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Divorce Mediation Blog

Post-Divorce Health Coverage: Whatever happened to the Qualified Medical Child Support Order?

Wednesday, May 15, 2013

Post-Divorce Health Coverage: Whatever happened to the Qualified Medical Child Support Order?

In a recent case, the parties were having problems with the flow of medical benefits, paper, information and cash. As they discussed remedies, it occurred to me "What about a "QMSCO"? I hesitated to raise it, concerned that the lawyers involved just might not have ever heard of one. I was fairly certain neither had ever used one of these obscure federal instruments. I was right on the second point.

The Qualified Medical Child Support Order was created by Congress in a 1993 amendment to ERISA. It established the obligation of employment based retirement plans to extend medical insurance coverage to dependent children of participant employees as a matter of federal law. While this basic policy was not new to Massachusetts, some of the structural aspects of the law were new here.

For example, with a QMSCO in place a medical insurance carrier can be required to recognize the rights of an alternate payee. In other words, if a state divorce judgment requires that coverage extend to children after divorce, it shall be so as a matter of federal law, too. Then, to the extent that the state judgment vests responsibility children in a non-employee spouse, that spouse may then stand in for the employee as the beneficiary for logistical purposes. That is, the custodial parent becomes the recipient of claim forms, notice of benefit changes, application for benefits for a child and the recipient of any insurance reimbursements.

The effect of a QMSCO is to cut out the employee as conduit of paperwork and cash if the parties agree and/or the state court so orders. Efficiency and reduced need for interaction between ex-spouses seems the result. Gone, too, are the frustrations of medical carriers who refuse to speak with inquiring parents, saying that they will only speak to the employee.

We can count the number of QMSCO's that we have seen as lawyers, judge and divorce mediators on one of our hands. We wonder why?

 

Musing on Massachusetts Alimony: Do "Needs" Still Matter for the “One Percent”?

Wednesday, May 08, 2013

The year-plus-old Massachusetts alimony "reform" statute provides that the court may not include the capital gains, interest and dividend income which derive from property received in divorce equitable asset division in the consideration of alimony rights and obligations. This is of little consequence -- and makes sense -- in most cases, where neither party can reasonably expect to collect income on assets that is enough to affect self-support; especially in a half per cent bank interest environment; and where few people have a critical mass of investable assets to chase stock market returns that would impact the ability to meet current needs.

But, what about cases in which high net worth parties divide large productive estates? In some families, investment returns can meet all reasonable needs, or even both parties’ actual expenses. Before March 1, 2012, this fact alone might have trumped an alimony claim because "need" was a longstanding pillar of alimony law. Even then, need was an elastic term as interpreted by appellate courts, encompassing the specific standard of living of the parties during the marriage. Judges had very broad discretion, to award alimony where the overall equities justified it, or to decline because need was not evident.

While the definition of alimony in the new law expressly includes need, the exclusion of investment income may have the effect of changing that for the “one per cent”.

Consider an extreme set of facts: the parties divide $100 million arising from entrepreneurial success, and the 45 year-old business spouse, out of a job after sale, chooses to take a job with a non-profit employer that pays a salary. A literal reading of the alimony statute would demand that the employee "generally" pay not more than the other spouse’s need, or 30-35% of the difference between the parties' respective gross incomes, but excluding that income produced by their divided assets. In other words, alimony seems mandatory even where no need exists.

If this reading is correct, we suppose that a judge could award $1 of annual alimony and fulfill the statute's mandate, but is that the legislature's intent? As divorce mediators, we look at the economics of every case carefully, but informed clients will know about the law; and we wonder the long-term implications of this statutory provision.

 

Divorce can be Taxing—Tips and Traps

Wednesday, February 20, 2013

By Rich Streitfeld, CPA

In the best of worlds, taxes can be complicated, provoke anxiety, and, of course….be costly. In a divorce situation taxes have the potential to become yet another battleground for the exhausted parties. Many of the financial decisions made by the parties – or made for them if they cannot agree – have serious, long-lasting tax consequences. Care and consideration must be given, as illustrated in the following examples:

It ain’t over till it's over. Bette and Peter* are negotiating a particularly nasty separation that will span two calendar years. Peter is a banker and Bette is a stay-at-home mom. Peter wants to file as a couple – “married filing jointly” – so they will get a small refund. Because of the acrimony between them, Bette will not agree and thus they have to each file “married separately” returns – she will still not owe anything (no income) and Peter will owe a ton (the rates are much higher and the credits limited for “married filing separately”).

Logic dictates that for “the parties as a whole” married filing jointly is a more profitable choice, easier, cheaper. If it is a straightforward return (e.g. neither partner owns a business) and the parties trust the veracity of their reported figures, this is particularly true. Then again, if trust is gone it is hard to blame Bette, who from her own point of view has nothing to lose (well, time, lawyer’s fees, her husband’s assets that she may be relying on, any residue of good will…). There is also the thorny issue of allocating payments and refunds if the couple is filing a joint return and misuse of funds is already an issue in the divorce.

Should Bette continue to insist on a separate return despite the total higher tax cost, Peter’s counsel could advocate for “reimbursement” in the property settlement.

Know when to stop investigating. Sue runs a professional staffing agency. Her husband Larry is half-owner of the corporation but is not actively involved. The divorce was drawn out for five – Five! – years because Larry wanted to be bought out of the business. Fair enough Larry but as her tax preparer I know there is not much there. “Staff For You” has one core client, and no long-term contracts. There is little intrinsic value and virtually no hard-core assets. Essentially SFY provides employment for Sue, some tax breaks and liability protection. Larry may be entitled to alimony or child support based on Sue’s earnings, as well as his rightful share of personal property, but just because your spouse “owns a business” doesn’t necessarily mean there is a bucket of cash lurking there.

It ain’t over even after it’s over: Howard and Deirdre have two children, Al and Allie. They will stay with Deirdre during the week and with Howie on weekends. How should they determine who takes each “dependency exemption” after they are divorced?

Again, it helps if the parties can think longer term and not punitively. Howard’s income is substantially more than Deirdre’s – therefore, the dependency exemptions save him a higher percentage of his taxes than it would for her. In addition, he plans to fund the children’s’ education, and he cannot claim an education credit without the related dependency exemption.

Then again, Deirdre’s income has grown steadily each year and within a few years could be similar to Howard’s. Meanwhile, a spike in Howard’s income would make him less able to take advantage of that dependency exemption because of recent tax law changes. How should they structure the arrangement?

With two children and potential tax benefits for each parent, oftentimes the parties will specifically identify one dependent per parent in the divorce agreement – or, if one child they will agree to alternate the exemption annually.

Howard and Deirdre trust each other to be fair in these matters and they are remaining friends – this is a less hostile divorce than others. Given this, they do not want to write anything into stone -- (especially since tax law is anything but). As the custodial parent, Deirdre has rights to both dependents, but she may waive either one or both in any year, and Howard would then be entitled to the benefit (s). They will “run the numbers” year by year and decide what approach is in their best interests. Yes, I have clients who see me separately and do this!

This is just a hint of the tax complexities inherent in the divorce process (we didn’t even mention child support, capital gains…) Every situation is different, but ultimately it is up to the parties what tack to take. Will you fight over every penny? Drag the proceedings out until you are both left bloodied, dissatisfied and no less angry? Switch lawyers until you find the perfect match for the lowest price, who is aggressive but effective, calls you back but doesn’t charge? Yes, you are right (you always are!), you are entitled and it’s not fair – but when all is said and done often it is best to get it done as quickly and painlessly as possible, even if you don’t get all you deserve.

Copyright © 2007, 2013 Rich Streitfeld
All rights reserved

Richard Streitfeld is a Certified Public Accountant and Certified Fraud Examiner with Aaronson Lavoie Streitfeld Diaz & Co (www.alscpa.com) in Cranston, Rhode Island. He can be reached at (401)-223-0205 or rich@alscpa.com.

* These are real names and real situations. The names, details (and sometimes genders!) have been altered to protect privacy.

 

What is a Dispute Resolution Coordinator?

Tuesday, November 27, 2012

For one thing, it is a name that we made up!

More importantly, a dispute resolution coordinator (DRC) is an impartial professional who is named in a settlement agreement, often a family law agreement at or after divorce, to stand by as an out-of-court resolver of disputes. The disputes can be big or small: are the parties properly implementing their property division; do the parties agree on events during the marketing and sale of a home; have taxes been properly allocated; or is support in need of revision?

Generally, the parties grant the DRC the duty of trying to mediate a solution to the issue at hand, but failing resolutions the authority to make a binding decision for the parties. The process can be efficient, flexible and inexpensive. The parties, who are often court-shy after having had some exposure previously, value the easy access, the ability to be “heard” and the finality obtained.

The parties select their DRC, increasing their sense of control, after a period in which they have seen and felt their autonomy compromised by an impersonal and public court system. Their lawyers guide them to the right person for the job, and their agreement usually provides a process for successor DRC’s, should the parties agree that a replacement is appropriate, or if the DRC becomes unavailable.

The parties to every settlement agreement that includes ongoing interaction of the parties should at least contemplate the possibility of a DRC.

 

Same Sex Marriage Meets Civil Union Dissolution

Wednesday, August 01, 2012

In last week’s Massachusetts Supreme Judicial Court’s (SJC) case of Elia-Warnken v. Elia, the court ruled that a civil union from another state (Vermont in the facts of this particular case) is the legal equivalent of marriage when it interacts with our laws of marriage and divorce. The question arose: when a person became part of a civil union in a state that had not yet recognized the right of same sex marriage, and had not obtained a legal dissolution of that union before marrying here, does this constitute polygamy, making the Massachusetts marriage void. The answer was a clear “yes”.

In doing this, the SJC maintained a consistent view that it will not tolerate a continuation of the national practice (that is, in most states individually who do not recognize same sex marriage, and in federal law, where the Defense of Marriage Act (DOMA) precludes it for federal purposes, and exempts the states from having to acknowledge it) of domestic discrimination against gays and lesbians. The court reasoned that to treat civil unions as anything less than a marriage for our state’s purposes would do exactly that.

So, for a civil union partner to marry in Massachusetts he or she must dissolve one legal relationship before entering into another, whether the prior one be one that is called “marriage”, or a civil union. Strike a blow for marriage equity and against one fear mongered by those who continue to champion DOMA: that somehow same sex marriage will lead a creeping acceptance of polygamous marriage.

 

Refinancing the Mortgage After Divorce: When Can You Do It?

Thursday, July 12, 2012

One issue that comes up in every divorce in which the parties own a home is: when can the party receiving ownership of the home obtain a release of the other spouse’s obligations under the mortgage by refinancing this obligation? This is important to the spouse who is leaving the house behind for at least three (3) reasons: 1) he or she remains liable to the lender for the underlying mortgage loan note, despite the allocation of responsibility between the parties under their settlement agreement; 2) because late payments or even default by the other party can still hurt his or her credit rating; and 3) this person’s ability to buy a replacement residence may be stymied by his or her continuing liability on the joint mortgage.

As important as a release is to the spouse who needs a new home, it is equally necessary to reach a re-finance agreement that the party remaining in the home (often to provide continuity for the parties’ children) can actually accomplish. For years, divorce agreements required this to be accomplished within 3 or 4 months after divorce, on the assumption that this was enough time to apply to multiple lenders, go through underwriting and close. These rote provisions are no longer sufficient.

The 2008 banking crisis and subsequent taxpayer bailouts were caused partly by bad mortgage lending practices. Since then, mortgage underwriting has become more stringent with regard to the reliability of alimony and child support payment streams as qualifying income for the granting of a new mortgage. This is true, even where the new interest rate and monthly payment is lower than the existing one, where the applicant’s credit history is clean and even when the party has substantial assets.

While lenders vary in their requirements, one current practice seems to be that if the former spouse is relying on the anticipated alimony and/or child support stream to provide more than 30 per cent of income qualification, that cash flow will have to be a reliable, documented fact, for a full year. Banks will differ on when they “start the clock” on that year, whether a year from the divorce judgment, or perhaps earlier when there has been a formal, enforceable and collected support payments.

Of course, this delay increases the chances that the interest rate environment will be different at the time of the actual re-financing transaction, as compared to the known circumstances at the time of divorce. Delay may benefit of the re-financing party (if interest rates drop); or the opposite could occur (more likely in the current historically low rate environment).

In divorce mediation, this issue needs to be carefully discussed and considered so that the legitimate needs and concerns of both parties are addressed as fairly and as effectively as possible.

 

Counterpoint re: Alimony Reform and Cohabitation

Tuesday, July 10, 2012

By: David H. Lee Maureen McBrien’s opinion piece in Lawyers Weekly of April 30, 2012 was interesting to read as a perspective of an attorney facing a new issue in the area of family law.  It is important that the changes in the Alimony Law, which went into effect March 1, 2012 be highlighted, and that dialogue ensue with respect to the provisions of the newly enacted law.  Her opinion, however, specifically with respect to her subsection on “When is a modification warranted on cohabitation grounds?” seems in large respect to be inconsistent with the wording of H 3617, the Act Reforming Alimony in the Commonwealth, particularly where she suggests that relief under the Act would not be available if cohabitation had begun prior to March 1, 2012.  Her conclusion that the cohabitation relationship has to have begun post-March 1st in order to seek relief of modification based on cohabitation is not accepted.

The measuring focus for any modification of a divorce judgment is the change of circumstance that has occurred following the entry of that judgment.  Ms. McBrien suggests that the change of circumstance based on cohabitation would require that any such cohabitation be after the effective date of the Act; namely, March 1, 2012, to be a basis for relief.  Now, rather than a pure standard of change of circumstance, the facts supporting cohabitation after the judgment, consistent with the provisions of Section 49(d), provides the basis for relief under the Act.

While Section 4(a) of the Act indicates that Section 49 of Chapter 208 of the General Laws shall apply prospectively, alimony judgments entered prior to March 1, 2012 shall terminate on three bases: (1) only under the terms of such judgments; (2) under a subsequent modification; or (3) as otherwise provided for in this Act.  Section 4(b) of the Act indicates that the enactment into law of Sections 48 through 55 of Chapter 208 of the General Laws shall not, in and of itself, be a material change of circumstance warranting modification but for existing alimony judgments that exceed the durational limits under Section 49 of Chapter 208 of the General Laws with respect to which the Act shall be a material change of circumstance which warrants reduction.

Thus, events which have occurred subsequent to a divorce judgment entered prior to March 1, 2012 can serve as a basis for modification.  These events are not limited merely to a reduction in or increase to the income of one of the parties, but also may include events subsequent to the entry of the judgment of divorce with respect to which relief is provided for in the Act.  These specifically include cohabitation and reaching full retirement age.  The reason that the Act itself can serve as a change of circumstance with respect to which a modification shall be based is that the durational limits referred to in Section 49 are measured with reference to the length of the marriage.  The length of the marriage which has been ended cannot be extended so there is no post-divorce judgment event which could serve as a basis for change of circumstance and modification.  A specific indication that the durational limits within the Act shall be deemed a material change of circumstance provides the opportunity for relief based upon the terms of Section 49.

The particular bases for modification of cohabitation or achieving full retirement age, are ongoing circumstances beyond the entry of a judgment of divorce.  One continues to get older after the judgment of divorce. One can commence and continue on a daily basis, a period of cohabitation beyond the entry of a judgment of divorce.  One cannot, however, extend the length of the marriage.  With respect to cohabitation, in particular, each day of cohabitation is effectively a new starting point such that the three month period of time referred to in Section 49(d) runs from each day forward.  Therefore, irrespective of whether the commencement date of the cohabitation was prior to March 1, 2012 and continues beyond March 1, 2012 a Plaintiff seeking relief by reason of cohabitation would not be precluded from bringing that action for relief.  There is nothing in the Act to suggest that a cohabitation which began prior to March 1, 2012 and continue beyond March 1, 2012 is outside a class of cohabitation with respect to which relief can be provided.

Ms. McBrien’s suggestion that the use of the words “upon the cohabitation” suggests problems for alimony payors where the recipient’s cohabitation began prior to the passage of the Act is not consistent with the reading of Section 49(d). Section 49(d) indicates a mandate that alimony shall be suspended, reduced or terminated upon the cohabitation of the recipient spouse when the payor shows that the recipient spouse has maintained a common household…for a continuous period of at least three months. The word “upon” is the basis for the suspension, reduction or termination of alimony. It is not an event of time (read “based upon”). The time event is “when the payor shows”.

As with all standards of modification; namely, seeking relief from the entry of the last judgment, cohabitation now serves as a basis for seeking post March 1, 2012 relief as provided for in the Act.  The prospective nature of the Act precludes going back to an event of cohabitation during a period of time prior to the effective date of the Act and seeking relief through reimbursement of alimony, but does not prohibit relief, based on cohabitation, from an alimony order that otherwise would extend beyond March 1, 2012 merely because that cohabitation first began prior to March 1, 2012..

It should be noted, as well, that there is no restriction in time regarding when it is an action for modification based upon cohabitation can be commenced after March 1, 2012 as there is in Section 5 applicable to durational limits and Section 6 with respect to reaching full retirement age..

Conclusion

One may seek prospective relief with respect to a pre-March 1, 2012 alimony order based upon cohabitation as defined in Section 49 irrespective of whether that cohabitation commenced before March 1, 2012.

David H. Lee was a Co-Chair of the MBA/BBA Alimony Task Force and a member of the Massachusetts Legislative Alimony Reform Task Force.

Fern Frolin (a member of the Massachusetts Legislative Alimony Reform Task Force) and Denise Squillante (Co-Chair of the MBA/BBA Alimony Task Force and a member of the Massachusetts Legislative Alimony Reform Task Force) note their concurrence with this opinion.

This piece was published as a Letter to the Editor of Massachusetts Weekly, July 9, 2012 edition.  Posted with the author's permission.

 

The Defense of Marriage Act: Defending the Indefensible

Thursday, July 05, 2012

Since 2004, gays and lesbians have been legally free to marry in Massachusetts. That is now the law in six (6) states and the District of Columbia. Yet, by congressional action, signed into law by President Clinton, legally married couples here are not legally married for any federal purpose, nor is their status respected in most other states.

The Defense of Marriage Act (DOMA) (declaring a marriage as only between one man and one woman for all federal law purposes and relieving other states of any obligation to recognize a same sex marriage permissibly created in another state) denies same sex spouses more than a thousand benefits, including the right to file joint tax returns, to have tax privileged spousal medical benefits and access to many social security and veterans survivors benefits. In divorce, gays and lesbians may not transfer property without taxation at the time of divorce, cannot claim alimony tax deductions and are prohibited from transferring pension assets without triggering tax consequences, which can be sometimes catastrophic; rights that all hetero-sexual married couples take for granted.

A group of plaintiffs sued in the United States District Court for the District of Massachusetts in the case of Gill v. O.P.M. and 2 companion cases, seeking to have DOMA declared unconstitutional. After defending DOMA and losing in the trial court, the Obama Administration declined to defend it again in the appeal of Judge Joseph Tauro’s judgment wherein he declared DOMA to be unconstitutional. The Department of Justice declared the statute indefensible. The United States Court of Appeals for the First Circuit, agreed with Judge Tauro and upheld his judgment.

The next stop for this controversy is the United States Supreme Court, where others will stand in as surrogates for the federal government in seeking to reverse the First Circuit’s decision, doing what the current government refuses to do: defend the indefensible.

 

Joint Retention of Financial Experts in Divorce

Wednesday, May 16, 2012

By Heidi Walker, CPA*ABV, ASA

“People, I just want to say, you know, can we all get along?” ~ Rodney King

Hiring a financial expert for a divorce engagement involves many decisions, one of which is determining whether the expert will be separately retained by each party, or whether the parties will jointly retain the expert. Utilizing a joint expert can have its rewards; however, it is not suitable for all cases. The success of using a jointly-retained expert depends on the relationship between the parties; the issues in the case and the attorneys’ strategies for dealing with them; and the skill of the expert to operate in this unique role.

In a divorce matter, generally, a single expert may be engaged by agreement of the parties; appointed by the court; or engaged as part of the collaborative process. We will begin by describing each of these options. Then, we’ll examine the economics of a joint engagement, as well as tips for making such an arrangement a success.

Circumstances of Joint Expert Retention

By Agreement of the Parties

When divorcing parties are involved in litigation, instinct may be for each to hire their own expert. In certain instances, this may be the appropriate course of action. In others, however, the parties may be on good enough terms and the attorneys’ strategies both suitable to jointly retain the expert via a joint engagement letter with the expert. This is usually done in hopes of saving time, fees, and the emotional drain that can result from dueling experts. Choosing this course does not preclude the parties from later hiring their own expert if they are unhappy with the joint expert’s results.

Court-Appointed

A joint expert may be appointed by the court. The parties may request the court to do so, or the court may appoint one on its own. From the court’s perspective, a jointly retained expert can enhance settlement opportunities, as well as avoid the contradictory evidence often submitted by dueling experts. However, some judges may not be in favor of a neutral expert, out of concern that it interferes with the adversarial process. The scope of work may be determined by the court or stipulated by the parties. As outlined in the Family Law Services Handbook, the order or engagement letter typically includes:

  • Specifying the expert’s tasks
  • Stating basic facts (e.g., marriage and separation dates)
  • Defining compensation parameters
  • Identifying financially responsible parties and funding source
  • Addressing discovery protocol
  • Detailing communication and reporting protocols
  • Planning for possible expert withdrawal
  • Clarifying case-specific items and terminology. 

Likely, the most significant downside of a court-appointed expert is that the parties may not be vested in the joint process As such, these engagements can be as contentious (or more so) as if the parties had each hired their own expert. Further, while each party has the opportunity for cross-examination, there is no rebuttal expert to respond if one or both parties take issue with the jointly-retained expert’s conclusions.

Collaborative Process

Use of the collaborative process, whereby a “participation agreement” commits the parties to settle their issues without recourse to litigation, is rising in popularity in family law. This multidisciplinary approach often involves a financial professional, whose role is to gather all of the necessary financial information and synthesize it in such a way that it is useful to educate the parties about their options relating to settlement of their finances. For less complex cases, use of a single financial professional may be appropriate, while more complex cases may require multiple financial professionals, such as a business valuation professional, a Certified Divorce Financial Analyst, a tax professional, a real estate appraiser, a retirement specialist, or others.

In the collaborative process, if agreement cannot be reached, or if one or both parties elect litigation, the professionals on the team may not participate in the ensuing litigation. Each party must retain new counsel and other experts before having recourse in the courts. Thus, much of the effort put into the process must be redone, which can be a significant motivator for settlement, but is a risk not everyone is willing to take.

Does Jointly Retaining a Financial Expert Save Money?

Jointly retaining a financial expert can save time and fees over the traditional dueling expert approach, primarily by avoiding duplicative work, and also potentially by replacing a difficult discovery process with one that is more informal and harmonious. Obtaining information through a formal discovery process where experts have been separately retained can be extremely expensive. When the parties are at such odds that each and every document, question, and follow up question must be obtained via requests for production of documents, interrogatories, and depositions, professional fees can skyrocket. In one case, the in-spouse’s refusal to provide information requested for the business valuation was one factor which led to years of litigation involving several changes in the valuation date (fees), countless stops and starts on the project (fees), and significant time spent with discovery (and more fees). Expenses can potentially be contained with a jointly retained expert, as the parties may be more cooperative for an expert they believe to be genuinely neutral.

Another opportunity to save fees is upon completion of the analysis. The parties may agree that instead of the expert communicating their results via a full-length written report, the results may be expressed with schedules and/or a brief presentation by the expert. As an example, the expert may request the parties and counsel attend a meeting wherein the expert presents her work and requires the parties to provide comments within 10 days. This attempt to make sure everyone understands the expert’s analysis, and the inputs, can be very helpful in settling cases.

However, as much as both parties may be committed to using a single expert up front, one or both may disagree with that expert’s conclusions. Typically the joint engagement agreement will provide that one or both parties may retain their own, separate expert. When this happens, it can obviously wipe out any savings that may have been gained from using one expert.

Further, when the parties, or their attorneys, have substantive disagreements throughout the process and the financial expert is caught in the middle, it can be as expensive as hiring two experts. The expert’s role is to be sure that all parties are treated equally and that both sides are heard during the process. Just because everyone agrees to willingly share information does not mean they will agree on the foundation of that information, or on how much of it should be shared with the expert. We have seen cases where arguments about the correct underlying facts, or the two sides’ interpretation of them, volley back and forth between the attorneys and the parties, each rebutting the facts put forth by the other. In some cases, we have been left wondering if the parties are even talking about the same business! The expert handles this is by doing their own thorough investigation to determine the correct facts, but the more starkly different a picture eac side presents, the more time the expert has to take to determine the “truth”—a job that might be better left in the hands of the trier of fact.

Careful planning of a joint retention can help avoid the case potential pitfalls. With that, we turn to our observations about what has helped make them successful.

Tips for Making Joint Engagements a Success

Using a single expert can be an efficient way to gather facts, assess information, and obtain a financial analysis of the business, which both sides can use to evaluate the financial impact of their legal perspectives before trial. While this is an excellent concept in theory, without careful planning, these engagements can be more difficult to execute successfully. Here are a few tips on how to make joint engagements work.

Lay the ground rules up front

The most important factor for a successful joint engagement is laying the ground rules at the outset. Discovery, communication protocols, fees, timing and deadlines, and report delivery format should all be clarified up front in the engagement agreement to the extent possible to avoid missteps later in the process. It is helpful if the appraiser and both attorneys conference at the outset to iron out the details of the engagement. A clear discovery agreement that is then abided by is critical. Just as we have experienced cases where not being able to get enough information was problematic, there have been others where too much information was the problem.

Communication requires full disclosure

A joint retention involves continuing open communication between the expert and their clients (which may be the attorneys or the parties or the court). This is done with the intention of allowing all of the parties to feel included in the process and that they have “had their say”. Any verbal or written correspondence or documents should be shared with all parties, to address up front any issues the parties have with the information being provided.

A jointly retained expert considers the input of both parties throughout the engagement. They attempt to garner consensus during the process, and document it. There are cases where this works exactly as intended and others where it feels like a firestorm of discovery disputes. Thorough upfront planning, a very clear discovery agreement, and careful navigating on the part of the expert can guide even contentious parties through a joint retention in a relatively civil manner.

Attorneys and experts should be a team

Ideally, attorneys and experts will work as a team to guide the parties to successful completion of a joint engagement, setting clear expectations about how the process works. Some points to remember here are:

  • If contrary legal positions are present, the expert may need to quantify multiple interpretations of the same facts.
  • Keeping relevant facts from an expert is never a good idea, but it is an especially bad idea in joint retention, as it creates suspicion when the facts eventually come out (and they do come out).
  • Experts will ideally obtain consensus regarding their inputs along the way.

If settlement is the end game, attorneys and experts who work as a team have the best chance at achieving that result. Enhance fee collection

The engagement letters of many experts contain clauses for withdrawal for non-payment, or at the very least, a stop-work clause if fees are not up-to-date. In addition, many experts will not deliver the results of their analyses until all fees have been paid. If possible, establish a joint, community account, such as an attorney trust account, as a single payment source. This will increase the likelihood of the expert being paid in a timely manner, and allow the case to move forward as anticipated. It can also remove a potential source of future disagreement among the parties.

Recognize that some cases are not suited to a jointly retained expert

There are some cases that are simply not well-suited to the use of a single expert. As experts, we will recommend against joint retention if it appears from our initial conversations about the case that:

  • Either of the attorneys seems unsupportive of a joint engagement.
  • Excessive conflict between the parties and their attorneys is evident from the outset.
  • One or both parties are representing themselves.

Conclusion

Use of a jointly retained financial expert can be an excellent tool for settling issues in a divorce case. They can save on expert and attorney time and fees, and provide the parties a less contentious environment in which to deal with often complex and difficult financial matters. However, carefully establishing expectations and rules of engagement upfront and then adhering to those throughout the process, as well as managing the parties’ emotions and expectations, are critical aspects of the success of these engagements.

Heidi Walker is a Senior Valuation Analyst at Fannon Valuation Group in Portland, Maine. She focuses on valuation in the context of divorce and shareholder disputes.

Posted with permission of the author.

 

Should People Pay Alimony and Child Support from Unearned (Capital Gains, Interest and Dividend) Income?

Wednesday, May 09, 2012

There is an interesting inconsistency between how income is defined in the Massachusetts Child Support Guidelines (CSG), and how the same kinds of income are treated in our new alimony statute. The question is: in applying support formulations to the income of the paying party, do interest, dividends and capital gains income from investment of property “count”? The Child Support Guidelines (CSG) say “yes” while the new (as of March 1, 2012) alimony statute says “no”.

The CSG definition of income is extremely comprehensive, and it includes interest and dividends, and capital gains received as a “regular source of income”. What makes capital gains a regular source of income? Is the key that there is some income every year? Most years? Does it matter if it varies greatly from year-to-year? Should it matter if the capital gains did not come from the paying party’s “business” trading, as opposed to “personal” investment? However determined, this income it “counts”.

The Massachusetts Appeals Court recently decided a case called Wosson v. Wosson, in which the trial judge included the capital gains income of the father in setting his child support payment, but then reversed herself by excluding it in response to the father’s motion after trial. The Appeals Court did not say that the trial judge could not do this, but it sent the case back to the trial judge because she is required to explain her reasoning under the CSG through “findings”, which she had not done. (A judge may deviate from the CSG, but must explain her action by writing her factual reasons.)

Meanwhile, the new alimony law says that a judge should not take into consideration income that is gained by the investment of property that the paying party receives or keeps in a divorce judgment. We presume that the legislature’s reason for doing this is to avoid what is commonly called “double dipping”, something that happens when a spouse receives an asset in divorce, then has to pay support from the asset or its investment income/gains, after the divorce. (We will talk about “double dipping” more in a later entry.)

Whatever the reasoning of the legislature in making the new alimony laws, it did exclude income generated by divided assets from consideration in the alimony law, while CSG includes it in deriving support for children. Does this matter? It does, if for no other reason, that in some cases, the paying party pays both alimony and child support; and confusion can result in deciding how to define his or her income for calculation purposes.

Should the uses of income be different?

 



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