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Divorce Mediation Blog

Top 25 Ways in Which Our Current National Government is Like Divorce Litigation

Wednesday, February 08, 2017

  1. Both can last up to four years, eight with appeals.
  2. Both can feel a lot longer – and the effects will outlast it.
  3. Facts are often “alternative facts”.
  4. Objective truth is aspirational.
  5. Memory is selective.
  6. Transparency is an illusion.
  7. Ad hominem is de riguer.
  8. Spokesmen never get the message quite right.
  9. “Zealous” is conflated with “blind”.
  10. Sound and fury signifies nothing…but doesn’t stop anyway.
  11. Ethics are situational.
  12. “Approval” is conflated with effectiveness.
  13. Volume exceeds quality.
  14. Yes-men (and women) abound.
  15. People want more service for less cost.
  16. Positions over-ride interests.
  17. The person who has the last word thinks s/he will win the argument.
  18. The person who speaks the loudest thinks s/he will win the argument.
  19. A good judge is one who agrees with the client.
  20. A good decision is one that agrees with the lawyer.
  21. Cost-benefit analysis is rare.
  22. Efficiency is a second – or third thought.
  23. Hypocrisy abounds.
  24. Victimhood abides.
  25. The best interests of the children/population often get lost.

 

Three Important Factors Converge With Unusual Clarity in the Appeals Court’s Heystek v. Duncan

Wednesday, January 18, 2017

Sometimes, a Massachusetts Appeals Court Rule 1:28 Memorandum and Order (a/k/a “unpublished opinion”) addresses an issue or cluster of issues that make it noteworthy, despite its paucity of detail and lack of formal precedential value. The Appeals Court’s Heystek v. Duncan is one of those cases, tackling 3 significant issues in understated but significant ways:

  1. The factor future opportunities in property division;
  2. Illiquidity as a factor of equitable distribution; and
  3. Intent in automatic restraining order violations.

Future Opportunities

A phrase search for M.G.L., ch. 208, §34’s “opportunities… for future acquisition of income and assets” in a data base will turn up many Massachusetts cases. But, they predominantly concern exclusion of trust interests as divisible marital assets, relegating them as “mere expectancies” that the court may nonetheless consider as a future economic opportunity.

Rare, however, is the appellate discussion of how strongly the trial court should weigh it, a topic approached part way, at least, by Heystek v. Duncan, a case in which the Appeals Court emphasized that with an established course of gifting from the husband’s mother, while not an enforceable right:

    …the foundational reality of the of the parties’ financial circumstances throughout their marriage was that their life-style relied to a significant degree on a fairly steady stream of such largess, and it would ignore that reality to anticipate that the husband would not continue to benefit from similar generosity following dissolution of the marriage. 

While in litigation, and in divorce mediation, we see the issue surface regularly, the focus and clarity of the statement is significant for its strength. The lack of factual detail limits the direct impact of the case on future deliberations, but one may certainly expect to see this kind of persuasive characterization in other cases.

Illiquidity

As a practical matter, the relative liquidity of asset distributions is a part of most divorce negotiations when there are diverse assets to divide. Most frequently, it arises in three contexts: closely held businesses, wherein disposable cash is scarce from which to fund a payout to the non-owner; cases in which a primary residence is the predominant asset; and where retirement funds present qualification, penalty and age/timing challenges. But, we recall few cases that broadly present illiquidity as an indicator of comparative “economically straitened circumstances". This window into the appellate panel’s thinking reflects a sophisticated view of family economics that is refreshing.

Rule 411

Supplemental Probate Court Rule 411, the so-called automatic restraining order, has precious little case law development. In Heytek v. Duncan, the wife removed $40,000 from the marital estate without the benefit of an authorizing order,or agreement. Nor could she excuse the withdrawal as a permitted usage (legal fees, business expense or investment cost), under the rule’s parameters. The husband sought enforcement by civil contempt and, in defense, wife argued that she did not intend to violate the order.

Finding no requirement of intent in a civil enforcement action, the Appeals Court upheld the trial judge’s contempt adjudication. With the order deemed unequivocal and the violation undoubted, the judge and the Appeals Court deemed wife's state of mind immaterial. While this unpublished opinion is not precedent, it surely is a warning shot to those who pay too little heed to the automatic restraining order, including counsel.

 

A Prenup Head Shaker from the Appeals Court: Stacy v. Stacy

Wednesday, January 04, 2017

In a Rule 1:28 Memorandum and Order, a panel of the Massachusetts Appeals Court ruled that a pre-marital agreement applied to the death of a spouse, based on contract language that described its scope. Here is that term, fully as reported in the opinion, but broken down by clause:

    … a final and complete settlement of all matters relating to the interest and obligations of each [party] with respect to all future property matters, including but not limited to alimony, support, maintenance, property assignment, and the rights of the parties under G.L., c. 208, §34, as amended, in the event of divorce.

Yet, here is how the Appeals Court must have read it:

    … a final and complete settlement of all matters relating to the interest and obligations of each [party] with respect to all future property matters[.]

    [ ]

    [ ]

The appellate panel tossed out two of the three clauses, which spoke only of divorce, consigned as surplusage, unworthy of consideration, despite the “agreement’s caption referring to G.L., c. 208, §34”, the divorce property division statute.

Now,, let’s cast the provision in the way that is consistent with the maxim that words in a contract are to be accorded meaning within customary everyday usage, with the law of pre-marital agreements that requires that waivers be explicit and the highly probable intent of the parties:

    … a final and complete settlement of all matters relating to the interest and obligations of each [party] with respect to all future property matters, in the event of divorce [,] including but not limited to alimony, support, maintenance, property assignment, and the rights of the parties under G.L., c. 208, §34, as amended[.]

Do you think that the parties’ might have used the word “death” somewhere, if they intended to cover that contingency? Or “estate”? Bequest”? Maybe, “inheritance”? Even “survivor”?

The result is that a widow, with no hint of pending divorce, or even marital strain, must now answer to her sister-in-law (the estate’s personal representative) for “several furnishings and personal belongings” that she removed from her marital home, in part, for alleged violation of a premarital agreement that was to all appearances, extinguished by her husband’s death.

We have no quarrel with the Appeals Court remand on the grounds that a violation of G. L. c. 190B, § 3-709 may have occurred, or that the alleged facts were also sufficient to state claims of a conversion, an unjust enrichment, and a constructive trust. But the Appeals Court is makes unnecessary mischief by inferring intent that doesn’t appear in, or even between the lines of, the contract.

 

Woulda, Coulda, Shoulda? Not So Much (The SJC weighs in with “interests of justice” alimony guidance) George v. George

Wednesday, December 21, 2016

[Note: This blog is corrected to eliminate what we conclude was mistaken in our previous observation that the Supreme Judicial Court had incorrectly stated that the standard of proof for extending alimony beyond its durational limit is the “preponderance of the evidence”. Since this is only a blog, we can correct our errors with the stroke of the keyboard, so we do! We apologize to you, and thank our friend David Lee for pointing this out to us.]

The Massachusetts Supreme Judicial Court (SJC) recently waded into the murky waters of durational alimony limits under the Alimony Reform Act (eff. 3.1.12) in George v. George, upholding the trial court’s denial of relief to an alimony payor on technical grounds, but:

    …utiliz[ing] this opportunity to set forth guidance for how the “interests of justice” standard of [M.G.L., ch. 208] §49(b) should be applied when determining whether deviating beyond the durational limits of the act is warranted.

Which they did – sorta.

First, the SJC rejected the inevitable argument in modification of pre-ARA judgments – that alimony recipients who negotiated equal property divisions at a time when case law generally precluded courts from restricting the length of alimony, when faced with newly enacted durational limits, would equitably argue that had they known that alimony would not continue indefinitely, they would have asked for more property.

The SJC understandably reasoned that the trial judge's acceptance of that argument was not only based on speculation, but if allowed to stand, it would negate the retrospective effect of durational limits for pre-ARA judgments, inconsistently with the statute, and its own precedents. Hence, our title.

The SJC then stated that:

    Further, a judge should evaluate the circumstances of the parties in the here and now; that is, as they exist at the time the deviation is sought, rather than the situation as it existed at the time of divorce. As a logical example, the justices posited that if the recipient were disabled at the time of the initial alimony award, the trial court may consider the current level of disability, as that may impact on present needs.

Then, the murky got just a little bit murkier. The SJC noted the trial court's broad discretion in setting alimony, but also set out the specific text of M.G.L., ch. 208, §53(e), with 8 specific criteria that a court may consider when initially ordering, or modifying alimony, plus the 9th innominate “anything else relevant" factor.

Unfortunately, the SJC deviated from statutory text, again, by replacing the legislature’s suggestion that the trial court "may" consider the §53(e) factors, with "here, the appropriate statutory factors to be considered are…” (italics ours), curiously passive, but a mandate nonetheless. In turn, this creates a bizarre anomaly, in relation to factor # 6, which requires, by the SJC’s lights, that the court weigh:

    … significant premarital cohabitation that included economic partnership or marital separation of significant duration, each of which the court may consider in determining length of the marriage; …

Mischievous minds wonder if the trial court's initial determination of the length of the marriage, and hence the durational limit itself, is up for redetermination at the time of potential extension? At a different time, in a different place by a different judge? Does this mean that a party who did not raise significant premarital cohabitation as an issue at the time of divorce is not precluded from raising it at the time of requested extension? Is the issue ever precluded?

All the result a not-too-careful, and unfortunate, shift of statutory language.

 

WHAT THE #%&*?! Or, Yikes, It’s the Probate Court: Creedon v. Haynes

Wednesday, December 07, 2016

Preface: We love the Probate and Family Court. It struggles daily with unrelenting demand, a vulnerable population, a crumbling social safety net, short staffs and an indifferent funding legislature. Between us, we made our living, and served, in the Probate Court for more than 5 decades. But, sometimes, you just shake your head, and say “You can't make this stuff up”. This is one of those days.

Creedon v. Haynes is a perfect storm of Massachusetts Probate and Family Court dysfunction:

    A separation agreement and divorce judgment required the husband to designate his children as beneficiaries of an existing life insurance policy with death benefits of $100,000.00.

    It didn’t specify any security purpose for the insurance benefits.

    He didn't have a life insurance policy.

    The Wife sued in contempt.

    A judge found Husband in contempt from the bench.

    The judge didn’t issue a paper judgment.

    The judgment never entered the docket.

    The wife asked that the court issue a written judgment.

    The contempt the judge had retired, so a new judge heard her motion.

    The new judge dismissed the wife’s contempt complaint because the children were adults.

Say, what?

Five years after the start of the contempt action, the Massachusetts Appeals Court reversed the dismissal and ordered the Probate Court to reduce the retired judge’s decision to writing. The appellate panel recounted, without any irony, its own decision to obtain the docket from the Probate Court, to search for the contempt judgment. Few Probate Court veterans are surprised to learn that the docket disclosed nothing useful.

How the wife successfully entered the appeal, without a paper judgment or supporting trial court docket entry, is mystery enough.

How the second Probate Court judge dismissed a complaint after her former colleague purported to enter judgment, on her own, and without request by the defendant, is equally curious.

Whether the first judge actually did not produce a written judgment, or if it somehow died in dictation, or if it sits in a dusty pile of paper somewhere in the courthouse to this day, is something that we will never know.

But, the wife will get her judgment; and, someday, she just may need to do something with it. Except, of course, when the wife finally does obtain her written judgment, and if it is docketed, the husband's appellate rights will begin.

Oh, my.

 

Rule 2704 Opposition - Talking Points

Wednesday, November 23, 2016

Recently, we blogged about the Internal Revenue Service proposed new section 2704 rules, which if enacted in their current form would create a new minimum value for businesses subject to intra-family transactions, and essentially eliminate discounts for marketability in that context.

Many in the business appraisal and estate planning communities are up in arms, and they mobilizing to defeat this IRS move, before it becomes entrenched.

While keeping an eye on unfolding commentary, we ran across “talking points” suggested by the American Society of Appraisers for use in opposing the new regulations. In summary they are:

  1. By increasing the value of fractional interests in family businesses, the new rules would result in an "stealth" tax increase of 25-50% in estate and gift taxes.
  2. By treating intra-family actors as "known parties", rather than hypothetical buyers and sellers, the rule would disregard the reality that a fractional interest is in fact, fractional, and not controlling, reducing its economic value.
  3. The notion that families will always work in concert has been rejected previously by the United States Supreme Court.
  4. The suggestion that intra-family transfers should be treated differently than those between unrelated parties is unsupported by any public reasoning advanced by the IRS.
  5. The proposed rule may put IRS regulations on a collision course with various state laws which recognize applicability of marketability discounts.
  6. This new approach will cause family-owned businesses to delay capital investment, and inhibit new hiring, as they preserve cash for pain increased taxes.

As divorce mediators and arbitrators, a former Probate judge, and litigators-in-recovery, we are used to this approach from Bernier, in the divorce context, but in estate and gift taxation?

What do you think?

 

Dell-a- ware Valuation Decision and DCF

Wednesday, November 09, 2016

A Vice Chancellor (we love that title) of the Delaware Chancery Court recently ruled that Michael Dell and Silver Lake Partners undervalued Dell, Inc. stock by more than 26% in engineering a going private transaction, to the detriment of shareholders. After hearing the discounted cash flow analyses of experts for both sides, at an appraisal trial, the VC (apt abbreviation) rejected both.

In doing so, he noted that market price is not necessarily an indicator of value, a proposition that seems, at first blush, to be mildly shocking. We are used to searching for value in closely held businesses because they have no public market to provide value. Where there is a public trading record, we do tend to accept it: the market rules. Minority discounts are even baked in because every share is a non-controlling interest.

The VC’s reasons that public share value is a reflection of perception in the marketplace from known information, presumably from regulatory disclosures, proxies and press accounts perhaps. They lack, however, insiders’ understanding which yields a more sophisticated measure of value. A little bit troubling as an investor, but sure: not everything is public record. With a going private transaction, wherein public investors are being divesting of their stakes, the company owes a fiduciary duty to maximize shareholder value, so his reasons commonsense.

We won’t get into the DCF decision-making of the VC. Interesting to some but as dry as a bone to most.

 

MEDIATION CONFIDENTIALITY: IS IT A STEP FORWARD OR BACK?

Wednesday, October 26, 2016

ZVI Construction Company, LLC v. Franklin Levy & another

The Appeals Court recently enforced the important policy of honoring the right of contractual and statutory confidentiality in mediation, as provided by M.G.L., ch. 233, §23C. The statute states that:

    Any communication made in the course of and relating to the subject matter of any mediation and which is made in the presence of such mediator by any participant, mediator or other person shall be a confidential communication and not subject to disclosure in any judicial or administrative proceeding…

Meaning, that what is said in mediation should stay there, freeing parties of the inhibiting worry that their factual or negotiating concessions may come back to haunt them in court, should their mediation fail to achieve complete resolution.

The plaintiffs in October 6th’s ZVI Construction Company, LLC v. Franklin Levy and another, challenged this important principle by demanding that the court write in a “fraud exception” to confidentiality. The Appeals Court declined, upholding trial court decisions to strike statements made in mediation by counsel from pleadings, and later dismissing all claims based on the defendant’s mediation conduct.

In a case of first impression, the Appeals Court relied on the absence of any fraud exception in the statute and the explicit exclusion of a fraud exception in the Uniform Mediation Act of the Uniform Laws Commission, which is the law in 11 states and the District of Columbia, though not Massachusetts. The court also discussed the celebrated case Facebook, Inc. v. Pacific N.W. Software, Inc., a Ninth Circuit Court of Appeals decision, in which the federal courts declined to relieve the Winklevoss twins of their mediated settlement by reason of Mark Zuckerberg’s alleged overstatement of Facebook’s value.

Unfortunately, we worry that the Appeals Court diluted its message. In discussing the facts of its case, the court observed that:

    [W]e would be hard pressed to find that such an exception exists in the circumstances of this case, where there is a confidentiality agreement, negotiated between sophisticated people with the assistance of legal counsel… (Footnote omitted.)

We are equally hard pressed to imagine that the Appeals Court intended to imply that a fraud exception might exist in other circumstances.

 

Proposed IRC §2704: Life Imitating Divorce?

Wednesday, October 12, 2016

We receive newsletters from several CPA firms, and they are often both informative and useful. Recently, they are aflame with comment on proposed IRC §2704, issued by the Internal Revenue Service on August 4th. Section 2704 would limit or eliminate the use of discounts for lack of control and lack of marketability for businesses being valued for estate and gift tax purposes: raising values and taxation on intergenerational transfers; and challenging estate planners in crafting tax avoidance/minimization strategies.

To accomplish this, we understand, the proposed rule includes minimum valuation rules (pro rata share of net worth); mandated disregard of ownership agreement and state law restrictions on stock transfers; and close scrutiny of personal goodwill, size and customer concentration concepts as value reducers. Valuation experts and estate planners promise complexity, uncertainty, litigation and general misery ahead. Among other things, critics opine that treating highly illiquid assets, as most small businesses are, as liquid, indulges a fiction that will undermine families’ ability to preserve businesses across generations.

In divorce world, we have seen this movie before. Since 2007’s Bernier v. Bernier, Massachusetts has led the way in severely limiting -- all but abolishing -- the application of discounts in valuation: rejecting the concept that divorce valuation is based on a hypothetical sale, with attendant discounting; and analogizing divorce, instead, to that of the involuntary purging of a shareholder from a going concern for which sale is not, in fact, contemplated. Fair value, rather than fair market value,now holds sway in most cases since business owners can’t dispose of their firms – quite apart from market realities – because they, and their families, depend on the businesses for their economic support. As with proposed §2704, the result of Bernier is higher valuations that often disregard business realities, to the consternation of business owners.

Policy is shaped by goals. In Bernier, the Supreme Judicial Court felt it unfair to reduce the non-owner’s sharing of value when continued operation is the value to the holder, and ruled accordingly. The government wants more tax receipts and the I.R.S., exists to collect it. No surprise there.

Is Bernier the chicken to the federal government’s egg?

 

Recipe for Premarital Agreement Failure, Redux - Allen v. Allen

Wednesday, September 28, 2016

After 2001’s DeMatteo v. DeMatteo, we wondered just what one would have to do, in the real world, to cause a premarital agreement to be struck down as invalid or unenforceable, short of a literal or figurative “gun to the head”, or blanket waivers of everything.

In 2014, we commented here on Kelcourse v. Kelcourse, noting that a husband who sought to enforce a prenup had materially violated the agreement, and generally acted in a matter so unseemly during the marriage itself, that he undermined the very deal that he was seeking to enforce. There was also a vermin factor, but you may go back and read that entry if you are sufficiently curious!

Now, in last month’s Allen v. Allen, a Rule 1:28 decision of the Massachusetts Appeals Court, we have clear primer on how not to conclude a premarital agreement, if you ever want to enforce it. Without further ado, here are the Allen Rules:

  1. Marry someone whose primary language is Portuguese, of which you speak none.
  2. Use hand signals with each other.
  3. Have your non-Portuguese speaking lawyer “explain the agreement” to your intended (assisted by your hand signals).
  4. Arrange for a Portuguese speaking personal injury and real estate lawyer to meet with your fiancée 4 days before the marriage, to orally translate the agreement into Portuguese and give no legal advice (perhaps she didn’t want any; or maybe it was because he had no involvement in divorce practice).
    Make sure that the agreement waives all property and support rights, except to keep the assets that she had before the marriage, disclosed on the agreement as “none”.
  5. Stay married for 15 years and then demand specific enforcement of the agreement which gives her nothing.
  6. Oh, and don’t forget to ask the Appeals Court to bar your wife from presenting oral argument.

Hope you practitioners are taking notes!

 



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