Thursday, December 31, 2009

Thought of the Day

"Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us."

- Hal Borland

Tuesday, December 29, 2009

The Madoff mess and the finality of divorce resolutions

Back in February, I wrote about a New York attorney who was attempting to overturn his 2006 divorce settlement on the basis that he had negotiated away virtually all of his assets and paid his ex-wife cash in exchange for the couple’s Madoff account. The parties had been married 30 years and took approximately 2 years to spar over their home, the husband’s law partnership, a Manhattan apartment and the Madoff account. At the time, they agreed the Madoff account was worth $5.4 million.

When Madoff was arrested, the husband in this case attempted to open up the divorce settlement, based on a “mutual mistake.” Apparently, at the time of divorce, Husband had liquidated part of the Madoff fund in order to pay his ex-wife her equitable share.

As an aside, I rarely, if ever, allow that type of a division of an investment fund. Generally, it is safer for both sides to divide the fund in kind. This means, that rather than one party liquidating the fund and making a cash payment to the other side, the investments are divided so that each spouse receives an equitable share of the actual funds in the account. By way of example, if a fund holds 5,000 shares of stock of ABC company, worth $100,000, rather than having one party pay the other half of the account, or $50,000, I would recommend that the shares of stock be divided so that each party receives 2,500 shares of the stock. That way, if there is a turn in the market, both parties are taking risks. Of course, if the stock increases, both parties will also receive the windfall. However, this can protect against unforeseen and potentially devastating changes in the market.

In the New York case involving the Madoff account, Husband petitioned the court to open up the divorce agreement based on both “mutual mistake” and “unjust enrichment.” His theory was that, at the time of the divorce, neither party realized that their fund value was based on a huge Ponzi scheme. Additionally, Husband claimed that his ex-wife had received a windfall in the form of an unfair profit from their mutual mistake.

The court disagreed with Husband’s theory, noting that the divorce agreement was a “full and complete settlement of all claims between the parties.” In addition, the divorce agreement contained releases wherein each party waived any future claims upon the property of the other. The court reasoned that because, at the time of the divorce agreement, Husband could have liquidated the entire Madoff account, as fraud had not yet been uncovered, he did receive exactly that which he bargained - a fund worth $5.4 million. While the court sympathized with plaintiff as a victim of Madoff, it did not go so far as to undo a fully negotiated and settle divorce agreement. You can read the opinion here.

This case underscores the importance of giving complete, comprehensive, thoughtful and knowing consideration to all aspects of your divorce settlement. Many people attempt to rush through this part of the process, attempting to sweep under the rug the very real fact that they will live with the consequences of their agreement far into the future. I usually recommend that once the agreement is written, parties put it away for a few days, and then read it again with fresh eyes. This case also underscores the importance of the finality of agreements as well as the strong public policy to prevent future and unending litigation on divorce matters, once the case terminates.

Thursday, December 24, 2009

Merry Christmas

Merry Christmas. Best wishes for happy, warm and loving holidays. Peace and happiness in the New Year.

Wednesday, December 23, 2009

Thought of the Day

"Three grand essentials to happiness in this life are something to do, something to love, and something to hope for."

- Joseph Addison

Tuesday, December 22, 2009

Thought of the Day

"Forgiveness does not change the past, but it does enlarge the future."

- Paul Boese

Tuesday, December 15, 2009

If only I knew then, what I know now. I wish someone had given me a list.

Hindsight is 20/20 and those who go through divorces have tales to tell and plenty of advice as to what they would have done differently. Divorce lawyers also have stories from the front lines as to what clients could have done differently.

1. When choosing your team - know your strategy.
The choice of a divorce lawyer is quite personal, much more so than other professionals that you hire. Not only does this individual have to be familiar with the law, courts and the facts of your case, but you also have to have a symbiotic relationship because you are dealing with things that are extremely dear and personal to you: your children and your income/assets. When choosing a lawyer, find someone who you feel mirrors your style and will adequately represent your interests. A lawyer who is the correct fit for one person simply might not be the right fit for another person. Do not be afraid to interview several lawyers so you get a feel for the types of professionals out there and the different styles. This also goes for other experts in your case, such as forensic business experts, accountants and therapists.

Either you or your lawyer (or both) will sense a poor fit in terms of personality, style, or relationship. Do not ignore your gut on this. I have interviewed several clients who tell me they are unhappy with their current lawyers, are afraid of them or simply don’t like them. Divorce is nasty enough - at least have a positive team.

2. Learn to make sound business decisions.
Picking a fight over something relatively minor can costs hundreds, if not thousands of dollars in legal fees. Sometimes, getting the result you want may just be too expensive and it could be cheaper to negotiate and possibly give in on particular issues as long as you keep the overall goal in mind. Some fights are worth fighting, both financially and emotionally. However, be careful about the level of antagonism you are willing to display in your case. Sometimes, all antagonism accomplishes is making sure the lawyers’ fees increase.

Every divorce lawyer can tell war stories on this topic, when clients insist on litigation over issues and pay lawyers more than the value of the item in dispute. Clients have asked me to file petitions over bank accounts or personal items worth less than the cost of the litigation - do not spend your money so foolishly.

3. Be careful with your records.
Paying your attorney, or your attorney’s staff, to reproduce Orders, letters and financial information is simply silly. Make a file for yourself and keep everything in one place. You never know when you will need an order or a copy of a letter - it should be at your fingertips.

Some law firms charge for every contact between the client and the firm. Do not end up paying for a paralegal to reproduce your file! I remember a client who lost the certified copy of his divorce decree - which ended up delaying his second wedding.

4. Make a budget for yourself.
Having an understanding of how much the divorce will cost, both in what you are giving up, what you are receiving and how much it cost to get there, will give you a bit more comfort and stability as you go through the process. Additionally, this is a great time to begin to live below your means so that you do not have the added anxiety of the inability to pay bills or, have to make decisions based on your lack of ability to pay for litigation.

It may seem like a great idea to keep the marital home in the divorce but such a decision requires a careful financial analysis. Scheduling depositions, launching a discovery war and going forward with a full scale trial may seem like great strategies but only if the cost and potential effectiveness of each is measured at every step. Recently, a client wanted me to schedule a deposition. I outlined the costs (preparation time, deposition time, court reporter, etc.). Only after it was scheduled did the client back out and say that he could not afford it. As you can imagine, this information would have been useful prior to the scheduling.

5. Remember the details.
Sometimes, people are so anxious to simply end the divorce, that they believe that everything will eventually fall into place. Sometimes it does not, and it could cost way more down the line to fix it something that could have been accomplished correctly in the first place.

A great example of a detail to hammer out is a holiday and vacation schedule in a custody matter. Come up with a framework now, while you are in a negotiating mind set. Do not wait until you are ready to leave for vacation or a holiday dinner to find out that the other parent does not agree to the plans. Map it all out in writing.

Divorce is hell. But remember that just as much as it is an ending, it is also a new beginning. Look forward, not back.

Sunday, December 13, 2009

Divorce at the movies

Occasionally, Hollywood attempts to dramatize the pitfalls of divorce and custody. The 1995 movie, Bye Bye Love, actually manages to make good points about:

(1) the conflicts that arise between fathers and daughters when those girls get a bit older and have friends and social lives that may interfere with dad's custody time,

(2) the difficulties for kids when their parents start to date,

(3) the tenseness and anxiety around the exchange of the children,

(4) the interplay between extended family, like grandparents, and the custody schedule,


(5) the pressure on kids throughout the process.

While the movie seems to be extra heavy on cliches, it manages to be moderately entertaining so if you are looking for something to rent, check out Bye Bye Love.

Tuesday, December 08, 2009

Thought for the Day

"As a child my family's menu consisted of two choices: take it or leave it."

- Buddy Hackett