UPDATES IN MICHIGAN FAMILY LAW

Postnuptial agreement that encouraged separation declared void

Postnuptial and prenuptial agreements are becoming ever more popular. Guidance was provided from the Michigan Court of Appeals today for practitioners and laypersons contemplating entering into a postnuptial agreement. In Wright v Wright, Docket No 281918 decided on April 22, 2008, Plaintiff husband challenged the trial court's decision to void the postnuptial agreement. The court of appeals disagreed.

Here, both parties had consented the the agreement prepared by H's attorney. The couple was not separated at the time and had never separated during the marriage. H filed for divorce roughly eight
months after defendant signed the agreement.

Divorce and Military Families

The stress faced by military  families, frequent moves and deployments can spell disaster for military families. For you, as for most families, divorce can be a life tragedy. You and your spouse entered into marriage with plans for a happy and long future. Perhaps you have children who are young and vulnerable. Divorce can leave your children feeling afraid and uncertain about their future. It can also leave you feeling vulnerable and lost, particularly if you are far from home, without the support of friends and family.

A frequent question asked by military spouses is whether they have to file for divorce in the State where they are based and their children are living, or whether they can file in Michigan. This is particularly true when Michigan is the place they call "Home."

Separate property award | Effect of contribution

In Couvier v Laubernds, Docket No 272842, Michigan Court of Appeals, decided on February 5, 2008, the COA upheld almost all of a judgment entered in Chippewa County, Michigan. The husband appealed the trial court's award of significant property that he claimed as "separate property," including a farm he had owned prior to the marriage, but the COA affirmed. He also appealed the T/C's order that he pay Wife's attorney fees (about $20,000). The COA did correct one minor mistake (well, OK, not so minor:  $63,574.51) mistake in the balancing award made by the trial court to equally divide the marital property between husband and wife.

Residency requirements for filing divorce

A party must reside in Michigan for at least 6 months and in the county where the divorce is filed for at least 10 days. If those jurisdictional requirements are not met, the divorce can be dismissed for lack of jurisdiction. In Berger v Berger __ Mich App __, __ NW2d __ (2008) (Docket No. 279025 decided January 31, 2008), the Michigan court of appeals dealt with a key issue of residency.

Will a prenup be enforced if it's not fair?

While fairness is, under the case law in some states, a requirement for enforcement of a prenuptial agreement, the court of appeals established in Reed v Reed, 235 Mich App 131 (2005) that little fairness is really required in Michigan.

In Reed, the parties executed a prenuptial agreement abut 6 weeks prior to the marriage. Mr. Reed was a recent law school graduate. Mrs. Reed had no independent counsel. Their combined net worth at the time of the marriage was less than $20,000. The marriage lasted about 20 years.
 

Getting a Fair Settlement: Discovering Hidden Assets

It's become more common these days for couples to seek a low-cost divorce, often with only one party being represented and the other party sometimes retaining a lawyer to look over the final paperwork. In cases such as these, lawyers are often given a list of marital assets and marital debts and asked to help a party devise a reasonable settlement offer that can be presented to the other spouse.

In other cases, where the financial asset/debt picture is more complicated, some discovery is usually warranted, and the attorney for the spouse who doesn't handle the finances may -- or may not -- send out what is called in my office "the burdensome and oppressive discovery requests." This is usually a "canned" set of interrogatories and requests to produce documents. It consists of about 20 pages containing than 100 requests, some of them with 5 to 12 subparts. Sometimes a lawyer will tailor the requests to the specific case, deleting ones that do not apply (not often enough, in my experience) or adding specific interrogatories that inquire into certain more unusal assets owned by the parties. Responding to these requests can take my client 40 hours or more. I resist the temptation to engage in the "what comes around, goes around" approach. If I believe that the other spouse really doesn't have a clue about the finances and hasn't hidden any monies -- this latter being based upon my client's statement that the other spouse (usually the wife) doesn't have access to the assets, then I do not send out discovery requests to that party. Instead, I advise my client to work hard to produce complete and accurate records.

In other cases, I represent the "clueless spouse" -- the one who's been kept in the dark. Then I recommend to my client that this thorough discovery or some modification of it be made. Usually the spouse agrees. Sometimes she doesn't authorize discovery because she wants to save money.

Now suppose that you are the client who wants to save money on legal fees and expenses. What is most appropriate for you? What will protect you?

National Chauvinistic Husbands Association?

Divorce filings in Japan surged 6.1% after a change in Japanese law. The law, enacted in 2003, but effective beginning in April 2007, entitles a wife to claim up to 50% of her husband's pension in a divorce.

Apparently, it took Japan a while to catch up with reality. In the U.S., pensions have been marital property since 1985. And this makes sense. Retirement plans represent nothing more than deferred income -- whether they are 401K plans that allow employees to defer income through payroll deductions until after the age of 55 or whether they are defined benefit plans that employers use as incentives (and instead of higher salaries in the present) to attract employees. Deferred income is marital property. After all, were it not deferred, it might represent other assets such as equity in a home, investment accounts, etc.

Treatment of "pre-inheritance transfer" of property in divorce

In Wells v Wells, Docket No 271465, decided on November 20, 2007, the COA upheld the Ottawa County Circuit Court where W challenged the T/C's distribution. 

W appealed the T/C's exclusion from the marital estate of H's partnership interest in a "Family Farm" that was owned and operated by H and his brothers. The COA characterized this property a pre-inheritance transfer from H's parents to their sons, which should be treated just as inheritances are by the T/C. The COA concluded that the T/C properly ruled that the partnership and his stock in the partnership formed with his brother was H's separate property and was properly excluded from the marital estate.

Preparing for divorce

New clients sometimes ask me about ways in which they can help ensure a good result in their divorce and/or custody cases. Most lawyers are busy people and will be happy when clients help them prepare and settle the case. Below are some things that you can do to help your lawyer get a good result for you. As it happens, many of these things will help you save money as well. 

Be prepared. When the writing is on the wall and you know that divorce is inevitable, you should gather documents and information about important issues, such as your finances. You may be the spouse who has handled finances, so you will know exactly what assets are owned by you and your spouse. Or, on the other hand, you may be the homemaker who has never handled the finances. You may help your lawyer uncover unknown assets or you may just have documents that show the existence and values of assets. Either way, if you are able to assemble documents and information for your lawyer, this will help save your lawyer time. This, in turn, will save you money in the attorney fees that result when your lawyer has to conduct pretrial discovery to find assets.  This may be a second marriage for you and perhaps also for your spouse. Therefore, one or both of you may have assets that will be considered “separate property” by the Court. Having evidence of the existence and value of these assets as well as information about whether they have remained separate and are thus usually protected from division in a divorce will help your lawyer evaluate your case and assess the potential for distribution. Here’s a link to a list of the types of documents that you should assemble. Documents to bring to your first consultation.   

Mediation: How to make it work for your client

Diana Skaggs author of the Louisville Divorce Law Journal alerted me to the excellent mediation blog written by Victoria Pynchon of Beverley Hills, California. If you are a lawyer handling divorce cases and take your cases to mediation regularly, or if you are a client whose lawyer is explaining how mediation can help you settle your divorce case, you will find a wealth of information on Victoria's blog titled Settle It Now: Negotiation Blog. Bookmark this site . . . or subscribe to the feed.

New IRS Form 8557 - "Innocent Spouse" relief

Whenever a client believes that the other spouse has cheated on tax returns that were jointly filed, it's going to be important to help the client gather sufficient information and evidence to support relief and protection from tax liability.

The IRS has recently released a new form for those claiming "innocent spouse" status. This form can be used as a checklist so that attorneys may help their clients clarify their status. You can access IRS From 8557 here.

Technorati tag:  IRS innocent spouse rule

Consent judgments are interpreted like contracts between the parties

I recall a question raised not too long ago on the State Bar's Family Law Listserv about whether judgments and orders can be interpreted according to contract law. In Slota v Slota [Docket No. 269640] decided on September 13, 2007, the COA held that the parties' consent judgment would be interpreted in the same manner in which the court interprets contracts since it essentially constituted an agreement or contract between the parties.

The husband was aggrieved because the lifetime alimony award was secured by a lien against the real estate he was awarded. By the parties' agreement, this lien was to be superior to all other liens or mortgages. Of course, when Husband went to the bank for a loan against the real estate to pay off a lump sum due to his ex-wife, the bank refused to loan him money if their secured position was secondary rather than primary. He asked the trial court to amend the judgment to make the ex-wife's lien secondary. When the T/C did so, the ex-wife appealed and the COA reversed.

The COA was unsympathetic and said that a motion for amendment of a consent judgment should be treated the same way as one to reform a contract. The COA noted that Husband's unilateral mistake in not recognizing that the priority of the lien would make financing impossible for him could not be grounds for reformation of the parties' contract.

You may read Slota v Slota here.

Technorati tags: alimony, spousal support

Mahr and other religious marriage contracts: Enforceable or not?

Recently, the issue of Islamic marriage contracts and other religious marriage contracts was discussed on the State Bar of Michigan Family Law Listserv. These contracts are common, particularly among family-arranged marriages. Essentially, they provide for payment of a small sum of money to the woman if the parties divorce.

Often, there is unequal (or no) bargaining power between the parties. Sometimes, the bride is a teenager whose marriage is arranged by her parents in way that is not usual by Americans standards, but one that is the normal course of family business in Islamic families.  The question then becomes, once a marriage breaks down, should the husband, often the titled owner of everything, walk away with everything? What if it's a long-term marriage? What if the husband is educated and has a high earning capacity and the wife is incapable of supporting herself and the children?   

A Beautiful Mind . . . an easier divorce settlement?

Remember John Nash, the schizophrenic mathemetician whose life was the subject of the film "A Beautiful Mind?" According to MSNBC today, August 3, 2007, using the "game theory" concepts Nash devised, a couple of Australians have develped computer software that is calculated to help divorcing couples divide their property without arguments and expensive mediation.

Their computer programs, (the earlier, "Family Winner," and the new one "Family Mediator" combine artificial intelligence, game theory and an electronic or human external mediator to help divorcing couples resolve their disputes fairly and rationally.

The MSNBC article Software seeks to resolve divorce disputes can be accessed here.

Technorati tags: divorce

Tax dependency deductions and IRS Form 8332

It is not unusual during the course of settlement negotiations for the custodial spouse to give one or more of the tax dependency deductions to the non-custodial spouse. This is particularly true if the custodial parent earns substantially less than the non-custodial parent. Usually there is some quid pro quo for the deduction. Sometimes the release of the tax dependency deduction is part of child support negotiation, and at other times, it's linked to property settlement issues.

However, IRS regulations require that in order for a taxpayer to be legally entitled to the dependency deduction, certain explicit statutory requirements must be met. A non-custodial parent, regardless of whether a divorce decree awards the deduction, is not entitled to the dependency deduction unless the custodial parent releases the deduction. This is done by completing a valid written declaration (IRS Form 8332 or its equivalent) to the Federal tax return for the year the deduction is claimed. The beauty of IRS Form 8332 is that a custodial parent may relinquish more than one year on that form. The original Form 8332 must be attached to the first year's tax return and a copy must be attached to each subsequently claimed year.

Woe be unto him, however, who loses his or her copy of the form!

What should you know about alimony?

There is often confusion about what alimony is, about when and in what amount it might be ordered, about how long alimony might be payable, and whether or not it’s modifiable. As you can imagine, given the number of possibilities, an answer to some of these questions can be pretty complicated.

Let’s start with the obvious, though. Whether or not alimony (spousal support) will be ordered by a court is entirely dependent on the specific facts of each case.

What does the judge look at when deciding whether to award alimony, how much and for how long?

In Michigan, there are several factors that the judge will consider when deciding if an alimony award. These factors are similar to those used by judges in states other than Michigan. Among the factors a court may consider are these:

Can commissions, stock options, etc. received after filing be divided in a divorce?

A colleague asked today whether post-judgment earnings from accounts established by a broker during his marriage can be considered marital property subject to distribution during a divorce.  In the case at issue, the husband “receives thousands and thousands of dollars every year as ‘trailers’ for the accounts he has established during the marriage.  They can be compared to ongoing commissions or interest. The effort expended to establish these accounts occurred during the marriage.”

What was not specified is whether a final judgment of divorce has entered, but I make the following assumptions: (1) that no judgment has yet entered; (2) that substantial sums annually will be paid to the husband following entry of divorce; and (3) that the wife wishes to have an equitable distribution of the stream of future income attributable to these "trailers" (a word I assume must be something like a commission.)

There are two possible scenarios here. Obviously, the wife would prefer a cash award, but it may difficult to fix a value for these “trailers.” Whenever the value of an asset cannot be determining with reasonable certainty, a trial court will reject assigning a value. However, what if the husband has been receiving trailers for a number of years? Doesn’t the problem then become more similar to determining the present value of a business based upon an average of the annual receipts?

Division of Defined Benefit Plan by Amended Judgment and QDRO

The Michigan Court of Appeals decided an interesting case on February 27, 2007. There are some practice pointers here for Michigan lawyers.

Husband challenged the trial court’s entry of a qualified domestic relations order ("QDRO") awarding Wife 50 percent of any early retirement benefits the defendant-husband might receive under his employer’s pension plan years after the Judgment of Divorce was entered (pre-Quade). The original JOD had not awarded Wife any of the separate and distinct components of the pension such as early retirement supplements. Husband, relying upon Quade, claimed that because the separate and distinct components of his pension plans were not specifically awarded in a judgment of divorce, they could not be included in a QDRO But the COA held that because the trial court also ordered the entry of an amended judgment of divorce specifying the plaintiff was to receive 50 percent of each component, the QDRO was proper as was division of the separate components. The COA cited MCR 2.612(A)(1), stating that the trial court had the power to correct clerical mistakes in judgments, orders, or other parts of the record as well as errors arising from oversight or omission.

What this meant for the wife was that valuable benefits of the defined benefit pension plan that might have been foreclosed to her were opened up because the trial court entered the amended judgment of divorce--rather than entered a modified QDRO.

Credit card debts and marital strife

I am never surprised when clients in divorce cases I handle have incredible credit card debts. Marital stress leading to divorce often results from financial stress. It’s important for my clients to know more about their credit card debt and to see how they might avoid problems in the future. An article from the March 10, 2007 Washington Post makes clear how credit card companies often have unfair policies that compound credit card debt in ways that consumers do not predict or expect.

According to the Washington Post, credit card companies frequently don't play fair even when a consumer does everything according to their terms. An industry practice called "universal default" allows the credit card issuer the right to hike the consumer’s interest rate if he’s late or overextended on another credit account. The article also explains the practice of two-cycle billing.

Transfer of all Marital Assets to Spouse in Judgment of Divorce May be set Aside by Creditors

In an issue of first impression, the Michigan Court of Appeals considered whether a party may dispose of all of his assets to avoid payment of damages in a pending wrongful death case by transferring 100% of the marital assets to his spouse by means of an uncontested divorce judgment.

The Court of Appeals held that such a transfer could be set aside in a supplementary action as a fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA) as to a creditor of the transferring spouse. Estes v. Titus, Docket No. 261968, decided on December 21, 2006. (For Publication)

How to Get a Trial Court Decision that you Don't Like!

The Michigan court of appeals ruled in Birry v Birry, Docket No. 256627 (Aug 24, 2006) on a number of issues that are of interest to family practitioners:

1). Discharge in bankruptcy:  The trial court ruled that all amounts owed to Plaintiff Wife were non-dischargeable in bankruptcy. The trial court also held that all sums owed to the wife were in the nature of support.

The analysis of the COA was two-fold. It vacated the T/C's ruling that all amounts were non-dischargeable, stating that it was only within the authority of a bankruptcy court to make that determination in the event that a bankruptcy action was filed. On the other hand, the COA held that it was within the T/C's authority to decide that all sums owed with in the nature of support, citing Krist v Krist, 246 Mich App 59 (2001).

2). Imputation of income for child support purposes: The COA upheld the T/C's refusal to impute income to the wife and also upheld imputation of income to the husband, citing reliance upon not only his W-2s, but also his own representations on loan origination documents.

What Happens to Life Insurance Proceeds When an Ex-Spouse Forgets to Change the Beneficiary?

Michigan law provides that every Judgment of Divorce must contain a provision that deals with the rights of the parties to the proceeds of life insurance policies. Usually, the judgment extinguishes each party's right in insurance policies on the other party's life.

What happens, though if a party forgets to change the name of the beneficiary? Many life insurance policies are provided by employers. All employee benefits like this, including life insurance and pensions, are governed by federal law, specifically ERISA.

In a published decision on April 28, 2005, the Michigan Court of Appeals held that this was not a question of ERISA preemption, but that it was a question of waiver. In other words, while federal law might mandate that the life insurance proceeds be paid over to the former spouse, ERISA did not mandate that, once received, the proceeds could be retained by the ex-wife. Because she had waived her right to the monies in the Judgment, the Court of Appeals held that she could not keep them.

See Moore v Estate of Moore,

To contact Jeanne Hannah with your questions or to view her Family Law website, click here.

How Much Does “Fault” Matter when a Trial Court Divides Assets?

In an unpublished decision, the Court of Appeals rejected defendant husband's contentions that the trial court had improperly awarded Wife 83% of the marital assets to punish him for his extra-marital affairs. The Court said that a claimed $94,000 “debt” did not appear to be valid, that the husband’s conduct did warrant a disproportionate award in plaintiff’s favor, and that its review of the record didn’t support his contention that his fault was given undue or disproportionate weight when it divided the marital estate between the parties.[Woude-Leerentveld v Leerentveld, Docket No. 241502 Decided April 5, 2005]

Under Sparks v Sparks, 440 Mich 141, 159-160 (1992), Michigan Courts are bound to consider the following when dividing marital assets between divorcing parties:  the duration of the marriage, the contributions of the parties to the marital estate, their age, health, life status, necessities, circumstances, earning abilities, and past relations and conduct, general principles of equity, and any other factor relevant to the particular case, including consideration of the interruption of the personal career or education of either party.  A division of property in a divorce case need not be equal; however, it must be equitable and “roughly congruent.” [Jansen v Jansen, 205 Mich App 169, 171 (1994)]. The court’s role in dividing the property in a divorce action “is to achieve equity, not to ‘punish’ one of the parties.” [Sands v Sands, 442 Mich 30, 36-37 (1993).

While Michigan has been a "No-Fault" state since 1972, it is apparent that to some extent, Michigan courts will continue to use fault as a factor when considering whether to give one spouse more that half of the marital assets.

To contact Jeanne Hannah with your questions or to view her Family Law website, click here.

Technorati tags: property division, property distribution, divorce, fault