Equitable Distribution

The Simkin v. Blank case in New York has been a frequent topic on this blog.  It was game over for Mr. Simkin today when the NY Court of Appeals ruled that this Madoff victim could not revise his divorce deal.

 We first wrote when the case was filed.  In this case, in June 2006, the parties agreed to evenly split the $5.4 million in an account they had with Madoff Securities. As a result, the husband gave the wife $2.7 million in cash, and retained the account. As a result of the alleged Madoff Ponzi scheme that has essentially rendered the account worthless, the husband filed suit seeking the $2.7 million that he paid the wife. The husband alleges that because the account turned out to be valueless, the spirit of the agreement was broken.

We next wrote when the trial court first ruled, dismissing the matter.   I even participated in a podcast about this ruling. Acting New York State Supreme Court acting Justice Saralee Evans decided that the husband is stuck with his decision to keep the account instead of withdrawing his money before the December 2008 collapse of Bernard L. Madoff Investment Securities LLC. The Justice noted that while the husband claimed the Madoff account held no assets, he did not allege it had no value. Key to the decision was that in 2006 and "the several years after that plaintiff maintained this investment," the account "could have been redeemed for cash, presumably significantly in excess of its 2004 value." In addition, the Justice held that "An investor’s ability to redeem an account for value, was the assumption on which the parties relied in dividing their property and in doing so they made no mistake."

The next installment was about the Appellate Division’s decision which reversed the trial court decision and reinstated the Complaint.  The Appellate Court found that dismissal was improper and the husband had the right to try to pursue both the issues of mutual mistake (i.e. there never really was an account) and that the wife was unjustly enriched. In coming to its decision, the majority of the court held:

The dissent states: “[a]t the time of the agreement, Steven had an account in his name with [Madoff].” Untrue. Steven never had an account in his name with Madoff; on Madoff’s own admission there were no accounts within which trades were made on behalf of investors.

The dissent then states, “Steven liquidated part of the account to fund his payments to Laura.” Untrue. In Madoff’s Ponzi scheme what appeared to Steven and Laura to be a partial liquidation of an account was simply a payment to Steven that came from funds deposited by a more recent “investor” in what the “investor” believed was his own account.

The dissent further observes, “[Steven] did not liquidate the rest of the Madoff account … and he continued to invest in it.” Untrue. There was no account which could be liquidated, as became apparent when Madoff received $7 billion worth of “liquidation” calls from investors in 2008. Nor was Steven “investing” in an account; his further contributions went directly to pay other “investors” in the scheme.

Continue Reading Madoff Mess Hits the Divorce Court – The End

You work hard in high school, graduate top of your class in college, go on to graduate medical school, spend the longs hours and dedication needed to finish your residency, and finally after thousands of hours of studying, hundreds of tests and years of hard work – you are a doctor.  You start your own practice. You made it professionally. Personally, things are a bit different. You are facing a divorce. What does that mean for the medical practice you’ve worked so hard to establish?

Doctors may face unique issues during a divorce. Long term marriages may have seen years of what is considered relatively ‘average’ income (medical school and residency), followed by a dramatic or steady increase in salary (or a combination of both). It is no secret that self-employed doctors are usually not a typical W-2 employee. So what does this mean in the context of a divorce? What happens to the medical practice when the couple divorces?

Equitable distribution in New Jersey does not automatically mean half or 50% of a marital asset. Equitable distribution is not a simple mechanical division of assets accumulated and/or created during a marriage. The word ‘equitable’ itself implies the weighing of many considerations and circumstances that are presented in and unique to each case.  A judge would not be fulfilling his/her judicial obligation if he/she routinely or mechanically divided assets from a marriage equally.Continue Reading What Does Equitable Distribution Mean for a Medical Practice?

Going through a divorce can be overwhelming – equitable distribution, visitation, alimony, child support, division of retirement accounts, where to live, re-entering the workforce.  All of these are important, long-lasting decisions.  But there is one thing that many people fail to consider during a divorce………..divorcing your credit reports.

Today, your credit report can have a significant impact on all aspects of your life – obtaining a credit card, getting qualified for a mortgage, car loans, a job, the interest rates you pay, car insurance, life insurance.  Not having good credit can cost you thousands of dollars.  That is why it is important to address your credit report, and the lines of credit that your spouse can access as early in the divorce process as possible.

The key to divorcing credit reports is understanding the difference in the way a court views debt versus the way credit companies view debt.  A court views debts as either marital debt or non-marital debt, and will divide it according to a variety of NJ statutory factors, which can be found here.  Credit companies view debt as either being joint or individual.  With joint debt, both spouses signed for the credit and both spouses are responsible for the debt. With individual debt, only one spouse signed for the debt, hence only one spouse is responsible for it.Continue Reading Divorcing Your Credit Reports

Divorce filings seem to be at an all-time high and, to no surprise, the trial courts are feeling the pressure.  Documents filed with the court can get lost in the shuffle.  Although motions should be addressed within 24 days from the initial filing date, it can take months until the court actually makes a decision.  By then, the issues grow stale or even worse, they grow more complicated. Emotions blaze as time passes.  Many would argue that having your "day in court" is becoming somewhat of an illusion.   With this in mind, attorneys must be more creative and diligent in addressing issues in a case before they arise.  Leaving it to the court can make it worse, especially if the judge does not follow proper procedures in providing their decision and the judgment/order of the court.  If the court does it wrong, you may get your day in court – TWICE!Continue Reading Want Your Day In Court? Think Twice.

A few weeks ago, I posted a piece on this blog about the business valuation concept known as reasonable or replacement compensation.  After that post, I received an email from a well known business valuation expert, Sam Rosenfarb of Rosenfarb LLC, with an attachment containing an article that he wrote regarding the issue of the change of value of a business after the date of Complaint for Divorce.  That article along with the ever growing backlog in the family courts created by the budget crisis and other factors got me thinking more about this topic. In some counties, it may be more than three years to get a trial date at this time.

Why is this important?  In New Jersey, passive assets (e.g. real estate, bank accounts) are typically valued as of the date of distribution.  On the other hand, active assets, such as a business, where the value could be tied to the efforts of the business owner, are typically valued as of the date of the divorce Complaint.  As such, in your typical case, the increase or decrease in value post-complaint is not considered though there is an ability to raise the issue in extreme circumstances.

This issue was relevant in a case that both Sam and my prior firms were involved in where it took nearly a decade for the case to get to trial and where the business increased in value substantially over that time.  That case started before New Jersey implemented "Best Practices" wherein, systemically, the goal was to get all cases resolved in a year.  Even cases that were more complicated and which had business valuation issues, could usually get a trial date within 18 months.  As such, the days of the 4 year, 5 year or longer case, where changes in value would likely occur, became less the norm as they had been before "Best Practices."Continue Reading Changes in the Value of a Business Post-Complaint

>Often times, when I meet with a new client, they will tell me that a parent, a sibling, great aunt, or good friend loaned the client and the spouse money that must be considered a debt to be repaid in equitable distribution. Many times, this was for a down payment for a house, or to get the couple through difficult financial period. The other party, just as often, takes the position that the “ loan” was really a gift. And so the games begin.

Generally, in the law, a gift has several elements. First the he donor must perform some act constituting the actual or symbolic delivery of the gift. Second, the donor must possess the intent to give. Third, the donee must accept the gift. There us also an additional element, which is the relinquishment by the donor "of ownership of the gift. A loan, on the other hand, is generally defined as The giving or granting of something, particularly a sum of money, to another, with the expectation that it will be repaid (typically with interest) or returned.

When comparing these in the context of a divorce, several questions come to mind. First, if the money was given when the parties purchased a home, was there a “gift letter.” This is very often required by the banks in order to make sure that the money is not a loan. If there is such a gift letter, this is often the end of the inquiry. On the other hand, if there are periodic payments to the person who gave the parties the money, then it may in fact be considered a loan for purposes of distribution. Continue Reading A Loan by Any Other Name Is a… Gift… To Be Shared

An interesting issue was recently considered by the Court in the case of Muller v. Muller. Specifically, the Appellate Division examined whether a husband could compel the sale of the marital home when he had conveyed his interest by way of deed about ten years earlier, but the parties’ Property Settlement Agreement (“PSA”) had provided for the husband’s continued ownership.

The parties in Muller were married for 17 years. When they divorced in 1990, they entered into a PSA, which, in part, provided as follows:

EQUITABLE DISTRIBUTION
A. Husband and Wife agree to divide equally the personalty . . . upon sale of the premises or child’s emancipation, whichever shall first occur.
B. Upon execution of contract of sale of the above premises, Husband agrees to put his interest in the marital home in trust for Child.
. . . .

REAL ESTATE
A. Husband agrees to pay the mortgage payments [on the marital home] . . . until the time that child graduates from college, or reaches the age of 22, whichever shall first occur[.]

The husband paid the mortgage from the time of the divorce until around 1999 when he defaulted on the payments. The mortgagee instituted foreclosure proceedings in or around July of 2000. In order to avoid foreclosure, the wife borrowed about $60,000 and refinanced the property. The husband executed a deed and conveyed the wife his ownership interest in the property for consideration of $50,000. As a result, the wife exonerated him of the debt the he had incurred by defaulting on the mortgage payments. At the point, the child was 21 years old and had graduated from college.Continue Reading Did a Property Transfer Occur? Husband Could not Rely on the Property Settlement Agreement to Compel the Sale of the Marital Home Because the Deed Controlled.

In divorce cases, where one or both spouses own a business, the value of the business for equitable distribution purposes is often one of the more difficult issues to resolve in the case.  When these issues arise, the Court may appoint an expert. the parties can agree on a joint expert, or each party may retainer their own expert to value the business.   While there are many objective parts of a business valuation report, reasonable (a/k/a replacement) compensation is subjective.  Why is it important?  Because the higher the reasonable compensation, the lower the value of the business and vice versa.  As such, when there are partisan experts, it is not unusual for these subjective factors to favor the party that the expert is working for.

For divorce purposes,as well as many other situations where businesses are valued, they are valued based in whole or part on their income.  Reasonable compensation is a consideration in two valuation methods often seen in divorce cases – the excess earnings method and the capitalization of earnings method.  These methods involve examining earnings available to a potential hypothetical buyer after he or she receives a "reasonably compensation"  for running the business. Earnings available, beyond
"reasonable compensation" are a large factor in valuation. The higher this figure is, the more the business may be worth. In the excess earnings method, the difference between actual compensation and reasonable compensation is capitalized and for all intents are purposes represents the "intangible asset" known as good will of the business.Continue Reading Reaonable Compensation/Replacement Compensation – What it Means to Business Valuation

Fox Rothschild’s New Jersey Family Law Legal Blog welcomes Noah B. Rosenfarb, CPA, an Accountant and Holistic Wealth Advisor with Freedom Divorce Advisors, a financial advising company designed to aid women in securing their financial future post-divorce, as a guest blogger. 

Noah’s articles and insights are particularly relevant with the message and content of our firm’s blog, and, having worked with him on several occasions, we know that he will provide invaluable insights to our readers.  With that being said, I provide below the text of an article Noah recently wrote about using retirement assets to satisfy financial obligations resulting from divorce, and tips to avoid early withdrawal penalties associated with doing so.Continue Reading Retirement Plan Assets To Fund Post-Divorce Obligations: Strategies To Avoid Early Withdrawal Penalties

It is common and often unfortunate that I meet with clients who decided, for whatever reason, that they would represent themselves during a divorce proceeding.  There are cases where that decision may be perfectly acceptable.  More often than not, the people I have met are coming to me because they are totally unsatisfied and/or unhappy with the deal they’ve made for themself and are looking to an attorney to get them a better deal.  Sometimes this is a possibility.  However, when the ink is dry on that formal agreement, it makes things more complicated.

Recently, the Appellate Division affirmed a lower court’s decision regarding the enforceability and conscionability of an Agreement negotiated and reached by the parties and formalized by husband’s attorney.  Wife chose to remain self represented during the negotiations and execution of the Agreement.

After husband made a post-divorce application in the trial court to enforce the Agreement, wife challenged its validity, claiming unconscionability, inequity, unfairness and that it was obtained through fraud.  The trial court conducted a two day hearing during which both parties and husband’s attorney testified.  Thereafter, the trial court rejected wife’s arguments that the Agreement was invalid, unfair, inequitable and procured through fraud.Continue Reading Be Careful What You Bargain For Without the Advice of Counsel