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Divorce Mediation Blog

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!

 

O Pfannenstiehl! Part 7: The Eagle (SJC) Has Landed

Wednesday, September 14, 2016

The 2015 Massachusetts Appeals Court case of Pfannenstiehl v. Pfannenstiehl was so problematic and peculiar that that we published 6 previous blog entries about it. We hoped that the Supreme Judicial Court (SJC) would accept the husband’s request for further appellate review, and it did, on the trust issues only. Happily, it did, and when the SJC issued its decision in August, it reversed the Appeals Court’s split decision.

In the process, SJC furthered our understanding of just when a trust interest is, or is not, a marital asset that is subject to division in a divorce case. In deciding that Mr. Pfannenstiehl’s interest was too speculative to be deemed an asset, the court avoided the equally vexing question of how to value an interest when it is properly found to be an assignable asset; so, that is left for another day.

The SJC attacked the problem from two vantage points: 1. Was the trustees’ authority such that the husband could have a legally enforceable interest? 2. If so, was the husband’s interest, as one of 11 living beneficiaries, subject to expansion by reason of newly birthed issue, sufficiently discernible to call it an asset and assign an interest in it to the wife?

The answer on each was a resounding “no”.

The critical language was that the trustees:

“… shall pay to or apply for…

… any one or more of the Donor’s then living issue…

… such amounts of income and principal and income…

… in [the trustees’] sole discretion…

… in equal or unequal shares…

… for the comfortable support, health, maintenance, welfare and education of [the beneficiaries]...”

The wife, and the Appeals Court, focused on the “shall” and the so-called “ascertainable standard”, i.e., the “comfortable support” clause, to argue that the Husband could plausibly force the trustees to make any distribution to him that qualified under that standard. An enforceable right equals an asset, they reasoned.

The husband, and ultimately the SJC, instead seized on the open class of beneficiaries, “sole discretion” and the “equal or unequal shares” leeway, to undermine the claim that the Husband could really enforce anything. Because the donor vested the trustees with sole discretion, because some beneficiaries could receive less than others – including nothing – and because the husband’s interest could be diluted by the birth of new beneficiaries, the SJC concluded that there was nothing to enforce; hence no asset; but rather a mere “expectancy”, i.e., an economic factor but not a divisible asset under equitable division law.

The facts bore out the high court’s analysis. To the point of the parties’ divorce, only 3 of the 11 beneficiaries had received anything from the trustees. What the husband and his siblings did receive varied year-to-year, heavily dependent on the productivity of the trust res, which was stock in the donor’s company. When divorce hit, distributions for the husband stopped cold. Could they resume? Sure. Was there any legal path for the husband to compel resumption. Not by the SJC’s light.

The substantial history of trust distributions to Mr. Pfannenstiehl constituted an important financial consideration for this divorcing family, which, however, did not make it any more enforceable, the court analogized, than social security. The SJC remanded for reconsideration of the trial court’s decision to not award alimony to the wife, with language that could even justify a reconfiguration of the remaining marital assets, as impacted by the potential quantum of the husband trust expectancy. But, assignable property? No.

The bottom line for practitioners is that the financial history of the trust matters, but trust language really matters. The trial court’s charge is to determine, as nearly as possible, what the donor intended, as gleaned from the trust instrument. By that measure, this was not a hard case.

Now, one of these days, we are going to get a case that tells us something about how to value a trust interest that is a marital asset.

 

GUEST BLOG: Facilitative Mediation Includes Informed Decision Making

Wednesday, August 17, 2016

[This letter to the editor of Lawyers Weekly highlights an important debate within the mediation community. We post it with the authors’ permission. John Fiske and Diane Neumann are giants in our field, and trained both of us.]

July 25, 2016

Letter to the Editor
Lawyers Weekly

Re: Facilitative Mediation Includes Informed Decision Making

Thomas Elkind’s Opinion of June 20 advances our understanding of mediation in distinguishing between facilitative mediation and evaluative mediation. In the latter, the mediator is almost a conciliator and the parties look to the mediator to advise them of the strength of their position. In the former, Tom says facilitative mediators spurn all techniques that seem to involve any evaluation of the parties even if it leaves them uninformed about the laws or procedures that might affect their positions. We disagree, maybe just a difference in emphasis.

Since 1989 we have taught over 1,000 people a different definition of facilitative mediation in our Divorce Mediation Training Associates programs. We believe facilitative mediation is informed decision-making, in which the mediator makes sure both spouses have accurate and relevant information about the laws affecting divorce and the procedures available for obtaining a divorce. The Standards of the Massachusetts Council on Family Mediation say “The mediator has a responsibility to the parties to help them reach an informed agreement.” In addition to encouraging the parties to, seek professional advice, “The mediator may give general information that will help the parties make their decision.” For example, the mediator may explain income tax and other differences between alimony and child support so that the parties know which approach may be more advantageous, or may tell the parties about how they could choose to divide a 401(k) retirement plan with a Qualified Domestic Relations Order, or inform couples married 9 years and 6 months that if they are married for at least 10 years there is a Social Security spousal share benefit.

As Tom writes, both types of mediators need to know the judicial process. Sharing that knowledge with both parties is not the same as giving legal advice to one party about what action should be taken. Part of the great satisfaction we derive as family mediators and mediation trainers is offering a process in which the clients choose their own particular solution with knowledge of the relevant law, sometimes deliberately offering something more generous that the likely legal outcome. It does happen.

Diane Neumann and John A. Fiske have been training divorce mediators since 1989.

 

Making A Bad Situation Worse: Rosenwassser v. Rosenwasser

Wednesday, August 10, 2016

In Rosenwasser v. Rosenwasser Massachusetts Appeals Court recently faulted a trial judge for denying a father’s request to “remove” his daughter to the State of Florida, dissecting her application of the facts to the two-pronged “real advantage” test that governs such requests by primary custodial parents, with painstaking care and convincing detail. Piling one critical point on another, the opinion yielded two inevitable conclusions: that the trial court ineffectively weighed and explained the advantages for the father in his requested move; and she over-weighted the hope that the mother’s recent efforts to kindle a relationship with the child would result in a benefit for the child. All signs pointed plainly to reversal.

Then, without explanation, but inexplicably calling it a “close call”, the Appeals Court remanded the case for more trial court hearings, more written findings, very probably another appeal; deferring any final decision and prolonging the agony for another family in limbo. A really fine decision turned bad: a victim of appellate irresoluteness.

Too often, as we learn again, litigation is a futile exercise in matters involving children.

Here’s why. The child was in utero when the parties separated in 2010. Shortly after the divorce, the mother became unavailable for mental health reasons. By 2012 a partial modification judgment formalized the father’s assumption of exclusive care for the child, a fact on the ground since shortly after her birth. For two of the child’s first three years, her mother was an infrequent presence in her life.

In August 2012, the father sought permission to move, for very strong reasons under the law. Trial did not begin until a year later and concluded five months after that. The trial court’s new judgment entered in July 2014. The husband’s appeal absorbed another 24 months, resulting in the Appeals Court opinion on June 17, 2016.

Just since the father filed his request to move child has aged from two to six years, fully two-thirds of her young life. With the Appeals Court’s tepid remedy, the clock continues to run, and it is fair to predict that this case will continue into 2017 and perhaps well beyond. The facts on the ground change daily, as the system grinds on, blind to the stress that this process imposes on a young child, whose road is difficult enough.

One bedrock principle that appellate law imposes on the trial court is that a judgment must logically flow from the facts found in the case. We wish that the Appeals Court applied this standard to itself.

 



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