New Case Law: Marital Estate and Business Value, Pension Plans, and Inheritances

Marital property is often at the center of contention in a divorce case. Among the many types of property that may be considered part of the marital estate are retirement accounts and pension plans, business assets, and inheritance assets—and these assets are often litigated in a seriously contentious manner.

A recent Massachusetts appellate case, Dilanian v. Dilanian, addressed the issues of business assets, inheritances, and pension plans as part of the marital estate. In that case, the parties were married for thirty-one years, living a comfortably upper-middle-class lifestyle. The wife stayed home, while the husband ran a successful business, which he originally started with his father, but of which he was the sole owner by the time of the divorce proceedings. The parties filed for divorce, and while they amicably resolved issues regarding some of the marital property, including the marital home, much of the trial centered around the value of the husband’s business and the husband’s share in various assets, including pension plans.

The trial judge reviewed the husband’s income from his business, noting that in order to avoid double taxation, the husband paid himself a salary and a year-end bonus each year, leaving little funds in the company’s account as retained earnings. The husband’s financial statement reported significant income increases between 2008 and 2010, but his income was drastically reduced in 2011 and 2012, after the divorce proceedings started—yet at the same time, the amount of cash left in the business accounts increased by over $294,000, contrary to the husband’s prior practice.

The judge found that the husband had artificially lowered his income, and that the husband’s real annual income was approximately $325,000, ordering alimony to be paid to the wife in the amount of $2,000 per week. In valuing the marital estate, the judge did accept the husband’s valuation of the business, only adding in the amount of a promissory note payable to the husband for a personal loan made to the company. The husband was allowed to keep the business.

At issue were also two pension plans that the husband had contributed to during the marriage, along with an inheritance from his father, which occurred very late in the course of the marriage. The judge found that the inheritance was received so late as not to be “woven into the fabric of the marriage” and belonged to the husband. However, the judge also ordered the husband to transfer 60% of both pension plans to the wife.

The husband appealed, claiming that the trial judge abused discretion in both the judge’s valuation of the business and in giving the wife 60% of the pension plan benefits. He argued that the company’s defined contribution plan belonged partially to his now-deceased father, and thus to his sister, who received part of the father’s estate after the father died.

The Appeals Court disagreed. The Court explained: “contrary to the husband’s argument, the judge’s order will not adversely affect the interests of third persons. The plan documents establish that the beneficiaries of any portion of the defined contribution plan that belonged to the husband’s father are the husband and his sister, in equal shares. The sister, as coexecutor of the estate, signed an estate tax return taking the position that $663,961 of the plan belonged to the father. Accordingly, half of that amount ($331,981) could be claimed by the sister. Once sixty per cent of the plan is transferred to the wife, the remaining amount will be well in excess of the amount the sister claimed in the estate tax return and appears able to claim.”

The Appeals Court also found no issue with the trial judge’s valuation of the business as part of the marital estate, holding that there was nothing unreasonable in considering the $150,000 note payable to the husband part of the value of the company. The Court also disagreed with the husband on his assertions that the income imputed by the judge to the husband at trial was incorrect. “[C]ontrary to the husband’s assertion, the evidence supported the finding that the husband’s reported income was increasing until he filed for divorce in 2011, and that the husband intentionally reduced his own salary while amassing corporate earnings usually directed toward his personal income,” the Court held. “Given this evidence and the husband’s furtive financial disclosures, including his failure to prepare a 2012 financial statement for [the company], the trial judge could reasonably conclude the husband artificially reduced his income to alter his financial condition in light of the impending divorce.”

It is important to hire a competent family law lawyer to handle your unique case or answer your personal questions. If you have any questions about property distribution, alimony, divorce, or family law issues, please call our offices at 978-225-9030 during business hours or complete a contact form on our website. We will respond to your phone call or submission with prompt attention.

Marital Contract and Comity: New Massachusetts Case Law

Increasingly in our global society, legal issues of an international scope arise in family law cases. A recent appellate case dealt with one. In Ravasizadeh v. Niakosari, the Massachusetts Appeals Court decided for the first time an issue regarding enforceability of a mahr, which is an Islamic marriage contract, in the Commonwealth’s courts.

The parties were married in 2000 in New York and separated in 2012, by which time they lived in Massachusetts. Before they married, they signed a marriage contract which provided that the wife would receive 700 gold coins from the husband in the event of a divorce. Under Iranian law, the wife was to receive only those gold coins and three months of alimony from the husband. The husband owned property in Iran, which he had inherited from his father. During the marriage, the parties enjoyed an upper-middle class lifestyle and owned property together.

At trial, the judge entered orders regarding custody and child support, and also ordered that the parties’ property be sold and the proceeds be split equally. The judge included in his calculations the property of the husband in Iran. In light of the equitable division, and finding that the wife could continue enjoying the lifestyle to which the parties were accustomed, the judge declined to award any alimony.

During the pendency of the litigation, the wife also filed a case in the appropriate Iranian court to enforce the mahr. The court found in the wife’s favor. The husband appealed to the Iranian court of appeals, which also found for the wife. The husband appealed to the Supreme Court of Iran, and that action was still pending during the Massachusetts litigation.

Back in the Massachusetts court, in addition to the division of property above, the trial judge also held that the 700 gold coins were the property of the wife. He ordered the husband to pay into the court in Iran the value of the gold coins in order to satisfy the judgment. Finally, the judge also ordered that even if the Supreme Court of Iran were to reverse and find for the husband, the husband must pay an amount equal to one-half of the money to the wife in order to satisfy liability.

The husband appealed, claiming that the judge had no authority over the marital contract, especially as the marriage contract was already being litigated in the Iranian courts. The husband also argued that the judge’s calculation created a disproportionate division of marital assets in favor of the wife.

The Court affirmed the lower court’s decision in part and reversed in part, holding that the portion of the decision enforcing the marital contract should be reversed, while the judge’s order dividing the rest of the property should stand. The Court noted that the trial judge properly used all of the factors involved in dividing property equitably, that the judge had broad discretion to make property decisions, and that the judge’s rationale and findings provided a detailed explanation for the conclusions he reached.

However, the Court held that jurisdiction over the marital contract laid with the Iranian courts. It explained and enforced the doctrine of comity, which allows the Massachusetts courts to recognize and enforce valid judgments rendered by a foreign court.

“It was error, therefore, to order the husband to pay the mahr to the wife in the event that the Supreme Court of Iran finds in his favor; in the alternative, it was error to order the wife to split with the husband any judgment that she receives, if the Supreme Court of Iran affirms the earlier judgment in her favor. That is to say, if the Supreme Court of Iran does not enforce the mahr, the Probate and Family Court is without jurisdiction to do so; if the Supreme Court of Iran does enforce it, the Probate and Family Court is without jurisdiction to dispose of it differently,” the Court stated.

If you have questions or concerns about issues involving family law, alimony, custody, child support, and more, you should contact a competent attorney. Our divorce, family, and domestic relations attorneys may be able to work on your behalf to handle your case. Contact our offices by phone at 978-225-9030 during business hours to schedule a free consultation. We will respond to you as soon as possible.

Special Considerations When Entrepreneurs Divorce

As many studies have shown, couples in which one spouse is an entrepreneur have a high rate of divorce. Whether it’s because the business encompasses much of entrepreneurs’ time, or because the non-entrepreneur spouse feels neglected, divorce is common.

While divorce is already a complicated process, generally, entrepreneurs have a special set of considerations when divorcing. As such, it is important to consult your family law attorney regarding the special financial concerns you may assume as an entrepreneur or the spouse of an entrepreneur.

For starters, as Massachusetts looks at property division in divorce under an equitable distribution standard, marital property and separate property are equally considered. Regardless of whether a business was started before a marriage, during a marriage, or even with an ex-spouse, it is important to know what rights you have in your company, and what your company is worth.

When divorcing, family law attorneys will ask their client to bring forth all assets, so that property can be distributed equitably. For entrepreneurs, your business may be your biggest asset. If this is the case, there is a good chance your former spouse would like a portion of your business during settlement. When the divorce proceedings begin, it is important to know exactly what your business is worth. While estimating this number is helpful, disclosing the actual figure can help divorce proceedings run more smoothly.

Before having your business appraised, it is in your best interest to have a third party, who is not connected with you or the business to perform this type of unbiased work. If you are being represented by a lawyer, ask your family law attorney if they know of any accountants or business appraisers who could assist in these efforts. An appraiser will be able to effectively run through all of your invoices, books, company property, and other assets in order to arrive at the correct figure for the worth of your business.

If you are the ex-spouse of an entrepreneur, it is important that you make certain your business owner ex-spouse is not concealing assets, hiding contracts, or bringing forth a fraudulent appraisal. Is it possible that your ex could be swindling you out of hundreds, thousands, or even millions of dollars? Consult with an attorney to confirm that any appraisal and valuation of the business is valid.

The next step for entrepreneurs is to consider what comes next for their business. As this is likely a valuable divorce asset, a business owner spouse is forced with the decision on whether to sell, retain or split the assets with their soon-to-be ex-spouse. If a business was established prior to marriage, there is more uncertainty about how much money your ex will receive. However, it is very likely that if the business began during the marriage, both spouses will have rights to it. In an equitable distribution state, a court considers many factors such as length of marriage, educational background, profession, and financial responsibility among other things.

Additionally, if this entrepreneurial venture is a partnership or a closed corporation, it may be necessary to consult the partnership agreement and/or by-laws. It is possible that these contractual agreements may disclose information pertinent to what occurs if one partner gets divorced. There could be further cases where a person may want to buy their former spouse out of a business. If you find yourself in this situation, it may be possible to give your former spouse a promissory note, so that he or she is financially satisfied after being bought out of the business.

Also, if you and your ex-spouse were in business together, it is possible that a prenuptial agreement or partnership agreement could disclose what business assets are disclosed to what spouse. If this arose in a prenuptial agreement, either spouse can challenge, potentially, the validity of the agreement. A prenuptial agreement may be invalid if a spouse did not have proper time to consult with their own individual attorney when the agreement was signed, or if the agreement was signed under duress, among other possible reasons.

Overall, if you and your former spouse are amicable, working through a divorce for entrepreneurs can be as simple as coming together and negotiating this specific property division. As this would be a simpler, less expensive to get what you want out of a divorce agreement, attempt negotiation before going to court.

If you need more information about entrepreneurship and divorce or about family law generally, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form and we will respond to your phone call or submission promptly.

What constitutes marital property in Massachusetts?

Marital property is distributed in Massachusetts divorce cases under the “equitable distribution” standard. Unlike some other states with “community property laws,” Massachusetts courts divide marital property by in an equitable, or fair, manner.

In Massachusetts, marital property includes all items, interests, and possessions attained by a couple during their marriage. Marital property in Massachusetts is not considered to be property that is acquired by any party before the marriage began. Property that was acquired before the marriage began is typically considered to be separate property that is not divisible by the court.

Separate property

Under some circumstances, it is possible that separate property may be considered to be marital property. Take, for example, a long-term marriage where the parties’ separate property is quite imbalanced: one spouse entered the marriage with considerable assets, while the other had few assets at the time. The parties may have become accustomed to a certain standard of living during their marriage, and the judge may consider some separate property (acquired prior to the marriage) to be marital property, in the interests of fair and equitable division. This consideration is dependent on the facts and circumstances of each individual divorce case. It is important to speak with a competent divorce attorney about this issue of marital and separate property, as this may impact your individual case.

Division by agreement

Parties in a marriage may decide that they want to divide their property on their one. This is done by agreeing on which property to divide. Once an agreement is made, it is written down as a “property settlement agreement.” With the agreement to divide property, parties submit the agreement to a Massachusetts Probate and Family Court. The judge then considers the agreement in the final divorce order. A judge would likely support a fair and reasonable distribution of their assets.

Equitable distribution

If the parties cannot agree about the division of their property on their own, the parties’ property is divided by a Massachusetts Family Court on an equitable basis. Equitable does not necessarily mean equal. Equitable uses several factors to determine the fair division of assets. These factors include: length of the marriage; conduct of the parties during the marriage; age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of the parties; opportunity of each for future acquisition of capital assets and income; amount and duration of alimony; present and future needs of dependent children of the marriage; and contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates and the contribution of each of the parties as a homemaker to the family unit.

Types of marital property

Property in a divorce could be any of the following: house(s) and real estate, car(s), furniture, art, jewelry, bank accounts, bonds, boats, policies, plans, pensions, stock options, accounts, coin or collections, wine collections, and more. While Massachusetts considers companion and other animals to be property, judges in Massachusetts may look to see the party who is the primary handler of the animal. There is a growing trend in other states that companion animals will be awarded to a party based upon what is best for the animal. This standard is not yet in Massachusetts, so dogs and cats, and other animals, are considered to be property as well.

There are some other assets that a party in a divorce may be entitled to: stock retirement accounts (401K and pension plans), deferred compensation plans from previous employers, capital losses from previous tax years, cemetery plans or plots, all collections with value, memberships to clubs, gifts, intellectual property such as trademarks, patents, copyrights, and royalty rights, lottery tickets, loans, travel rewards, and more.

If a party owns a business, it is also important to speak with a Massachusetts divorce lawyer about the ways that business ownership may impact the distribution of property in a divorce, especially as business gains are managed and salaries are paid.

To provide an example: Billy and Jean decide to divorce. Billy, a musician, owns an upcoming music label, which he created after is married Jean. Billy also owns the rights to several of his original songs that he recorded on his label. Billy and Jean have a joint bank account that they opened prior to their marriage, but that they regularly used during their 5-year marriage. The couple has a house, no kids, and Jean does not work. They each have a vehicle, but Billy’s car is worth two times more than Jean’s car. What property can be distributed? In Massachusetts, absent a marital agreement, a judge would likely consider the business earnings and future royalty earnings in the divorce decree. The judge would also equitably divide their earnings, the joint account, the value of the house, and their vehicles in an order for the equitable distribution of their property.

No two family law or divorce cases are alike. If you have any questions about divorce, family law, child support, alimony, or more, please contact our firm. You may schedule a free consultation with an experienced family law lawyer today. Call our offices at 978-225-9030 during business hours or complete a contact form online.

 

 

 

Automatic Restraining Order Upon Filing for Divorce

Suppose Jack filed for divorce, and Jill is left confused, unaware of what comes next in the divorce proceedings. Jill is served the divorce papers and realizes that there is an automatic restraining order as part of the summons and complaint. Frantically, she calls a divorce attorney, wondering if a restraining order is all about. Could it mean she cannot have contact with her ex-spouse? Is it possible that she won’t be able to access her financial accounts or her home?

As divorce attorneys, we receive many inquiries regarding the initial paperwork filed in a divorce proceeding. Whether you filed for divorce or are defending a divorce action, you may have heard that Massachusetts Probate and Family Court attaches an automatic restraining order against the defendant spouse at the time of the divorce filing. What is an automatic restraining order; how can you follow it; and what are the sanctions for not following it?

In every Massachusetts divorce case, there is an automatic restraining order. This automatic restraining order is present when the plaintiff-spouse files for divorce, and when the defendant-spouse is served the initial divorce complaint it as part of the Summons. The automatic restraining order is present throughout the entire divorce case, unless modified by agreement of the parties or order of the Court. Upon entry of the divorce judgment or decree, the automatic restraining order is terminated and vacated.

The automatic restraining order, which is codified as Massachusetts Supplemental Probate and Family Court Rule 411, provides for certain restrictions to parties in a divorce. It states the following:

“(1) Neither party shall sell, transfer, encumber, conceal, assign, remove or in any way dispose of any property, real or personal, belonging to or acquired by either party, except: (a) as required for reasonable expenses of living; (b) in the ordinary and usual course of investing; (d) for payment of reasonable attorney’s fees and costs in connection with the action; (e) written agreement of both parties; or (f) by Order of the Court.

Selling your stocks? Giving your children some of your antique jewelry? Hiding your ownership in a partnership or business? All of these could be considered by the Court to fall under the protections of the automatic restraining order, and engaging in these acts despite the order may expose you to sanctions by the Court.

Additionally, Rule 411 prohibits either party from incurring any further debts that would burden the credit of the other party—this includes things like unreasonably using credit cards or bank lines, as well as borrowing against a credit line or the marital residence. Rule 411 also prohibits the spouses from changing the beneficiary of any life insurance policy, pension or retirement plan, or pension or retirement investment account, as well as from causing the other party or the minor children of the marriage to be removed from the coverage.

The goal of an automatic restraining order is to ensure that the parties’ do not make any drastic changes during the divorce proceedings. If one party would do something to give themselves an unfair advantage in the proceedings, or on the other hand, unfairly place the other party at a grave disadvantage, this could greatly impact the outcome of a case.

A question you may have is: what happens if you or your ex-spouse violates the automatic restraining order? Is there a way to make the non-compliant party comply? Are there any repercussions for violating the order?

If either party violates the automatic restraining order provision of Probate Court’s Rule 411, the other party can either file a formal complaint for contempt with the Court. A complaint for contempt arises when a party does not agree with a court order. It is a judge’s decision as to whether or not the party has violated the automatic restraining order. If so, the party will be held in contempt of court, and the judge will impose sanctions based on the severity of the violation. Sanctions are court-ordered penalties for disobeying a law or rule—in this case, they may range from fines to unfavorable rulings on certain motions.

If you need assistance with an automatic restraining order or have any questions about divorce or family law issues, contact our experienced family law attorneys. Call 978-225-9030 during regular business hours or complete our online contact form, and we will respond to your phone call or submission promptly.

Full Disclosure of Assets is Needed for Prenuptial Agreements

Peter and Petra are getting married. Peter has considerable assets, including several homes, vacation homes, and checking and savings accounts. He also owns a string of rental properties from which he receives income. He deposits the rental income into an account which is not under his name, but rather the name of a trust he created. Petra, conversely, does not have much by way of assets, save for a modest savings account.

Peter and Petra have agreed to draft and sign a prenuptial agreement. Their respective attorneys have informed them that they would need to fully disclose their assets to the other party—in other words, they would need to inform each other about anything and everything of value they own. Peter has asked his attorney whether he needs to tell Petra about the rental income. After all, it is held in trust; what if Peter chose not to disclose it?

Prenuptial Agreements, Generally

An antenuptial agreement, also called a prenuptial agreement, is a written contract between two people who are about to be married. It serves to set out the terms regarding the division of property in the event of a divorce, along with any provisions for alimony.

Generally, in order for a prenuptial agreement to be considered valid and enforceable in Massachusetts, the agreement must meet the following elements:

  • it must be in writing;
  • signed by the parties;
  • signed voluntarily and under no signs of duress or fraud;
  • made after full disclosure of the parties’ assets;
  • the agreement must be fair and reasonable, and enforcement must not be against countervailing equities;
  • the parties must have adequate opportunity to consult with independent counsel;
  • the parties must understand and clearly indicate the rights which they are contracting away; and
  • the parties must not relieve themselves of their legal obligations during the marriage through the agreement.

 

Full Disclosure of Assets

In the above scenario between Peter and Petra, the element of full disclosure is at issue. To ensure that the process of signing the antenuptial agreement is fair and equitable to both parties, the court requires a full financial disclosure of the parties’ assets. In essence, the parties will be viewed to have a confidential relationship which brings with it the duty to disclose, mutually attributed to each party.

Lack of full disclosure may result in the parties’ agreement being invalidated. In some cases, lack of disclosure amounts to a form of fraud, particularly where there is a demonstrable inequity between the parties’ assets. Looking at the above example, this is the case, as Peter clearly possesses more assets than Petra.

In one case, the Massachusetts appeals court invalidated a prenuptial agreement after finding a lack of full disclosure on the husband’s part. Schechter v. Schechter, 88 Mass. App. Ct. 239 (2015). In that case, the husband kept the wife in the dark regarding his financial assets. He also claimed during the divorce proceedings that his primary asset, his real estate company, was a partnership. He claimed that his parents owned a one-half interest in the company. Moreover, the husband then attempted to make a fifty-percent, retroactive distribution of the real estate company’s assets to his parents during the divorce proceedings.

Financial Disclosure Schedules

In order to avoid any potential questions down the line, full disclosure should take place in writing. Each party should, for best practices, draft a financial disclosure schedule, which will be attached to the prenuptial agreement as an addendum. This schedule should clearly delineate and disclose all of the party’s assets to the other party. It should include:

  • a listing of the party’s assets, along with the value of each asset;
  • any outstanding liabilities of the party;
  • the sources and amounts of the party’s income;
  • any interests in businesses, partnerships, etc.; and
  • any expectations of inheritances or other potential assets.

Moreover, the agreement should include a section which makes it clear that both parties have read each other’s financial disclosure schedules, understand it, have acknowledged reading it, and have had the opportunity to consult with an attorney regarding it.

If you need assistance with a prenuptial agreement or have any questions about divorce or family law issues, you may schedule a free consultation with our firm. Call 978-225-9030 during regular business hours or complete our online contact form, and our experienced family law attorneys will respond to your phone call or submission promptly.