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Divorce Mediation Blog

Just What is a “New Legal Consequence”?

Wednesday, June 07, 2017

Not a Shifting Alimony Presumption, under Van Ardsdale v. Van Ardsdale

Levine Dispute Resolution - Alimony

The crux of the Massachusetts Supreme Judicial Court’s (SJC) recent Van Ardsdale v. Van Ardsdale, is that the retroactive effect of durational limits under the Alimony Reform Act (eff. 3.1.12) (ARA) is constitutional because the imposition of these constraints is “merely” presumptive and, therefore, do not “attach new legal consequences to events completed before its enactment”.

We do not question precedent. While its comparison of a sex offender’s right to contest registration requirement for adjudications that occurred before the registry legislation, in Doe, Sex Offender Registry Bd. 3839 v. Sex Offender Registry Bd., to alimony recipients’ right to seek deviation from the “presumed” durational limits is cringe-worthy, we get the analysis. Because the sex offender and the alimony payee both have some chance of eluding the impact of new legislation, the former by an appeal to the Board, and the latter by an “interests of justice” court deviation from alimony termination, the individual’s jeopardy is not foregone; therefore, it does not rise to the level of a “new legal consequence”.

Presumptions, the SJC reasons, are “simply rules of evidence”.

But, sometimes good legal analysis defies reality, or at least practicality.

Before ARA, the burden of proving changed circumstances to justify the termination of alimony sat squarely on the shoulders of the payor. Retirement? Just one circumstance to consider. Income loss? Well, maybe, but just how did that happen, anyway. Cohabitation of the recipient? Forgettaboutit.

Now, the burden falls just as squarely the recipient, as the secondary holding Van Ardsdale, and the same day’s Popp v. Popp, demonstrate. It is a small sample to be sure, but the appellate scoreboard on reported cases for alimony payees seeking to extend alimony beyond “presumed” time limits is 0-2. In many cases, the answer will be the same for recipients as it used to be for obligors whose alimony check supported the household of not only the ex- spouse, but a new “friend” as well.

We are not at all criticizing that this burden shift has occurred. That is a policy question, and one properly reserved to the legislature. The old alimony system was, in many respects, out of control.

But, calling a major burden shift as a mere rule of evidence trivializes a very real and substantive change in our statutory law. And, it denies the everyday experience of litigants and their counsel, many of whom will not sue for alimony extensions, because presumptions are meant to be hard to overcome. And, expensive. And, risky.

 

Parenting Coordination Case with Implications for Family Law Arbitration: Leon v. Cormier

Wednesday, May 24, 2017

The Massachusetts Appeals Court recently upheld a Probate and Family Court contempt judgment where the defendant had not violated any specific order of the court, in the important case Leon v. Carpenter.

The parties had agreed at the time of divorce that they might someday appoint a parenting coordinator, with the power to make binding decisions on parenting matters, with the reservation that either party could seek court review of the PC’s decisions. Later, they hired a PC, who proceeded to issue decisions in a series of emails, from which the mother did not seek judicial review, and with which she did not comply. A trial judge sanctioned her with a contempt finding and associated remedies; whereupon, and the mother appealed.

She argued that there was no order made by a judge to disobey. The Appeals Court responded that the voluntary undertaking of the parties to comply with the potential PC’s future orders was itself enough to form the core of an unequivocal command, without reference to any specific possible order.

The mother complained that the court had impermissibly delegated its parens patraie role as final arbiter of all things custodial. The Appeals Court disagreed because the trial judge hadn’t imposed the PC on the parties and because some right of review was included in the underlying agreement.

The mother contended that the PC’s decisions had no force since the father had not sought their confirmation by the court, but the Appeals Court held her to her agreement’s words: the burden was on her to seek review; she didn’t; so she was stuck.

The Appeals Court “take” is consistent with many of its family law arbitration cases, including last summer’s Gravelin v. Gravelin, which reiterated the parties’ ability to opt out of the public system in favor of private family law arbitration generally, with the implication that some form of review may be required, but without clear articulation of it form, format or substance.

It is unfortunate that we still don’t have real clarity on the level of review implicated by the cases, but Leon does seem to support two important points:

  1. That arbitration of child matters does not require any heightened level of review, let alone any specific kind (though we still believe that there must be some inherent “best interests’ standard); and
  2. The parties can agree to be bound by an arbitrator’s decision that arises from an agreement that was made well before the onset of the controversy that is arbitrated.

Both points touch on highly sensitive matters for those who resist the spread of family law arbitration. It really is time for a statute to codify this important remedy in a way that reflects societal consensus on its acceptability, standards and boundaries.

 

A Cautionary Concurrence on Decanting: Ferri v. Powell-Ferri

Wednesday, May 10, 2017

In an unusual context, the Massachusetts Supreme Judicial Court recently answered questions put to it by the Connecticut Supreme Court about its view of whether the decanting of a divorce litigant’s trust assets to another trust, with spendthrift provisions, was permitted by Massachusetts law.

The SJC concluded that the trustee’s maneuver, which likely placed the trust assets outside the equitable division reach of the non-beneficiary’s divorcing wife, respected the probable intent of the settlor, making the asset transfer permissible, even though under the original trust’s terms, the beneficiary-husband had the unfettered right to withdraw 75% of the trust res at the time of decanting.

This seems a harsh result from the spouse’s perspective. We wonder how this situation really differs from the case of a self-settled revocable trust, the contents of which are uniformly treated as unfettered marital assets because the grantor can seize the trust assets at any time; therefore, for divorce purposes, the trust is a nullity. Mr. Ferri, too, could demand and receive 75% of the original trust corpus, too, so how is that different, at least regarding that portion? Yet, the Ferri ruling will presumably put those same assets out of reach for Ms. Powell-Ferri, and the divorce court.

Did the SJC elevate form over substance?

The SJC’s answer, at the bottom line, is “no”, because the beneficiary had not in fact, taken control of the trust principal, and the trust instrument established the settlor’s intent that, the trustee’s obligations of asset protection and control persist until distribution of the trust corpus, irrespective of the beneficiary’s prior withdrawal rights.

So, as the trust instrument compelled the trustee to shield the trust corpus from others, could decant (i.e., transfer the entire trust asset base to a new, more restrictive trust) to further the settlor’s wish.

Yet, Chief Justice Gants clearly recognized, the mischief that this decision might work in Massachusetts divorce world: encouraging divorce planning by spouses and fiduciaries, and resulting disruption to the commonwealth’s generally policies in favor of broad marital asset identification and against prejudgment manipulation.

Thus, in a rare concurrence, he (with Justices Lenk and Budd) “[wrote] separately” to emphasize what the SJC did not decide:

    … whether Massachusetts law will permit trustees in Massachusetts to create a new spendthrift trust where the sole purpose of the transfer is to remove the trust’s assets from the marital assets that might be distributed to the beneficiary’s spouse in a divorce action.

    Exactly what the Ferri trustee had done in Connecticut, now blessed by the SJC.

Justice Gants girded his caution on the Massachusetts Uniform Trust Code’s prohibition against trusts that violate public policy (M.G.L., ch. 203E, §404), and common law, suggesting strongly, while not explicitly stating, that decanting for the sole purpose of divorce planning just – might – well – be such a violation. While not cited by the him, procedural rules of the Probate and Family Court, common bench and bar understanding and perhaps an ethics-based view, all support Justice Gants’ caution.

In the end, what the Ferri family and trustee got away with in Connecticut, will likely not pass muster in future Massachusetts. The Ferri concurrence may be its most influential part: a bright, flashing yellow light, with a red light against trustee divorce planning likely to follow.

 

Biblically Speaking, the Judge Got It Wrong: Lasher v. Lasher

Wednesday, April 26, 2017

At least in Massachusetts, we now know two things:

  1. You shouldn’t send a bible to a judge before whom you are a litigant; and
  2. If you do, you should not expect him to rule in your favor before recusing himself.

In the Appeals Court’s recent Lasher v. Lasher, a three –judge panel reversed a trial court judge who offered to entertain a motion to remove him from the case after he determined that a bible inscribed with his name sent to his lobby had been sent by the other party to the case. The non-gifting party took the judge up on his offer and sought recusal. The judge complied.

But, before doing it, he denied the only other motion that was before him, in which the party requesting recusal had sought substantive relief from an underlying judgment. In other words, he ruled that it was reasonable for the moving party to view him as tainted by the obvious impropriety of the gift; but he would rule on the dispositive sunstantive motion anyway, to the detriment of the offended party, and then withdraw from the now terminated case.

The appellate courts are not always kind to their trial court brothers and sisters, but in this case the Appeals Court made mercifully fast work of the matter by vacating the ruling on the substantive matter and remanding to another judge for re-hearing.

 

Applying Marketability Discount for the Wrong Reason: Wasniewski v. Walsh

Wednesday, April 12, 2017

Over the last year, BV Wire, an excellent publication of Business Valuation Resources, LLC, has been chronicling the New Jersey trial of Wasniewski v. Walsh, in which three Superior Court judges addressed a shareholder withdrawal case, with serial appeals and remands.

The issue presented is if the trial judge acted properly in applying a 15% discount for lack of marketability (“DLOM”) in setting the buyout of the withdrawing 50% shareholder, not because the interest difficult to sell, but rather to redress the plaintiff’s oppression of the shareholder-defendant.

(New Jersey law apparently permits the application of a DLOM in fair value determination in “extraordinary” circumstances).

Since BV Wire first reported the case, various experts have weighed in with critical thinking, including one who observed that:

    If trial courts determine marketability discounts as bad behavior discounts, there is really no way that business appraisers can provide meaningful information to the court. If the court’s concern is one “of the equities” in a matter rather than in determining the fair value…, then there is little that appraisers can do to help.

    (BVWire Issue #161-2, February 10, 2016, quoting a blog post by Chris Mercer at http://chrismercer.net/bad-behavior-marketability-discount-new-jersey/; italics ours.)

BVWire recently reported a New Jersey lawyer’s support of the Mercer view, noting that:

    …the use of the DLOM as a legal penalty voids a long-thought-out valuation measure of its meaning and separates it from its economic basis. The DLOM application should not become contingent on the character of the parties but be based instead on the actual value factors of marketability.

    (BVWire Issue #174-2, March 8, 2017, summarizing Michelle Patterson; italics ours).

While we prefer the conclusion that this trial court’s use of a DLOM was driven by “bad behavior” rather than “character”, there is no question that it was a sanction, and as such it is troubling.

As former trial lawyers, a retired trial judge and a frequent family law arbitrator and special master addressing business issues, we are always alert to the need to recognize (and avoid) implicit bias in fact-finding. Instead, this case seems to validate explicit bias.

Business valuation is meant to be an objective economic exercise. Bad behavior is a fact. Redressing inequity, when relevant, should find its voice in remedy, rather than fact-finding.

It seems to us that Wasniewski v. Walsh encourages a toxic mix.

 

A “Growing Business” Negates Argument of Double Dipping in Washington State in Marriage of Cheng

Wednesday, March 29, 2017

In the Washington Court of Appeals’ recent case, Marriage of Cheng (denominated “unpublished” as in our Appeals Court Rule 1:28) the court set out an interesting marker for double counting analysis with closely held businesses that are valued by income methodologies: if it is a business with expectations for income growth, awarding alimony (they call it “maintenance”) from its future earnings is not a “double recovery” or, as we call it “double count” or “double dip”.

The husband in Cheng ran a consulting business with 2013 net income to the owner of over $900,000.00. Both experts valued the practice by capitalizing the “excess earnings” over the owner’s “replacement income” (the market value of the owner’s services to the company, putting aside compensation for the risk associated with his investment).The judge assigned a $3.6 million value to the enterprise, of which the wife received half, under Washington’s community property laws.

The judge also ordered the husband to pay a declining term of maintenance. The husband argued that this constituted double counting because the initial monthly sum of alimony exceeded the husband’s replacement income, and the first step-down was ¾ of his replacement income. Therefore, the husband argued, the alimony was, inevitably, to be paid from the capitalized portion of income.

The Court of Appeals disagreed, opining that to constitute a double dip, the maintenance award would have to “erode [the company’s] value.” Since the Husband predicted that his 2013 income would likely hold up for the year after divorce, the court reasoned that the he would have more than enough income to pay the maintenance, without any diminution of value; hence, no double dip.

This decision suggests that double dipping is a concept that considers alimony in relation to value itself, and not to the income that was used to determine value.

If Washington is a “fair market value” state, the Cheng court’s eyes are on that theoretical terminal event from which the business owner reaps the rewards of sale to a third party, when the hypothetical buyer will be disinterested that his or her seller was beleaguered by support obligations, focussing solely on the likelihood of continued cash flows for his or her own benefit.

Where we are a “fair value” state for divorce business valuation, in which the focus is on the value of future cash flows to the divorcing owner, and not directly premised on an imagined future arm’s-length sale, it is hard to envision the Cheng conclusion here – that it is not double dipping- on the same facts, since he core of the double dipping controversy here is whether alimony impedes on capitalized income, a distinction that can be consequential.

But, since our law does not preclude double dipping per se, but only that which is “inequitable”, the Cheng reasoning could lead to the same bottom line in Massachusetts. Our courts could conclude that the Cheng facts do, in fact, implicate double counting, but still be within the bounds of discretion, because the other spouse has needs and owner has the cash flow to afford to pay the alimony ordered.

It’s enough to make business owners , and their counsel, swoon.

 

Probate and Family Court New Standing Order 1-17 on Parenting Coordination: A Baker’s Dozen of Interesting Aspects, Plus One

Wednesday, March 15, 2017

[Preface: We do not accept parenting coordinator assignments, but as divorce mediators, we do address parenting coordination in agreements from time to time, with clients. Our observations follows the order of appearance in the rule and not any editorial priority.]

  1. No review process for binding PC decisions: Rule (1)(e) asserts that a PC appointment does not divest a court of continuing jurisdiction over child matters “…even where the parties have agreed to [PC] binding decision-making authority...” But, Rule 1-17 provides no special limitation on the scope of issues on which an agreed PC may make binding decisions. More surprisingly, there is no requirement that a party have the right to seek court review of a binding PC decision, nor a defined action to facilitate same, and no standard of review. Does this undermine parens patriae?
  2. Training of PC’s: Rule (3)(c) mandates 6 hours of continuing education for PC’s, including lawyers. According to Lawyerist.com, Massachusetts stands among only 5 states that do not have mandatory lawyer CLE, https://lawyerist.com/40252/how-wacky-are-mandatory-continuing-legal-education-rules/) For the mental health community, this is nothing new.
  3. Joint petition required: Whether intended or not, Rule (5)’s introductory clause requires that PC agreements may only be proffered to the court by joint petition for modification (Form CJD 124). This seems odd when many appointments come at the time of divorce.
  4. Designations of PC’s: Rule (5)(b)(i) requires that agreements to appoint a PC identify the person selected, since the PC must sign the agreement. Gone are the days of agreement deferrals, such as “…to be selected by the parties within 30 days.” Smart.
  5. Specified duties: Rule (5)(b)(iii) requires that agreement clearly specify (and inferentially, limit) the PC’s duties. This is a critical need.
  6. Limited duration by agreement: Agreements must specify duration of the PC’s engagement in Rule (5)(b)(iv), subject to remedies to shorten or extend (Rule (14)). Co-parenting problems that persist indefinitely suggest that PC intervention is insufficient.
  7. Spending cap: In addition to specifying fees and each party’s responsibilities to pay, Rule (5)(b)(v) mandates a maximum obligation for each party over the life of the PC’s appointment. This may be observed more frequently in the breach.
  8. Colloquy: Rule (5)(c) subjects every PC agreement to specified questioning by the court before its approval. Especially given observation #1, this is essential.
  9. Merging agreements only: Rule (5)(c) introduces the colloquy requirement with “Before…incorporating and merging the agreement in a judgment…” It appears that the court may not approve a surviving PC provision. We guess that the Probate Court does not want the “countervailing equities” standard to get in the way of ending PC interventions.
  10. Limited duration by court initiative: A court-initiated PC appointment may not exceed the duration of litigation, or 2 years after judgment under Rule (6)(d), the latter subject to 1-year extensions (Rule (14)(a)(3). Ibid., Observation #6.
  11. Limited duties: Rule (7) tightly regulates a PC’s permissible duties, without any catch-all flexibility. Maybe expedient, but shouldn’t competent adult be able to fine tune this?
  12. Not mandated reporters: Rule (10)(b) relieves PC’s of mandated reporter obligations, in the event of suspected abuse or neglect. Presumably this does not excuse PC’s who are mandated reporters by professional licensure; but lawyers, who are not, do not take on this added burden.
  13. Standing: PC’s have may independently bring motions or complaints to seek appointment of a G.A.L to waive a child’s psychotherapist-patient privilege, under Rule (10)(c). Yikes! This rule absolutely be part of the colloquy, if it needs to be in the rule at all.
  14. No conflicts: Rule (10)(c) bars G.A.L.’s or other professional in the family’s life already from serving as PC. This reflects this professional consensus, though, in a way it is too bad that competent parties can’t be trusted to waive one of these known conflicts, for someone who has already earned their trust, with knowledge and after advise of counsel.

 

High Times: Another Indication of Marijuana Going Mainstream

Wednesday, March 01, 2017

We have recently seen marketing materials for the “Marijuana Licensing Reference Guide, 2017 Edition”, written by the aptly-named “Cannibiz Media”, and co-published with BVR, a pre-eminent business valuation resource.

It carries a hefty price tag - $495.00 per ounce – er – per hardback copy.

While we expect CM’s budding publication to cultivate updates that will flower with the growing industry that it reflects, Attorney General. Jeff Sessions may have something to say about that.

Then again, maybe not, given this recent tweet of a former Swedish Prime Minister about Sessions’ boss::

Carl Bildt Verified account ‏@carlbildt

Sweden? Terror attack? What has he been smoking? Questions abound.

 

The Massachusetts Appeals Court Relies on Baccanti v. Morton, in Tapping Option Income for Alimony, in Ludwig v. Lamee-Ludwig: A Fresh Look at Baccanti

Wednesday, March 01, 2017

The Appeals Court’s recent Ludwig v. Lamee-Ludwig approaches the intersection of unvested stock options and double counting, colloquially known as “double dipping”, in divorce litigation. Relying on the Supreme Judicial Court’s (SJC) Bacanti v. Morton, they got it right. But, was the SJC precedent correctly decided? It is worth revisiting.

In Baccanti, the SJC addressed the question of unvested stock options at divorce, concluding that options granted during marriage but to be vested thereafter “may” be treated as marital property by the trial court. As we have discussed here before, “may” is plainly a word that grants discretion, meaning that the grantee is permitted, but not compelled, to do something. Think: “Do it if you think it appropriate, but don’t, if not.”

By contrast, and while there is some case law to the contrary, common usage of “shall” imposes an obligation – and if it does not, there are a whole lot of temporary orders, separation agreements and judgments out there that don’t say what they mean, or mean what they say! Think: “Do it.”

This common-sense distinction is highlighted when the words “may” and “shall” inhabit the same sentence. M.G.L., ch. 208, §34, upon which the Baccanti ruling relied, reads:

    “…the court may assign to either husband or wife all or any part of the estate of the other, including but not limited to, all vested and non-vested benefits…and which shall include, but not be limited to, retirement benefits, … pension, profit-sharing, annuity, deferred compensation and insurance.” (As quoted by the SJC; bold italics ours.)

Thus, as we read it, §34 requires (“Do it”) the trial court to include the enumerated, but unlimited, forms of compensation or other benefits within the marital estate, but it permits (“Do it if/how you think it appropriate”) the trial judge to assign them between the parties as she sees fit. Why would the statute drafters have used two different modal verbs in the same sentence, if they were not to connote different meanings?

Yet, the Baccanti court equated the two by concluding that the trial court may include unvested options in the marital estate. May = shall. Think: judicial amendment.

None of this made much practical difference in 2001, as Baccanti took hold in asset divisions. After all, the SJC’s “time rule” sensibly divided granted but not yet vested options in a way that distinguished between those that were tightly related to the marital enterprise during which both parties contributed, from those for which the connection to mutual marital efforts was diluted by the passage of post-divorce time. Who cared if the time formula technically excluded some options from the estate, or if it simply assigned them disproportionately between the spouses because of the declining nexus with marital efforts?

Now, it matters, the intangible becoming material, with unvested options ripening into disposable cash.

The central holding of Ludwig is that the income generated by the post-divorce exercise of stock options granted during marriage, but excluded from marital property at divorce by application of Baccanti, may be tapped for payment of alimony (and, perforce, child support) because it does not constitute a double counting, let alone one that may be reversibly inequitable. (The law does not bar double dipping per se, but only if it is deemed inequitable.) The SJC obliquely suggests that alimony exposure for income arising from later vested options that were deemed to be marital property at divorce, presents a more compelling case of double counting.

The Baccanti holding made Ludwig an easy case for the Appeals Court to decide. But, had the higher court stuck to statutory interpretation in 2001, rather than effective revision, the current case might, and we think should, have been more challenging.

[The Appeals Court easily dispatched the argument that inclusion of the unvested option-derived income was precluded by M.G.L., ch. 208, §53(b)(1), by holding the legislature to its precise words. Those drafters exempted certain income derived from assets assigned under §34, for income calculation purposes, listing interest, dividends and capital gains only, without any indication these were mere examples; and income produced by options is none of the above. We infer (but do not know) that the drafters just did not consider the particular wrinkle.]

 

Unusual Alimony Strategies in the Wake of Snow v. Snow

Wednesday, February 22, 2017

Imagine with us for a moment.

You represent the lower earning spouse whose income is insufficient to fully meet his lifestyle needs. His job is insecure, but not enough to convince the judge to discount it as best evidence of earning capacity. Or, his spouse’s earnings curve is ascending, with the resulting potential for a greater alimony award for your client, if only the alimony determination were made, not now, but later. The presumed durational alimony limit is 7 years, and the potential payor is 15 years shy of social security retirement age. So, your client can play for up to 8 years’ time before his spouse’s retirement age threatens the presumed maximum term.

Do you have your client disclaim alimony at the divorce trial?

Or, you represent the higher earner. She knows her income prospects are rising, and she takes spouse’s griping about job insecurity as a smokescreen for his wish to walk away from a steady but unpleasant occupation. He signals that he is not going to ask for alimony at trial.

Do you demand that your client have the right to begin paying alimony immediately?

Both sound far-fetched, but less so after the Supreme Judicial Court’s (SJC) Snow v. Snow, released, as our old friend Jessica Dubin noted, on a recent snow day in Boston.

In Snow, the SJC decided that alimony durational limits do not begin to run until a judgment that affirmatively orders alimony enters (subject to Holmes exceptions); hence, if a divorce judgment does not include alimony, but alimony orders arise from a subsequent modification judgment, the durational clock does not start until the later judgment.1

In other words, disregard the procedural labels. A modification judgment that initiates alimony is an initial judgment for alimony purposes; so, the plaintiff need not show changed circumstances; and he can still demand the full presumed maximum durational term.

We could quibble about the substance of the decision itself. Do you think that the legislature intended this result when M.G.L., ch. 208, §53(g) (if child support alone, or unallocated support is ordered at divorce, the durational clock on alimony runs from that judgment, despite the absence of alimony orders) dictates the opposite?

But, to us, the counterintuitive incentives that Snow sets up are more interesting.

When was the last time that you advised a client to demand the privilege of paying alimony when tax leverage was not at stake? Or, to decline it when it is there for the taking?

And either client’s likely reply?

“What are you nuts?”

Maybe not after this particular Snow day.


1Query whether this new rule would apply to a merging separation agreement that actually recites that the parties are waiving past and present, but not future, alimony.

 



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