Blog & News – Page 2

Are premarital assets subject to division at the time of divorce?

March 26, 2018 cooleyshrair

You started a company, grew it, and sold it. You took the substantial proceeds of sale and invested them. Then you fell in love. You got married. Now you’re getting divorced. Your soon-to-be ex says he/she is going to take it all – or at least half. Is that possible?

In Massachusetts, the court may assign to one party in a divorce proceeding all or part of the assets of the other acquired prior to marriage. “In addition to or in lieu of a judgment to pay alimony, the court may assign to either husband or wife all or any part of the estate of the other …” Massachusetts General Laws Chapter 208, Section 34. The term “estate” encompasses all property to which a party holds title, whenever and however acquired, and includes property obtained by a party before marriage.

Whether the court will divide premarital assets, or their appreciation in value during the marriage, is dependent on the facts of the case, including the length of marriage, the parties’ respective contributions to the marital partnership, whether a spouse contributed economically or non-economically to the asset, and the parties’ ability to obtain future income and assets, among other factors.

So, yes, the claim can legitimately be made but whether it will be successful is dependent on the parties’ circumstances and, as always, the arguments made in court.

Inheritances and the division of the marital estate

March 12, 2018 cooleyshrair

On Monday, you inherit a million dollars. On Tuesday, your spouse files and serves a Complaint for Divorce. Do you get to keep the million dollars?

In Massachusetts, the court has broad discretion in determining which assets belong to the marital estate and how they should be divided. Neither the date of acquisition nor the manner in which title is held necessarily determines whether an asset is to be included in the estate. Rather, the concept of marital property in Massachusetts, as defined by statute as well as applicable case law, is expansive. “Upon divorce … the court may assign to either husband or wife all or any part of the estate of the other …” Massachusetts General Laws, Chapter 208, Section 34.

In dividing the marital estate, the court is required to consider various factors: “… the length of the marriage, the conduct of the parties during the marriage, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties, the opportunity of each for future acquisition of capital assets and income, and the amount and duration of alimony, if any. …” Massachusetts General Laws, Chapter 208, Section 34. While a mere expectancy under a will may be considered by the court as an opportunity for future acquisition of capital assets and income, a vested inheritance may be assigned upon divorce.

So, would the million dollars be included in the marital estate? Most likely, yes. Would you be allowed to keep it? Arguments could be made for both sides depending on the facts: For example, did you receive the inheritance after six months of marriage or after 20 years? Does your spouse expect to receive a substantial inheritance? Did you or your spouse incur debt in reliance on the anticipated inheritance? Did you participate in any activities for which you were not adequately compensated or due to which you lost opportunities (to the detriment of the marital estate) and, as a result, received the lump sum inheritance? Is your spouse financially self-sufficient? When did you separate – five years prior to your receipt of the inheritance or on the day you were served? Did you and your spouse rely on an income stream generated by the million dollars or access the principal? Presumably not since the inheritance was received twenty-four hours prior to the filing.

The answers to these questions do not necessarily resolve the issue in dispute, nor is any one determinative, but they may form the building blocks of an argument. An equitable division of the marital estate is the objective of the Probate and Family Court and, taking into account the parties’ facts and circumstances, the court will endeavor to do just that.

Bank Alert Notice: Residential Foreclosure

April 25, 2017 cooleyshrair

Another impediment related to residential foreclosure

Following a foreclosure, we all have been faced with the prospect of evicting the homeowner who becomes as we all thought, a tenant-at-will. The general rule was to provide a 30-day notice of termination of tenancy and then to begin a summary process hearing to evict the post-foreclosure “tenant” from the property.

A case which was just decided from the Southeastern Housing Court found that based upon the fact that there is no agreement between the homeowner and the lender as to its post-foreclosure tenancy status, that the 90-day notice period provided in the eviction statute applies for the purposes of the Notice to Quit for possession.

As you know, each case is fact specific and the court made clear that under these facts, a 30-day notice to quit was insufficient.

We think that this topic will start to appear more frequently as debtors continue to look for more creative ways to delay the inevitable. Some lenders are simply offering a cash payment following a foreclosure in exchange for keys.

Creditor protection of the assets of an IRA

January 25, 2017 cooleyshrair

The general rule is that an IRA which you created or inherited from your spouse is 100% protected from creditors in bankruptcy or general creditors. If, however, you inherit an IRA from a third party,then based upon a recent Supreme Court decision, the proceeds from that IRA are no longer protected from creditors of your bankruptcy. A suggested way around this problem would have been for the owner of the IRA to create a spendthrift trust and leave the proceeds of the IRA to that trust. If you inherit an IRA and have creditors you should meet with an attorney.

Paying your divorce attorney

January 25, 2017 cooleyshrair

Many people do not seek legal representation in their divorce case in fear of their inability to pay attorney fees.

Whether you are the plaintiff or the defendant in a divorce case, the probate and family court can order one spouse to pay a retainer fee for an attorney for the other spouse. The plaintiff or defendant must prove to the court that he or she does not have enough money to pay the retainer for an attorney and the other spouse has enough income or assets to pay for the retainer. The court will look at the financial statements of both parties to determine if it should order one party to pay the other parties legal fees.

Withdrawals from an IRA

January 25, 2017 cooleyshrair

By law, you are required to take minimum required distributions when you attain age 70 ½ from an IRA which you created or which your spouse created.

In the event that you inherit an IRA from a third party, other than your spouse, then you will be required to take minimum distributions beginning the year after the IRA’s creator died. The amount varies depending on the beneficiary’s age. If you fail to take the required minimum distribution, then you will incur a 50% penalty and income which you fail to take will be included in your federal and state income for the year in question. An exception to the rule is that if the creator died before attaining age 70 ½ then you will incur no penalty if you take all of the funds within five years after the creator’s death.

Annulment

January 24, 2017 cooleyshrair

Despite popular belief a couple cannot get an annulment because their marriage was short. To get an annulment, a party must prove that the marriage is “void” or “voidable”.

Your marriage is void if, one of the parties is already married to someone else or you married a close relative or close relative by marriage. A marriage is voidable if: for example, one of the spouses did not have the mental capacity to consent to the marriage at the time or one of the spouses was not old enough to get married. If one spouse has requested an annulment because the marriage is voidable, and the other spouse does not want their marriage annulled, he/she can request to affirm the marriage.

Bank Alert Notice: Right of Setoff

January 12, 2017 cooleyshrair

We recently reviewed a situation where a bank set off on a customer’s deposit account, following an event of default. The customer claimed that that bank did so wrongfully.

We all understand that the relationship between the bank and its customer with respect to the common law right of setoff is that of creditor (the “Depositor”) and debtor (the “Bank”). Once deposited, the money is then the property of the Bank subject to the customer’s right to retake such property. The Bank of course has a right of setoff, which allows it to exercise such right and seek redress of a claim in full or partial satisfaction of what it owes to the Depositor.

In exercising the right of setoff, there must be mutuality of obligations, which means that the Bank can only exercise such right against the Depositor in the same capacity that the Depositor owes money to the Bank. Moreover, the Depositor’s obligation to the Bank must be due. Certain deposits, such as a payroll account or other trust account will generally not be subject to set off. Furthermore, Chapter 167D of the Massachusetts General Laws imposes a requirement that state chartered banks notify a Depositor immediately following a set off by written notice, sent first class mail to their last known address. The failure to do so could jeopardize its set off.

Lastly, it is critically important that you review the Bank’s loan documents prior to the exercise of the right of setoff. In this case, the prior loan officer who negotiated the transaction documents, allowed the borrower’s counsel to modify the right of set off to make it subject to the Bank’s liquidation of “all collateral” securing the loan (“Marshalling Clause”). As such, the right of set off should not have been exercised until the collateral was liquidated.

Equally problematic was the way that the Marshalling Clause was written. This will be further explained next month.

Bank Alert Notice: Landlord Waiver and Collateral Access Agreement

January 12, 2017 cooleyshrair

Presumably documents you are asked to sign are carefully read. I recently ran into a case, however, where a mortgagee for a commercial/industrial building was asked to sign a Landlord Waiver and Collateral Access Agreement for the lender financing the FF&E for a tenant. The lender had signed off on the agreement, but prior to mailing it back asked us to take a brief look. They thought it was a “standard agreement.”

We have all seen Landlord Waiver Agreements. They essentially state that the landlord releases and subordinates any landlord lien or claim to the FF&E that is secured to the tenant’s lender. There are, however, other points which must be included in these agreements, such as: (i) whether the secured creditor pays use and occupancy, (ii) how long possession is to be provided, (iii) mutual sharing of default notices, (iv) whether the secured creditor may abandon any of its collateral in place if it takes possession, (v) repairs or damages to the building in connection with the collateral removal, (vi) whether a public auction sale may be held on the premises, or (vii) whether the landlord should be given notice if the secured party intends to take possession.

There are numerous other provisions that can be inserted into these agreements. Landlord Waiver Agreements are anything but standard and depending on the size and complexity of the transaction, they must tailored accordingly.

Bank Alert Notice: Marshalling

January 12, 2017 cooleyshrair

In our last bank alert notice, we were talking about the right of setoff. The operative language of the erroneous setoff provision stated that the “bank would not exercise its right of setoff until all of the bank’s collateral had been liquidated.”

This agreement to “liquidate all collateral” prior to exercising rights is a marshalling agreement. Under no circumstances should the bank agree to such vague proposition with respect to such an important concept. Moreover, what does the word “all” mean? There are often times where the cost of liquidation exceeds the value of the collateral. For sure, the bank did not intend that it would liquidate such collateral and increase its loss. On the other hand, the guarantor who requested the marshalling refused to pay on his guaranty as the bank did not want to liquidate all of the collateral.

In appropriate circumstances, when credit otherwise warrants such an agreement, we do sometimes recognize limited marshalling agreements. Such a limited marshalling agreement in a guaranty for example, could provide as follows:

“LIMITED MARSHALLING RIDER

It is agreed as a condition of this Guaranty Agreement that the Lender shall first proceed to attempt collection of the Obligation from the Borrower’s Collateral prior to making demand upon the Guarantor hereunder, provided however Lender shall not be required so to do, upon the happening of any of the following:

A. Any material diminution of Guarantor’s assets at any time as reasonably determined by Lender;

B. Inability of Lender to proceed, or continue to proceed against any Collateral in expeditious and uninterrupted fashion based upon any order of Court or operation of law, including without limitation, inter- position of the automatic stay pursuant to 11 U.S.C. 362;

C. The determination by Lender, in its sole discretion, of the need to commence any suit(s) or action(s) in any court or with any administrative agency, or by arbitration, in order to recover and thereafter sell any Collateral of Borrower or other property secured or mortgaged to Lender;

D. The determination by Lender, in its sole discretion that the costs of liquidation of the collateral exceeds the value thereof.

E. The absence of any Collateral secured or mortgaged to Lender.

Upon any of the above occurrences, Lender may exercise any and all of its cumulative rights and remedies without further reference to this paragraph.”

As you can see, the bank agrees to liquidate collateral, but then the parties acknowledge that the obligation to liquidate the collateral does not apply in certain important circumstances. In case specific circumstances, additional limited factors can also be incorporated, but generally, the above-stated ones are critical and you should avoid waiving important rights or remedies whether against a deposit account or against a guarantor without carefully drafting them.

COOLEY SHRAIR, PC