts or customers for the purchaser’s goods or services; or buy back the goods or services that the purchaser makes or provides. Unlike the FTC franchise rule, the required payment under the FTC biz op rule does not exclude purchases for less than $500. But like the franchise rule, payments for reasonable amounts of inventory at bona fide wholesale prices are not counted toward the required payment for a business opportunity. Franchises are exempted from the FTC’s biz op rule. The FTC business opportunity rule requires the biz op seller to provide to each prospective purchaser a one-page disclosure document at least seven calendar days before a prospective purchaser may sign any documents or pay any money to the seller. The disclosure document includes yes and no answers to the following questions: Has the seller or any of its affiliates or key personnel been the subject of a civil or criminal action involving misrepresentation, fraud, securities law violation or unfair or deceptive practices within the past 10 years? If yes, the seller must attach a list and brief descriptions of all such legal actions. Does the seller offer a cancellation or refund policy? If yes, the seller must attach a statement describing the policy. Has the seller or its salesperson discussed how much money a purchaser can earn or purchasers have earned? Have they stated or implied that purchasers can earn a specific level of sales, income or profit? If yes, the seller must attach an earning claims statement, as explained below. A biz op seller has the option to make an earnings claim or not. An earnings claim includes, among other things: “(1) any chart, table, or mathematical calculation that demonstrates possible results based upon a combination of variables; and (2) any statements from which a prospective purchaser can reasonably infer that he or she will earn a minimum level of income (e.g., “earn enough to buy a Porsche,” “earn a six-figure income,” or “earn your investment back within one year”).” (14 CFR §437.1(f).) The seller must have a reasonable basis for any earnings claim it makes, and the seller must have written materials that substantiate the claim at the time it is made. The seller must make the written substantiation available upon request to the prospective purchaser. The earnings claim itself must state the beginning and ending dates when the represented earnings were achieved and the number and percentage of all purchasers who achieved at least the stated level of earnings during the indicated period. The disclosure document must also include the names and telephone numbers of all people who have purchased the business opportunity within the last three years. If there are more than 10, the disclosure document may optionally include the 10 that are nearest to the prospective purchaser’s location. The purchaser signs and dates a duplicate copy of the disclosure document and sends it to the seller to evidence the disclosure. There is no federal filing requirement for biz ops, just as there is none for franchises.
September 4, 2023
M&A Nuggets
M&A Nugget: A Purchaser’s Representation and Warranties
The seller’s representations and warranties in the agreement for the purchase and sale of a business usually comprise many pages. For a seller, however, it is important to include several representations and warranties by the purchaser, including that: 1) the transaction has been properly authorized by the purchaser’s governing body; 2) the purchaser is not party to any litigation that could adversely impact the transaction; 3) the purchaser is in good standing under the laws of the State in which it is organized; and 4) the purchaser is not insolvent, or a party to a bankruptcy proceeding. So, even though the seller’s representations and warranties in an agreement far outnumber the purchaser’s, it is important to the seller that the warranties listed above be included. The failure of any one of those warranties could prevent the transaction from going forward or from being successful
September 1, 2023
Labor and Employment
U.S. Department of Labor Announces Proposed Rules Designating More Workers as Non-Exempt from Overtime
Today, the U.S. Department of Labor announced a proposal to “Define and Delimit the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” that would “restore and extend overtime protections” to millions of salaried workers if finalized. The proposal is currently publicly available on its website: https://www.dol.gov/newsroom/releases/whd/whd20230830. The Department of Labor’s proposed rule would, among other things: Increase the FLSA regulations’ standard salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). Automatically update earnings thresholds every three years to keep pace with changes in worker salaries. Increase the total annual compensation requirement for highly compensated employees from $107,432 to $143,988 per year in order to designate such workers as exempt. Revising definitions of the executive, administrative, and professional exemptions from overtime. Restore overtime protections for workers in U.S. territories. After the proposed rule is published in the Federal Register, individuals will be able to submit comments for a period of time to be determined by the Department. Employers, if so inclined, should submit comments opposing the new rules to potentially avoid these coverage exemptions. However, in the meantime, it is critical that employers correctly classify workers as exempt or non-exempt. The DOL takes no prisoners and demands double payments of unpaid overtime to all misclassified workers for three years prior to a complaint and fines employers. I have recently identified many expensive mistakes by several sophisticated employers. As always, please reach out to me if you have any questions.
September 1, 2023
Family Law
I Don't Have Many Assets...Do I Need A Pre-Nup In Pennsylvania?
Originally posted on 10/11/2019, no content changes. Regardless of a person’s current assets, a pre-nup is always prudent prior to entering into a marriage because a it can offer so many things other than just protecting the assets you have before your marriage: Pre-Marital Assets:Assets accrued prior to a marriage are largely protected from an equitable distribution (division of assets) incident to a divorce in Pennsylvania. However, the growth of those assets (i.e., increase in value) that occurs during the marriage will be considered part of the marital estate and subject to equitable distribution. Not only can a pre-nup protect the growth on the pre-marital assets during the marriage and ensure this increased value remains separate property (does not get divided incident to a divorce), but it can also take the case law and statutory protections that currently exist and extend those protections. For example, a pre-nup can extend protection in the event that a pre-marital asset is co-mingled or otherwise used for a joint purpose during the marriage. Without a pre-nup, co-mingling of a pre-marital asset often may be considered a gift to the marriage, and the pre-marital status may be lost. Assets Accrued During the Marriage: In Pennsylvania, assets and income accrued/earned during the marriage are largely considered “marital” property and thus subject to equitable distribution (division of assets incident to the divorce). A pre-nuptial agreement is able to exempt assets that may be accrued during the marriage as a party’s separate property, thereby avoiding distribution in the event of a divorce. Real Estate: Whether real estate is acquired before or during the marriage, if there is a mortgage or other maintenance/capital contributions to a home during the course of a marriage, same may give rise to a claim for equitable distribution of this asset. A pre-nup can clearly define what, if any, of a pre-marital residence or a residence purchased using pre-marital funds is or is not subject to division between parties incident to a divorce (example: pre-marital savings used for the down payment on the marital home). A pre-nup can go even further and provide one party the option to purchase the other party’s interest in real estate in the event of a divorce as well as a clause for vacatur of a home following a specified event (i.e., notice of wish for divorce or receipt of the filed Divorce Complaint). A pre-nup can even go so far as to address how bills will be paid and each party’s obligation to contribute, including addressing issues of unemployment, staying home with children, among other possibilities. Retirement Assets: Due to the fact that retirement assets are subject to equitable distribution, this is yet another reason for a pre-nup. If you are a saver and your significant other is not, do you want to give him/her half of your retirement savings in ten (10) years if your marriage ends? Whether retirement savings are accrued before or during a marriage, a pre-nup can address how such assets should be divided, as well as the growth on those accounts during the marriage. Gifts and Inheritances: Similar to pre-marital assets, gifts and inheritances by one party/spouse are largely protected from equitable distribution, however, a pre-nup can provide additional protections, including protection in the event of passive growth and co-mingling. Protections in the Event of Death: A pre-nup can provide protection of assets and elective share rights in the event of death. This allows you to leave your assets to whomever you wish (children, other family members, etc.) and prevents your spouse from taking against your estate under intestacy or elective share unless you specifically leave asset(s) to him/her under a will. For more information on this topic, please contact Megan Smith atmsmith@offitkurman.com.
August 31, 2023
Bankruptcy
Demystifying the Bankruptcy Process – Part Three
Originally posted on 09/15/2020, content updated on 08/31/2023 The COVID-19 pandemic created a lot of turmoil in every industry and every company. From March to September 2020, more than 200 companies in the energy, transportation, entertainment, health & personal care, retail, travel, lodging, and leisure industries cited COVID-19 as a factor in their decision to file for bankruptcy. The risk of dealing with a company in financial distress was at an all-time high. Understanding the bankruptcy tools available to a company that is on the path to or already in a court-supervised reorganization (known as a Chapter 11 proceeding) can help you manage and reduce this risk. Chapter 11 filers choose to opt for bankruptcy relief for various reasons: to stop debt collection action, to revise the unworkable capital structure, to address overwhelming litigation, to facilitate the sale of major assets to a prospective buyer, and to reject burdensome contracts, to name a few. Chapter 11 brings all stakeholders to one forum and facilitates the global resolution of claims and liabilities. It may have a different impact on the different stakeholders and this mini-series will cover the impact of a bankruptcy proceeding on trade creditors, distressed asset buyers, landlords, and the art world. The final summary is intended to help small business owners better understand how valuable a tool Chapter 11 can be during a time of crisis by availing themselves of the new restructuring mechanism for businesses (and individuals with business debt) with undisputed liabilities that do not exceed $7.5 million. What If You Are Interested in Buying Assets From A Company In Bankruptcy/Financial Distress The 2020 market conditions presented opportunities to acquire businesses at relatively good prices. Section 363 of the Bankruptcy Code provides a Chapter 11 debtor the opportunity to sell its assets free and clear of claims, liens, encumbrances, competing ownership interests, and other liabilities that may prevent a sale outside of Chapter 11. As a result, buyers are incentivized by the unique opportunity to purchase distressed assets inside of bankruptcy, especially because the bankruptcy court order approving the sale often expressly forecloses “successor liability” claims against the purchaser. With a growing number of cases where courts allow a traditional asset buyer (purchasing assets out-of-court) to become liable for the seller’s liabilities, a court-approved sale of all or part of the seller’s assets brings distinct advantages. Another benefit is the ability to cherry-pick favorable contracts and leases, including the ability to take over contracts even if they contain anti-assignment clauses. The bankruptcy court approval of a 363 Sale takes place in two stages. The first stage entails obtaining court approval of the bidding protection procedures. These procedures are described in a motion filed with the court. The second stage is the hearing on the sale of the assets itself when the bankruptcy court hears and rules on any objections to the 363 Sale. Standards for Approving 363 Sale The standard that the bankruptcy courts generally apply is whether a sound business reason supports the sale. The factors considered in this process include 1) the proportionate value of the assets to the estate as a whole, 2) whether the sale price is fair and reasonable under the circumstances, 3) the amount of time elapsed since the filing, 4) the effect of the proposed distribution on future plans of reorganization, 5) the proceeds to be obtained from the disposition compared to appraisals of the assets, 6) whether the asset is increasing or decreasing in value. When navigating that process, a company exploring options for buying assets from a bankruptcy estate should consult with bankruptcy counsel to evaluate available tools and establish a strategy. In case you missed it, read part one, two, four, and five here. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
August 31, 2023
Family Law
Domestic Violence: Now an Enumerated Factor in Determining Equitable Distribution
Originally posted on 12/11/2020, content updated on 08/30/2023 While New York was justifiably preoccupied with the COVID pandemic, its Governor at the time quietly signed into law a groundbreaking amendment to that portion of the state’s divorce law governing the distribution of marital property, directing that the Court, in determining the equitable distribution of property, to consider “whether either party has committed an act or acts of domestic violence … against the other party and the nature, extent, duration, and impact of such act or acts.” (2020 NY Senate-Assembly Bill S-7505-B, A-9505-B; New York Domestic Relations Law §236B(5)(d)(14), (as amended)).In New York, marital property is not automatically divided equally. Rather, the division of property is undertaken so as to ensure that there is an “equitable distribution,” based on an enumerated set of factors.[i] In New York, marital property is not automatically divided equally. Rather, the division of property is undertaken so as to ensure that there is an “equitable distribution,” based on an enumerated set of factors.[i] Equal at times may be equitable, and equitable at times may be equal. But they do not mean the same thing. “Equitable” is a model fixed in fair-mindedness. What is fair in the apportionment of assets fluctuates depending on the circumstances. A Court has great flexibility in fashioning an equitable distribution of marital assets subject to the fourteen (now fifteen) enumerated factors set forth in DRL § 236 (B)(5)(d)[ii], which include the: income and property of each party; length of the marriage; age and health of the parties; (any) support award; contributions, whether good or bad, to the acquisition of marital property; future financial circumstances of each party; and the wasteful dissipation of assets. Prior to the law’s amendment, the 14th and final factor was the universal legal catchall of “any other factor which the Court shall expressly find to be just and proper.” This 14th factor was rarely used by the Courts to include domestic violence in the consideration of the division of marital property. Courts have long been wary, indeed at times dismissive of the existence of domestic violence as a factor to be considered in influencing equitable distribution. This has been especially true since 2010, the year New York became a “No Fault” state – no longer requiring that one of six grounds of fault be proven before a divorce would be granted. As a result of no-fault divorce, the use of the one enumerated ground for divorce which permitted a party to interpose allegations of domestic violence, coercive control, physical and emotional cruelty in all forms, collectively referred to as “cruel and inhuman treatment” [iii] — has virtually vanished.[iv] Cases speaking to and utilizing noneconomic marital fault as a consideration in the division of marital property i.e., cruel and inhuman treatment — have been generally held to a standard wherein the Court determined that the abusive behavior was shocking to the conscience of the Court, i.e., “egregious or outrageous” — though those terms were never defined with any specificity.[v] Essentially, if the act or acts of domestic violence proffered to a Court did not rise to that particular Judge’s individual interpretation of egregious or outrageous conduct, then the act or acts were not considered in the context of DRL §236B. Now, however, with the amendment of Domestic Relations Law §236B(5)(d)(14), judges must include in their determinations of the equitable distribution of marital property all acts of domestic violence, in all of their iterations. Domestic violence as a consideration is no longer “left to the fates.” Rather, its existence is a specific factor that the Courts are required to confront, address and measure in their apportionment of marital assets. [i] K. v B., 13 AD3d 12, 17 (1st Dept 2004). [ii] G.R. v K.R., 2020 NY Slip Op 50976(U). August 21, 2020. Sup.Ct., New York County, Cooper, J. [iii] DRL 170(1): Cruel and inhuman treatment such that the conduct of the defendant so endangers the physical or mental wellbeing of the plaintiff as renders it unsafe or improper to cohabit with the defendant. [iv] Though it remains a viable ground for divorce, as do the other previously existing grounds for divorce. [v] Blickstein v. Blickstein, 99 A.D.2d 287 (2nd Dept. 1984),
August 30, 2023
Business
M&A Nugget: Licenses – Odds and Ends
When acquiring a business, it is important to understand the licenses needed to operate that business. Some licenses, such as professional and contractor’s licenses, are obvious. There are many business activities that do not shout out as requiring a license, but for which the license is integral to operate the business. Here are a few examples: Locksmithing License Well Drillers License Salvage Yard Permit Bottled Water License Fire Sprinkler Contractors License Taxidermy License Licenses are either required to be held in the company’s name, a designated individual’s name, or both. There may be different levels for a particular license, such as master, associate or apprentice. Usually, even with a license in the company’s name, an individual who has gone through training and licensing, must be listed. For the purchaser entering into a new business, it can take weeks or even months to obtain the necessary licenses. It is therefore often crucial that the licensed individual agrees to allow the purchaser to continue to use the license and to provide services to the purchaser post-closing. The bottom line is that the purchaser and seller must plan for the purchaser to be able to operate with the requisite licenses on the closing date.
August 30, 2023
Family Law
Divorce in New Jersey - Gathering Data
Originally posted on 2/21/2019, no content changes. Information is power. In order to be in a position to deal with issues in your divorce case, you must have information concerning assets, debts, income and expenses. No agreement or settlement can be considered fair unless you have full knowledge of the marital finances. Toward that end, you should begin gathering information on income, expenses, an itemization of all accounts, pension information, employment benefits, insurance information and all other financially relevant information at the outset of your case. Do not assume that you know the answers. Do not trust your spouse's verbal representations. Do not be overly suspicious or distrustful. In virtually every case, the basic information which you should begin gathering are copies of: The past three years' personal tax returns. The current year's bank statements. The current year's brokerage account statements. The current year's credit card statements. Any quicken or a similar computer software program itemizing your expenses. The last three years' year-end employment benefit statements for you and your spouse including 401(k) plans, pension, deferred stock, stock options or deferred compensation. Copies of any life insurance policies. Policy numbers, insurance company names and coverage limits for health, auto and homeowners insurance policies. In any case in which one of the spouses is self-employed, owns a small business or is a shareholder in a closely held corporation, you should also try to obtain copies of: The past three years' tax returns for the business. The past three years' financial statements for the business. Any loan applications with supporting financial statements submitted to a lender by the business. Any Buy-Sell Agreements. As you and your attorney begin to see the financial records, you should discuss with your attorney whether you need to employ a forensic accountant. If there are assets which cannot be located or easily defined, if there appears to be unreported or cash income or if there is a professional practice or business to be evaluated you will almost certainly need to engage an accountant. In some cases, we do encounter a spouse who will deliberately attempt to conceal the records, and if that happens in your case, you and your attorney must take a much more aggressive and proactive approach. For example: If you know there is cash in your home, you should take it into your possession and immediately inform your attorney. If you know there is a second set of books or business records, you should copy them, seal the copies in an envelope and mail them to your attorney. The postmark will identify the date in which you obtained and mailed the records, the integrity of them can then be protected by your attorney's office. If you begin to see mail or financial statements that are not familiar to you, make copies. If you have access to your spouse's cell phone records, make copies. Make copies of any credit card statements whether they are your accounts, your spouse's accounts or joint accounts. The more information you can gather, the better informed you and your attorney will be as you begin the formal discovery process discussed later. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 29, 2023
Bankruptcy
Demystifying the Bankruptcy Process – Part Two
The COVID-19 pandemic created a lot of turmoil in every industry and every company. From March to September 2020, more than 200 companies in the energy, transportation, entertainment, health & personal care, retail, travel, lodging, and leisure industries cited COVID-19 as a factor in their decision to file for bankruptcy. The risk of dealing with a company in financial distress was at an all-time high. Understanding the bankruptcy tools available to a company that is on the path to or already in a court-supervised reorganization (known as a Chapter 11 proceeding) can help you to manage and reduce this risk. Chapter 11 filers choose to opt for bankruptcy relief for various reasons: to stop debt collection action, to revise unworkable capital structure, to address overwhelming litigation, to facilitate the sale of major assets to a prospective buyer, and to reject burdensome contracts, to name a few. Chapter 11 brings all stakeholders to one forum and facilitates global resolution of claims and liabilities. It may have different impacts on the different stakeholders, and these mini-series will cover the impact of a bankruptcy proceeding on trade creditors, distressed asset buyers, landlords, and the art world. The final summary is intended to help small business owners better understand how valuable a tool Chapter 11 can be during a time of crisis by availing themselves of the new restructuring mechanism for businesses (and individuals with business debt) with undisputed liabilities that do not exceed $7.5 million. Post-petition services and goods – What if you are a supplier of goods and services faced with the decision to continue working with a company in a Chapter 11 proceeding? A business may find itself in a difficult position if prebankruptcy payment default remains outstanding and the debtor still seeks performance post-petition. In general, a Chapter 11 debtor may assume, assign, or reject an unexpired contract or lease at any time prior to confirmation of a plan. The confirmation of the plan may occur six months and (typically) more after the commencement of the case, which creates a lot of uncertainty for the non-debtor party to the contract. In such a case, a trade creditor remains obligated to perform under the nonterminated contract so long as the debtor complies with its terms. Although the Bankruptcy Code mitigates further exposure by giving the administrative expense priority over even secured claims, payment is not guaranteed. What is an administrative expense priority? When a company is operating during the restructuring process, post-petition business transactions undertaken at the debtor’s discretion – such as the supply of goods and services necessary for the debtor’s operations — can receive administrative priority if transacted in the ordinary course of business. Section 507(a)(2) of the Bankruptcy Code provides that each of these kinds of administrative claims is entitled to priority of payment over, among other things, the general unsecured pre-petition claims of creditors. Under the appropriate set of facts, a contract counterparty may move the bankruptcy court to shorten the long waiting period the debtor company has for assumption and rejection of contracts. Bankruptcy courts have developed a multi-factor balancing test that weighs the harm to the party seeking such relief against the harm to the bankruptcy estate. Courts look at the interests of the creditors collectively and the bankruptcy estate as a whole against the position of one creditor out of many. Counterparties face significant hurdles in prevailing on such motions, but it is not impossible. Trade creditors in this situation should closely monitor the debtor’s post-bankruptcy performance and seek relief from the bankruptcy court if necessary. In case you missed it, read part one, three, four, and five here. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
August 28, 2023
Business
M&A Nugget: Related Party Transactions
It is important that the purchaser investigate related party transactions when conducting due diligence. A related party transaction is a transaction or a contract between the target and another company controlled by, or related to, the owners of the target. An example of a related party transaction that is often encountered is a real estate lease between the owner of the target and the target. Another example is a key supplier agreement between the target and a relative of the target’s owner. Related party transactions must be examined to determine whether they are priced at fair market value. Often these arrangements are priced at higher than fair market value to benefit the related party. Another factor to consider is whether the related party will continue doing business with the purchaser post-closing, especially if the related party is a key supplier of goods or even a sole source provider. I have encountered situations where the key supplier was the target owner’s relative, and while more than happy to do business with the target on generous terms, would not commit to continuing those terms with the purchaser. So, as part of the purchaser’s due diligence, related party arrangements must be asked about and investigated.
August 28, 2023
Family Law
Divorce in New Jersey - Discovery
Originally posted on 3/12/2019, no content changes. Discovery is a variety of processes which are designed to accomplish exactly what the word implies: to discover additional information or factual data. The scope of discovery is very broad. Simply stated, the rule is that you can ask for everything which is relevant “or may lead to relevant information.” There are various types of discovery. Some of the most common are: Interrogatories - Interrogatories are written questions which you submit to your spouse, which must be answered in writing and under oath. There is a tendency to ask broad, all-encompassing questions in order to avoid the risk that something may be overlooked. However, many times, such an approach to discovery is ineffective and unproductive. On the contrary, carefully phrased, very specific questions are more likely to produce specific responses which will be helpful to you and your attorney. Notice to Produce Documents - Notice to Produce Documents requires your spouse to produce any documents which are relevant to the case and which are either in their possession or subject to their control, such as employment records, bank or brokerage accounts which are in their name, or pension and IRA account statements. Oral Depositions - In some states, this proceeding is called an Examination Before Trial. That is exactly what it is. It is your attorney’s opportunity to examine or to take testimony from your spouse or any other witness before trial. They are placed under oath so that all of their answers are “sworn testimony.” The proceeding is in the presence of a Court Reporter who records the questions and answers verbatim. The questions and answers of your spouse are evidential and can be submitted directly into evidence at the time of trial. For other witnesses, they can be very valuable tools to confront and contradict statements made at the time of trial. Appraisals - Appraisals are regularly conducted to determine or verify the value of a specific asset for the purpose of dividing the same incident to equitable distribution. Experts are retained and utilized for this purpose. Assets that are often subject to appraisal incident to a divorce include real estate, businesses, pensions, jewelry, artwork, and vehicles. Very often, clients are concerned that their spouse will not respond to interrogatories or notices to produce and/or will stall, delay or refuse to appear for an oral deposition. Those are understandable but not reasonable concerns. The Court will enforce reasonable discovery requests and will be very impatient with a party who has frustrated or unreasonably delayed discovery. The Court may: Limit or bar a person’s trial testimony if they have not cooperated with discovery; Assess counsel fees against the offending party; or In some instances, impose monetary sanctions and penalties against the offending party. Remember, on the other hand, that Discovery is a “two-way street.” While you have every right to require your spouse to participate in Discovery, you, correspondingly, have the obligation to respond to reasonable requests from your spouse. If properly conducted, Discovery will provide both parties with an information base to allow them to negotiate fairly and enter into a Settlement Agreement. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 25, 2023
Immigration Law
Checklist for Marriage Based Immigration Petitions For U.S. Citizens wishing to Sponsor Foreign National Spouses
Below is a list of documents required to file for a spouse-based I-130 immigrant petition: I-130 Spouse Petition Document Requirements I-130 by U.S. citizen (USC) G-28 for USC I-130A for foreign spouse G-28 for foreign spouse USCIS filing fees* ($535 as of 11/15/18) One passport photo of U.S. citizen One passport photo of foreign spouse Proof of U.S. citizenship: copy of U.S. passport, Certificate of Naturalization Copy of marriage certificate Copy of any divorce decrees Copy of any name change documents Copy of joint bank account, utility bill, health insurance, lease agreement, auto insurance, or other documents showing that you and your spouse have combined financial resources Birth certificates of children born to you and your spouse together Written statements of support (affidavits) by third parties having personal knowledge of the marriage Any other documents to show that there is an ongoing marital union *NOTE: Filing fees are subject to frequent revisions, as are the forms and requirements. For the current fee amounts please check the USCIS website I-130 page. This has the most current instructions, I-130 and I-130A forms and information on where to file.[1] If the Beneficiary (foreign spouse) is in the U.S. they will also file for the Adjustment of Status. Below is a list of documents needed: I-485 Adjustment of Status I-485 Form by foreign spouse Forms G-28s from USC and foreign spouse Two passport photos of foreign spouse USCIS filing fees* ( $750 to $1,225 depending on age, as of 11/15/2018. No fee for those admitted to the U.S. as a refugee) Foreign birth certificate [copy] with English translation Copy of passport page with visa stamp for foreign spouse – for all U.S. visas issued to them within, copies of OPT/EAD card etc. if applicable Copy of any criminal records Form I-864 signed by USC and spouse Tax return, pay stub, offer letter [copy] Passport of foreign spouse [copy]/ passport of USC Form I-864A signed by foreign spouse and USC [if applicable] *NOTE: Filing fees are subject to frequent revisions, as are the forms and requirements. For the current fee amounts please check the USCIS website I-485 page. This has the most current instructions, I-485, I-864, and I-864A forms, and information on where to file.[2] I-765 Application for Employment Authorization I-765 by foreign spouse Two passport size photos of foreign spouse Form G-28 by foreign spouse No separate filing fees are required if filed with a marriage based adjustment application NOTE: For the I-765 please visit the USCIS website I-765 page for the most current I-765 form and instructions. [3] I-131 Application for Travel Document I-131 by foreign spouse Two passport photos of foreign spouse Form G-28 by foreign spouse No separate filing fees are required if filed with a marriage based adjustment application NOTE: For the I-131 please visit the USCIS website I-131 page for the most current I-131 form and instructions.[4] Additional Notes About All Forms: Any foreign language document will also need an English translation Original ink signatures will be needed for all forms and all affidavits [1] https://www.uscis.gov/i-130 [2] https://www.uscis.gov/i-485 [3] https://www.uscis.gov/i-765 [4] https://www.uscis.gov/i-131
August 24, 2023
Business
M&A Nugget: Cyber Insurance – The Tail
As data breaches have become larger (think Equifax, Target, and Yahoo) and more frequent, buyers and sellers should pay more attention to cyber insurance. Cyber insurance provides coverage for risks that arise out of the use of devices that maintain data, including computers and mobile phones. The insurance has existed for years, and generally covers losses incurred by the insured and claims of third parties seeking to be compensated for a data breach. One issue that arises with cyber insurance is that it is usually issued on a “claims-made” basis, which means that, for a loss to be covered, the claim must occur while the insurance policy was in place or within a specified period after the policy lapses. The problem with this is that cyber incidents may not be uncovered until well after the coverage period lapses. This is where tail insurance comes in. The inclusion of a tail provision extends the time during which a claim can be reported and therefore covered. Another way for a buyer to close the gap in coverage that exists with claims-made policies is to purchase cyber insurance with a retroactive coverage date, that will cover cyber incidents that occur before closing. The bottom line here is that with the increase in cyber security breaches, the buyer and seller need to ensure seamless coverage for incidents that occur before closing.
August 24, 2023
Family Law
Avoid Future Arguments with Your Ex By Using A Parenting Plan
Divorce can mark the end of a conflict or the beginning of many more. The difference frequently comes down to the parenting plan—whether one exists and, if so, what it does and doesn’t cover. A parenting plan is an agreement between individuals over child custody. Parents undergoing a divorce or separation may decide to use one for numerous reasons: to spell out the terms of a complex custody arrangement, to avoid future litigation, or simply because state law requires them to submit a plan. As with any legal document, the way a parenting plan is written matters. A well-drafted plan eliminates uncertainty over custody matters and safeguards the best interests of the parents—as well as their children—in the event of a dispute. An ambiguous plan, on the other hand, can create friction and stress. And when no plan is in place at all, the parents are setting themselves up for countless future arguments, big and small. Let’s start with the big ones. Without a parenting plan, parties involved in a divorce may clash over child custody and visitation rights, as well as various related personal and financial issues: Will one person be the primary caregiver, or will each parent spend time with the child or children? When, where, and for how long? How will the parents split monetary responsibilities, such as tuition and medical costs? Who gets to decide the cultural, linguistic, and religious environment(s) in which the child or children are raised? What if a new spouse enters the picture? Will that person gain parenting rights? What if a parent moves out of state, or out of the country? As important as those questions are, they shouldn’t entirely eclipse other, smaller matters. Seemingly trivial details can spark major disagreements: Who will be transporting the child or children from one parent’s residence to the other? What happens if a parent can’t visit or take custody of their child or children for a given period? Should they be allowed to schedule additional time or is it forfeited? Should one parent be allowed to significantly alter a child’s appearance, e.g. with a new haircut or piercing, without the other parent’s knowledge? How much control does a parent have over which activities the child or children can engage in while under the other parent’s care? What if a parent becomes seriously ill, or can’t take care of the child or children for another reason? If an unexpected conflict arises, how will the parents resolve the dispute? What’s the best way to avoid a court battle? When determining child custody and visitation, these are only a few of the many questions you need to consider. The sooner you discuss your plans with an attorney, the better your chances. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
August 23, 2023
Franchise Law
What’s an Exclusive Territory?
The extent of a franchisee’s territorial rights is the subject of Item 12 of the franchise disclosure document (FDD). One of the questions franchisors must address in Item 12 is whether the territory is exclusive. If the territory is not exclusive, the Federal Trade Commission’s trade regulation rule on franchising (the FTC Rule) requires that Item 12 contain this statement: You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. So what does “exclusive territory” mean? Not surprisingly, an “exclusive territory” means a geographic area within which “the franchisor promises not to establish either a company-owned or franchised outlet selling the same or similar goods or services under the same or similar trademarks or service marks,” as stated in FAQ 25 of the FTC’s “frequently asked questions”. So far so good. But the definition became complicated on October 16, 2012, when the FTC Staff issued FAQ 37, modifying the definition of an exclusive territory. FAQ 37 addresses the case in which the franchisor reserves the right to open franchised or company outlets in “non-traditional venues” like airports, arenas, hospitals, hotels, malls, military installations, national parks, schools, stadiums and theme parks. In FAQ 37, the FTC staff states that the franchisor’s reservation of the right to open franchised or company outlets in non-traditional venues is not just an exception to the grant of territorial exclusivity. Instead, it renders the entire territory nonexclusive. Non-traditional venues v. alternative channels of distribution The FTC staff distinguishes “non-traditional venues” from “alternative channels of distribution”. The FTC Rule specifically requires franchisors to disclose in Item 12 whether the franchisor or an affiliate reserves the right to sell in the franchisee’s otherwise “exclusive territory” through alternative channels of distribution “such as the Internet, catalog sales, telemarketing, or other direct marketing, to make sales within the franchisee’s territory using the franchisor’s principal trademarks.” FAQ 25 indicates that such a reservation of right does not change the fact that the grant is exclusive. The FTC staff views non-traditional venues like airports, arenas, hospitals, hotels, malls, military installations, national parks, schools, stadiums and theme parks as something different than “alternative channels of distribution”. The distinction is based on the fact that non-traditional venues are physically located in the franchisee’s territory. The FTC staff distinguishes sales from a physical location from sales via the Internet or mail order that may originate from a location outside the territory. Accordingly, a franchisor that reserves the right to sell through “non-traditional venues” must state in Item 12 that it does not provide an exclusive territory and that the franchisee may face competition from the franchisor and other franchisees. Donut holes do not compete This interpretation of non-traditional venues does not reflect market realities. Another way to look at non-traditional venues (but not the way the FTC Rule views it) is that they are donut holes in the otherwise exclusive territory of the donut. Non-traditional venues typically redraw the territory to look more like a glazed donut with a hole in the middle than a jelly donut without one. The donut hole is the non-traditional venue. Sales via the Internet or mail order can compete in fact with a store in any physical location. By contrast, sales in non-traditional venues typically do not compete with stores outside of those locations, even those in close geographic proximity. These venues typically constitute a separate market. An airport, hospital, hotel, military installation, park, school, stadium or theme park is distinct from the surrounding geographic area. The people in those venues are there for a reason. They are a captive market for the outlets in those venues. People located in a non-traditional venue do not commonly leave the venue to shop or eat elsewhere while they are awaiting their scheduled flight or attending classes, or in the middle of a sports event or a visit to a theme park. They are in the venue for a specific reason. They are a captive market. Similarly, a person who lives outside of an airport, hospital, school, stadium or a theme park does not enter that venue in order to shop or eat at a particular franchised store or restaurant. Non-traditional venues are often distinct islands within a larger geographic territory that otherwise can be exclusive to the franchisee within the meaning described in FAQ 25. Outside of these non-traditional venues but within the boundaries of the franchisee’s territory, the franchisor can indeed promise that it will not “establish either a company-owned or franchised outlet selling the same or similar goods or services under the same or similar trademarks or service marks.” The franchised and company outlets in the non-traditional venues may pose no competition whatsoever to the franchisee. On the contrary, they may enhance the brand for the benefit of all franchisees. Non-traditional venues are usually defined as such for the very reason that they do not compete with locations in the rest of the territory. Counter-intuitive disclosure The FTC Rule requires that franchisors who reserve rights in non-traditional venues state in Item 12 that the franchisee may face competition from the franchisor or other franchisees. The problem is that this statement may be untrue. The franchisor may not actually compete with the franchisee in the exclusive territory. They do not make the actual territory granted nonexclusive. Yet the FTC Rule does allow franchisors who reserve the right to make Internet or mail order sales to say that the franchisees receive exclusive territories, even though Internet and mail order sales may actually compete with the businesses of franchisees. Unfortunately, the disclosure requirements regarding territorial exclusivity in Item 12 are far from intuitive. They do not advance the plain language goal of franchise disclosure regulation generally. It’s probably too late, but it might have been better to define a non-traditional venue as one that constitutes a captive geographic market that does not compete with the market in the surrounding areas. This would have allowed franchisors to disclose that the territory granted is exclusive notwithstanding a reservation of rights in non-traditional venues. On the positive side, the approach required by FAQ 37 is uniform, so that no franchisor will be at a disadvantage vis-à-vis its competition by disclosing that the territory is non-exclusive when it feels and functions as an exclusive territory. The competition must make the same disclosure.
August 23, 2023
Family Law
Divorce in New Jersey - Filing a Complaint
Originally posted on 2/21/2019, no content changes. Oftentimes, it is difficult to get a client to file the Complaint for Divorce. They may be reluctant to do so for religious or moral reasons or sometimes because they simply do not want to be the person who initiated the divorce. On the other hand, some clients want to prematurely file the Complaint out of anger of resentment. Try to avoid making the decision for such reasons. Discuss with your attorney whether there are any legal issues which may affect the timing of the divorce filing. Sometimes, there are medical insurance issues, sometimes there are pending changes regarding your assets, or sometimes there are significant pending changes in your income of employment status. Any of those could significantly affect the decision as to whether or not a Complaint for Divorce should or should not be filed. Absent such legal considerations, is usually does not make any difference who files first or on what grounds. As to the grounds for divorce, New Jersey has “no fault grounds." Irreconcilable differences is now the most often used no-fault ground. However, notwithstanding the ease of using such ground, you should review with your attorney whether or not a fault ground should be used. In some cases, the fault may be so egregious or may have such a significant impact on the family finances that it should be used. For examples, a history of violence, substance abuse or alcoholism may be very important with regard to parenting issues. Or, a long history of infidelity, particularly when family income or resources have been squandered on extramarital affairs, may be relevant as to how the remaining assets should be distributed. Or, fault which involves or affects the children may be relevant to custody issues. When considering a fault ground, however, a word of caution is appropriate. You should not be over zealous. For examples, you may not want to call instances of marital infidelity with a subordinate to the attention of your spouse’s employer if to do so may result in them losing their job. Similarly, unnecessarily or inappropriately disclosing unreported income may result in IRS liens or penalties, which could be minimized of avoided with a more reasoned approach. If the disclosure of such matters is important to your case, your attorney can discuss with you the use of arbitration or another alternative dispute resolution. The date of the filing of your complaint for divorce is an important date. It will serve as the baseline or starting point for the determination of your financial status relative to your divorce. Therefore, discuss it carefully with your attorney. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 22, 2023
Bankruptcy
Doing Business Amid Increasing Russian Sanctions
Originally posted on 03/19/2019, content updated on 08/22/2023 With Russia in the headlines almost every other day over the last several years, the U.S. government has introduced and progressively increased economic sanctions targeting certain Russian individuals and companies. Big banks and insurance companies have always been sensitive to trade sanctions regimes and have well-developed compliance systems in place. However, the time has come for small and mid-size businesses to put aside the optimism bias and actively manage the risks associated with doing business involving Russian companies under U.S. law. Unlike an embargo – which is a comprehensive ban blocking all transactions within a country – the Russian sanctions regime involves asset-blocking and restrictions on specific transactions. The sanctions started in March 2014 as a response to the Ukraine and Crimean crisis and have progressively developed. The relevant rules are embodied in U.S. Executive Orders 13660, 13661, 13662, 13665, 13685, 13694 and 13757, the Ukraine Freedom Support Act (“UFSA”), the Support for the Sovereignty, Integrity, Democracy and Economic Stability of Ukraine Act of 2014 (“SSIDEA”), Countering America’s Adversaries Through Sanctions Act (“CAATSA”). CAATSA codified existing sanctions issued through Obama-era executive orders, strengthened and expanded sectoral sanctions and threatened imposition of secondary sanctions for various activities that lack any nexus with the U.S. Is there a particular reason CAATSA needs a description but the others don’t – it’s the most comprehensive one. The Treasury Department’s Office of Foreign Asset Control (OFAC) promulgates and implements the regulations in connection with the sanctions regime and maintains a comprehensive list of Specially Designated Nationals and Blocked person (the “SDN list”). OFAC adds individuals and companies to the SDN list frequently, and it is essential to monitor and follow current law before entering into a transaction involving Russian individuals and entities. Which activities are prohibited? 1) Blocking sanctions prohibit dealing with specific individuals and entities which have been listed on the “SDN List.” U.S. persons are prohibited from engaging in any transactions with SDNs and are required to freeze any property or interests belonging to SDNs. 2) Sectoral sanctions prohibit certain types of transactions in selected sectors of the Russian economy listed in OFAC’s Sectoral Sanctions Identification List (the “SSI List”). The sectoral sanctions target entities in Russia’s financial, energy, defense and oil exploration and production sectors. CAATSA authorized the creation of new sectoral sanctions against entities operating in the railway, metal and mining sectors. 3) An embargo against Crimea prohibits new investments in the Crimea region, the importation in the U.S. of any goods, services, or technology from the Crimean region, the exportation, re-exportation, sale or supply of any goods, services, or technology to the Crimea region, and any approval, financing, facilitation, or guarantee by a U.S. person. Who should comply? The regime includes primary and secondary sanctions. Primary sanctions prohibit certain activities with connection to the U.S. and target U.S. persons. This includes activities that involve U.S. companies, U.S. citizens and green card holders regardless of where they reside or touch upon U.S. territory. The secondary sanctions target conduct with no nexus to the United States and are aimed at discouraging non-U.S. entities from engaging in certain Russian-related transactions. If such non-U.S. entities engage in prohibited conduct, they may be designated on the SDN list or otherwise sanctioned. In view of the dynamic nature of the sanctions regime, U.S. companies should carefully review their activities for exposure to sanctioned entities and sectors and enhance due diligence to monitor sanctions development. Partial sanctions – like the Russian ones – increase uncertainty because the rules frequently change. Between starting the negotiations and closing a transaction, your counterparty may find itself on a sanctioned entities list. Hence, it becomes essential for companies of all sizes to institute compliance programs that take into consideration the new reality. If you have question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
August 22, 2023
M&A Nuggets
M&A Nugget: The CPA – An Integral Advisor on the Deal
In a merger transaction, sellers should enlist the aid of their CPA throughout the sale process, from beginning to end. Here are but a few of the many reasons: First, near the inception of the deal, the CPA, who knows the seller’s books and records and finances well, can act as an advisor to the seller on the financial merits of the deal. Indeed, many CPA firms have specialists in business valuations, who can suggest a range of values the seller should be looking for. Second, an important financial decision in an asset sale is how the purchase price is to be allocated among the assets sold. Depending upon the allocation, there can be significant out of pocket tax consequences to the seller. Again, the seller’s CPA should be consulted to determine the purchase price allocation. Last, purchase agreements contain many representations and warranties by the seller regarding the target’s financial statements, tax returns and books and records. The seller’s CPA should always be consulted to review these specific representations and warranties for accuracy. The sale of your business is one of the most important events in your life, so make sure to include one of your most important advisors: your CPA.
August 21, 2023
Bankruptcy
Demystifying the Bankruptcy Process – Part One
Originally posted on 08/18/2020, content updated on 08/21/2023 The COVID-19 pandemic created a lot of turmoil in every industry and every company. From March to July 2020, at least 171 companies in the energy, transportation, entertainment, health & personal care, retail, travel, lodging, and leisure industries cited COVID-19 as a factor in their decision to file for bankruptcy. The risk of dealing with a company in financial distress was at an all time high. Understanding the bankruptcy tools available to a company that is on the path to or already in a court-supervised reorganization can help you manage and reduce this risk. Reorganizations in a Nutshell: Chapter 11 of the Bankruptcy Code governs the restructuring of businesses and individuals’ assets and liabilities. It provides financially distressed companies and individuals with protections that are attractive for the debtor. Among the key benefits of the US reorganization regime are: The management stays in control of the company, and an outside trustee/administrator is not brought in unless there are extraordinary circumstances; The company can cherry-pick beneficial contracts and reject burdensome ones; The company can sell its business, selected business lines or individual asses free and clear of any encumbrances or interests. Chapter 11 filers choose to opt for bankruptcy relief for various reasons: to stop debt collection action, to revise unworkable capital structure, to address overwhelming litigation, to facilitate the sale of major assets to a prospective buyer, and to reject burdensome contracts, to name a few. Chapter 11 brings all stakeholders to one forum and facilitates the global resolution of claims and liabilities. It may have different impact on the different stakeholders and these mini-series will cover the impact of a bankruptcy proceeding on trade creditors, distressed asset buyers, landlords, and the art world. The final summary is intended to help small business owners better understand how valuable a tool Chapter 11 can be during a time of crisis. What to keep in mind if you are a supplier of goods and services to a distressed company (or in other words, a trade creditor) with a number of open invoices: The commencement of a Chapter 11 proceedings is an automatic prohibition on any action which has the purpose and result of collecting a debt or taking possession of property or assets of the debtor. These include: The commencement or continuation of legal proceedings against the debtor to recover a claim that arose prior to the petition being filed; The enforcement of a prepetition judgment against the debtor or against property of the bankruptcy estate; An act to obtain possession of, or exercise control over, property of the estate; An act to create, perfect or enforce any lien against property of the bankruptcy estate; An act to create, perfect or enforce any lien against property of the debtor, any lien to the extent that such lien secures a prepetition claim; An act to collect, assess or recover a prepetition claim against the debtor; The setoff of any debt owing to the debtor that arose before the commencement of the case against any claim against the debtor; If there are open outstanding invoices that have accumulated over the months (hopefully not years) before your customer’s bankruptcy, you typically would not receive a payment, if any, unless there is a court approval for such payment. A restructuring company in a chapter 11, referred to as a “Debtor in Possession” (“DIP”) generally cannot pay pre-petition debts post-petition until a plan, governed by the Bankruptcy Code priority system and requirements, is confirmed. Critical Vendor Programs There are, however, exceptions to the rule. A potential avenue to receive payment on pre-petition invoices early in the restructuring process is through a critical vendor program. Pursuant to Section 363 of the Bankruptcy Code, a bankruptcy court has the power to authorize a debtor in possession to expand funds outside of the ordinary course of business and has broad flexibility in tailoring its orders as long as the debtor in possession can articulate business justification. The court approval of a critical-vendor program usually requires a DIP to establish that: (1) the vendor is necessary for the successful reorganization, (2) the transaction must be in the sound business judgment of the debtor and (3) the favorable treatment of the critical vendor should not prejudice other unsecured creditors. Debtors in possession consider various factors when identifying critical vendors, among which are whether each vendor (i) provides unique or specifically designed goods or services that are crucial to the continued operation and preparedness of the debtors’ business, and for which no ready alternative and appropriately qualified vendors can be found with reasonable diligence; or (ii) provides essential goods and services, for which replacement with alternative vendors would be prohibitively expensive due to the time required to replace the existing vendor’s institutional knowledge of the debtors’ businesses, the lead-time required by any alternative vendors, required authorizations and clearances alternative vendors would need to obtain through third-parties, the alternative vendors’ geographical remoteness from the debtors’ operations and/or the preferential terms that have been locked in with the current vendor. To take advantage of critical vendor programs, trade creditors in this situation should closely monitor the debtor’s submissions in the first days and weeks of the proceedings. In case you missed it, read part two, three, four, and five here. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
August 21, 2023
Family Law
Getting Divorced? Get Ready for Your New Financial Reality
Hardly anyone has walked away from divorce financially better off than they were before. Contrary to popular belief, people almost never marry intending to split up and lay claim to their spouse’s money. Rather, after a long period of conflict, divorce becomes the only option—and both parties typically find themselves unprepared for their new financial realities. For the individual supporting their ex-spouse, divorce creates obvious monetary burdens. It means bearing a portion of another person’s living costs as well as one’s own—two sets of car payments, food costs, rent or mortgage payments, and so forth. If you’re the higher earner, the good news is that you won’t need to handle these expenses completely or manage them directly. As long as you make your spousal support (and, if applicable, child support) payments on time, all you need to do is worry about your own finances. It’s up to your spouse to figure out the rest for themselves. In fact, lower earners are the ones who often face more difficult obstacles after a divorce. They frequently discover that spousal support alone isn’t sufficient for meeting their financial obligations. They may need to sell property, take a second (or third) job, significantly downsize their lives, or all of the above. It’s worth noting that lower earners are usually women. In the majority of heterosexual marriages, husbands still earn more money than their wives. At the same time, because they’re most likely to get primary custody of the children, women may have greater household expenses—and less freedom to advance their careers—than their male ex-spouses. These unfortunate realities should prompt any woman considering a divorce to carefully plan ahead, determine financial details in advance, and be ready for the unexpected. Regardless of your financial position or the particulars of your marriage, don’t let the impact of a divorce catch you off-guard. Create a budget, set aside enough money for emergencies and unanticipated costs, and consider every possible savings opportunity. Be sure to speak with a trusted legal advisor—your family law attorney can help you control your expenses and protect your assets. Your bank account may take a major hit in the immediate aftermath of the divorce, but the better prepared you are, the sooner you can start building your new life.
August 18, 2023
M&A Nuggets
M&A Nugget: Stockholder Disclosure
In a merger transaction, sellers should enlist the aid of their CPA throughout the sale process, from beginning to end. Here are but a few of the many reasons: First, near the inception of the deal, the CPA, who knows the seller’s books and records and finances well, can act as an advisor to the seller on the financial merits of the deal. Indeed, many CPA firms have specialists in business valuations, who can suggest a range of values the seller should be looking for. Second, an important financial decision in an asset sale is how the purchase price is to be allocated among the assets sold. Depending upon the allocation, there can be significant out-of-pocket tax consequences to the seller. Again, the seller’s CPA should be consulted to determine the purchase price allocation. Lastly, purchase agreements contain many representations and warranties by the seller regarding the target’s financial statements, tax returns, books and records. The seller’s CPA should always be consulted to review these specific representations and warranties for accuracy. The sale of your business is one of the most important events in your life, so make sure to include one of your most important advisors: your CPA.
August 18, 2023
Family Law
Divorce in New Jersey: Custody
Originally posted on 2/26/2019, no content changes. There are cases in which one of the parents has abandoned their parental responsibilities, suffers from addictions, suffers from a significant mental or emotional condition, or is otherwise unfit to assume either physical or legal custody. In such cases, the specific facts must be carefully analyzed. In such circumstances, one party may have limited parental rights, supervised visitation may be required, or a "Parenting Coordinator" may be utilized. Supervised visitation means that a person cannot be in the presence of their child without appropriate adult supervision. A Parenting Coordinator is utilized to facilitate decision-making when the parents are incapable of doing so themselves. These alternatives should only be used if and when absolutely necessary and only as a last resort. Absent such extenuating circumstances, New Jersey law regarding custody of children can be summarized in the simple principle that the parenting arrangement must be in "the best interest of the child." Notice that the operative words are in the best interest of the child, not necessarily in the best interest of either or both parents. Whatever the parenting arrangement, it must address two basic areas of responsibility: physical and legal custody. Physical custody determines where the child will reside, how many days with each parent and at what times: weekdays, weekends, holidays and vacation periods. Legal custody involves decision-making regarding the child. Decisions such as elective medical care, religious training, schooling decisions and extra-curricular activities are the typical discretionary decisions which are a part of legal custody. In order to determine what parenting arrangement is "in the best interest of the children," the Court must apply specific statutory criteria. Those criteria include: a parent's ability to agree, communicate and cooperate in matters relating to the child; a parent's willingness to accept custody of the child; any unwillingness on the part of either party to allow visitation or contact with the child with the other parent; the relationship of the child with the parent; any history of domestic violence; the safety of the child; the preference of the child when the child is of sufficient age so as to form an intelligent decision; the needs of the child; the stability of the home environments of the respective parents; the quality and continuity of the child's education; the fitness of the parent; the geographic proximity of the parent's home; the extent and quality of time that each parent spent with the child either prior to or subsequent to this separation of the parties; each parent's employment responsibilities; the age and number of children. In most cases, the primary objective should be to maintain a continuing relationship between each parent and the child. The Court will attempt to craft a physical custody arrangement whereby each of the parents will enjoy meaningful parenting time with the child at regular intervals and a legal custody, which allows both of them to participate in the decision making responsibility for the child. There are many books discussing the impact of divorce upon children, and the theories espoused in such books are as numerous as the books themselves. However, there is one common theme in almost all of the reliable literature: the greater the conflict between the parents, the more the negative impact of the divorce will be upon the child. Psychological studies show that there are certain types of parental behavior which almost always adversely affect children. Such behavior should be recognized by both parents, and each should avoid falling into such behavioral patterns regardless of their reason for doing so. Such behaviors include: Denigrating or criticizing of your spouse in the presence of your children; Seeking to make your child your ally or confidant; Involving your child in discussions regarding your divorce; Blaming your spouse for your own shortcomings. If you are unhappy, frustrated or depressed, seek competent psychological counseling; do not tell your child that you would be fine if it were not for your spouse or your spouse's conduct; Engaging in verbal confrontation with your spouse in the presence of your children; Any physical confrontation in the presence of the children; Using your child as a messenger between you and your spouse. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 17, 2023
Litigation
Missed a Deadline?
Have you ever received a lawsuit or claim with a time-sensitive deadline? While it may be possible to receive an extension from the court or the opposing party, one should not count on such leniency. In some instances, particularly appeals, the filing deadline(s) are mandatory and jurisdictional. By way of example, the Supreme Court of Virginia recently expedited granting an Offit Kurman team’s motion to dismiss an interlocutory petition for review as untimely. The terse and expedited ruling by the Court upholding a Circuit Court decision to deny a preliminary injunction serves as a cautionary tale for those seeking appellate relief in Virginia as the Court refused the petitioner’s attempt to excuse a one-day late filing.[1] If you or your organization are served with a civil lawsuit or are forced to consider appealing an adverse decision, missing a filing deadline might prove to be outcome determinative. Which rules apply and how much time one has to act in a given situation may not be readily apparent. Consulting with a trusted attorney in your area might prove to be the difference between winning and losing. While outcomes cannot be guaranteed and past performance cannot assure future success, Offit Kurman litigators Thomas W. Repczynski | Offit Kurman and Anders Sleight | Offit Kurman are available to evaluate your specific c situation.[2] _______________________________________________________________________ [1] Case results do not guarantee or predict a similar result in any other case. [2] These materials have been prepared for informational purposes only and are not legal advice. Reviewing this post or contacting Offit Kurman in response does not create an attorney-client relationship. Case results depend upon a variety of factors unique to each case, including the specific factual and legal circumstances of each case. This post may constitute ADVERTISING MATERIAL.
August 17, 2023
M&A Nuggets
M&A Nugget: Acquihire
One of the busiest areas of merger activity is in the government contracting sector. A major subsector of merger activity within that sector is acquihires. An acquihire is the purchase of a company, often a technology company, for the skills and expertise of its people. Acquihires have their own challenges for sellers and buyers. Since the main asset being acquired is the skill and knowledge of the seller’s employees, retention of the employees is crucial. That is why buyers often insist on a substantial portion of the purchase price being earned over time, and why sellers often request that buyers include stay bonuses as a deal component. Creative compensation models for the acquired employees must be considered. Since the main asset being acquired is basically people, the role of non-competition agreements is even more important. The golden point here is that a team of employees with unique technology skills and knowledge is valuable and both seller and buyer must consider the best ways to motivate the employees in the overall structure of the transaction.
August 16, 2023
One Minute of Overtime
Permitted Overtime
Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. Employers must pay employees for all hours the employee is suffered or permitted to work. This means that employers are obligated to pay employees for work even if it was not requested. Even though an employer must pay, the employee can still be disciplined.
August 16, 2023
Family Law
Divorce in New Jersey- Alimony
Originally posted on 2/26/2019, no content changes. Alimony is financial support paid by one spouse to the other. Alimony is in addition to child support and is not related to the needs of the child or the child's emancipation. It is support paid by one spouse to the other solely for the support of the recipient spouse regardless of the needs or status of the children. There are very important differences between alimony and child support, not only in terms of a person's initial entitlement but with regard to the duration, the ability to modify the amount, and the termination of the payments. However, one of the most important distinctions is that child support is not tax deductible by the person making the payments, nor is it considered taxable income to the person who is receiving the payments. Alimony, on the other hand, is tax deductible to the payor and is considered taxable income to the recipient. There are several types of alimony in New Jersey: Reimbursement Alimony is seldom used but is designed to reimburse one of the spouses for their "investment" in the other spouse's career or earning capacity. It is designed to address the situation in which one of the spouses contributed to the college or graduate school expenses of the other, and the marriage terminates before the financial benefits of the enhanced education can be realized. The intent is to repay the person for their contributions to the other party's education or career training. Rehabilitative Alimony is alimony that is designed to enable the recipient to "rehabilitate" their career. If, for example, one of the spouses has interrupted their career to be a stay-at-home parent and now needs additional education, recertification or licensing in order to return to their employment, rehabilitative alimony may be appropriate to sustain their living expenses or to cover their educational expenses until they are able to return to their prior career. Limited Duration Alimony is alimony which is paid for a defined period of time and applies to marriages of 20 years or less. In order to award Limited Duration Alimony, the Court must make a finding that permanent alimony is not warranted because of the length of the marriage, the parties' incomes, or other factors. After reaching the conclusion that Open Durational Alimony is not warranted, the Court may then award Limited Duration Alimony in a specific amount for a designated length of time. Once awarded, the length of the term itself may not be extended, although the amount may be modified. Open Durational Alimony is payable until the death of either party, the re-marriage of the recipient, the cohabitation of the recipient with an unrelated third party or a "substantial change of circumstances" which would warrant a modification of either the amount or a termination of payment entirely, such as good faith retirement at the appropriate age. Other instances of "substantial change of circumstances" may include a significant increase in a party's income, a significant decrease in a party's income, or a medical condition. In determining both the type and amount of alimony, the Court must consider specific factors, including: the needs of the recipient and/or payor; the ability of the payor to make the payments; the duration of the marriage; the parties' age; the parties' physical and emotional health; the standard of living established during the marriage; the earning capacity, the educational levels and employability of each of the parties; the length of absence from the job market of the recipient party; each party's parental responsibilities for the unemancipated children; the time and expense necessary to acquire sufficient training or education in order to return to the employment market; the history of financial or non-financial contributions to the marriage by each party; the amount of equitable distribution by either party and, specifically, the income which such equitable distribution may generate to each of the parties; an unearned or investment income; the tax consequences of the alimony. It is often said that both the recipient and the payor of the alimony should be able to enjoy the "standard of living which was established and maintained during the marriage." However, that concept is much more of a guidepost than an attainable reality in most cases. In all but an extraordinarily high income family, it is simply impossible for both parties to maintain the same standard of living that was enjoyed by them during the marriage. In the vast majority of cases, both parties will have to compromise their marital lifestyle. It is simply arithmetically impossible to divide the post-divorce income into two family units and have each of the units equal the prior single family unit lifestyle. There are very important principles of law which address the situation in which a payor's income increases after the divorce. The application of those principles requires an in depth review by a competent Divorce Attorney. However, the general concept is that the recipient of alimony is only entitled to enjoy the lifestyle and thus receive alimony based upon the payor's income during the marriage and at the time of the divorce. They are not entitled to share income increases, which occur after the dissolution of the marital partnership and without contribution or support from the recipient spouse. On the other hand, if the parties' financial circumstances at the time of the divorce do not enable the recipient spouse to be supported at the standard of living which was enjoyed during the marriage, and the payor's post-divorce income rises to a level that then enables a payment which would maintain the marital standard, a post-divorce increase in the amount of alimony may be warranted. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 15, 2023
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