Posted by Gale Burns on Fri, May 04, 2012 @ 08:05 AM
The Lawletter Vol 36 No 11
Fred Shackelford, Senior Attorney, National Legal Research Group
What is the potential liability of a testing laboratory that incorrectly analyzes a DNA sample? This was the issue before the Oklahoma Supreme Court in Berman v. Laboratory Corp. of America, 2011 OK 106, 268 P.3d 68. In the Berman case, the plaintiff sought assistance from the Department of Human Services ("DHS") to determine the paternity of her child and to collect child support. The agency arranged for the defendant laboratory (LabCorp) to conduct a DNA test. LabCorp tested the sample twice and both times incorrectly reported that a particular individual, Herbert White Jr., was not the child's father.
However, after a different laboratory performed a DNA test and found that White was in fact the father, the plaintiff sued LabCorp for having negligently tested the DNA sample. She sought damages for the loss of past and future child support payments that White would have been required to pay if the paternity test results had been correctly reported. After the court disposed of an immunity defense, it addressed an issue of first impression in Oklahoma: "[D]oes LabCorp owe Berman, as the parent seeking to prove the paternity of her child, a duty of care to conduct accurate DNA testing which was ordered by DHS for child support purposes?" Id. ¶ 16.
The court noted that DNA or genetic test results have become an important part of evidence law in Oklahoma. Such test results have been admitted in cases involving heirship of a decedent's estate; proving paternity to prevent an adoption from moving forward without notice to the natural father; criminal proceedings to revoke a suspended sentence; and exonerating wrongfully convicted criminal defendants. Holding that LabCorp had a duty to perform accurate testing, the court reversed a grant of summary judgment for LabCorp and stated:
The importance of reliable and accurate DNA test results cannot be overstated. This type of forensic evidence is becoming part of our jurisprudence, and this trend is not likely to end. Much stands in the balance of the lives of those relying on such test results to protect their legal rights in a court of law. Inaccurate results could deal a devastating blow to those who otherwise have no ability to prove their cases on their own. Without recourse against a negligent defendant, a plaintiff has no remedy. Berman stands in that position in her relationship with LabCorp. Inaccurate results proved fatal to her case in her DHS proceeding. She was forced to pursue further legal action at her own expense. Her risk was foreseeable, and LabCorp owed her a duty to prevent that risk of harm.
Id. ¶ 18.
Given the importance of DNA testing in a variety of contexts and the potential consequences of reporting incorrect results, the Berman case represents an important precedent in the field of negligence law.
Posted by Gale Burns on Fri, Apr 27, 2012 @ 08:44 AM
The Lawletter Vol 36 No 11
Brett Turner, Senior Attorney, National Legal Research Group
Guardians ad litem serve a very useful role in child custody proceedings. But it is important to remember that a guardian ad litem is not a judge, and an order giving the guardian too much authority may be invalid.
In Van Schaik v. Van Schaik, 24 A.3d 241 (Md. Ct. Spec. App. 2011), the trial court was faced with a very common situation: The parents of two children had shown persistent inability to communicate and resolve differences without court intervention. In response, the court entered the following order:
[E]xcept in emergencies, the parties shall communicate through e‑mail and any contentious matters or disputed e‑mail issues shall be forwarded to the attorney for the minor children, Leigh R. Melton, Esquire, for her review. In the event [appellant] and [appellee] cannot reach a mutual agreement on any disputed matter regarding the minor children within twenty‑four (24) hours, then the attorney for the minor children shall serve as the "tie‑breaker" and resolve the dispute.
Id. at 244. The attorney to whom the disputes were referred was formally the children's "best interests attorney." A best-interests attorney is not quite exactly a guardian ad litem, but fulfills a very similar role as an advocate for a child's best interests. A best-interests attorney can be contrasted with a "child advocate attorney," who advocates the child's wishes without considering whether the wishes are in the child's objective best interests.
The trial court's order was well intentioned, but it was nevertheless reversed upon appeal. "Maryland cases have made clear that a court may not delegate to a non‑judicial person decisions regarding child visitation and custody." Id. at 245. The order under review allowed the best-interests attorney to resolve literally any disputed matter, without indicating that the attorney's resolution was subject to any form of judicial review or modification. Because the power granted was so broad, "we conclude that the court erred by delegating judicial authority to Melton, a non‑judicial person." Id. at 246.
When delegating authority to a guardian ad litem or other representative of the child's interests, therefore, it is essential to preserve the right to seek judicial review of the guardian's decisions. If that right is not expressly preserved, a court might well conclude that the order makes an improper delegation of judicial power.
Posted by Gale Burns on Mon, Apr 09, 2012 @ 12:37 PM
The Lawletter Vol 36 No 10
Sandra Thomas, Senior Attorney, National Legal Research Group
The Supreme Court of Pennsylvania has very recently addressed the issue of paternity by estoppel, examining the issue in the context of a complaint for child support. K.E.M. v. P.C.S., No. 67 MAP 2011, 2012 WL 573635 (Pa. Feb. 21, 2012). The mother of the minor child in that case filed a complaint seeking child support from the man she believed to be the biological father, P.C.S. He responded with a motion to dismiss, relying on the mother's intact marriage to her husband to establish a presumption of the husband's paternity, and further relying on the husband's assumptions of parental responsibilities as implicating paternity by estoppel.
At a hearing on the motion, the mother testified that she had told her husband of her affair with P.C.S. and that the husband did not wish to be identified as the father on the birth certificate. Genetic testing excluded the husband as the biological father of the child. The mother testified that after she had received those results, she had asked P.C.S. to submit to testing. He refused, although he acknowledged the child as his. The mother testified that during the four years of the child's life, P.C.S. had undertaken some degree of involvement in the child's life, giving the mother money to buy Christmas presents, providing unsigned cards and gifts of his own, visiting parks and playgrounds, and providing the mother with a cell phone to assure her and the child's safety. The mother testified that the child referred to both the husband and P.C.S. as "Daddy." Id. at *1.
By the time of trial, P.C.S. had ended the relationship with the mother; at about the same time, the husband separated from the mother. The trial court granted P.C.S.'s motion to dismiss the support action, finding that the presumption of paternity was controlling and, in the alternative, that the husband should be regarded as the child's father under the doctrine of paternity by estoppel. The intermediate appellate court affirmed, differing with the trial court on the issue of whether the presumption of paternity should apply in a case in which the marriage was not being protected because the husband knew that the child was not his, but agreeing that paternity by estoppel applied, based on the husband's actions of holding the child out as his own and providing support. The Pennsylvania Supreme Court allowed an appeal to consider application of the doctrine of paternity by estoppel to the case.
The mother argued that the child already knew P.C.S. as his father and that there was therefore "no concern over deleterious impact from a judicial determination to such effect," and questioned the "application of a legal fiction in a circumstance in which all parties involved fully apprehend the true state of affairs, a circumstance which is becoming increasingly common." Id. The mother also "asks that Pennsylvania law be modified to consider genetic testing, along with other factors, in determining paternity on a case-by-case basis." Id.
In his argument, P.C.S. focused on the husband's continued participation in the marriage and the relationship with the child during the first four years of the child's life. P.C.S. argued that application of paternity by estoppel remains appropriate "because it recognizes the importance, in a child's life, of a 'psychological father' who has provided nurturing and life's necessities." Id.
In its decision, the supreme court stated that "we believe there remains a role for paternity by estoppel in the Pennsylvania common law, in the absence of definitive legislative involvement." Id. at *8. The court noted that in the case before it, neither P.C.S. nor the husband had testified at the trial regarding his relationship with the child, and concluded that "it is our considered view that the determination of paternity by estoppel should be better informed according to the actual best interests of the child, rather than by rote pronouncements grounded merely on the longevity of abstractly portrayed (and perhaps largely ostensible) parental relationships." Id. at *9. The court also noted that it had the authority to appoint a guardian ad litem to advocate the child's best interests "in concrete terms," an action which had not been taken in the case. Id. at *10.
The court concluded: "In summary, paternity by estoppel continues to pertain in Pennsylvania, but it will apply only where it can be shown, on a developed record, that it is in the best interests of the involved child."
Id. at *11. The court remanded the case to the trial court to further develop the factual record.
Posted by Gale Burns on Mon, Mar 05, 2012 @ 02:19 PM
March 6, 2012
Brett Turner, Senior Attorney, National Legal Research Group
As most divorce attorneys know, federal law prevents state courts from treating veterans' disability benefits or military disability benefits as marital or community property. Mansell v. Mansell, 490 U.S. 581 (1989).
But what about temporary disability pay? Under federal law, if a service member has a disability rating of at least 30%, but the disability has not yet been determined to be permanent, the member is placed on the Temporary Disability Retired List ("TDRL"). 10 U.S.C. § 1202 (Westlaw current through P.L. 112‑89 [excluding P.L. 112‑55, 112‑74, 112‑78, and 112‑81], approved 1‑3‑12). The service member can remain on the list for as long as five years, after which he or she must be either returned to active duty, retired normally (if he or she has sufficient years of active service), or retired for disability.
While on the TDRL, service members receive temporary disability pay. Temporary disability pay is the larger of (1) 2.5% of the member's monthly base pay for each year of prior service, or (2) the member's base pay times his or her disability percentage. Id. § 1401(a).
Is temporary disability pay subject to equitable distribution? The question was presented to a Colorado court in In re Marriage of Poland, 264 P.3d 647, 648 (Colo. App. 2011). The power of state courts to divide military benefits is set forth in the Uniformed Services Former Spouses Protection Act, 10 U.S.C. § 1408. That statute generally provides that state courts can divide only "disposable retired pay." But the definition of "disposable retired pay" does not include,
in the case of a member entitled to retired pay under chapter 61 of this title, [amounts that] are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member's disability on the date when the member was retired (or the date on which the member's name was placed on the temporary disability retired list)[.]
Id. § 1408(a)(4)(C). Temporary disability pay is paid under 10 U.S.C. § 1202, which is part of chapter 61 of title 10. By expressly stating that amounts based upon the service member's initial disability rating are not disposable retired pay, § 1408(a)(4)(C) implicitly states that amounts received above that level are disposable retired pay. The Colorado court so held:
We conclude, based on 10 U.S.C. § 1408(a)(4)(C), that an amount equal to the amount of TDRL pay, as calculated based on husband's percentage of disability when he was placed on the TDRL, must be excluded from the marital property, but that any amounts in excess of that amount may be divided under the decree.
264 P.3d at 649. The amount of temporary disability, based on the member's disability rating, is essentially the second of the two formulas set forth above. The first formula, however, does not use the member's disability rating. Thus, where the first formula produces a larger result than the second, it would appear that the difference can be treated as marital property. The difference was significant in Poland, as the husband was actually eligible for normal retirement benefits, so that a portion of his temporary disability pay was essentially a form of retirement pay.
Poland expressly distinguished prior case law holding that service members who voluntarily elect disability benefits must pay indemnity to their spouses, noting that the husband was placed upon the TDRL involuntarily.
Posted by Gale Burns on Mon, Mar 05, 2012 @ 12:46 PM
March 6, 2012
Brett Turner, Senior Attorney, National Legal Research Group
As most divorce attorneys know, federal law prevents state courts from treating veterans' disability benefits or military disability benefits as marital or community property. Mansell v. Mansell, 490 U.S. 581 (1989).
But what about temporary disability pay? Under federal law, if a service member has a disability rating of at least 30%, but the disability has not yet been determined to be permanent, the member is placed on the Temporary Disability Retired List ("TDRL"). 10 U.S.C. § 1202 (Westlaw current through P.L. 112‑89 [excluding P.L. 112‑55, 112‑74, 112‑78, and 112‑81], approved 1‑3‑12). The service member can remain on the list for as long as five years, after which he or she must be either returned to active duty, retired normally (if he or she has sufficient years of active service), or retired for disability.
While on the TDRL, service members receive temporary disability pay. Temporary disability pay is the larger of (1) 2.5% of the member's monthly base pay for each year of prior service, or (2) the member's base pay times his or her disability percentage. Id. § 1401(a).
Is temporary disability pay subject to equitable distribution? The question was presented to a Colorado court in In re Marriage of Poland, 264 P.3d 647, 648 (Colo. App. 2011). The power of state courts to divide military benefits is set forth in the Uniformed Services Former Spouses Protection Act, 10 U.S.C. § 1408. That statute generally provides that state courts can divide only "disposable retired pay." But the definition of "disposable retired pay" does not include,
in the case of a member entitled to retired pay under chapter 61 of this title, [amounts that] are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member's disability on the date when the member was retired (or the date on which the member's name was placed on the temporary disability retired list)[.]
Id. § 1408(a)(4)(C). Temporary disability pay is paid under 10 U.S.C. § 1202, which is part of chapter 61 of title 10. By expressly stating that amounts based upon the service member's initial disability rating are not disposable retired pay, § 1408(a)(4)(C) implicitly states that amounts received above that level are disposable retired pay. The Colorado court so held:
We conclude, based on 10 U.S.C. § 1408(a)(4)(C), that an amount equal to the amount of TDRL pay, as calculated based on husband's percentage of disability when he was placed on the TDRL, must be excluded from the marital property, but that any amounts in excess of that amount may be divided under the decree.
264 P.3d at 649. The amount of temporary disability, based on the member's disability rating, is essentially the second of the two formulas set forth above. The first formula, however, does not use the member's disability rating. Thus, where the first formula produces a larger result than the second, it would appear that the difference can be treated as marital property. The difference was significant in Poland, as the husband was actually eligible for normal retirement benefits, so that a portion of his temporary disability pay was essentially a form of retirement pay.
Poland expressly distinguished prior case law holding that service members who voluntarily elect disability benefits must pay indemnity to their spouses, noting that the husband was placed upon the TDRL involuntarily.
Posted by Gale Burns on Wed, Feb 29, 2012 @ 03:48 PM
The Lawletter Vol 36 No 8
Brett Turner, Senior Attorney, National Legal Research Group
Steven Walsh and Janet Schaberg were divorced in New York in 2006. They had a substantial marital estate, which they divided in a property settlement agreement. Given the size of her property award, Schaberg agreed to waive maintenance.
Several years after divorce, a federal investigation revealed that Walsh had been engaged in a long-standing scheme to defraud investors in various funds he managed. In fact, much of the parties' marital estate was a product of Walsh's fraud.
Two federal agencies, the Commodity Futures Trading Commission and the Securities and Exchange Commission (hereinafter "the agencies"), filed suit in federal court, seeking to recover the proceeds of Walsh's fraud not only from Walsh, but also from Schaberg. The Second Circuit held that the agencies could recover the proceeds from Schaberg if she "lacks a legitimate claim" to the funds. Commodity Futures Trading Comm'n v. Walsh, 618 F.3d 218, 225 (2d Cir. 2010).
Schaberg, who had been entirely unaware of Walsh's wrongdoing, argued that she had such a legitimate claim under New York state marital property law. Because state law was involved, the Second Circuit certified two questions to the New York Court of Appeals: (1) whether "marital property" can ever include the proceeds of fraud, and (2) if so, whether the wife nevertheless had an obligation to return the funds because she had not paid fair consideration for them in good faith.
In a 2011 opinion, the New York court answered both questions. Commodity Futures Trading Comm'n v. Walsh, 951 N.E.2d 369 (N.Y. 2011). It answered the first question with a yes, holding that the proceeds of fraud can constitute marital property. They are certainly property acquired during the marriage through the active, if dishonest, efforts of the guilty spouse. They belong to the guilty spouse unless and until the victims take legal action to recover them. If a postdivorce attempt to recover the proceeds of fraud retroactively erases those funds from the marital estate, property-division judgments will never be final, and the policy of finality of judgments is very strong. The court therefore held that the proceeds of fraud can constitute marital property.
The second question defied a simple and easy answer. The agencies argued that the wife had acquired her share of the proceeds of fraud in exchange for waiving her interest in the husband's share of the proceeds of fraud. The New York court agreed that fair "consideration cannot be predicated on a spouse's relinquishment of a claim to a greater share of the proceeds of fraud." Id. at 377. In other words, fair consideration must be something beyond an interest in the proceeds of fraud themselves.
But looking at the facts, the court saw that the wife had paid consideration not directly tied to the husband's fraud. To begin with, she had waived maintenance. Maintenance would be related to the husband's fraud to the extent that the husband's income had been fraudulently earned, but he had worked honestly before commencing his fraudulent activities and probably had a positive earning capacity arising from legal activities. Second, the wife had also waived her interest in the former marital home, which she alleged had been acquired before the husband's fraudulent activities began. Third, she had waived her right to inherit from the husband. Even if these waivers were not fair consideration for all of the wife's property award, they may well have been fair consideration for part of it. The court therefore held that to the extent the wife had paid fair consideration, she should be permitted to keep her share of the proceeds of fraud.
The Second Circuit subsequently remanded the case back to the federal district court to determine the extent to which Schaberg had paid fair consideration for the proceeds of fraud. Commodity Futures Trading Comm'n v. Walsh, 658 F.3d 194 (2d Cir. 2011). There are no further opinions available at this date.
Posted by Gale Burns on Mon, Nov 21, 2011 @ 02:49 PM
November 22, 2011
Brett Turner, Senior Attorney, National Legal Research Group
A recent Virginia Supreme Court decision clarifies the law on classification of stock options. In Schuman v. Schuman, Record No. 100967, 2011 WL 5325292 (Va. Nov. 4, 2011), the wife received stock options during the marriage. The options did not vest until after the marriage was over. The trial court held that the stock options were entirely the wife's separate property. The court of appeals affirmed, holding that the options had not been acquired during the marriage, because they did not vest until after the marriage was over. Schuman v. Schuman, Nos. 0631‑09‑4, 1259‑09‑4, and 1260‑09‑4, 2010 WL 1539955 (Va. Ct. App. Apr. 20, 2010) (unpublished). The court's holding was consistent with prior authority, holding that stock options are acquired on the date of vesting. Shiembob v. Shiembob, 55 Va. App. 234, 685 S.E.2d 192 (2009); Ranney v. Ranney, 45 Va. App. 17, 608 S.E.2d 485 (2005).
On further appeal, the Virginia Supreme Court reversed. Virginia's equitable distribution statute provides that deferred compensation benefits, "whether vested or nonvested," can constitute marital property. Va. Code Ann. § 20-107.3(G)(1). If the court of appeals' position were correct, unvested options could never be marital property, because they would never vest until after the divorce. "The inclusion of the phrase 'whether vested or nonvested' clearly indicates that the date of vesting is not, by itself, dispositive of whether the deferred compensation is marital or separate property." Schuman, 2011 WL 5325292, at *2.
What, then, is the correct way to determine when stock options are acquired? Section 20-107.3(G)(1) applies the same rules to both retirement benefits and deferred compensation benefits, such as stock options. "[T]he legislature clearly intended for the delineated plans of compensation to be treated uniformly. Therefore, it is axiomatic that the marital share of deferred compensation should be calculated in the same manner as the marital share of pensions or other retirement benefits." Id. at *3.
Virginia law is clear that retirement benefits are acquired when they are earned, not when they vest. E.g., Dietz v. Dietz, 17 Va. App. 203, 436 S.E.2d 463 (1993). Schuman applied the same rule to stock options. "'[S]tock options, like retirement benefits, are acquired when they are earned, and not at the time of receipt, vesting or exercise.'" Schuman, 2011 WL 5325292, at *2 (quoting 2 Brett R. Turner, Equitable Distribution of Property § 6:49, at 292 (3d ed. 2005)). The marital interest is therefore a fraction, equal to the total time married during the earning period, divided by the total earning period.[1]
The court did not determine the date of earning on the facts of Schuman, instead leaving that issue for the trial court on remand. But Schuman adopted the general majority rule, so there is ample relevant authority from other states.
Nationwide, there is general agreement that stock options, like retirement benefits, are earned gradually over time. The time period includes, at a minimum, the entire vesting period. If the employee must remain with the employer until a certain date to receive the options (and that is the main purpose of a vesting period), then the options must be compensation for the employee's service during that period.
The harder question is whether services for some period before the date of vesting should be included. Cases nationwide reach different results on this issue, depending on the facts. Compare, e.g., In re Marriage of Hug, 201 Cal. Rptr. 676 (Ct. App. 1984) (where options accompanied change in employment, options were consideration for prior employment, including options lost by changing positions), with In re Marriage of Harrison, 225 Cal. Rptr. 234 (Ct. App. 1986) (distinguishing Hug on the facts, and finding that the options were consideration only for services during the vesting period). See generally 2 Turner, supra, § 6:49.
The Nebraska Supreme Court identified a series of factors to be considered in determining when stock options were earned:
To determine which percentage represents compensation for past, present, and future services, "[n]either the language of the [employee stock option or stock retention share] agreement itself nor the testimony of the employer is dispositive." Relevant, nonexhaustive considerations include whether the employee stock options or stock retention shares were intended to (1) secure optimal tax treatment, (2) induce the employee to accept employment, (3) induce the employee to remain with the employer, (4) induce the employee to leave his or her employment, (5) reward the employee for completing a specific project or attaining a particular goal, and (6) be granted on a regular or irregular basis.
Davidson v. Davidson, 578 N.W.2d 848, 856 (Neb. 1998) (citation omitted) (quoting Thomas P. Malone, Employee Stock Options and Restricted Shares: Determining and Dividing the Marital Pot, 25 Colo. Law. 87, 90 (1996)).
Finally, it should be noted that each separate grant of stock options will normally have its own unique vesting period, and will therefore be earned at a different time. Thus, "the marital portion of each award should be calculated individually rather than as one single award." Schuman, 2011 WL 5325292, at *3.
[1]As used in this sentence, "time married" means the time between the date of marriage and the date of classification. In states like Virginia and California that classify property as of the date of separation, or in states like New Jersey that classify property as of the date of filing, this period may actually be less than the entire length of the marriage.
Posted by Gale Burns on Thu, Aug 11, 2011 @ 03:53 PM
August 16, 2011
Brett Turner, Senior Attorney, National Legal Research Group
The divorce court orders, or the parties agree, that marital real estate be sold for a stated listing price. The real estate market then crashes, and the stated listing price is much too high. What options are available when the property fails to sell?
This fact pattern has arisen with some frequency in recent years, due to the subprime mortgage crisis, and the applicable general principles are starting to become settled. To begin with, an order or agreement that sets a listing price is materially different from an order or agreement that sets a sale price. A listing price is not an inflexible price at which a property absolutely must be sold but, rather, an initial asking price. "[T]he initial asking price was exactly thatCa starting point, not a nonnegotiable or guaranteed sale price." Townsend v. Townsend, 724 N.Y.S.2d 545, 546 (App. Div. 2001). When no offer is received at the initial listing price, the normal practice when selling real estate is to reduce the listing price as needed until one or more offers are received.
Thus, an order establishing the listing price does not prevent the court from reducing that price if the property fails to sell. Likewise, an agreement on the listing price is not an agreement upon the sale price, and does not prevent the court from ordering sale at a reduced price if no offers materialize after the property has been offered at the listing price for a reasonable period of time.
Reduction in the listing price is generally preferred over other remedies. In Brown v. Brown, 709 S.E.2d 679 (S.C. Ct. App. 2011), the property failed to sell at the agreed-upon initial listing price of $274,000. The court then entered a money judgment against the wife for the husband's share of the property. The order was reversed on appeal as an improper substantive modification of a final property division order. In the alternative, the trial court also "set the home's [new] initial listing price at $255,550, and required the listing price to be reduced by five percent every sixty‑day period the home remained unsold." Id. at 682. This order was expressly affirmed as a reasonable exercise of the court's power to set a new listing price when the property fails to sell. "Contrary to the wife's argument, establishing the terms of the sale is well within the family court's statutory authority." Id. at 684.
Another example is Ryan v. Ryan, 946 N.E.2d 1191 (Ind. Ct. App. 2011). There, after the property did not sell at the agreed-upon initial listing price, the trial court held that it was powerless to take action. The appellate court reversed and ordered a reduction in the listing price. "The Settlement Agreement and Private Agreement do not contain any terms or provisions which address circumstances such as those presented when the dollar amounts set forth in the agreements make it impossible, as a practical matter, to implement the intended sale of the properties due to a sustained decline in residential housing prices." Id. at 1196. The case was remanded with instructions to hold a hearing and then to "issue an order providing additional terms to the extent the Settlement Agreement and Private Agreement are silent, i.e., what steps would be taken to accomplish the intended sale of the properties under the circumstances." Id. at 1200. Such an order would probably have to include an appropriate reduction in the listing price.
If the property does not sell after a reasonable period on the market even with reductions in the listing price, the court then may have authority to order a different method of division, so long as the overall percentage division of value remains unchanged. See Roberts v. Roberts, 629 A.2d 1160 (Conn. App. Ct. 1993) (where judgment ordered a private sale of home and sale proved difficult, proper to order auction sale); Vest v. Vest, 855 N.Y.S.2d 597 (App. Div. 2008) (where original order provided that commercial property would be sold, with wife receiving 25 percnt% of proceeds, and property remained unsold after five years on the market, proper to order husband to pay wife 25%% of appraised value of property); Romeo v. Romeo, 611 A.2d 1325 (Pa. Super. Ct. 1992) (original order required sale of home and lot, with specified division of proceeds; when home and lot proved difficult to sell, proper to award home to wife and lot to husband; approximate division of value between the parties was unchanged). All of these cases involved properties that had failed to sell after a long period of attempted sale, including reductions in the listing price.
Posted by Gale Burns on Fri, May 13, 2011 @ 02:42 PM
May 10, 2011
Brett Turner, Senior Attorney, National Legal Research Group
A perennially recurring issue in divorce cases is dissipation of marital property. Dissipation occurs when marital property is spent or otherwise lost, in anticipation of divorce, for a nonmarital purpose.
A nonmarital purpose is normally a purpose which benefits only one of the parties. Expenditures within the accustomed marital standard of living are generally not dissipation, however, even if only one spouse benefits, as all married persons normally spend some marital property for their own sole benefit. For example, each spouse will use marital funds to purchase clothing which only he or she wears. A nonmarital purpose must therefore both (1) lie outside the normal marital standard of living, and (2) benefit only the spending spouse. See generally 1 Brett R. Turner, Equitable Distribution of Property ' 6:107 (3d ed. 2005 & Supp. 2010).
Because normal living expenses do not meet the first requirement, funds used to pay those expenses are normally not dissipated, even if they are spent after separation. See, e.g., Howcroft v. Howcroft, 2010‑Ohio‑6410, 2010 WL 5545395 (Dec. 10, 2010) (credit card debt incurred by wife to pay living expenses during separation was not dissipation, where husband had not been ordered to pay temporary support); Karimi v. Karimi, 867 So. 2d 471, 475 (Fla. Dist. Ct. App. 2004) ("Where the asset is used by one of the parties out of necessity for reasonable living expenses, however, that asset should not be assigned to the party who used [it], absent a finding of misconduct."); Faerber v. Faerber, 13 So. 3d 853, 862 (& 34) (Miss. Ct. App. 2009) ("[O]rdinary and reasonable living expenses used during separation generally do not constitute a dissipation of marital assets.").
But the rule is otherwise when living expenses are excessive. In Shaulson v. Shaulson, 9 A.3d 782 (Conn. App. Ct. 2010), for example, the husband spend $150,000 furnishing a new home for himself. The trial court found dissipation, and the appellate court affirmed. "The record demonstrates that the court specifically found that the defendant's expenditure of $150,000 to furnish his new house was excessive and not in accordance with his previously 'minimalist' furnishings." Id. at 786. The husband argued that he had needed the additional furnishings to provide a home for the children, of whom he had custody 40% of the time. But the court still found the expenditure excessive. Its conclusion was perhaps influenced by the fact that the husband "had expended no less than $250,000, and possibly as high as $485,000, for trips, gifts to his fiancé as well as household furnishings." Id.
Shaulson can be contrasted with In re Marriage of Murphy, 631 N.E.2d 893 (Ill. App. Ct. 1994), which held that funds spent for normal expenses of setting up the husband's postseparation residence were not dissipated. The expenses included purchases of a new television, CD player, and tape deck, none of which were "unduly extravagant." "There is no requirement," the court noted, that "respondent furnish his home entirely with inexpensive furniture and accessories." Id. at 896. The key difference seems to be that the husband in Murphy stayed within the means of the parties and the accustomed marital standard of living, while the husband in Shaulson did not.
For additional cases finding postseparation living expenses to be extravagant, and therefore finding dissipation, see Harbour v. Harbour, 643 N.Y.S.2d 969 (App. Div. 1996) (wife spent $35,985 for a new wardrobe immediately after separation); In re Marriage of Hubbs, 843 N.E.2d 478, 484 (Ill. App. Ct. 2006) ("29-foot boat and a jet ski"; wife had been on the boat only rarely, could not operate it, and "Mark's female companion had been on the boat on a much more regular basis than Peggy"); Ulsaker v. White, 2009 ND 18, & 17, 760 N.W.2d 82, 87 (trips to "New Zealand, Russia, Canada and California"); and Cardinale v. Cardinale, 889 A.2d 210, 221 (R.I. 2006) ("$48,000 on oriental rugs and furnishings").
Posted by Gale Burns on Mon, Jan 17, 2011 @ 12:19 PM
August 31, 2010
Brett Turner, Senior Attorney, National Legal Research Group
When a married couple divorces, the court generally has broad authority to divide any property acquired during the marriage. Indeed, in all-property states, the court can even divide property acquired before the marriage. But both groups of states agree on one key limitation: The court can divide only those interests that meet the definition of property.
Does a trust meet the definition of property? The answer depends upon the terms of the trust. Revocable trusts are not property, as the power to revoke the trust is equivalent to ownership of the trust assets. E.g., Dorn v. Heritage Trust Co., 2001 OK CIV APP 64, 24 P.3d 886; Lynch v. Lynch, 147 Vt. 574, 522 A.2d 234 (1987).
When the trust is irrevocable, a vested interest in a trust generally does constitute property. Moore v. Moore, 189 S.W.3d 627 (Mo. Ct. App. 2006) (income interest); S.L. v. R.L., 55 Mass. App. Ct. 880, 774 N.E.2d 1179 (2002) (remainder). But future payments under an income interest might be property acquired after the marriage and therefore not subject to division. E.g., Sayer v. Sayer, 492 A.2d 238 (Del. 1985).
An unvested interest generally does not constitute property. E.g., Williams v. Massa, 431 Mass. 619, 728 N.E.2d 932 (2000); In re Marriage of Hoffman, 493 N.W.2d 84 (Iowa Ct. App. 1992); In re Marriage of Beadle, 1998 MT 225, 291 Mont. 1, 968 P.2d 698.
The trust interest least likely to constitute property is a discretionary interest: one which allows the owner to receive value only in the unfettered discretion of the trustee. A recent North Dakota case held as a matter of first impression that a discretionary trust is not property:
A discretionary trust beneficiary has an equitable interest, but the beneficiary cannot force the trustee to pay income or principal unless the beneficiary could establish the trustee had engaged in fraud or an abuse of discretion. In re Jones, 812 P.2d 1152, 1157 (Colo.1991) (citing 2 A. Scott on Trusts § 130, at 409 (4th ed. 1987)). Courts have held that when the trust is so discretionary that the beneficiary has no enforceable right to receive any benefits at all, the income interest is not property. 2 Brett R. Turner, Equitable Distribution of Property, 3d § 6:94 (2009). Instead, courts treat the interest as a mere expectancy that gives no assurance of any future benefit. . . .
. . . The language of the trust indicates that Mark Paulson does not have the power to compel any distributions from the trustees, and the trustees have the power to make no distribution at all to Mark Paulson. Because Mark Paulson's interest in the trust is an expectancy that gives no assurance of any future benefit, we hold that the trial court did not err in excluding the trust from the marital estate.
Paulson v. Paulson, 2010 ND 100, ¶¶ 23-24, 783 N.W.2d 262, 272B73;
see also In re Marriage of Jones, 812 P.2d 1152 (Colo. 1991).