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Tax Cuts and Jobs Act of 2017 Creates Dynamic Problems for Divorcing Spouses.

The U.S. tax code has long been a labyrinth of convoluted legal jargon that has left even the most astute of wanderers lost in its maze. Decades’ worth of opinions from the Tax Courts have served as guiding lighthouses to aid in navigating its many wayward roads , but with the recent passage of the “Tax Cuts and Jobs Act of 2017” the maze’s pattern has suddenly changed, potentially rendering those opinions null and void. One of the areas that has seemingly been flipped on its head by the tax code is Alimony or Spousal Maintenance (as it is called in New York).

Under the old code, maintenance awards were deductible to the payor and included as taxable income to the payee, which generally resulted in more money to be distributed to the payee.  Why? Well the answer is best illustrated by way of example.  Say the payor (the higher earning spouse) is obligated to pay maintenance in an amount of $30,000 per year to the payee (the lower earning spouse).  The payor, who earns more is taxed at a much higher rater of 33% than the payee who is taxed at only 15%.  Under the old code, the payor would be able to deduct the $30,000 and thus save on paying the 33% due in taxes on that amount for a total savings of $9,900.  Meanwhile the $30,000 is included to the payee and taxed at the lower rate of 15% and the payee only owes taxes in the amount of $4,500. The parties have saved $5,400 by using the deduction.  This deduction has served as a critical tool in negotiating prenuptial, separation and divorce agreements as it encourages the payment of more funds to the payee.  New York’s recently amended law on maintenance guidelines went into effect on January 25, 2016 and was enacted based upon the presumption that the payor was entitled to deduct maintenance.

The new law under the Tax Cuts and Jobs Act of 2017 terminates this deduction, thereby reversing the current maintenance dynamic.  In other words, the payor must now pay taxes on the maintenance award and the payee shall not be taxed on the money received.  The new law will not go into effect until after December 31, 2018.  Divorcing spouses in New York will soon be left to face a new maze where guideline amounts exist based upon a presumption that is no longer valid.  Without suitable guidance, litigants will be left fighting over the proper amount of maintenance (a fight that the new maintenance guidelines had sought to put to rest).  Dynamic problems require creative “outside the box” solutions.  The attorneys at the Law Offices of Steven E. Rosenfeld, P.C. are here to guide you through this new and complicated frontier and insure that you make it out of the maze in one piece.

Posted in: Matrimonial

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Outside Financial Advisors not Considered Professionals

Businesses using outside financial advisors may be surprised to learn that according to courts in New York City, those financial advisors are not considered professionals.  In a recent appellate case, Starr v. Fuoco Group LLP, 2016 N.Y. Slip Op. 02143 (1st Dept. 2016) the Court ruled that so-called “financial advisors” were not professionals.  Therefore, unlike an accountant, attorney, engineer, or doctor, financial advisors cannot be held liable in tort for failing to exercise reasonable care.  The Court found that any duty to render financial advisory services competently must arise out of the contract itself.  Some of these contracts, but not all, may be boiler plate, but both financial advisors and potential clients would be well advised to obtain competent legal counsel before entering into such an agreement.  Proper execution can prevent substantial litigation expenses.

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Importance of Due Diligence in Divorce

In a recent appellate case Castellotti v. Free, 2016 NY Slip Op 01625 (Mar. 8, 2016) the Appellate court recently reversed the dismissal of a plaintiff’s unjust enrichment and promissory estoppel claims against his sister.  The plaintiff, Peter Castellotti, brought suit against his sister, defendant Lisa Free, claiming breach of contract, breach of fiduciary duty (duty of loyalty), unjust enrichment, and promissory estoppels (you’re prohibited from claiming there was no agreement).  Peter and Lisa’s mother was a wealthy business owner.  Shortly before her death, the mother removed Peter from her will, leaving Lisa as the sole beneficiary.  The mother did this because Peter was going through a nasty divorce with his then-wife Rea Castellotti, and the mother did not want Rea benefiting  in any way, directly or indirectly, from her estate.  At or around the same time, Peter and Lisa entered into a verbal agreement whereby Peter agreed to pay all of the estate taxes on the mother’s estate on condition that Lisa transfer 50% of all the assets from the mother’s estate to Peter once his divorce with Rea was finalized.  The mother passed away in June 2004.  Peter and Rea finalized their divorce in 2008 without Rea knowing of Peter’s rights to a multi-million dollar inheritance based on his verbal side-deal with Lisa.

After Peter’s divorce was finalized, he sought to collect his half of his mother’s estate from his sister who said there was no deal.   Peter sued.  In reversing the lower court’s dismissal of the unjust enrichment and promissory estoppels claims, the Court specifically mentioned the divorce proceeding and stated “we do not condone parties in matrimonial actions being less than candid with their spouses about their assets.  Peter’s alleged fraudulent behavior, however, should be explored in the matrimonial action, but should not preclude him from moving forward with at least some of his claims here.”  The Court further advised that Rea’s remedy, if any, was to move to vacate the divorce judgment, based upon Peter willfully concealing his alleged oral agreement with Lisa.

The bottom line here is that this entire costly nightmare could have been avoided by retention of both competent matrimonial and trust & estate counsel.

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NYC Divorce Lawyer Summarizes Issues Regarding Foreign Prenuptial Agreement

If your prenuptial agreement includes wording to the effect that the property of the parties acquired before and during the marriage is to remain separate, you may be wondering how such provisions would be applied in the event of a divorce.  As noted, NYC divorce lawyer advises the Court of Appeals of New York handed down an answer to this very question on December 18, 2008.  In Van Kipnis v. Van Kipnis the Court enforced a prenuptial agreement agreed to in France, and gave effect to a provision barring the equitable division of property.

In the provisions of the Van Kipnis agreement, the parties elected to follow a separation of estates scheme, rather than the community property system that is the default in France.  The terms of the contract were that, “each spouse shall retain ownership and possession of the chattels and real property that he/she may own at this time or may come to own subsequently by any means whatsoever.”  One party contended that this provision was only intended to apply to property ownership while the parties were married, but not its distribution should a divorce occur.  The Court disagreed based on the plain language of the contract, which contained nothing to that effect.  Courts enforce the terms of a prenuptial agreement based on the intent of the parties executing.  The way that courts determine that intent is by looking at the plain wording of the contract, not the claims of the parties make about it’s meaning after the fact.

The party opposing the separate property provisions also contended that because the agreement was not an express waiver of New York’s equitable distribution default, but instead an opt out of France’s community property system, the property had to be divided equitably under New York’s Domestic Relations Law §236(B)(5).  Again, the Court disagreed, reasoning that there are two ways that prenuptial contracts may be worded to circumvent the default system of equitable distribution.  First, parties may include specific wording that expressly waives equitable distribution, and second, they may designate property that would normally be considered marital property subject to equitable distribution, as separate assets, never to be construed as jointly owned.  The Court held that the Van Kipnis agreement was an example of the latter method of bypassing equitable distribution.

As a couple negotiates the terms of a prenuptial agreement, it is important that both individuals ensure that the language therein is a complete, clear, and unambiguous representation of their intentions in the event of a divorce.  This language is what courts will use to interpret the meaning of the agreement, not any other statements of the intended meaning.  Moreover, the fact that a prenuptial contract does not explicitly opt out of the default property division scheme of equitable distribution does not mean that the terms of the agreement are not providing for exactly that.

Posted in: Matrimonial

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Abakan, Inc. v. Uptick Capital, LLC 934 F.Supp2d 410 (S.D.N.Y.2013)

Two businesses, Abakan, Inc. (Abakan) and Uptick Capital, LLC (Uptick) entered into a Consulting Agreement.  Thereafter, Abakan commenced a breach of contract action against Uptick with respect to the agreement.  Uptick moved for an order requiring Abakan to advance Uptick’s legal fees.  The basis for the motion was a provision in the contract providing that Abakan would indemnify Uptick for legal expenses resulting out of Uptick’s activities under the agreement. On May 2nd, 2013 the US District court for the Southern District of New York found in favor of Abakan on the legal fees motion.

The Court held that a contract between two parties, which includes a provision wherein one party agreed to indemnify the other in legal matters arising out of their agreement, should not be construed to provide for indemnification for legal matters arising between those two parties.  The exception to this rule would be if the terms of the contract made it clear that indemnification was exclusively intended for legal disputes between the contracting parties or unequivocally included such interparty disputes.

The Court reasoned that, in the present case, the indemnification provision was clearly meant for application in the event of a legal dispute with a third-party, not between Abakan and Uptick.  The terms of the contract called for Uptick to notify Abakan in writing of any claims against Uptick, and provided that Abakan was entitled to assume the defense of any suit in Uptick’s place.  These provisions would not make any sense if they were intended to be applied in disputes between Abakan and Uptick.  So, because the terms of the agreement did not unequivocally or unmistakably cover disputes between the contracting parties, the Court ruled that Uptick was not entitled to indemnification from Abakan in this instance.  It followed, the Court reasoned, that Uptick was not entitled to receive an advance of its fees in the dispute with Abakan.

The key take away from Abakan, Inc. v. Uptick Capital, LLC 934 F.Supp2d 410 (S.D.N.Y.2013) is that when entering into a commercial agreement that includes an indemnification provision, it is important to be unambiguous on whether that indemnification applies to legal disputes between the parties to the contract.  In the absence of that clear language, the assumption will likely be that indemnification does not extend beyond disputes with third-parties.  This case exemplifies the necessity for an experienced commercial litigator to assist in drawing up commercial agreements.

Posted in: Commercial

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Considering Adding Your Spouse to the Deed on Your House? Here’s Why This NYC Divorce Lawyer Might Advise You Otherwise

A recent Third Department case, Myers v. Myers, demonstrates the consequences which may befall a spouse who owns property prior to marriage and then transfers same into joint name in order to satisfy a mortgage lender’s requirement that the other spouse’s name appear on the deed, as well. As noted by an experienced NYC Divorce Lawyer, In Myers, the wife owned the marital residence prior to the marriage, but approximately five (5) years into the marriage, transferred it into joint name, consistent with the mortgage lender’s demands. The purpose of obtaining the mortgage was to consolidate debt.

In December 2011, the wife commenced an action for divorce. The parties resolved all issues of equitable distribution, save for the distribution of the marital residence. The wife claimed that the value of the residence at the time of transfer was approximately $165,000.00 – and she was entitled to a separate property credit.

The Supreme Court issued a Decision & Order that both the marital residence and the mortgage debt were to be divided equally between the parties. The wife appealed such Decision & Order. On appeal, the Third Department, while noting that its 2012 decision in Campfield v. Campfield (upon which the Supreme Court based its Decision & Order), did not necessarily require the result as determined by the Lower Court. The Appellate Division noted:

“…To the limited extent that Campfield may be read to limit a court’s discretion to award a separate property credit to a spouse, like the wife, who transmutes separate property into marital property without changing the nature of the property itself, it should no longer be followed.”

The Court also noted that the decision to award a separate property origination credit is a determination left to the sound discretion of the trial court. The facts of the case were determinative that a separate property origination credit was not strictly mandated. Moreover, the trial court did not abuse its discretion.

Any spouse thinking of transferring separate property into joint name should think seriously about doing so for fear of what may transpire in the event of a divorce.

Posted in: Matrimonial

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The Importance of Assuring Subject Matter Jurisdiction Exists Prior to Commencing a Case in Federal Court

The recent case, HICA Education Loan Corp. v. Meyer, 12 Civ. 4248 (S.D.N.Y. 2014), underscores the need of parties to assure that a Federal Court has proper subject matter jurisdiction prior to commencing an action within the Federal Courts. Almost two (2) years after HICA Education Loan Corp. commenced an action against Amy Meyer seeking payment on a student loan in the amount of $72,722.61, the Court held, sua sponte, that it lacked subject matter jurisdiction over the matter. In this respect, one is reminded of then Second Circuit Judge (now Justice) Sotomayor’s decision in Handelsman v. Bedford Village Associates, L.P., where the Second Circuit dismissed a case for want of subject matter jurisdiction after a bench trial was had before the Southern District of New York. Handelsman v. Bedford Village Associates, L.P., 213 F.3d 48 (2d Cir. 2000).

The Court’s reasoning in HICA was twofold. First it held that it lacked diversity jurisdiction over the matter, as the amount being sought was below $75,000.00. Second, it held that there was no federal question involved as “virtually all district courts that have considered the question of whether a collection action for nonpayment of a HEAL loan arises under federal law have concluded that federal question jurisdiction is lacking.”

It is of note that the docket sheet revealed that HICA had already brought a motion for summary judgment against Ms. Meyer which was unopposed. Further, Ms. Meyer previously submitted an answer to the complaint and raised affirmative defenses, none of which were for lack of subject matter jurisdiction.

The lesson from HICA is simple. Prior to commencing a matter in Federal Court an experienced attorney must determine whether a basis exists for subject matter jurisdiction. If, at any point during the litigation, it becomes apparent that the Court does not have subject matter jurisdiction over the action, the case may be dismissed, either on motion or sua sponte.

Posted in: Commercial

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First Department Issues Important Decision on Custody

Perhaps one of the most difficult decisions a Court will make in the area of family law are those regarding custody. The Court makes its determination on custody by examining what is in the best interests of the child. How the Court determines what is in the child’s best interests often involves a very detailed factual analyses of varying factors, including, but not limited to, the current custody arrangement, the current home environment, the financial status of the parties, the ability of each parent to provide for the emotional and intellectual development, whether the custodial parent will encourage a good relationship with the non-custodial parent, and the wishes of the child.

On May 1st, 2014, the First Department issued a decision, Melissa C.D. v. Rene I.D. , which is a good example of how the Court applies the various factors in determining the best interests of the child. In Melissa C.D., it appeared that the status quo (the child’s living with her father), the neutral expert’s opinion that the child remain with the father, and the child’s express wish to remain living with her father (the child was 14 and so her opinion was given substantial weight), were the prominent factors in the First Department’s decision. The Court held it would not be in the child’s best interest to remove her “against her wishes, from her father and brother in Manhattan, where she has always lived, and placing her with her mother and her mother’s lover, a situation that she is not comfortable with, on Long Island, in a community that she does not know.”

Interestingly, in an apparent nod to recent case law, holding that the parent who is more likely to encourage a good relationship with the other parent should be granted custody, the First Department to specifically held that the father’s conduct herein “did not rise to the level of deliberately frustrating, denying or interfering with the parent rights of the mother so as to raise doubts about his custodial fitness.” Thus, one cannot understate the emphasis the Courts are giving to that factor now as, even where the child is living with the father, the neutral has issued an opinion that the child should live with the father, and the child has expressed a desire to stay with the father, the Court still made sure to make this specific finding.

Significantly, although the First Department reversed the trial court and granted the father sole custody, it still cautioned the father to “consider the effects of his comments to the children, to refrain from interfering from the children’s relationship with the mother and to do all that is within his power to encourage and support their relationship with her.” This further buttresses the importance of this one factor.

Posted in: Matrimonial

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Why experienced matrimonial counsel is necessary in a divorce.

Perhaps you are thinking about filing for divorce.  Perhaps your spouse has just informed you that she/he wants a divorce.  Going through a divorce is one of the most painful processes someone will experience.  The divorce laws can be complex and the manner in which they are implemented may be different depending upon certain variables, including, but not limited to the county in which an action is brought.

While many believe that they can represent themselves in a divorce, this is generally not a good idea.  Children and assets such as homes, retirement accounts, business interests, and other financial assets can make a divorce quite complex.  Add in the emotional aspects of losing a spouse and representing oneself,pro seis usually a recipe for disaster.

Retaining an experienced matrimonial counsel to represent you in a divorce could be invaluable to your divorce.  Experienced matrimonial counsel will aid you in obtaining maintenance (alimony), child support, and equitable distribution of marital property.  If you are the “monied spouse” (sometimes a misnomer), seasoned matrimonial counsel can assist you in minimizing your expenses.  If you have a professional license or own a business or are married to someone who has a professional license or owns a business, the business or professional license may be marital property subject to equitable distribution.  Thus, hiring experienced matrimonial counsel could aid you in protecting these assets or fighting for your rights.

We have represented celebrities, professional athletes, business owners, finance and other professionals and their spouses in near every type of divorce and family matter imaginable.  We have represented these individuals in New York, Bronx, Kings, Queens, Richmond, Westchester, Putnam, Rockland, Nassau, and Suffolk Counties in New York and throughout New Jersey as well.  Thus, we at the Law Offices of Steven E. Rosenfeld, P.C. have the experience necessary to protect and fight for your rights in a divorce.  Call us to schedule a consultation today.

Posted in: Matrimonial

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The Importance of Pre-Nuptial Agreements for Same Sex Married Couples in New York

While the Supreme Court has declared the Defense of Marriage Act (“DOMA”) to be dead, as Chief Justice Roberts noted in his dissent, DOMA is not quite dead yet. States which have not legalized Same Sex Marriages are not required to recognize a Sister State’s Same Sex Marriage. This creates a myriad of problems for same-sex couples.

The equality of a same sex marriage may depend upon which State the spouses are located in at a given moment. In fact, in order to see the full implications of DOMA, all one needconsider is what would have been the outcome in the Terri Schiavo case, had Terri been a partner of a same-sexmarriage,rather than a heterosexual marriage. Under DOMA, inasmuch as Florida does not recognizesame-sex marriage, it would not have had to give legal effect to Terri’s marriage. Hence, the Court may have allowed Terri’s parents, not Terri’s spouse, to make decisions on her behalf. In this respect, DOMA would have been a matter of life and death.

A prenuptial agreement may serve to protect many of the rights which a state not recognizing a same sex marriage would otherwise deny spouses. Living will and health care proxies could be included with the agreement so as to assure the spouse’s rights in the event the other spouse ends upon terminally ill within a State which does not recognize same-sex marriage. Language with respect to adoption of children could be included to assure a spouse’s right to access to children of the marriage, in the event a State chooses not to recognize such rights. Choice of law and waiver of personal jurisdiction language could be included as well, in order to assure that some Court has jurisdiction to dissolve the marriage.

Thus, entering into a prenuptial agreement is something every same-sex couple should seriously consider. Given DOMA, a prenuptial agreement could be used not only in the event the marriage is to be dissolved, but also, and maybe more importantly, it could be used to protect a spouse’s rights in the event a same-sex partneris in a State which does not recognize same-sex marriage.

Posted in: Matrimonial

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