Maintaining an Active Tempo in Your Divorce

Who really controls the tempo of a lawsuit?  Are the parties dragging their feet?  Are the lawyers creating more work than necessary?  Are the court systems backlogged?  If you want to control the tempo of your divorce, you must be proactive in the divorce process.  And in order to be proactive, you must first understand the realities of the divorce process.

Understanding the Lengthy Process of Divorce

You’ve probably heard it said before: “divorce is a process.”  Perhaps it was stated with exaggeration, or, just as a statement of fact.  Regardless of the tone or the context of the statement, the reality is that divorce (and, in fact, those pesky post-divorce issues that inevitably arise) is a tedious, arduous, and typically unpleasant process.  It is affected by many external factors, including the parties’ relationship with each other, the attorneys’ relationships, and the degree to which friends and family become involved.  All of these factors may impact (negatively, or otherwise) the nature of the process and, therefore, it is important to have an understanding of the process before committing to a particular path.  The process of a typical litigated divorce (or, modification) may be summarized, as follows:

• Identify and engage legal counsel, sign retainer agreement, and
• Wait for initial documents to be drafted
• Determine your jurisdiction, that is, the state in which the matter will be heard before a court.
• File Summons and Petition (for Dissolution of Marriage) and formally serve the documents on the opposing party, identifying the nature of your claim and the relief you are seeking.
• Wait 30 – 45 days for response
• Respond to Answer and/or Counter-Petition from opposing party.
• Wait 30 – 45 days
• File Motions, for example…
• Motion for Temporary Attorneys’ Fees
• Motion for Temporary Custody
• Motion for Temporary Support and/or Maintenance
• Motion for Protection from Harassment and/or Domestic Violence
• Motion to Prevent Dissipation of Assets
• Hold Hearings for Motions
• Wait 30+ days
• Court-ordered Mediation (in states which require that the parties attempt to mediate all or part of their disputed issues before submitting them to the Court)
• Wait 30+ days
• Co-Parenting Classes are often required in cases where children are involved, to teach parents how to minimize the impact on children involved in a divorce.
• Wait …
• Case Management Conferences are often used as an opportunity to determine whether the parties will be able to reach a resolution, in whole or in part, prior to trial.
• Wait …
• Discovery is conducted to investigate those contested facts, which are often the central focus at issue in a case.  For example, uncovering a full financial picture of the parties, including assets, income and debt.  This can be accomplished the hard way (formal written discovery) or the easy way (both parties mutually agreeing to full disclosure), but often simply results in accusations that one party is not complying.
• Wait months and months …

• File Motions to Compel relating to failure to provide discovery or for providing incomplete responses to requests.
• Wait …
• Hearings on pending discovery requests during which the Court most often requires the non-complying party to produce the information requested.
• Wait …
• Expert Review is often necessary to sort out facts that cannot be jointly agreed upon by the parties.  For example, vocational experts are often employed to determine earning capacity of a party.
• Wait …
• Settlement discussions may be had at any point up to and including during the trial, and the parties are encouraged to attempt to resolve their issues without court intervention. The further the parties get in this process, however, the more and more difficult it becomes to reach a settlement.
• Wait …
• Settlement Conference/Pretrial Conference is often used (again) to encourage settlement on all or part of the issues, and set for trial those issues, which cannot be resolved between the parties.  At this point, additional preparation is required to produce final exhibit lists, witness lists, updated information, etc. etc.
• Wait …
• Trial is typically 1 – 2 days, depending on the complexities of the case, and affords each party the opportunity to tell his/her side of the story.
• Wait …
• Appeals must be timely filed by the party (or parties) who disagree with the final judgment by the Court.
• Wait …
• Modification of prior agreements or judgments may be made if there is a substantial change in circumstances.  Most often, modifications involve termination or reduction in alimony/support payments, child support, or child custody/time-sharing.
• Wait …
• … the process is starting all over again.

Do you recognize the pattern?  Wait … here it is.  Clearly, the process takes time.  And time equals money.  Money, not only in disputed alimony payments or modifications to child support, but money in legal fees and costs, which increase exponentially (x2) with each delay, each emailed “nasty-gram,” each communication with opposing counsel.  Most of the steps above don’t happen all at once, and accordingly, responses to discovery will often stay in a “holding pattern,” while waiting for the court to rule on a particular motion, for example, temporary attorneys’ fees.  This slows the process down considerably, while fueling the parties’ frustrations at each other, at their attorneys, and at the system, which is truthfully ill-equipped to manage these types of disputes.

The person who places herself/himself in the hands of her/his attorney foolishly believes that their interests are in alignment.  They are not.  The process of divorce is a business, and as such, is designed to facilitate paper flow, encourage prolonged disputes, and justify billing clients.  While it may sound harsh, and certainly does not apply to all lawyers, the fact is that a professional who is paid hourly, is not motivated to resolve a dispute quickly.

So, as originally posed in the beginning of this article, who really controls the tempo of a divorce case?  If you understand the process, you can control the process.  It is the parties who authorize whether monies may be spent on investigations, discovery, motion filings, etc. etc.  It is the parties who determine whether a settlement may be reached.  If you approach your divorce strategically, you will be better equipped to manage the process.

Has currently collected more than $4.4 billion dollars from US taxpayers who participated in the previous two programs;
Audited 1 out of 8 taxpayers reporting $1 million dollars or more of income (approximately a 50% increase from the prior year), Audited 1 out of 25 taxpayers reporting $200,000 or more of income (approximately a 30% increase from the prior year).

Steven Miller, deputy IRS commissioner for services and enforcement, provided an explanation for the dramatic increase in the above cited high income taxpayer audit rates. “We have done a lot of work in the offshore area,” said Mr. Miller when discussing the increased audit rates. This explanation is in accordance with current IRS commissioner Douglas Shulman priorities for the agency.  Commissioner Shulman has focused, as a top priority, the agency’s extensive resources on high income and high net worth individuals with a particular focus on US compliance for foreign accounts for these individuals over the last few years. Commissioner Shulman launched two prior voluntary disclosure programs to encourage these taxpayers with noncompliant foreign accounts to come forward voluntarily and avoid criminal prosecution.

The IRS formally announced a third foreign voluntary disclosure initiative to enable U.S. persons to remedy any prior noncompliance without criminal prosecution after netting approximately 33,000 nonfilers in its first and second initiatives over the last few years.  Specifically with respect to the 2012 voluntary disclosure initiative, it imposes slightly higher penalties than the prior voluntary disclosure initiatives, but still allows qualifying participants to obtain certainty about avoiding criminal prosecution and the imposition of penalties by the IRS.  The current initiative does not have a specific expiration date and will continue until the IRS decides to terminate it.  Further, the IRS has authority to change the terms at anytime, which should encourage taxpayers to act early before the penalty rates are inevitability increased.

The definition of what constitutes a foreign account is quite broad, and includes all accounts over which an individual or business has signature authority.  The definition of who is required to file on behalf of such accounts is quite broad as well, often causing the beneficial owners of accounts legally owned by another (trusts, business entities, etc.) to be reportable by those beneficial owners.

For Taxpayers seeking to participate in the initiative, the IRS will require the participant to agree with the following terms if the participant otherwise qualifies (i.e., is not currently under an IRS investigation or audit and income is from legal sources):

1. Payment of a 27.5% penalty on the highest aggregate annual balance for the unreported foreign account during the prior eight full tax years (reduced to 12.5% when the balance in all foreign accounts does not exceed $75,000 during these years, and reduced to 5% for certain inherited accounts);

2. Payment of any U.S. income tax due on unreported income for an unreported account during the prior eight full tax years and,

3. Payment of a 20% penalty on any U.S. income tax due under number two.

Participants accepted into the initiative must file amended returns and make an arrangement for payment of all taxes, interest, and penalties.  Participants have the option of foregoing the standard penalty rates after being accepted into the voluntary disclosure program and request a full examination of their returns.  The examination division will recommend any resulting penalties, which may be higher or lower than the standard penalties.

This initiative can be modified or terminated at the discretion of the IRS.  Therefore, the time frame for determining whether to participate and arranging for the appropriate filing and payments is relatively short.  Hence, prompt action is required if you intend to participate in the initiative.

It is also important to note that Taxpayers accepted into the initiative must also agree to surrender certain defenses in order to participate in the initiative.  The surrender of these defenses could result in a significant reduction in the above monetary penalties.  Accordingly, the decision regarding whether to participate in the voluntary disclosure initiative ultimately turns on a participant’s facts and circumstances as well as the participant’s risk tolerance with the IRS.  Other unpublicized procedures are available to reduce criminal exposure yet retain any defenses you may be entitled to; however, such procedures do not provide the same level of certainty that can be obtained from participating in the initiative.

Disclosure to the IRS involves a number of strategic decisions that can have broad implications.  Disclosure should not be undertaken without qualified professional assistance.

Lastly, Form 8938, Statement of Specified Foreign Financial Assets, (“Form 8938”) is a new reporting form.  Form 8938 will be used to report certain foreign financial assets as required as part of the Hiring Incentives to Restore Employment Act (“HIRE Act”), which was signed into law on March 18, 2010 by President Obama.  Form 8938 is effective for 2011 and future tax years.  The form will typically be attached to your annual federal income tax return if you have a filing requirement.  Please keep in mind the Form 8938 a is separate and distinct reporting form from the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts , commonly referred to as FBAR.  Individuals may be required to file both reports, depending on their specific facts for each particular year.  We will address this issue in detail in a coming newsletter focused on foreign planning and compliance.  If you have any concerns or issues as your tax returns become due, please do not hesitate to contact our office for more information.

“Listed” transactions are those the IRS believes have a higher potential for tax avoidance. Listing a transaction is significant because it requires participating taxpayers to file a special form disclosing and highlighting the transaction to the IRS.  Advisors are also required to file certain disclosure forms with the IRS and keep detailed lists of participating taxpayers. A failure to disclose a listed transaction may carry a variety of consequences, including severe penalties and an increased statute of limitations.

The GST is a tax on property transfers, direct or indirect, from a donee to a person that is more than one generation below the donee’s generation. The GST can be more significant than either of its two tax cousins, the estate or gift tax, as annual exclusions are often not available to reduce the tax for smaller annual transfers resulting in taxation from the first dollar transferred.  Furthermore, the tax rate on GST taxable transactions is a flat rate, which is the highest estate tax unlike the graduated rates that apply to estate and gift tax transfers.  The GST is often overlooked in wealth transfer planning as advisors usually focus on the better known estate and gift tax but GST transfers often occur.   Common transfers subject to the GST include gifts of cash to grandchildren and transfers made to certain trusts that may benefit grandchildren or more remote persons.

The final regulations are effective for transactions entered into on or after November 14, 2011.  However, the IRS has yet to “list” its first transaction involving the GST or to give an indication if there will be any limits on its ability, exercisable in its sole discretion, to list GST transactions. Planning and implementing transactions now may avoid any future listed transaction disclosure requirements if the IRS subsequently lists the transaction.

Additionally, repeated calls in Congress and by President Obama continue from the last few years to today urging a 90-year limitation on GST reduction planning (current planning allows transactions to be fully exempt from the GST into perpetuity).  Finally, the GST exemption amount is currently $5 million dollars per donee, a record amount, which is scheduled to expire in a year and to revert to approximately $1,400,000 after an inflation adjustment but which may be cut back or eliminated earlier as a means of partially closing the nation’s budget deficit. All of these factors suggest that taxpayers strongly consider GST planning today in what may be the most favorable GST planning environment this generation or the next will ever see.

As a practicing tax attorney, I was wondering when this type of form would be implemented to account for foreign assets held by U.S. Citizens, Green-Card Holders and Resident Aliens that were not covered by Federal Form 90-22.1, Report of Foreign Bank Accounts.  There were a myriad of concerns and comments from tax practitioners concerned about what should be reported on the FBAR report.  Now that question has been answered in the negative.  Bank accounts are to be reported on Federal Form 90-22.1, but other investment accounts and even valuation of inheritances, trusts, gifts (currently and years subsequent) are required to be reported on the newly created Federal Form 8938.

Even for seasoned tax professionals and Americans with investments and overseas entities, this Form 8938 is frightening in the invasive and intrusive nature of its requirements and the penalties are considerable.  Lets take a look at who is required to report their financial information on the Form 8938:

The reporting threshold varies depending on whether an individual lives in the United States, is married, or files a joint income tax return with his or her spouse; specifically U.S. citizens and resident aliens, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.

QUESTON #1.

Now, lets see what is types of financial information is required on Form 8938?

Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U.S. person.

QUESTON #2.

If you fail to file this form, what is the Statute of Limitations?

If you fail to file Form 8938, the statute of limitations for the tax year may remain open for all or a part of your income tax return until 3 years after the date on which you file Form 8938.

QUESTON #3.

What if you file the form, but forgot completely list all of the foreign financial assets?

If you fail to report a specified foreign financial asset that you are required to report, the statute of limitations for the tax year may remain open for all or a part of your income tax return until 3 years after the date on which you file Form 8938.

QUESTON #4.

How is this form to be filed?

You will be required to file this Form 8938 with your annual tax return, which (depending on your particular situation) will be as in integral part of these tax returns:

• • Form 1040, U.S. Individual Income Tax Return
• • Form 1120, U.S. Corporate Income Tax Return
• • Form 1065, U.S. Partnership Tax Return
• • Form 1041, Fiduciary Income Tax Return
• • Form 1120-F, Foreign Corporate Income Tax Return
• • Form 1120-S, S Corporation Tax Return
• • Form 1040NR of a nonresident alien who is a bona fide resident of Puerto Rico or American Samoa.

Just in case you are thinking that your particular tax return is not required to be file, such as an Individual income tax returns where you are not making enough taxable income to have a tax liability: the IRS has conflicting thoughts on whether 8938 must be filed.  However, if you are thinking that filing from 8938 relieves you of filing Federal Form 90-22.1, it does NOT.

QUESTON #5.

Is there a threshold of when you are required to file this form?

Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds.  For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.

Married taxpayers filing separate income tax returns and living in the United States.        If you are married, file a separate income tax return from your spouse, and do not live abroad, you satisfy the reporting threshold if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $100,000 at any time during the tax year.

Taxpayers living abroad.   

EXAMPLE 1.

If you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or are present in a foreign country or countries during at least 330 full days during any period of 12 consecutive months ending in the tax year, you satisfy the reporting threshold if you are not filing a joint return and the value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year.

EXAMPLE 2.

If you are married and file a joint income tax return, you satisfy the reporting threshold only if the value of all specified foreign financial assets you or your spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the tax year.

QUESTON #6.

Should I be concerned about Foreign grantor trusts?

If you are treated as an owner of any portion of a foreign grantor trust, you may be required to file Form 8938 to report specified foreign financial assets held by the trust. If you are also a beneficiary of the foreign trust, you may be required to file Form 8938 to report your interest in the trust. You do not have to report on Form 8938 any specified foreign financial asset held by the trust or your interest in the trust if you report the trust on a Form 3520 filed for the tax year and the trust files Form 3520-A for the tax year.

QUESTON #7.

Does Form 8938 have teeth?

Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.  A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.  If your errors or failure to disclose assets equates to an underpayment of tax wherein a tax fraud penalty can be assessed; then a penalty of 75 percent will be imposed.  In addition to the above penalties, your case may be transferred to Criminal Investigation Department of the U.S. Treasury for criminal fines and penalties.

CONCLUSION:

Between the FBAR and now the FFAR, the IRS will have privy to almost all of a person’s financial activities that are foreign related.  The only area not touched, yet, is real estate.  Remember, you may still have time to be excused from filing this Form 8938, but time is quickly running out.

Under the Obama legislation, cost reporting shall now be the burden of the Broker to calculate and report to you as well as the IRS.  This new law will cover all stocks purchased from January 1, 2011 forwards.  It will also cover mutual funds and dividend reinvestment plan stock (or similar arrangements) acquired on or after January 1, 2012; and for debt instruments, options and other covered securities acquired on or after January 1, 2013. The purpose of the new law is to allow the U.S. Treasury to increase revenue by $6.67 billion over a ten-year period.

What Does This Mean to Me?

As this year winds down and you are trying to decide which stocks to sell to have a capital loss on your tax return or to contribute to your chosen charities, you will need your basis.  As you know, Sales Price minus Adjusted Basis results in capital gain or loss.  Generally, when a broker is instructed to sell stock, the Broker will treat the stock sold as being reported on the First In First Out (FIFO) basis for tax purposes.  So, is you bought 100 shares of IBM for each of the last 5 years, the first shares bought will be treated as the first shares sold with its relevant basis.  If you sold 80 shares; then those 80 shares would be treated as the shares bought in the first 100 lot five years ago and that would be the basis.   Now, many boutique Brokers have intelligent software what will find the specific stock with  the highest basis so you will experience the lowest capital gains.  However, you will experience that the Brokers that service the average person for the lowest commission will elect FIFO basis as the default unless you specifically call and tell your Broker which specific stock shares to sell.

All too often, I find myself in a confrontation with the IRS on the issue of basis on stock that was sold.  I realize that the Brokers that appeal to the masses with low commissions are also the Brokers that do not provide a heightened service to its customers.  You should know that when you talk with your Broker that the entire phone call is being recorded.  If you say that you had advised the Broker to sell certain stock shares, then that conversation will have been recorded and kept in the custody of your Broker.  It has been my experience that this recording is in the Broker’s custody for over 5 years.  Therefore, before you claim that your Broker should have known your wishes for certain stock to be sold, the IRS can file a Summons for that recording.  My suggestion is that you follow-up your oral conversation with a written request for those specific stock to be sold to allow you and the Broker to have a written record.  All of this communication, oral and/or written, just be before the actual stock is sold!

As your tax consultant prepares your 2011 tax return in 2012, the cost basis will have already been reported by the Broker to you and the IRS.  It is so important to know that this basis may indeed be wrong.  It may be wrong because the Broker did not have the original basis because you transferred in your stock to the current Broker from another Broker or you got the stock via a gift or inheritance.  All of these possibilities for an incorrect basis has happened to clients I have represented.  Once you notice the incorrect basis, call your Broker immediately so the Broker can correct the basis reported to you and the IRS.  Without such a correction, the IRS will send you their “instant audit” letter advising you that your basis was incorrect from the reported basis and you owe additional tax and related penalties.

Also know that unless you advise your Broker on what basis method to use for reporting, such as FIFO or Weighted Average, the Broker has the option to determine the method to be used for you to determine basis of stock sold.

CONCLUSION:

For your end of the year tax planning, you will need to get out those dusty files and determine the basis of your stock that you intend to sell, gift or give to charity to determine the gain or loss or charitable contribution you are intending to report on your 2011 tax return.  Then, you will need to follow through with your Broker to ensure the correct specific stocks are utilized in these transactions to produce the intended tax consequence.  This follow through will also need to be in writing and since the burden of proof is on you; please send your writing via Certified Mail or some other form of mailing wherein you can prove the mailing and receipt of your written communication to your Broker.

For most of us, our homes are much more than merely a collection of building materials held together by nails and two by fours. Instead our homes are our sanctuary for the craziness of the outside world, the refuge where our children can play and sleep knowing that they are protected and the focus of many of our fond memories. It is exactly because of these emotional ties that even the thought of some frivolous lawsuit could cause us to lose this sacred spot seems so abhorrent.

In response to these concerns, most states have something called Homestead protection laws. Generally these laws say that a certain dollar amount of the equity of our homes is protected from most judgment creditors.

Example, Dr. Jones lives in State X. State X has homestead protection of $100,000. If Dr. Jones only had $75,000 of equity in their home and was sued for negligence, and lost the lawsuit, the individual who won the suit, could not foreclose upon or kick out the good doctor. The doctor’s home would be protected.

While that may sound reassuring, keep in mind that almost half of the states’ Homestead protection laws protect an amount of equity that is $10,000 or less. Sure you might decide to move to Florida, Texas, or some other state that allows an unlimited amount of homestead protection, but the new bankruptcy rules require you wait a number of years to get that protection. Additionally, Homestead protection does not protect you from the federal government. So if for some reason the IRS placed a lien on your home and decided to foreclose, state Homestead laws would be powerless to stop the forced liquidation of your home.

Finally, for many of us, our home is the greatest asset that we own, and may very well be of such a value that our heirs will have to pay estate taxes on its value when we try to pass on the property to our loved ones upon our death.

In response to clients asking us for a solution that would ease their fears about estate taxes on their homes, and making sure the home is protected for future generations to come, we have developed a specialized Trust we call the FLEX Trust.

The FLEX Trust was specially designed so that you will not lose any of the income tax benefits of owning a home. You still receive interest deductions, and you still receive the $500,000 capital gains exclusion on your home. Furthermore, if you decide to move into a different home, the FLEX Trust has the built in flexibility to allow you to do that also.

At the same time however, with the use of the FLEX Trust the value of your taxable estate will be dramatically lowered and your home can be protected from the claims of creditors – even the federal government.

Here’s how it works:

1. You create a Trust that provides that your heirs will receive your assets inside the Trust when you pass away. Either a friend or a family member would serve as the Trustee.

2. You then sell a portion of your home to the Trust. Since the federal income tax laws will treat you as the owner of the Trust, no gain will be due on the sale.

3. You then enter into a buy-sell agreement with the trust, giving the trust the ability purchase the entire interest of the home at the fair market value. (Query: What would someone pay to own 95% of a home, when the owner of the other 5% can come in at any time?).

4. When you pass away, your home is valued at its fair market value for estate tax purposes. Go ahead and read the question in 3 above. You’ve probably just saved a bundle in estate taxes.

Estate Taxes

When you pass away, all assets owned by you, or those which you are considered to have incidents of ownership are added up to determine if you own estate taxes. Since, your home has been dramatically “devalued” estate taxes have as well.

Probate

Probate is merely the process of determining legal title of the assets owned by the deceased party. Assets owned by the FLEX Trust will avoid probate since the legal title is vested in the name of the Trust. Thus assets inside the Trust, as well as the home, will avoid probate.

Asset Protection

A general rule regarding the enforcement of judgments is that the creditor steps into the shoes of the debtor. To put this in plain English, if you are subject to a buy sell agreement with your trust, your creditor is as well. Now if you do go to code red, your trust merely exercises its rights to purchase the home from your creditors at a low value, via a 30 year interest only promissory note. Not only does this apply to regular citizens, but to the Federal government as well.

For interest in the Flex Trust, fill out the form below

While video surveillance may capture the day-to-day living arrangements of two people, it is also cost-prohibitive for most clients, who need to demonstrate overnights on a long-term basis.  Today, as most people have and use cell phones as their primary means of communication, Cell Tower Location data has become the most persuasive piece of evidence offered at trial, and it comes at a fraction of the cost.  Whether your client is seeking termination or reduction of alimony because the former spouse is in a supportive relationship, or whether your client is the one who is defending alimony, the Cell Tower Location records may be your best supportive evidence in proving or disproving the allegations.

Case Study:

In a recent Pennsylvania case, former husband believed that former wife’s new boyfriend was living in her home.  This belief was supported by video surveillance by an investigator, as well as testimony by the three minor children, who were also living in the residence.  When former wife was confronted, the allegations were vehemently denied and litigation ensued.  Recognizing the inherent problems with his “evidence,” namely, that the video surveillance captured only sporadic moments in time and that the children’s testimony may or may not be permitted by the Court, Former Husband sought a unique route: Former Husband served a proper subpoena to obtain the boyfriend’s cell phone records.   Immediately, Former Wife’s attorney filed an objection arguing that Former Husband was not entitled to these records because the boyfriend was not a party to the action.  Simultaneously, the boyfriend hired his own attorney arguing constitutional rights violations.  The Court denied both arguments, wisely acknowledging that the very purpose of discovery, fundamentally, is wide-ranging and permits the disclosure of any materials, which are “reasonably calculated to lead to admissible evidence.”  During the hearing, the Court further commented that these records would be very persuasive in determining cohabitation.  Upon receipt of the 2,000+ pages of cell phone data, Former Husband employed a consultant to analyze the data and prepare a demonstrative courtroom exhibit so that the Court could visualize the amount of overnights at Former Wife’s residence.  While the video surveillance and children’s testimony was useful, the cell phone records became the pivotal evidence of the case, ultimately revealing the Former Wife and her boyfriend to be liars.  Their credibility was destroyed, and the Court pressured the parties to negotiate a settlement.  The case settled with an immediate termination of alimony on the second day of trial.

While overnight stays are not the only criteria required to prove a supportive relationship, they are an important element to establish.  Cell Tower Location data levels the playing field in supportive relationship cases by eliminating the “catch me if you can” aspect of quantifying the number of overnights in question.  Once this foundation is laid, you can then argue that someone who is spending overnights is consuming resources of the household and begin to quantify the financial benefits being enjoyed from the relationship.  Piece-by-piece, the case begins to come together.

Whether you need to demonstrate that a former spouse is living with someone else or whether you need to prove the contrary, Cell Tower Location data is objective evidence, and extremely persuasive when used in courtroom argument, mediation or settlement negotiations.

If you believe that your client’s case would benefit from an analysis of cell phone records, you may want to engage an outside consultant, who will not only cooperate with your office to obtain, review, analyze and prepare the necessary exhibits for use at trial, but who will also testify on your behalf.

For additional information or assistance with processing your request please fill out the form below.

Who traditionally buys 2nd-to-die life insurance policies?—married couples who want a death benefit to pass to their heirs at the death of the 2nd parent.

Who owns the policy typically?—an Irrevocable Life Insurance Trust (ILIT).

Why buy a 2nd-to-die policy?—cost. When buying a policy strictly for the death benefit, the goal is to buy the policy that costs the least. Because the insurance company actuarially knows with a 2nd-to-die policy that the death benefit will pay off years later than a non-2nd-to-die, the cost for the policy can be significantly less.

How many trustees of ILITs wish they had a policy that paid before the 2nd parent’s death? LOTS!

It’s great that parents buy life insurance policies in ILITs to pass wealth to their children or other heirs upon death. However, times have changed; and there are thousands of ILITs with 2nd-to-die policies in them where the beneficiaries could use the money before the 2nd parent’s death.

Until the advent of 2nd-to-die policies with 1st-to-die riders, the only option an ILIT had to provide a death benefit at the first parent’s death is to surrender the 2nd-to-die life policy and buy two policies on both parents (which is expensive and one parent may no longer be insurable). (And FYI, the product I’m discussing in this newsletter will underwrite the policy even if one insured is totally uninsurable).

1st-to-die rider to the rescue—with a simple 1035 exchange to a 2nd-to-die rider policy that has a 1st-to-die rider, you can take a 2nd-to-die policy that never had an ability to pay a death benefit at the first insured’s death and instantly turn it into a policy that will.

I’d like to make myself sound smart by making this really complicated, but it’s such a simple and yet powerful concept that I can’t.

Don’t you believe that a 2nd-to-die policy with a 1st-to-die rider would be of interest to new clients or to ones who are funding 2nd-to-die policies in an ILIT? Just find one and ask them if they would prefer a policy with a 1st–to-die rider and ask them what they think. I think you’ll be pleasantly surprised.

Example: Married couple both age 65 with one rated as standard and the other as preferred for underwriting. The goal is a sizable death benefit to be passed to the heirs upon death. Normally they would have purchased a traditional 2nd-to-die policy in an ILIT.

Assume the couple wants a $2.5 million dollar death benefit, to pass to the heirs upon their death. While there’s nothing wrong with that, the question is whether they would be more interested in a policy that has a $500,000 death benefit at the first parent’s death (whenever that occurred) and then a $2 million dollar death benefit that will pay at the second spouse’s death?

I would submit to you that the couple would be very interested in a policy that paid part of the death benefit early so the children didn’t have to wait for the second parent to die to receive any amount of the death benefit.

It should be noted that the 1st-to-die rider policy will have a premium that is slightly higher than one that doesn’t. This makes sense in my example because I have the exact same death benefit and because there is the potential for the insurance company to pay part of it years earlier in the event of the onset of a serious injury or accidental death.

Other applications of the 1st-to-die rider—Buy/Sell Agreements

Just about every buy/sell agreement should have insurance on the owners so that when one dies the others have the money to buy him/her out. Thinks of a classic two-owner business where one owner is 10 years older than the other. The younger owner buys insurance on the older owner and vice versa. The problem is that the premium on the older owner is significantly higher, and the younger owner gets the short end of the stick when it comes to buying that policy.

With the 1st-to-die rider on a 2nd-to-die policy, the partners can buy one policy insuring both their lives knowing that at the first 1st owner’s death a nice death benefit will be paid. Because 2nd-to-die policies mainly underwrite based on the younger and usually healthier insured, the cost will be much less than buying two separate policies.

Summary

If you are selling death benefits to parents who are looking to pass wealth to the next generation, don’t just default to using a 2nd-to-die policy. Introduce a 2nd-to-die policy with a 1st-to-die rider and I think you’ll be pleasantly surprised at the response.

Also, if you want to pick up several sales of these types of polices, find clients who have ILITs with traditional 2nd-to-die policies in them and suggest that they look at 1035 exchanging the policies for a policy with a 1st-to-die rider. I think you’ll have significant success with this approach.

For more information

If you talk to your friendly corporate services provider you are liable to end up with a Nevada company owning your office building in California. Speak with an offshore provider and the next thing you know you are sending money to a far away distant land. Perhaps your local estate planner will leave you standing there with a revocable living trust and a pour-over will.