What's yours is both of yours? Maybe! The dangers of commingling assets.

The Michigan Court of Appeals has recently changed the rules regarding commingling of assets. Lawyers must advise their clients accordingly and clients should seek competent legal advice before commingling assets with his/her spouse.

When dividing property in a divorce, a primary consideration is whether the property is 'marital' or 'separate'. Generally, property acquired during the course of the marriage is 'marital' and subject to division in the event of divorce. Conversely, property acquired before (or after) marriage is separate property and not subject to division in the event of divorce.

However, there are a number of exceptions to the general rule set forth above. One notable exception is the commingling of a separate assets. The exception typically arises in this situation. One spouse has separate assets (e.g. savings from before marriage) and invests the money in the marital home, the home is then refinanced a few times with cash out and the parties continue to pay on the new mortgage. In this situation, Courts have ruled that the separate investment of a party has become marital once commingled into the marital home. More specifically, because the separate property is no longer traceable to the separate source (because of the refinancing, cash out, etc.) it has become marital and is subject to division in divorce.

Until recently, the prevailing view regarding commingling of assets has been that if money is traceable to the separate source, it would remain separate property and not subject to division in the event of divorce. However, the Michigan Court of Appeals has recently changed the rule. On July 13, 2010, the Michigan Court of Appeals decided the case of Cunningham v. Cunningham. The Court ruled that an asset from before marriage which was invested in the marital home during the marriage becomes marital property when it was invested in the marital home even though the down payment was traceable to one party.

Prior to commingling a separate asset, careful consideration must be given to how that asset will be treated in the event of divorce. What you thought was yours might unintentionally belong to both you and your spouse. If you are not married, consider a pre-nuptial agreement. If you are already married, consider a private agreement or post-nuptial agreement.

As always, feel free to call me to discuss any concern regarding your family law matters.

Daniel

The Findling Law Firm, PLC

414 W 5th Street

Royal Oak, MI 48067

(248) 399-3300

(248) 556-9783 (fax)

Email: Daniel@Findlinglaw.com

My blog: http://thedivorceguy-daniel.blogspot.com

My practice group's cool website: TheDivorceGuy.com

My firm's cool website: FindlingLaw.com

Changing pension or life insurance beneficiaries after divorce. A Judgment of Divorce may not be enough!

In almost every Judgment of Divorce, the parties either award or waive an interest in the former spouses' pension plan(s) or life insurance plan(s). However, if the benefit is governed by ERISA, a waiver in a Judgment of Divorce may not be enough and your former spouse may still receive benefits as an unintended beneficiary.

A. Pension

Recently, the U.S. Supreme Court Case, Kennedy v. Plan Adm. for DuPont Savings and Investment Plan, ruled that an ex-spouse cannot waive an interest in a former spouse's ERISA-governed pension plan through the divorce decree alone. The Estate sued the pension plan to recover the pension benefits wrongfully paid to the former spouse under the terms of the Judgment of divorce. In a unanimous decision, written by Justice Souter the Court held that the employer did not err in paying benefits to the former spouse even though the Judgment of divorce provided otherwise.

In light of the Kennedy decision, to ensure that a divorcing spouse's intent to waive her interest in the pension plan is effectuated, lawyers must get the proper forms from the plan administer before the entry of the Judgment of Divorce and make sure the waiving spouse signs them contemporaneously with the entry of the Judgment.

B. Life Insurance

While, Michigan law provides that a Judgment of Divorce must either extinguish or preserve in the Judgment any and all rights of a party in any policy or contract of life insurance, endowment or annuity upon the life of another, in which the spouse was named or designated as beneficiary, or to which he/she became entitled by assignment or change of beneficiary during the marriage or in anticipation of marriage.

However, in Metropolitan Life vs. Pressley, 1996 Fed. App. 0122P (6th Cir.) the Court held that the waiver in a Judgment of Divorce is not enough. A party must also affirmatively terminate his or her spouse as a beneficiary of an insurance policy because the provisions of ERISA preempt Michigan law and the effectiveness of this statutory provision. Therefore, after entry of a Divorce decree, the party should also change the beneficiary on the life insurance, endowment or annuity or risk allowing the ex-spouse to take the asset as an unintended beneficiary.

Drafters beware - the deductability of alimony

When drafting a Judgment or Order regarding alimony and spousal support, drafters beware that the mere use of the word "alimony" or "spousal support" does not affect the tax consequences of the payment.

Under I.R.C. sec 215, payments made for alimony are allowed as a deduction. However, in order for payments to be tax deductible, the eight requirements of I.R.C. sec, 71 must be met.

The eight requirements of I.R.C. sec. 71 are:

1. The payments must be made in cash; (e.g. providing a car is not deductible)

2. The payments must be to a spouse or on behalf of a spouse;

3. The payments must be made pursuant to a divorce or separate maintenance instrument;

4. The payments must not be designated as non-qualifying by the payor or non-taxable to the recipient;

5. Spouses may not be members of the same household;

6. The payment must terminate at the recipient spouse's death;

7. Spouses may not file a joint return; and

8. The payment cannot constitute child support.

So drafters beware and understand the application of I.R.C. sec. 71.

A family law specialist does make the difference in accomplishing a client's goals.

Daniel

U.S. Dad jailed in a custody battle - Parental Kidnapping Prevention and Remedies

This morning’s headlines shed light on one of the most frightening moments in a custody case with international ties:

An American dad is behind bars and his Japanese ex-wife is a fugitive from justice, due to an epic culture clash between Japan and the United States that is causing untold heartache for families.

While there is no one comprehensive integrated process for gathering and analyzing data and information on international child abduction cases, in 1988 family members abducted 354,100 children in the United States. (See http://www.ncjrs.gov/pdffiles1/ojjdp/190074.pdf) Clearly, many of these children were removed from the country.

What does the law provide?

A. The Hague Convention

The Hague Convention on the Civil Aspects of International Child Abduction (“Hague Convention”) provides for the prompt return of wrongfully removed children. Simply put, if the child resides in a member country, the member country will return the child. The Hague Convention is not in effect in Japan because they chose not to participate in the treaty. (For a list of the 48 Countries that participate in the Hague Convention, visit: http://www.travel.state.gov.

B. Parental Kidnapping Prevention Act (“PKPA”)

The PKPA provides that a felony warrant may be issued for parental kidnapping cases.

C. International Parental Kidnapping Crime ACT (“IPKCA”)

The IPKCA criminalizes international parental kidnapping and categorizes the crime as a federal felony.

Preventing International Child Abduction

A. The importance of a Custody Judgment

Courts speak through their Orders. A Custody Judgment or decree is an Order of the Court which sets forth the rights of the parents. In most cases, in order to obtain relief from parental abduction, there must be a custody judgment or decree setting forth the rights of the parents. A well-drafted custody and parenting time judgment may be the most important line of defense against international child abduction. For example, in high risk for abduction cases, a lawyer should draft the Judgment with appropriate safeguards such as a prohibition on international travel, supervised parenting time or avoid a joint custody order.

B. Make a record: Keep a list of addresses and telephone numbers of the other parent’s relatives, friends, and business associates. In addition, keep a record of the other parent's passport, social security number, bank accounts and physical characteristics.

C. Images and descriptions: Keep an updated photograph/video and description of your child (preferably every six months), include fingerprints and any special characteristics in your file.

D. Passport Issuance Alert Program: Federal Law requires the signature of both parents when obtaining a passport for a minor child. Notwithstanding, the State Department has implemented a Passport Issuance Alert Program which raises places the government on alert if a passport application is made for the minor child.

E. Be aware of “red flags”, such as:

• No strong ties to the United States;
• Friends or family living out of the Country;
• Limited financial reasons to stay in the United States;
• Quit his/her job, closed bank accounts (planning activities);
• A history of marital instability;
• Prior criminal records.

Child Abduction is a tragedy that can sometimes be prevented. If you have additional questions or concerns, please contact me.

Daniel

To discover assets, just add a "y".

There are only three ways for a lawsuit to end. The parties can settle, a court can decide, or the parties can dismiss the case. A divorce is no different. Assuming that the parties cannot reconcile and dismiss their case (after all, it only takes one person to make a divorce). How do you prepare?

Prior to settlement or trial, the parties should be well aware of both the nature and extent of their estate and all issues concerning their children, if any. Preparation is key. It would be unconscionable to settle or try a divorce case, without some way of verifying the facts.

The process by which we discover the nature and extent of the parties' estate is called discovery. It is easy to remember, just add a "y" to discover.

Discovery is the method lawyers use to verify facts relevant to the rights and obligations of the parties. Discovery includes the right to question each other under oath at deposition, Interrogatories (written questions), Requests to Produce Documents, and Requests for Admissions and the like, that are used to discover, among other information, all assets and liabilities of each party.

Many lawyers waive discovery in an effort to cut costs. While a waiver of discovery may be applicable in some cases, caveat emptor (let the buyer beware). If you decide to waive discovery, at a minimum you should demand that an affidavit of assets and liabilities be exchanged. It is not uncommon for a party to hide assets or liabilities that could easily be discovered.

"Don't ask, don't tell" does not only appy to the military. A keen lawyer may advise his/her client not to tell unless asked. If you never ask, you may never receive and in many cases, you may not be able to ask again. Once a Judgment of Divorce is entered, in most cases, the Judgment can never be re-opened to divide undisclosed assets unless you previously asked about it!

Daniel

Thedivorceguy.com

Continuing Legal Education

Last week, I attended the American Academy of Matrimonial Lawyers Advance-Level Family Law Seminar and saw many familiar Judges, referees and attorneys. I also made a mental note about who I didn't see. There were many.

It may be hard to believe, but, unlike a physician, there is no requirement for a lawyer to maintain his license with continuing legal education (CLE).

The law, like medicine is dynamic. It changes. I have been a speaker at a CLE seminar and attended them. In both cases, I always learn something new. The something new may be clarity of a nuance in the law or even information about new family law legislation in congress.

In either case, I always leave knowing I am a better lawyer.

The latest CLE was no different. I left with new information regarding a change in an IRS regulation that will have a dramatic effect on the allocation of the dependency exemption in divorce cases with minor children.

I believe, CLE should be mandatory to maintain currency as a family law attorney. If given the option, too many lawyers take the easy way out. So, who pays the cost? The client.

Daniel

Arbitration as an alternative to trial

Litigation can be expensive. Fortunately, most contested issues in domestic relations cases resolve themselves before trial. Notwithstanding, when the parties cannot agree the decision will be made by a third party. The third party is typically a Judge, but can also be an Arbitrator at the request of the parties.

At Arbitration, the parties pay a qualified, private, third party to decide the case. The Arbitrator's decision is binding.

Why would anyone want to Arbitrate a case when the Judge can decide for free?

Trial before a Judge can be expensive and slow. Adhereance to the formal rules can substantially increase the cost of litigation and the Judge's docket is often very long resulting in long delays. Arbitration is typically an informal process and the arbitrators' schedules are typically more flexible than a Judge's.

Arbitration can be used strategically as well. For example, the decision to arbitrate can be used to forum shop (choose a more favorable person to decide your case). Alternatively, the client's may want to introduce evidence without the risk of public disclosure at trial.

Why would anyone not want to arbitrate a case?

The answer is simple. In Arbitration there is no right to appeal. When a Judge decides a case, there is an absolute right to appeal.

The arbitrator's decision stands unless there is fraud, corruption or misconduct. If the Arbitrator makes the wrong decision, the decision will stand, even though a similar decision from a Judge would have been overturned on appeal.

It is important to clearly evaluate the pros and cons of arbitration. While arbitration can be an efficient and economical manner of resolving a disputed claim it can come at a cost.

Daniel