Posted on November 13, 2008 by Eric S. Solotoff

WHAT HAPPENS AT TRIALS

Recently, my partner, Mark Ashton, in our Exton (Chester County, Pennsylvania) office wrote an excellent post on our Pennsylvania Family Law Blog entitled "How Do Trials Work."  Too see his post, click here.

While much of the trial experience is the same, there are differences in New Jersey practice and procedure.  For instance, in Pennsylvania, it appears that many trials are conducted before a Master, who is a lawyer appointed by the Court to hear matters and make recommendations.  In New Jersey, we try cases in front of Superior Court Judges.  The only exception is when parties agree to try their matter in arbitration - though that cannot be compelled by a Court in a divorce matter.

Trials are rare.  They tell us that about 99% of the cases settle.  That said, after the discovery, appraisals, evaluations, depositions, Early Settlement Panel, mandatory economic mediation and in some counties Intensive Settlement Conferences at the courthouse, if the case is not resolved, trial is the last mechanism to get resolution.

Though each judge is different, many have a pre-trial Order requiring the parties to submit several things to the Court in advance to save precious court time at trial for the actual trial.  These submissions often include a trial brief wherein you set forth a parties position and the law and facts to support it, witness lists, exhibit lists (both for each party and a joint list), and stipulations.  Some judges actually want the actual exhibits in advance too. When we prepare, we typically put our exhibits in binders (4 sets - one for us, one for the judge, one for the other side and one for the witness). 

Stipulations are essentially a list of agreed upon facts that you don't have to spend trial time to establish.  While these are helpful, I have had at least one adversary tell me that he wont do them because it interferes with the flow of the presentation.  I think that ta ht is a valid point, but nevertheless, I try to enter into stipulations when possible. 

When you show up at the courthouse for trial, most judges will want to conference the case to give you one last chance to settle.  In fact, some attorneys show up unprepared to actually try the case because they are counting on this.  That is bad practice because the best way to be prepared to settle a case is to be prepared to try it because you are bargaining from a position of strength. 

Sometimes trial dates are really fake trial dates. What that means is that you are being called to court to try to settle, only you don't know that in advance. This past Spring, I received a call on the day before the trial telling me to be there at 8:30 the next morning ready to start the trial. Two other sets of attorneys got the same call and a third got the same call, but only to appear at 1:30. None of the four trials on the calendar for that day started. Not all settled either.

When you finally start the trial, sometimes a judge will want you to do an opening statement, or at least ask you if you want to. If there is a trial brief, an opening is not always allowed or required.

Then it is time to call the first witness. The plaintiff, i.e. the person who filed the Complaint for Divorce, gets to present testimony and evidence first. Very often, the plaintiff is the first witness. The lawyer will ask open ended questions on direct examination and the witness will get to tell their story. All appropriate areas for the court's consideration should be addressed during direct examination. Reference to documents often occurs to assist telling the story.

Similarly, sometimes charts or other summaries are prepared to both assist the Court and shorten the testimony. In fact, as long as the Rules of Evidence are complied with, they are often admitted into evidence as a summary of the testimony subject to cross examination.

Once a witness is done testifying, the other side gets to cross examine the witness. This is done by asking leading questions, where a yes or no answer only is required. A typical questions often begins "Isn't it true that ..."

The plaintiff's lawyer will then get to re-direct the witness, to clarify issues raised on cross examination. In fact, re-direct is limited to issues raised on cross examination. Sometimes there is re-cross, re-redirect, re-re cross, etc.

The same routine happens will all of the plaintiff's witnesses.

Sometimes, you call the other party as the first witness in your case. Aside from the element of surprise, if and when I do this, I try to limit it to some real key issues or admissions to get them before the Court right away. Some words of warning, the other side essentially gets to cross-examine their own witness. That can help them if the attorney thinks that they will not testify well on direct. Essentially they can be lead through their entire case, especially since the cross examination of a party witness is not limited to the scope of the direct examination, as it is for non-party witnesses. I recently put my whole client's case on in this way after my adversary made the mistake to call her during his case. Also, sometimes this can delay the trial because the witness may testify about the same issues first on cross by their attorney and then during direct. Also, if the smoking gun does not turn out to be a smoking gun, the impact on calling the other side first falls flat.

Once the plaintiff's rests their case, the defendant then gets to put on their witnesses in the same way.

After the defendant is done, the plaintiff may put on a rebuttal case to address issues raised in the defendant's case.

Note however, because of schedules of experts and other witnesses, it is not uncommon to take a witness out of turn, even during the other side's case. While you don't have to agree to this, unless there is a real good reason no to, this courtesy is usually extended.

After the rebuttal cases is over, it is time for Summations. Very often, they are written. This is your chance again to argue the facts that were proved during trial and why the court should grant the relief that your client is requesting. Some judges, require oral summations at the close of the testimony. In fact, one judge before whom I have tried a few cases allows only 20 minute oral summations.

Note also that trials are not usually done on consecutive days until they are done. Trials rarely occur on Fridays because that is when motions are usually heard. They are also not often not held on days when Early Settlement Panels are occurring. There then can be a variety of reasons why a case does not get tried continuously, even within the above parameters. I finished a case in September 2008 where our first trial date was in October 2007, our second in January 2008, our third in April, our fourth in August and our last day in September. While this is not the norm, it is not unheard of either.

After the summations are submitted, you wait for a weeks, if not months to get a decision. I have had one case the finished in July (and started in April) and we did not get the decision until the following May. Another finished about the same time, was not decided until January. In fact, I have two decisions outstanding for trial completed in August and September, respectively.

I note that these rules apply not only to divorce trials, but also to plenary hearings. A plenary hearing is essentially a trial, but usually involves limited issues. They are particularly common post-judgment, when the issue is modification, but arise in other circumstances too.

The process is long and often grueling, but sometimes necessary when parties cannot settle their differences.
 
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Posted on July 16, 2008 by Eric S. Solotoff

SOLE VS. JOINT LEGAL CUSTODY - IS IT WORTH FIGHTING ABOUT?

A lot of times clients come in saying that they want full or sole custody of the children.  This inevitably leads to a discussion regarding the distinctions between legal and residential custody.

Legal custody is essentially involves decisions regarding children's health, education, religion and general welfare.  With sole legal custody, one parent can make all of the decisions regarding these matters, though they have to consult the other parent in most cases.  With joint legal custody, the parents must consult and attempt to agree. 

Residential custody is where the child lives.  Some catch phrases often used are Parent of Primary Residence (or PPR) and Parent of Alternate Residence (or PAR).  Surprisingly enough, the official definitions for these terms come from the Child Support Guidelines.  Simply put, the PPR is the parent with whom the children reside more than 50% of the time. 

Now, with regard to the question as to whether it is worth fighting about the issue of sole vs. joint legal custody.  In practice, I have found that even in all but the worst of situations, must custody experts recommend and most judges order joint legal custody.  This is even though there is case law that says that joint legal custody may not be appropriate if the parties evidence no ability to communicate.  Of course, if it is the custodial parent that wont cooperate, it seems unfair to reward that parent with sole custody. 

In addition, there is a presumption in the case law that the custodial parent gets the final say in the event of a deadlock between the parents, even when there is joint legal custody.  This has come up time and again in reported decisions, including in cases regarding religious upbringing and of all things, a nose job. 

So, if the experts and courts are usually going to recommend joint legal custody, a litigant must investigate whether it is really worth it to fight for sole custody  Similarly, if the PPR has the legal presumption anyway, one must really consider whether it is worth the fight. 

This is not to say that it is not worth fighting about custody.  The real fight in most cases, if there is a bona fide dispute,  is and should be who is the PPR and how much parenting time the other parent enjoys. 

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Posted on May 8, 2008 by Eric S. Solotoff

Beware of R.A.I.D.S.

There is a not too uncommon phenomenon that is frequently seen in divorce cases.  Specifically, as soon as the notion of a divorce action become a reality, many supporting spouse's incomes suddenly, and usually without valid explanation, drop substantially.  It may come as no surprise that someone may want to manipulate their income when an alimony or child support obligation is about to be set.  This affliction is sometimes known as "R.A.I.D.S." or Rapidly Acquired Income Deficiency Syndrome (sometimes also known as "SIDS"  Sudden Income Deficiency Syndrome.) 

That is not to say that there are not valid, legitimate and explainable deviations in someones income.  Some people are in commission sales and one year is legitimately better than another.  Perhaps someones income is tied to real estate.  That person may have a legitimate reason why 2007 and 2008 are down years.  Mortgage bankers are probably having trouble now as are realtors.  I recently had a case where if you looked at my client's tax returns and W-2s, one would think that support should have been based upon a seven figure income as opposed to a mid-six figure income.  In this case, there were some discrete one time payments from exercises of stock options and change of control of companies that he worked for.  These are not the situations I am talking about.  In fact, when there is non-recurring income, it may be legitimate to back it out for purposes of computing support or else the support would not be fair to the payor.  When income legitimately fluctuates from year to year, the Child Support Guidelines and decisional law suggest taking an average (3 or 5 years is common). 

The cases that I am talking about are those where there is no explanation for the sudden drop in income.  Very often, this occurs when the supporting spouse is self employed.  There are many ways income is hidden.  Sometimes, it is just not collected - as possibly evidenced by a large rise in accounts receivable.  Sometimes, there may be several capital expenditures or large equipment purchases, which reduce the profits and thus the income.  Other times, perquisites or personal expenses paid by the business increase dramatically.  Check the business credit cards - they are often illuminating in this regard.  Cash is also a possibility as are other manipulations with payments received.

In these cases, discovery is critical to smoke out the true income and real reason for the alleged reduction in income.  The use of a forensic accountant is often essential to get to the correct income number.  

RAIDS is certainly an illness that can be diagnosed and with the proper team of lawyers and experts, cured so that the supported spouse is treated fairly. 

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Posted on March 27, 2008 by Eric S. Solotoff

IS UNIFORMITY IN BUSINESS VALUATIONS UPON US? - THE NEW AICPA BUSINESS VALUATION STANDARDS

            On June 21, 2007, the American Institute of Certified Public Accountants, “AICPA”, released the Statement on Standards for Valuation Services No. 1 (SSVS No. 1) – Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset (“Standards”). These standards are effective for all valuation engagements accepted on or after January 1, 2008. The purpose of these Standards is to improve the consistency and quality of practice among CPAs that perform valuation services. The Standards were developed because Congress, government agencies and regulators have recently focused their attention on valuation issues, as well as the increasing demand for valuation services over the past 20 years. 

            The Standards specify two types of engagements: valuation engagements and calculation engagements. Valuation engagements would typically be the one required in a divorce matter.

            In determining whether the valuation engagement can reasonably be expected to be completed with professional competence, the standards require that the valuation analyst consider, at a minimum, the following: (a) the subject entity and its industry; (b) the subject interest; (c) the valuation date; (d) the scope of the valuation engagement (including the purpose of the engagement, any assumptions or limiting conditions that are expected to apply to the valuation, the applicable standard of value (i.e. fair market value or fair value) and premise of value (i.e. going concern), the type of report to be issued, the intended use and users and the restrictions on the use of the report); and (e) any governmental regulations or other professional standards that apply to the entity to be valued or to the valuation engagement.

            Additionally, in understanding the nature and the risks of the valuation services to be provided, the standards require that the expert should consider: (a) the proposed terms of the engagement; (b) the identity of the client; (c) the nature of the ownership interest, including control and marketability issues; (d) the procedural requirements of the valuation and whether they will be limited by either the client or circumstances beyond the client’s control; (e) the use and limitations of the report and the conclusion or calculated value; and (f) any obligation to update the valuation.

           

          Under the Standards, the accountant is permitted to rely on the work of a third party specialist, such as a real estate or equipment appraiser and has the option of appending the specialist’s report within their valuation report.

           In performing a valuation engagement, the standards require the CPA to analyze the subject interest (considering many of the factors previously addressed); consider and apply appropriate valuation approaches and methods and prepare and maintain appropriate documentation. The analysis of the subject interest should include financial information for the relevant period such as historical and prospective financial information, comparative summaries of financial statements, comparative common size financial statements, tax returns, information on owners compensation and key man life insurance, advantageous or disadvantageous contracts, contingent or off balance sheet assets or liabilities and information regarding prior sales of the entity. Additionally, non-financial information must be considered such as the nature, background and history of the entity, the facilities, the organizational structure, the management team, classes of equity ownership interests and the rights attached thereto, products or services, or both, the economic environment, the geographic markets, the industry markets, key customers and supplies, competition, business risks, strategy and future plans and the governmental and regulatory environment.

          In performing the valuation, consistent with past practices for a typical valuation, the accountant should consider the three most common valuation approaches: the income approach, the asset approach and the market approach. While using the capitalization of benefits method (an income approach), the accountant should consider normalizing adjustments, non-recurring revenue and expenses, taxes, capital structure and financing costs, appropriate capital investments, non-cash items, qualitative judgments for risks used to compute discount and capitalization rates and expected changes in future benefits. When performing a discounted future benefits analysis (also an income approach), the accountant must consider forecast/projection assumptions, forecast/projected earnings or cash flows and the terminal value. When using the asset approach, the assets and liabilities must be identified, the assets and liabilities must be valued and the liquidation costs must be considered. In using the market approach (i.e. looking for comparable sales), the accountant must consider qualitative and quantitative comparisons, whether the data reflects arms-length transactions and prices and the dates and relevance of the market data.

        The accountants are also required to consider valuation adjustments such as discounts (lack of marketability or lack of control) and premiums. Though consideration of these adjustments is seemingly required, it will be interesting to see how this is applied in New Jersey since discounts are disfavored in matrimonial valuations.

        Subsequent events that were not known or knowable as of the valuation date are not to be considered. This is significant as there was considerable debate in the valuation community about the appropriateness of using subsequent events. 

         The Standards, in large part, comprehensively state what the more skilled accountants have been doing for some time. However, another benefit of the Standards, aside from uniformity, is the creation of a road map to use both to be sure that your valuation expert’s report is as unassailable as possible, and to provide fodder for cross-examination of the adverse expert.

          For a full version of the Standards from the AICPA web site, click here.
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