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
Estates and Trusts
Estate Planning
Are you one of the many Americans putting off preparing an estate plan? Do you have an estate plan that you have not updated in several years? The following are just three reasons that you should get your estate plan prepared or updated. CONTROL. By developing your own estate planning documents, including, but not limited to, a last will and testament, a power of attorney, and an advanced medical directive, you are the one deciding how things will be done, rather than the state. Absent estate planning documents, an individual cannot influence what happens after their death and must rely on a combination of the state and their family. Entities and/or individuals that may not know your wishes. INHERITANCE. Estate planning documents direct the disposition of an individual’s personal and real property, but when an individual dies without these documents in place, the state will make that determination for the individual. Real and personal property is divided up and given to individuals based upon the given state’s methodology of intestate succession—something that may look completely different to what an individual would have desired. An estate plan allows you to ensure that you are the one to direct who inherits what after you pass, rather than allowing the state to decide for you. BURIAL. The topic of death and burial can oftentimes be a difficult subject to discuss with our loved ones, but as a result, our loved ones may not always know how exactly we would like our burial to take place. Whether an individual wishes for their burial to be religious, a-religious, simple, elaborate, austere, celebrative, or something entirely different, these are important decisions that should be denoted in an individual’s estate plan to ensure that they are followed. Seek legal counsel to ensure that your interests are protected. If you have any questions about this or Estate Planning/Estate Litigation topics, please contact me at austin.hinel@offitkurman.com or (703) 745-1899.
August 15, 2023
Estates and Trusts
What’s New in Estate Planning? Notable Local Law Changes
D.C. Adopts the Uniform Electronic Wills Act: Electronic Wills in D.C. – it’s the law! . . but should it be? As of March 10, 2023, the “Uniform Electronic Wills Amendment Act of 2022” (Law 24-296) became effective in the District of Columbia. With it, D.C.’s pandemic-inspired, emergency legislation allowing virtual will signings was formally replaced with a new Chapter 9 of Title 18, known officially as the “Uniform Electronic Wills Act” (D.C. Code § 18-901, et seq.). With its adoption of the Act and making permanent the previously interim measure, D.C. joins only six other states and the U.S. Virgin Islands[1] to have adopted the Act and made the leap legalizing will signing without ever putting pen to paper, or for that matter, without ever involving a pen or paper.[2]. In the District, to be legally enforceable, one’s will no longer needs to have been physically signed or reduced to paper. With the appropriate software and/or application, one can now finalize a will with a few keystrokes. Of course, there are some parameters, and one should not presume to have met all the criteria merely by tapping out a document on one’s laptop without consulting the Act . . . and a good lawyer! Nevertheless, the new law certainly makes it easier to make a testamentary disposition of one’s assets, i.e., direct who gets what when you die. I am left questioning the tradeoff; however, with the Pandora’s box of fraud schemes, this development undoubtedly unleashes. You can now create and sign your Will electronically in the District of Columbia . . . but should you? There has been no shortage of debate over the years as to steps minimally appropriate to make a legally enforceable will. While varying across jurisdictions and with only limited exceptions, certain minimum requirements regarding one’s “soundness of mind,” witnesses, notarization, signatures and related representations, for instance (see, e.g., DC Code § 18-102, et seq. and Va. Code § 64.2-403, et seq.), have universally been intended to assure both genuineness of a document and accuracy of one’s testamentary intentions on a document which only becomes legally operative after the testator is dead. With the advent and development of electronic communications (email, facsimile, text messaging, and the like) and, in recent years, the ever-improving ability to sign (or affix an equally individualized electronic mark), send, and store one’s electronically signed documents increasingly securely, the legal acceptability and enforceability of electronic signatures have become unexceptionally commonplace. Moreover, with the recent lessons of a global pandemic, including a new-found appreciation for conducting one’s affairs from a distance, the ability to “get one’s affairs in order” remotely became, for many, a life-preserving necessity. Time may reveal better the extent to which the inability to e-sign estate planning documents “forced” COVID-19 victims and countless others to die intestate, an argument I’ve heard posited in favor of easing and expediting signature requirements to this extent. In the District, emergency legislation made it possible, on a limited temporary basis, to execute wills without all of the “whistles and bells” otherwise required under the law. The primary argument for maintaining the physical signature requirement for wills, along with the physical presence of witnesses, generally centers on the significance of the finality of making testamentary disposition of one’s assets and not being around to assure that one’s intentions are carried out as we had intended. But with the general acceptance nowadays of e-signing in the context of so many acceptable alternatives to disposing of one’s assets without either invoking a will (trusts and contractual-based, third-party provider agreements such as life insurance and ERISA-qualified retirement plans, for instance) and/or the probate process pursuant to which one’s Will’s directions are administered and overseen, why should will-signing retain such an exceptionally high bar?. . or so the argument goes! With the advent of AI-generated, at times seemingly indifferentiable virtual “reality,” do we really need to ask “why?” Perhaps there will come a time when one’s “John Hancock” indelibly inscribed, notarially certified, and appropriately witnessed will no longer have any value at all. Perhaps. We’re not there yet, however, . . . at least not everywhere. Neither Virginia nor Maryland has yet to succumb to this latest modern trend towards allowing and trusting electronically signed will documents . . . although, it seems only fair to acknowledge in this regard that Virginia, for instance, has allowed exceptions to its strict signing/witnessing requirements in certain limited circumstances. [For more on “de facto wills” and the “Harmless Error Rule” in the Commonwealth, see my prior discussion regarding Virginia’s modified version of Section 2-503 of the Uniform Probate Code, Va. Code § 64.2-404.] Mind you, I am not suggesting that electronic evidence of a Will (including, for instance, a PDF copy of the purported Will itself) would not, per se, be devoid of probative value. By way of example, not too long ago, I found myself challenging whether an emailed copy of a document purporting to be a Will might itself be deemed a “de facto will” under Section 64.2-404 and the extent to which, if admitted into evidence, the electronic version of the document and the email transmitting it ought to be given weight by the judge when considering the decedent’s intended finality of the document at the time. Perhaps someday Virginia will fall lockstep into line in the march towards what may be an inevitably paperless, impersonal future. Maybe someday, sure, but I would take the “over” if anyone proposes a near-term adoption of such a risky proposition here in the Old Dominion. As of this writing, at least, D.C. stands alone in the “DMV” and with only a handful of other jurisdictions (in the mid- to Pacific West) formally allowing this dangerous practice. Over the years, I have counseled countless clients who have found themselves questioning the bona fides of a suspicious Will document or the circumstances and timing of the document’s creation. With what I perceive as the floodgates now opening, I suspect the next wave of litigation will involve many new variations on the theme requiring us to (dis)prove testamentary intent and whether certain 0’s and 1’s amount to an electronic signature of an improperly formatted, electronic document very loosely resembling what only some might consider a Will. You know where to find me! ___________________________________________________________________ [1] North Dakota and Washington enacted versions of the Act in 2021, and the U.S. Virgin Islands followed suit in 2022. D.C. joins Minnesota, Idaho, and Utah in enacting the Act in 2023, while Texas, Missouri, and New Jersey have introduced, but, as of this writing, have not enacted the Act. (Source: Uniform Law Commission, https://www.uniformlaws.org/committees/community-home?CommunityKey=a0a16f19-97a8-4f86-afc1-b1c0e051fc71, site visited on 8/8/2023) [2] Maryland has not adopted the Act but has adopted its own version of electronic will signing/witnessing. See Estates & Trusts §4-101, et seq. (Source: Maryland General Assembly, https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=get§ion=4-101, site visited on 8/29/2023.) There may be other states that have gone this route as well.
August 14, 2023
Family Law
Collaborative Divorce: The Time is Now
Originally posted on 04/28/2020, content updated on 08/14/2023 “Divorce: a resumption of diplomatic relations and rectification of boundaries.” [i] We were in uncharted waters — living life in lockdown — many, for the very first time, spent prolonged periods together with spouses and children. The stress of extended family confinement and forced comradery has taken its toll on many marriages. Some marriages were already in the midst of breaking apart and others became ripe for divorce. Initially, Courts were closed for all but emergency matters; divorce not being one of them. Recently, the Courts began to expand their repertoire of cases[ii], but the existing ban on the filing of, or hearings on, new “non-essential” matters, translation – contested divorces — remained in effect. So, what can be done now to move forward with a divorce? Since many Courts are refusing to permit the filing of new contested divorce cases, and are courteously abstaining[iii] from moving divorce matters along, the choice of either commencing a divorce in a Collaborative setting or moving an active case from litigation to Collaboration makes eminent sense. Moreover, it all can be undertaken in “cyber-space.” Consultations, negotiations, and group meetings — all aspects of the Collaborative process in divorce can be done from the safety of your home via Skype, Microsoft Teams, Zoom[iv] or any other online meeting platform. What is Collaborative Divorce? Why collaborate? The answer is simple: control, cost, and speed. If you and your spouse: (i) do not want to wait for the Courts to re-open to start or continue a divorce, and are seeking a somewhat kinder/gentler resolution of your marital issues; (ii) wish to keep costs down; and (iii) desire a speedier conclusion to marital problems than traditional divorce litigation, then Collaborative divorce should be of considerable interest to you. A Collaborative divorce most closely resembles mediation; but it is not mediation (as will be discussed below). It is a divorce where the parties side-step combative litigation and instead commit to resolve their issues in a manner that is mutually beneficial. The Collaborative process proceeds in much the same manner as a traditional litigated divorce. The issues are the same: from custody and visitation of the parties’ children, to asset division and support.[v] The parties and their attorneys learn about the issues before proceeding with resolution. Where it differs from litigation is that the parties and their attorneys work together to resolve the case.[vi] The attorneys then prepare a proposed settlement agreement and the parties sign. The divorce is essentially all done on paper. Rarely will a Court appearance (other than an uncontested divorce hearing) be necessary.[vii] Unlike mediation, Collaborative lawyers work both on behalf of their clients and together, as they negotiate and enable resolution. In mediation a mediator facilitates negotiation but is neutral. In Collaborative practice the parties agree to cooperate and actively accomplish a settlement. In mediation, the parties need not retain counsel and do not commit to achieve anything. Thus, absent counsel and a commitment to a non-litigated conclusion, there is a latent risk to a party in mediation, in terms of duress, over-reaching, and lack of informed consent. Proceeding with a Collaborative divorce requires that each party hire a lawyer who engages in Collaborative practice.[viii] Once selected, the parties and their respective counsel will sign an agreement by which both parties commit to the Collaborative process, i.e., transparency of relevant information, mutual problem solving and a mutually beneficial resolution; a win-win if you will. The attorneys and their clients will meet separately, and speak together on as many occasions as is necessary, and then meet jointly (both attorneys, both clients) as often as needed to resolve the divorce. Rather than engage in costly legal battles, attorneys in the Collaborative process guide their clients through dispute resolution, working together with the parties to gather information and generate options for settlement. The attorneys enable and promote problem solving; they can neither promote nor threaten adversarial engagement. A crucial element of a Collaborative agreement is that the parties agree that they will not seek Court intervention for a dispute. If either does, the attorneys must withdraw. Collaborative counsel cannot represent their respective clients in contested hearings in Court. Another essential element of the Collaborative process is transparency, that each party agrees to disclose voluntarily all relevant information. One of the biggest drivers of legal fees in a litigated case is discovery disputes: the effort of one spouse to obtain information that is not forthcoming from the other spouse. In the Collaborative process, both spouses make a commitment to turning over all relevant information; each spouse pledges that he or she will not take advantage of a misunderstanding of the other party, but instead will seek affirmatively to correct any misunderstanding by the other spouse. Collaborative divorce being more transparent, straightforward, and effectual, is usually more cost-efficient. By working together to generate, prioritize and implement alternatives for a solution—instead of provoking anger, enabling blame, and airing long held grievances—there is ample opportunity to strive for quicker results that can satisfy more of both parties’ respective goals. Complete disclosure and facilitated communications with all eyes focused on problem-solving, enable the parties to address and deal with all issues without wasting time on destructive battles. Since the matter is settled out of Court, there is no need for the numerous Court appearances and scheduling dates necessary with litigation. Experience shows that Collaborative divorce cases generally take less time than litigated ones. Finally, last, but not least, Collaborative divorce need not originate as a Collaborative matter. These writers have personally represented individuals in the Collaborative process who chose to leave their litigated divorce actions behind, and decided to reach agreement with their spouse in a much faster manner and with less sturm and drang. Conclusion Particularly in our then-current climate, spouses needed to consider alternatives to the Courts to resolve their differences. Parties wishing to divorce or proceed with their divorce actions were locked out of our adversarial judicial system, and no one knew how long it would take until the Courts returned to normal operations (or a new normal). Some may have wished to wait and prepare for a divorce while in captivity.[ix]But for others the time is now to take their first steps toward resolving their marital problems or, at least, take a turn onto a better route. Times being what they were, the Collaborative divorce process was more appealing than ever before and should have been a strong consideration for many as they maneuvered through the treacherous waters of a post-COVID world. [i] The Unabridged Devil’s Dictionary, Ambrose Bierce[ii] During the past week, judges have been reviewing their non-essential case inventories, looking for ways to move these pending matters forward. These “pending matters” can, in a Judge’s discretion, include some matrimonial cases.[iii]From 1776 , the musical with music and lyrics by Sherman Edwards and a book by Peter Stone. [iv] Be advised that Zoom has been having problems with security; and is not a recommended format. [v]There is full disclosure of all assets, debts, and income without formal proceedings. [vi]The parties can and do often jointly retain other professionals to aid in the process, such as property appraisers or financial consultants. [vii] Some states may require a Court appearance to finalize the divorce. [viii]An attorney specially trained in collaborative practice. [ix] But that is a discussion for another day.
August 14, 2023
Business
Expanding Your Business To The U.S.: Should You Form A U.S. Legal Entity?
Originally posted on 01/23/2020, content updated on 08/11/2023 In my practice as a corporate lawyer in New York, I represent many European and other foreign companies and entrepreneurs who are doing business in the U.S. If you are a foreign company and want to expand your business to the U.S., or an advisor to such a company, you will need to consider several important legal issues. Some of those issues include questions like should I form a separate legal entity in the U.S.? If so, what should the legal form of the U.S. entity be? Where in the U.S. should the legal entity be incorporated? Do I need to appoint U.S. managers to run the U.S. entity? What types of taxes will I need to deal with? How can I protect my intellectual property? What do I need to consider when hiring employees or consultants in the U.S.? Do I need general terms and conditions which are different from the ones I use for my foreign company? What can I do to minimize the risk of litigation in the U.S.? What issues should I consider when entering into a joint venture or buying a company in the U.S.? In this article, I will address the question of whether you should form a U.S. entity. As a foreign company, you are not required to form a separate legal entity in the U.S. in order to sell products or provide services in the U.S. There are, however, several disadvantages to doing business in the U.S. as a foreign company. If you conduct business in the U.S. as a foreign company, your foreign company will become liable for contractual obligations with U.S. customers or clients. Your company could get sued in the U.S., especially if your contract with the U.S. customer or client includes a clause for dispute resolution in a court in the U.S. Your foreign company could become subject to income and sales taxes in the US. In addition, you may be required to register your foreign company with the Secretary of State of a state depending on the level of business you are conducting in that state. The Secretary of State is the government agency of a state with which companies that are incorporated in that state or are doing business in that state on a regular basis need to register. Although not much company information needs to be disclosed (unlike in some other countries), your foreign company may need to provide a good standing certificate from the country in which it is incorporated and a notarized translation of its corporate organizational documents (which can be expensive and time-consuming). Setting up a separate U.S. legal entity could reduce your foreign company’s exposure to lawsuits in the U.S. and income and sales tax liabilities. The U.S. entity could be owned by your foreign company so that it is a 100% subsidiary of your foreign company. Your foreign parent company (“FC”) is generally not liable for the obligations of the U.S. subsidiary (“USC”). Under certain circumstances, however, a creditor of USC may try to “pierce the corporate veil” and hold FC liable for the obligations of USC. The creditor will need to prove that: (i) FC completely dominated and controlled USC disregarding its separate identity, and (ii) an injustice or other wrong to the plaintiff-creditor will likely result if the corporate veil is not pierced. Courts look at many factors, none of which alone is sufficient to pierce the corporate veil, including, but not limited to: (i) USC’s corporate formalities are disregarded by FC, (ii) USC is inadequately capitalized, (iii) USC shares offices, employees, bank accounts, and telephone numbers with FC, (iv) the FC uses USC’ property as its own; (v) the agreements and other arrangements (such as sharing administrative services, employees, or insurance coverage) between FC and USC are not arm’s-length transactions; or (vi) USC makes undocumented “loans” to the FC or extends credit to the FC on other than market terms. FC could also be held liable in the U.S. for product liability if it is a manufacturer or distributor of a product which caused personal injury to a consumer in the U.S. If USC is a corporation, USC instead of FC will become subject to income and sales taxes in the US. FC generally will only become subject to U.S. income tax if USC distributes any profits to FC, subject to any reductions under any US income tax treaty with the country in which FC is incorporated. If, however, USC is a limited liability company (LLC), and does not elect to be taxed as a corporation, FC will become subject to U.S. income tax on USC’s net income. Doing business in the U.S. as a USC also offers an advantage from a marketing perspective. Having a U.S. presence in the form of a legal entity shows commitment to the US market and accessibility. US customers (whether businesses or consumers) usually prefer to deal with a vendor in the U.S. instead of an overseas company. Finally, forming a USC may make it easier for FC to obtain insurance in the US. For an FC without a USC, it is often difficult and expensive to obtain insurance for FC’s activities in the U.S. If you are a foreign business owner or entrepreneur and want to expand your business to the U.S., you should consider forming a U.S. legal entity. If you have any questions or would like to discuss any of these issues, please contact me at 212-545-1900 or mbloemsma@offitkurman.com.
August 11, 2023
Tax
IRS Proposes to Make Monetized Installment Sales a List Transaction
I know. I know. Your reaction is probably, “Huh? Do what? I don’t even know what a monetized installment sale is, why should I care.” As my partnership tax professor, Theodore Seto always says, “To understand the rule, you have to know the game that is being played.” The Problem and the Game: Here’s what a monetized installment sale is and how it works. Peggy Sue has a low basis, high-value asset. For our example, we assume a tax basis of $10,000 and a sales price of $1,010,000 so she has a taxable gain of $1,000,000. If Peggy Sue sells it straight up, unless she has other offsetting losses elsewhere, will have a lot of gain she must recognize and for which she must pay tax. Let’s say instead of selling it for a lump sum, she sells it in an installment sale payable in ten equal annual installments. Under IRC 453 she would allocate and pay tax on the pro rata portion of the gain each payment represents, so she would pay tax on 100k of gain each year over the ten-year period ($1,000,000 gain ÷ 10 years = 100k gain per year). If Peggy Sue has no other income, spreading the gain over 10 years will prevent a bracket run and result in less of a tax bite. The interest component of each payment will be taxable as ordinary income in the year of Peggy Sue’s receipt of each payment. Now here comes the game (greatly simplified for brevity): What if Peggy Sue sells to Elvis and takes back a 30-year, interest-only balloon note? Well, the interest is ordinary income, but Peggy Sue won’t recognize any gain until the balloon payment. This defers gain, but Peggy Sue still doesn’t have her money, only the interest payments. But what if Peggy Sue can find a lender who will lend Peggy Sue say 95% of the sale amount (and coincidentally, the payment terms and interest Peggy Sue pays the lender is the same rate as Elvis’s note to her). In other words, the interest received and interest paid cancel out each other. And because a loan ordinarily is not a taxable event, Peggy now gets 95% of the sales price to invest and grow for 30 years. When Elvis pays her the balloon payment in 30 years she pays the lender. Money for nothing and checks for free. Sweet deal, isn’t it? The Rule (Proposed): Too sweet, actually. So, the IRS has proposed making this and its variants a listed transaction. Being a “listed transaction” means you have to tell the IRS you are doing it, i.e. flag it on your return, so they can decide if it is legit or not (for a very narrow class of assets-farm land-it actually might work, but even then there are limits and restrictions). Also, if the proposed regulation goes into effect anyone who engaged in a monetized installment in a prior year for which the period of assessment is still open (generally three years from the latter of the due date or the date the return was filed) must send the IRS a disclosure of the transaction. Failure to list (“disclose”) the transaction can result in a penalty equal **TO** 75% of the tax savings the transaction produced, together with understatement penalties and interest. And it gets better. If you were required to disclose a listed transaction but didn’t, the period for assessment is extended until one year after the date of disclosure. Now, until the proposed regulation becomes final, this is all somewhat speculative. But if I were a betting man, I would look for a final version of the regulation this fall. Forewarned is forearmed. Scott Tippett is a principal at Offit Kurman PA where he concentrates his practice on tax planning, tax mitigation, and tax controversy in corporate, partnership, executive compensation, and employee benefit matters. He is a member of the firm’s Business Law Transactions and Intellectual Property groups. Offit Kurman PA is a national law firm providing clients with guidance in intellectual property, business, and tax matters. The views expressed herein are solely those of the author, are not intended as, and do not constitute legal or tax advice.
August 11, 2023
Family Law
Divorce in New Jersey - Pretrial Motions and Applications
Originally posted on 2/26/2019, no content changes. Only one to two percent of all divorces go to trial and will ultimately be decided by a Judge. The other ninety-eight percent will be resolved by agreement of the parties as a result of some pretrial procedure or by mediation, arbitration or settled as the trial is about to begin. Therefore, more attention should be directed to pretrial proceedings and much less to the unlikely eventuality of a trial. Pretrial applications to the Court are extremely important and useful. We are often asked what can be submitted and determined by the Court on a pretrial application. The easy (and generally very accurate) answer is virtually anything. Common subjects which are submitted to the Court on pretrial applications are: A temporary support or alimony arrangement. A temporary custody or parenting plan arrangement. The allocation and payment of marital bills and expenses. An advance of counsel fees or litigation expenses. The maintenance of insurance coverage. In addition to this practical scope of pretrial applications, there are a number of applications which your attorney may want to make. For example: To obtain additional documents or information which your spouse is not voluntarily producing. To gain access to real estate or a business for the purpose of appraising it. For the appointment of an independent appraiser. For the production of medical or hospital records when appropriate and relevant. For custody or parenting evaluations As your case continues, there may be more sophisticated, evidential or technical reasons for pretrial applications. For example, your attorney may want to make an application to: Bar your spouse's testimony or production of evidence on matters for which they have not produced discovery. To limit or eliminate certain issues, such as whether or not pre-owned or inherited assets should be included or excluded from equitable distribution. To predetermine evidential issues which may be important to either your side or the other side's presentation of the case. For tactical reasons, your attorney may also want to file a pretrial application to begin to "set the tone" for the case. If your spouse has been uncooperative in discovery and necessitated an unnecessary expenditure of attorney or accountant's fees, your attorney may want to begin to relay that to the Court in support of an ultimate application for an advance of attorney's fees. If, by way of further example, your spouse is interfering with or failing to appear for parenting time, your attorney may want to call that to the attention of the Court because of the impact it will have on the ultimate custody determination. In summary, more time and effort should be expended by you and your attorney on pretrial matters and much less time on trial strategy or preparation if you are interested in an expedient and successful resolution of your case. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 10, 2023
M&A Nuggets
M&A Nuggets: The Drag-Along
In a sale structured as a stock purchase, most acquirors want to purchase one hundred percent of the ownership interests in the seller. That is why, if a seller has any minority owners, it is important to include a drag-along clause in the agreement among the owners of the seller. A drag-along clause basically states that if owners holding a certain percentage of the ownership agree to a sale, the owners can require the remaining owners to participate in the sale. The use of the drag-along clause prevents a minority owner from in effect vetoing a sale by not agreeing to sell. Several details need to be included in the drag-along clause, including the percentage needed to approve the sale and to drag-along the non-approving owners, whether the non-approving owners have the right of first refusal to purchase the company on the same terms offered by the third party and whether the drag-along right applies initially or at some future date. The big picture here is that the simple step of including drag-along rights in the ownership agreement helps to ensure the sale of one hundred percent of a company.
August 10, 2023
Family Law
“I Want My Day in Court! – But Are You Sure About That?”
It’s become part of our vocabulary…a phrase said by those demanding justice, vindication and validation: “I want my day in court!” However, when it comes to divorce, should that really be the case? Is having your day in court really worth the time, the money, the risk, and the emotional rollercoaster it could send you and your loved ones on? While there’s no “one fits all” answer, there are a few things you should consider before you find yourself raising your right hand while you’re being asked, “Do you swear to tell the truth, the whole truth, and nothing but the truth?” Right off, it’s important to know that most divorce cases never even make it into a courtroom. The most recent figures state just 5% to 10% of divorces ever get that far. Knowing that, the odds are in your favor that with sound legal advice and often a good mediator, a fair settlement can be achieved without an often long and expensive court battle. That said, what could potentially make you part of that exclusive “5% to 10% crowd?” Well first are there any issues that you just can’t compromise on with your former spouse no matter how many back and forth rounds of negotiations have gone on with your attorneys? Is your spouse so obstinate and difficult that for every one step forward you take, they take ten steps back? Are there extenuating circumstances regarding the custody of your children that you strongly believe will cause dire harm to them or your relationship with them? Are you fairly certain that your spouse is hiding certain finances from you that you haven’t been able to get to and don’t feel you can unless they are forced to reveal them under oath? These are all valid reasons, but that doesn’t mean there aren’t as many reasons not to go to court. There are the costs involved. Court fees add up very quickly, lawyers have to often put in countless hours and trials can go on much longer than anticipated. In the end even if the court does rule in your favor, once these costs are figured in, will you even be in the black? You don’t want to end up financially worse than where you started had you settled and that doesn’t even figure in the “emotional costs” associated with an often nasty trial that you and your family will have to endure. Also the vast majority of judges and juries remain impartial. Their decisions are based on the facts, not on emotion. So while you may be confident that you are much more sympathetic than your spouse, that may hold weight in “the court of public opinion” but not in an actual courtroom when the verdict is read. Getting married shouldn’t be a snap decision and getting divorced shouldn’t be an instantaneous one either. But once you are headed down this path carefully weigh the options of a fair settlement versus the risk/reward of going to court. Sandy and Chery at Offit Kurman know each case is unique and present their own sets of challenges. They will be by your side the entire time, making sure whatever decision is eventually made, will be done so together and only after very careful consideration.
August 9, 2023
Franchise Law
Some Multi-Unit Franchisees are Public Companies
While most of the private equity and public offering activity of franchise companies focuses on franchise brands and systems, every now and then a large, multi-unit franchisee will go public or seek private equity financing. Public company franchisees may trade at lower multiples than those of franchisors because the franchisees do not control the brand. But publicly-traded multi-unit franchisees can nevertheless be significant companies in their own right. Publicly-traded franchisees include the following companies: Carrols Restaurant Group trades on Nasdaq. It owns and operates approximately 675 Burger King franchises. Burger King, the franchisor, has an ownership interest of approximately 28% in the company. Diversified Restaurant Holdings is a Nasdaq company.It owns and operates Buffalo Wild Wings franchises as well as its own brand, Bagger Dave’s Burger Tavern restaurants. Arcos Dorados Holdings trades on the NYSE. It is an Argentina company that owns and operates more than 1,800 McDonald’s restaurants in 20 Latin American countries. Meritage Hospitality Group trades over-the-counter.It owns and operates more than 120 Wendy’s and Twisted Rooster restaurants. HMS Host operates franchises and affiliate-owned brands in airports and highway rest stops.It is owned by Autogril SpA, a public company in Italy, with worldwide operations. Private equity firms also have multi-unit franchisee holdings, including the following: Sun Capital owns Heartland Automotive Services, Inc., the largest Jiffy Lube franchisee Sentinel Capital owns Border Foods, a Taco Bell franchisee; Sterling Investment Partners owns Southern California Pizza Company, a Pizza Hut franchisee with more than 220 locations. Other notable large multi-unit franchisees are privately held: NPC International operates more than 1,250 Pizza Hut franchises and 140 Wendy’s franchises. NPC was acquired by an entity controlled by Olympus Growth Fund V, L.P. and certain affiliates in December 2011. At the time of the acquisition, NPC obtained debt financing that is registered with the SEC. Morgan’s Foods Inc., the owner of 68 KFC, Taco Bell and Pizza Hut Express franchises, was a public company until it was acquired in May 2014 by Apex Restaurant Management Inc. for roughly $20 million.Apex is one of the largest franchisees of Yum! Brands (KFC, Pizza Hut and Taco Bell) and Long John Silver’s restaurants. Falcon Holdings, LLC operates approximately 100 Church’s Chicken restaurants.It is privately held.
August 9, 2023
Family Law
Divorce in New Jersey – ESP, Mediation and Arbitration
Originally posted on 3/15/2019, no content changes Alternative dispute procedures can be very effective in settling your case before trial, which should be every divorce litigant's goal. Trials take a very long time to be scheduled, are often not completed in consecutive days, usually require several days of testimony over several months, are typically extremely expensive, and are almost always used to further polarize the parties. Given that only two percent of all divorce cases are actually decided by trial, every litigant must ask themselves why their case is so different from the rest that it should be included within the two percent of cases that go to trial. There are a variety of alternatives that can be utilized to aid in settlement negotiations or pretrial settlement of a case. In New Jersey, the court mandates the attendance of the Matrimonial Early Settlement Panel (MESP). Matrimonial Early Settlement Panels exist in every County and are free to the litigants. The panels are staffed by two experienced divorce attorneys who volunteer their time for this purpose. The parties, through their attorneys, provide written submissions to the panelists, who then make recommendations as to the proper disposition of the case. If a case does not settle after going to MESP, several counties in New Jersey have Mandatory Economic Meditation, where you must meet with a court-approved mediator to further attempt to settle your case. In addition to the court-mandated Matrimonial Early Settlement Panel proceedings and Mandatory Economic Mediation, the parties themselves always have the right to access private mediation or arbitration. In private mediation, the parties and their attorneys will mutually agree upon an experienced mediator, who then meets with them in an effort to mediate a settlement of the issues which are in dispute. The mediator does not make a decision and, in most instances, does not even render a recommendation. The mediator's function is, generally, to stimulate discussion between the parties and to assist them in coming to a mutually agreed upon settlement. Arbitration, on the other hand, is a decision-making and binding proceeding. There are a number of experienced divorce attorneys and retired Judges who are willing to serve as arbitrators. The parties and their attorneys generally enter into an Arbitration Agreement, which will define the nature and scope of the arbitration. The parties may agree that the arbitration will be conducted on a very formal, Court-like basis or in a very informal proceeding. With very limited exceptions, the arbitrator's decision is then binding. In every case, you, as the client, should understand these alternatives and should review and discuss them with your attorney. Depending upon the facts and issues in your case, one or the other of these alternatives may be a very desirable alternative. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 8, 2023
Family Law
Protecting your Home with a Pre-Nuptial Agreement
It is increasingly more common for at least one person in a couple to have purchased his or her home prior to the parties’ marriage. Often, such a purchase occurs years in advance of the parties even meeting each other. In cases such as these, a pre-nuptial agreement is necessary to preserve that person’s home in the event of a divorce. Assuming the parties move into the pre-marital home of one of them, many issues, including the payment of bills, payment of the mortgage, increase in the value of the home and exclusion of a party in the event of separation or divorce, should all be considerations in a discussion of protecting this asset. Under the Pennsylvania Divorce Code, passive and active increases in the value of pre-marital assets, such as a pre-maritally owned residence, become part of the marital estate. Passive increases mean increases in value due to the passage of time such that the fair market value of the home has risen through the course of a marriage. Active increases include payments to a mortgage or home improvements. Active and/or passive increases can be discussed and potentially exempted from the marital estate through the use of a pre-marital agreement, thus protecting them from equitable distribution or claims of the other party in the event of a divorce. Likewise, in the event of a divorce in Pennsylvania, a pre-nuptial agreement can define a date certain by which a party must vacate a residence, thereby providing the other exclusive possession. Without such a provision or current agreement otherwise, parties are left to make an application for such relief from the Court, and there is no guarantee such a request will be granted during the pendency of the divorce process, which often may take more than a year. Bill payment and maintenance of the household is another issue that can be addressed by a pre-nuptial agreement (and if the parties are not contemplating marriage in the near future, a cohabitation agreement). For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 7, 2023
M&A Nuggets
M&A Nugget: The Best Fit
Most business transitions are accomplished by a sale to a third party. The merger and acquisition is, however, one of several ways that an owner can transition a business. The question is – what is the best fit for the owner? There are other alternatives that should be considered, if applicable. Does the owner have family who has worked in the business? If so, the owner could accomplish both business planning and estate planning objectives by transferring ownership to the family member. Are there key management personnel who are ready now or will be ready in the near future to take the helm of the business? If so, an exit plan can be implemented by which the ownership is transitioned to management over time. A sale to a third party might mean a greater purchase price and/or more secure source of funding for a purchase price to be paid over time. On the other hand, a sale to a third party might also result in a shorter term of continuing employment and therefore a stream of income over a shorter period of time than one of the other alternatives discussed above. There are many other factors to consider. In any event, when deciding how to exit your business, just as with a work suit, the question is which alternative is the best fit.
August 7, 2023
Family Law
Divorce in New Jersey - Child Support
Originally posted on 8/11/2019, no content changes. Child support is primarily dependent upon the levels of the parent's income. In those cases in which the parents' combined income is less than $187,200 per year (net of taxes), the Child Support Guidelines will be the baseline determination of the amount of child support. A determination must first be made as to which of the parents is the Parent of Primary Residence and which parent is the Parent of Alternate Residence. The parent with the most overnight time with the child is the Parent of Primary Residence and, thus, the parent to whom the child support is paid. Then, if the parents' combined after-tax income is less than $187,200, the amount of child support to be paid is presumptively defined by the New Jersey Child Support Guidelines and is subject to basically only three variables : The number of overnights per week which the child spends in each parent's home; The total income of the parties; Each party's respective share of the total income. The computer programs which apply the Guidelines automatically take these variables into account. Although the amount calculated under the Guidelines is only presumptive as to the appropriate amount of child support, that presumption will be accepted in the vast majority of cases. In addition to the basic child support, there are certain "extraordinary" expenses most often allocated between the parents in the ratio of their incomes. Typically, such "extraordinary" expenses include, but are not limited to, medical expenses or work-related daycare expenses. In addition to medical and daycare expenses, individual cases and a child's particular needs or interests may justify additional payments. For example, does the child have a learning disability or other educational deficit which may require specialized schooling or tutoring? Does a child have specific musical, athletic or other talents which have been nurtured or supported by the parents through individual lessons, training, coaching or camps? In those cases in which the parents' combined income exceeds $240,000 per year net of taxes, the Court must consider specific factors in order to determine the amount of child support. The factors include: needs of the child; the standard of living and economic circumstances of each parent; all sources of income for each parent; the assets of each parent, or the earning ability of each parent; the child's need and capacity for further education, including higher education; the age and health of the child; the age and health of each parent, and the income or assets of the child, and the responsibility of either parent for other Court ordered support; the reasonable debts of either party. The determination of the child support for such "above guidelines" cases is complicated and somewhat subjective. "Above Guideline" child support requires a complete analysis of the child's needs and the standard of living during the marriage. It should only be done with the advice of a competent attorney. In every case, the parties should also attempt to define when the child will be "emancipated" (meaning that the child support will terminate) and if either party will be required to contribute to the child's college or other educational expenses. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
August 4, 2023
Family Law
Is My Inheritance Marital Property?
It depends. Isn’t that a lawyer’s answer to just about everything? In Maryland, property acquired by inheritance or gift from a third party or that was owned prior to the marriage is non-marital property. It will not be divided between the parties upon divorce. However, if the inheritance is commingled, it becomes marital. Understandably, this is a very difficult concept to understand. Many lawyers and even judges have a difficult time “tracing” non-marital assets that may have become commingled. Sometimes, it helps to see some examples. Here are a few: If the wife inherits $200,000 from her uncle’s estate during the marriage, and she then deposits all of those funds into a separate account in her sole name, and the funds remain in that account until the date of divorce, those funds and any growth on those funds have remained wife’s non-marital property. That’s the clearest example of non-marital funds remaining non-marital or separate property. In real life, however, things are usually not that clear. For example, if the wife deposits the funds into a bank account in her sole name, and then uses the funds to pay expenses for the family over the years for vacations, children’s schooling, etc., those funds are no longer in existence, and she will not receive credit for having used her non-marital funds for family use. Any funds that remain in the separate account would be non-marital and would continue to be her separate property. Where this gets complicated and requires “tracing” is when some of the non-marital funds are commingled with marital funds. That can happen if funds acquired during the marriage are deposited into the wife’s separate account. The normal growth of the funds, including interest earned on the non-marital funds in the separate account, remains non-marital. However, if any marital funds are deposited into the account, the account loses its non-marital designation, and the entire account may be subject to division as a marital asset. The visual story goes as follows: if you have a swimming pool that is filled 90% with blue water, and a water truck comes in with green water and puts that into the pool, filling it to the brim, everyone knows that it is 90% blue and 10% green, but the water is now aqua, and the blue cannot be separated from the green. The same is true with cash in a bank account. Therefore, if one receives a gift or an inheritance during the marriage or has significant funds prior to marriage and wishes to keep them as non-marital or separate property, those funds should be kept separate, and no marital funds, including income, should be deposited into that non-marital account. Should you have any doubt as to whether or not your inheritance is marital or non-marital, your attorney will be able to help you.
August 4, 2023
Family Law
Top 10 Divorce Mistakes to Avoid
Divorce can be an unpleasant and stressful process. Parties who have not educated themselves or who proceed without the guidance of an experienced divorce attorney often make mistakes that can last a lifetime and are typically more expensive in the long run. Don’t be one of them. Here are 10 of the most common mistakes to avoid during a divorce: 1) Involving the kids in the process If your case involves a custody or parenting time dispute, nothing will anger a judge more than involving the children in the dispute. One rule is straightforward: leave the kids out of it. Do not talk to the kids about your case. Do not use them as pawns in your “battle” against your spouse. Do not put your spouse down in front of the children. Do not “coach” your children as to what they should say if they have to meet with a custody evaluator, a doctor, a therapist, or a judge. By doing so, you are not only harming your case; you are harming your children. Even after the divorce is over (and it will be over), the children will still have (and need) both of their parents — always place the children first. 2) Taking advice from friends, family, or the internet Everyone always hears about a friend’s cousin who took the other spouse “for everything they had” and advises that you should demand nothing less. This free advice is worth exactly what you paid for it – nothing. Each case will be resolved based on the unique facts and circumstances of that case. What one person is awarded is often very different from what another person has been awarded. While friends and family are a great source of emotional support, they are not legal professionals. 3) Letting your emotions get the best of you Frustration, despair, and sadness are just a few of the many intense emotions that can be at play during the divorce process. Seeing things clearly can often be hard when such heavy emotions cloud your judgment. Take a moment to do what is necessary to regain a logical, calm, and clear perspective. Take the time to acknowledge your feelings and practice self-care to regulate your emotions. Don’t make hasty decisions based on heightened emotions. Having the assistance of an experienced divorce attorney is critical to ensure you are acting with your head, not just your heart. A skilled therapist can be hugely helpful as well. 4) Hiding or failing to produce documents You have an absolute right to see your spouse’s financial documentation. Your spouse has a fundamental right to see your financial documentation. The court will order you both to produce your financial documentation to each other. If you fail to do so promptly, it will only cost you more money and time down the road. More importantly, if you fail to disclose certain accounts or statements, any agreement you reach could become void, and it is highly likely that a court will impose extreme sanctions on the offending party. A full and complete disclosure will ensure that you are aware of the assets and liabilities subject to distribution and that you are receiving a fair division of same in your divorce. 5) Lying to your attorney Your attorney is there to help you. They are there to fight for you and ensure you get the best possible resolution of your case. Your communications with them are privileged – meaning they cannot (with a few exceptions) disclose what you tell them without your permission. The more your attorney knows, the more (and the better) your attorney can help you. No matter how embarrassing, outrageous, or ugly, an experienced divorce attorney has likely heard it all before. You need to keep your attorney fully informed and prepared to confront and manage any issues that arise in your matter. 6) Failing to identify separate property While most of the assets you and your spouse acquired during your marriage are subject to distribution in your divorce, most of the assets you acquired before your marriage are not. Under New Jersey State law, generally speaking, “separate property” is defined as property acquired by an individual prior to marriage, and “marital property,” in the absence of a prenuptial agreement, is defined as property acquired by one or both spouses during the marriage, irrespective of whose name the asset is in. It is important that you identify to your attorney any assets you acquired before the marriage and any potential commingling of that asset into a marital asset so that your attorney can protect your separate assets for equitable distribution. 7) Making oral agreements Even if you and your spouse continue to have an amicable relationship after separation and throughout the divorce process, do not make the mistake of entering into side oral agreements with your spouse concerning issues in your divorce. Memorializing all agreements in your written settlement agreement is essential to protect your interests. It is often very difficult, if not impossible, to enforce oral side agreements, especially if your written agreement purports to incorporate the entire agreement. 8) Failing to consider post-divorce finances Once you separate, the economic realities of having two separate households can be stressful. Not only are there two sets of expenses for two different households, but you are also transitioning from a two-income household to a one-income household. After separating, you should prepare a financial plan or budget for your new financial circumstances. It would be best to refrain from creating new or additional debts. Finally, do not assume that debts from your marriage are paid. If you and your spouse jointly accumulated debts during the marriage, ensure that you advise your attorney of those debts and have an agreement in writing as to which party is responsible for the payments of these debts during the pendency of the divorce. Upon finalization of your divorce, ensure that your settlement agreement explicitly sets out who is responsible for paying back that debt and remove your name from any liabilities that you are not responsible for, such as mortgages or credit cards. This will ensure that you are not held liable for debts you do not incur or are unaware of. 9) Being your own attorney Many couples believe it is unnecessary to hire attorneys to aid them in the divorce process, or they believe one attorney can represent the interest of both parties. However, an attorney (unless you go through the mediation process) only represents one individual and is there to protect only that individual’s interest. Both parties should retain their own independent counsel to represent their respective interests. Failing to hire an attorney may lead you to enter into a disadvantageous agreement. Note that a mediator cannot represent either party and can be hired as a neutral to assist you and your spouse negotiate an agreement. 10) Having unrealistic expectations In order to reach an equitable agreement and resolution of your matter, both parties must often modify their expectations. Most divorces require some give and take, and your attorney will work with you to create a strategy to obtain the things most important to you. Going through each of the issues in your divorce and deciding which ones are worth the time, energy, and expense of litigation and/or negotiations is the best way to utilize your resources and save money on your divorce.
August 4, 2023
Estates and Trusts
Unmarried Couples Win New Inheritance Rights
For more than a decade, the freedom to marry has been available to Maryland’s same-sex couples. Those who have approached the altar, the chuppah, or the courthouse and tied the knot enjoy legal benefits that were denied them as domestic partners. These include the right to receive an inheritance if one partner dies without a will, and to avoid Maryland’s hefty inheritance tax. Under the new legislation, these rights are now available to Maryland’s unmarried couples as well. By registering as domestic partners, unmarried couples can ensure that if one partner dies without a will, the survivor will be entitled to an inheritance equivalent to what a surviving spouse would receive. This could be as much as the entire estate or a lesser amount for couples who have children from a prior relationship. The surviving partner also has the right to serve as personal representative, or executor, of the deceased partner’s estate. Whether a partner dies with or without a will, this new law exempts the surviving partner from Maryland’s 10% inheritance tax on any property received from the deceased partner. The tax normally applies to any bequest left to someone who is not a spouse or close family member. By way of example, a registered couple would save some $30,000.00 in inheritance taxes if one partner died with $300,000.00 in assets, compared with an unmarried couple who had not registered. The law will also recognize children born to registered domestic partners as the legal descendants of both parents. Registration Requirements Beginning October 1, 2023, a couple can register as domestic partners by completing an affidavit with their names and address. Each partner must be at least 18 years old, unmarried, and in no other domestic partnership. The signed and notarized form must then be submitted to the Register of Wills in their county of residence with a $25.00 payment either in person or by mail. A registry is available to same-sex and opposite-sex couples alike. Once their application is approved, the couple will receive a certificate of domestic partnership. The Registers will all be able to access the records of the other registers, so a couple will be able to move to a different Maryland county without having to re-register. An unmarried couple who have registered with the state can terminate their partnership in four ways—by the mutual agreement of the partners, by one partner who has been abandoned by the other partner for at least six months, or upon the death or marriage of either partner. Not a Substitute for Estate Planning Couples who register should consider taking additional steps to ensure that they are prepared for the unexpected, including the death or disability of a partner. Have an attorney draw up your estate-planning documents, including a will, financial power of attorney, and advance medical directive. Your partner may be your primary beneficiary under your will, but you might want to include gifts to your children, nieces and nephews, or charitable organizations as well. A well-thought-out will also says who inherits and who settles the estate if you and your partner are both deceased. If your beneficiaries include children, your will could include a trust for their benefit. Placing a child’s inheritance into a trust will help ensure that the assets go toward worthwhile purposes, such as college, medical care, or maybe the down payment on a house. A will can also name guardians to look after any children who may be under the age of 18 when both parents are gone. If you or your partner becomes unable to manage your own finances or medical care, having a power of attorney and advance directive will help ensure that someone you trust is authorized to make these decisions on your behalf. At a time when fewer people than ever are getting married, and even fewer prepare a will before they die, having the right to register as domestic partners is a huge win for Maryland’s unmarried couples. If you and your partner decide to register, be sure to finish the job by having an estate plan prepared to help you navigate some of life’s biggest uncertainties. Lee Carpenter is an Estates & Trusts attorney at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or Lee.Carpenter@OffitKurman.com. This article is intended to provide general information about legal topics and should not be construed as legal advice.
August 3, 2023
Family Law
My Spouse has an Income, so Why Would I have to Pay Alimony?
Known Indefinite Alimony Awards in Reported Maryland Cases. The purpose of alimony is not to provide a lifetime pension. Rather, alimony is designed to provide the recipient spouse an opportunity to become self-supporting. Nonetheless, in cases where it is either impractical for the dependent spouse to become self-supporting or in cases where the dependent spouse will be self-supporting but still a gross inequity will exist, a court may award alimony for an indefinite period of time. A court may award indefinite alimony if it finds that: (1) due to age, illness, infirmity, or disability, the party seeking alimony cannot reasonably be expected to make substantial progress toward becoming self-supporting; or (2) even after the party seeking alimony will have made as much progress toward becoming self-supporting as can reasonably be expected, the respective standards of living of the parties will be unconscionably disparate. Although a significant mathematical disparity in income is not necessarily a sufficient condition to justify an award of indefinite alimony, it is nonetheless a necessary condition. But mathematical disparity is only the starting point of an unconscionability analysis. The court must look to the factors of Maryland Code Ann., Fam. Law § 11-106(b), which provides guidance in determining an appropriate award. Of course, the greater the income disparity, the more likely that it will be found unconscionable, all other factors remaining equal. The court has discretion in determining the length of alimony. In Maryland, it is interesting to note the following cases in which the mathematical disparities of each party’s income were considered in the court’s award of indefinite alimony. In Tracey v. Tracey, 328 Md. 380 (1992), an indefinite alimony award was upheld where the Wife’s post-divorce income was 28% of the Husband’s; in Caldwell v. Caldwell, 103 Md. App. 452 (1995), an indefinite alimony award was upheld where the Wife’s post-divorce income was 43% of the Husband’s; in Blaine v. Blaine, 97 Md. App. 689 (1993), an indefinite alimony award was upheld where the Wife’s post-divorce income was 23% of the Husband’s; in Rock v. Rock, 86 Md. App. 598 (1991), an indefinite alimony award upheld where Wife’s post-divorce income was 20-30% of Husband’s; in Broseus v. Broseus, 82 Md. App. 183 (1990), an indefinite alimony award upheld where Wife’s post-divorce income was 46% of the Husband’s; Bricker v. Bricker, 78 Md. App. 570 (1989), an indefinite alimony award upheld where the Wife’s post-divorce income was 35% of the Husband’s; in Benkin v. Benkin, 71 Md. App. 191 (1987), an indefinite alimony award upheld where the Wife’s post-divorce income was 16% of the Husband’s; in Zorich v. Zorich, 63 Md. App. 710 (1985), an indefinite alimony award was upheld where the Wife’s post-divorce income was 20% of the Husband’s; in Kennedy v. Kennedy, 55 Md. App. 299 (1983), an indefinite alimony award was upheld where the Wife’s post-divorce income was 33% of the Husband’s. Disparity in income is one of the many factors in determining the amount and length of an alimony aw d. Whether you are the dependent or earning spouse, competent counsel should be sought to do a complete alimony analysis in preparing for the resolution of this issue related to a divorce.
August 2, 2023
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