New Jersey Law Blog

New Jersey Child Support Guidelines Can Only Be Disregarded For Good Cause

Corrine Evanochko Cooke — Thu, 24 May 2012 09:03:34 -0500

New Jersey Court Rules require that the Courts use the New Jersey Child Support Guidelines. The Court Rules further specify that the New Jersey Child Support Guidelines can only be disregarded by the Court “for good cause. “

There is a rebuttable presumption that the NJ Child Support Guidelines award is assumed to be correct. The Guideline aware can be rebutted if one party proves that certain circumstances exist that make the Guidelines-based award inappropriate. As a practical matter, the Child Support Guidelines are used in most cases that do not involve extreme income situation (under 105% of the US Poverty Guideline or a combined net income of $187,000 per year) - unless the parties agree to a different amount. In that case, a copy of the Child Support Guideline Worksheet must be attached to the Consent Order or Settlement Agreement, and the reason for the deviation must be noted on the worksheet.

Family law attorneys and Courts alike use software programs that determine a child support obligation based on the Child Support Guidelines. The Child Support amount is based on both parents’ incomes, the number of children, and the amount of overnights spent with each parent. The Guidelines consider whether either party is paying or receiving alimony, and award deductions for payments toward work-related daycare and the child’s portion of any health insurance premiums.

The Guidelines include other considerations that are less common. For instance, if either parent is remarried and has another child with their new spouse, that party is entitled to an “Other Dependent Deduction.” If a child receives Government benefits that are not “means-tested,” the benefit is deducted from the child support obligation. There are additional situations that can complicate the child support calculation, such as true 50/50 parenting time schedules or “split” parenting time schedules.

It is important to note that the NJ Child Support Guidelines only apply to children who are under the age of eighteen. If the children are over the age of eighteen and commuting to college, the Guidelines may apply (the Judge has discretion). If the child is over the age of eighteen and resides at college, the Guidelines do not apply.

Corrine Cooke is a member of Stark & Stark's Divorce Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Ms. Cooke.

Lightening the Burden Imposed by the Statute of Repose

Thomas J. Pryor — Mon, 21 May 2012 08:44:41 -0500

The following post was co-authored by Thomas J. Pryor and Tara A. Speer.

In a recent published opinion, State v. Perini Corporation, et al., the New Jersey Appellate Division addressed the ten-year Statute of Repose, N.J.S.A. 2A:14-1.1, which bars claims for damages for any “...deficiency in the design, planning, surveying, supervision or construction of an improvement to real property … arising out of the defective and unsafe condition of an improvement to real property ... more than 10 years after the furnishing of such services and construction.” The Statue of Repose has essentially acted as a roadblock to recovery for Plaintiffs seeking damages for faulty work that did not become evident until years after the construction took place. This issue often arises in common interest communities (i.e. town homes or condominiums) where construction defects often do not reveal themselves until many years after construction is completed. The Statue of Repose can render developers and their contractors immune from suit, leaving the unit owners and/or Association with no recourse.

The Perini opinion offers a glimmer of hope to individuals and/or entities who otherwise may have thought all was lost due to the harsh realities of the State of Repose. In Perini, the State asserted claims against four contractors who built a state prison in multiple phases. The suit was filed more than ten-years after most of the prison facilities were completed and more than ten-years after prisoners were housed in the facility.

The Court held that the State was permitted to pursue claims against three of the four contractors because their work was not “substantially completed” until actual certificates of substantial completion were issued for the phase of the project on which they were still involved. The State’s case was filed more than ten-years after most of the prison facilities were put to use, but not more than ten-years after the issuance of the certificates of substantial completion for the final phase of the project still under construction, which included the hot water system that was connected to all phases of the project.

The defective condition involved the hot water system, which the Court found was not a separate “improvement” but rather a component of the overall “improvement” being constructed. Regardless of the fact that the hot water system had been put to use in two of the phases of the project, it was connected to and ran throughout all phases. Since it was not delineated as being part of any one phase in particular, the Court found that the use of the system in the other phases and the occupancy of a majority of the buildings was irrelevant.

This case is significant because it allows for claims to be pursued against contractors whose work is not yet substantially completed on a multi-phase project, despite the fact that the project itself is mostly completed. Further, in the context of a common interest community, the case implies that the fact that owners may be residing in units during multi-phase construction has little bearing on whether “substantial completion” of a component of the project has occurred. Although the Court did not completely overhaul the Statute of Repose through this opinion, the refinement of this issue provides ammunition for attorneys representing common interest associations, seeking the broadest recovery sources.

Choosing Disinterested Counsel to Create a Will

Paul W. Norris — Wed, 16 May 2012 08:24:47 -0500

If you are in the process of having a Last Will and Testament drafted, or you are assisting a family member in having a Will created on their behalf, you should heed the following advice in an attempt to avoid potential future disputes. It is not uncommon for a party who might receive an unequal share under a Will, or have been entirely excluded, to seek to challenge a Will based upon numerous different grounds.

One of the grounds upon which the validity of a Will may be attacked is if the Will was not created and executed by disinterested counsel. In general, this means that the party contesting the Will believes that the attorney who drafted the Will had either a prior relationship with one of the beneficiaries under the Will, had a personal stake in a bequest made under the Will, or the attorney allowed a beneficiary to directly participate in the drafting and execution of the Will. Obviously, if the person seeking to create a Will has had their own attorney they have utilized for many years it is perfectly acceptable for this attorney to draft a Will. Any potential beneficiaries to the Will, however, should not engage in discussions about specific provisions of the Will with the attorney who will be drafting the Will. Moreover, any potential beneficiary should not be present or witness the Will which is being executed.

While it is okay to refer a person to an attorney to draft a Will on a party’s behalf, a party should be careful if the attorney to whom they are referring the individual has been their personal attorney, and they stand to benefit by provisions of the Will. While this does not automatically invalidate the Will, a party should be careful to insulate themselves from discussions with the attorney about the provisions of the Will, and should not be present when the Will is executed. If this was to occur, a party may assert that the attorney was not disinterested counsel, as their previous client benefitted by the terms of the Will he/she drafted.

One issue which may lend itself to a stern challenge is where an attorney drafted a Will under which he or she may be a direct beneficiary. Equally suspicious is where a person drafts a Will on behalf of another party by which they themselves benefit. While this does not rise to the same level of an attorney drafting a Will by which they benefit, it obviously creates suspicious circumstances which a party should avoid at all costs.

A review of the within advice will hopefully lend some guidance in the selection of proper disinterested counsel for the creation and execution of a Will on behalf of a party. Should a party have questions, than they should consult directly with an attorney as to what would be the appropriate course of action.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

New York Minority Oppression: Buyout the preferable remedy

Scott I. Unger — Tue, 15 May 2012 08:44:12 -0500

Although, the statutory remedy for minority oppression in New York is dissolution of the company, Courts often use it as a remedy of last resort. That is because the dissolution of a company may result in innocent employees losing their jobs, as well as the destruction of the value of the business.

If the company is viable or profitable, the Court will generally use its equitable powers and order one party to buy out the others' interests in the company. That ordered buy out will be based upon the "fair value" interest in the company.

Scott Unger is a Shareholder in Stark & Stark's Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

New York Minority Oppression: Reasonable Expectations of the Shareholder Test.

Scott I. Unger — Tue, 08 May 2012 08:38:24 -0500

New York law protects minority shareholders from oppressive conduct. However, New York's dissolution statute does not define what constitutes minority oppression.

New York Courts have applied the reasonable expectation of the shareholder test when determining whether or not the minority shareholder has been oppressed. Under that test, the Court must determine what are reasonable expectations of the shareholder. Those reasonable expectations are typically developed on a case-by-case basis. In a previous post I set forth circumstances and situations which could constitute minority oppression. Again, courts have found that the majority oppressed the minority when they:

reduced the minority's compensation without reason;
terminated the minority's employment without cause;
denied the minority owners access to the company's books and records;
terminated the employment of the minority shareholders' family members without cause;
refused to declare dividends;
started competing businesses; or
stole from the company.

The above list is illustrative (it is far from exhaustive). That is, because New York applies the reasonable expectations of the shareholder test in determining whether or not a minority shareholder has been oppressed.

Scott Unger is a Shareholder in Stark & Stark's Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.

The Interplay of Experts and Attorneys Is Important in Minority Oppression Litigation

Scott I. Unger — Tue, 01 May 2012 08:34:49 -0500

In previous blog posts, I made some comments about the importance of retaining a well qualified business valuation expert in minority oppression litigation. Again, the retention of a well qualified business valuation expert may be the second most important decision a client will make (the first being the selection of an attorney who knows how to handle this type of litigation) during the course of the case.

There should be a good working relationship between the attorney and the business valuation expert.

The attorney is responsible for requesting the production of documents which are essential to the expert being able to conduct their valuation. Typically, an attorney will request the past five years worth of tax returns and financial statements. The document requests should be custom tailored for the facts of the case. I also think it is a good idea for the expert to meet with the client to discuss the nature of the business. If the client does not understand the business (in the case of a pure investor or an outsider to the business's affairs), the attorney may obtain essential information about how the business works by asking appropriate questions during the course of depositions and/or requesting that the expert be given an opportunity to interview those with knowledge. A good attorney will use the discovery tools at their disposal develop the facts which could prove oppression along with making sure that the expert has all of the information needed to author a well reasoned opinion of value.

Stark & Stark Shareholder to Present Seminars at the 2012 ELFA Credit & Collections Management Conference

Stark & Stark — Fri, 27 Apr 2012 15:10:07 -0500

Jennifer D. Gould, Shareholder in Stark & Stark’s Bankruptcy & Creditor’s Rights Group will be a featured presenter at the 2012 ELFA Credit & Collections Management Conference. The conference will take place June 3-5, 2012 at the Hilton Baltimore in Baltimore, Maryland.

Ms. Gould is a member of the 2012 Conference Committee and will serve as Moderator at the Women in Leasing Breakfast on Monday June 4th at 7:00 - 8:15 AM. Ms. Gould will also participate in two panel presentations during the conference. The first, 2012 Legal Updates, will take place Sunday June 3rd at 2:15-3:15 PM. She will also be a featured presenter at the Tips, Tricks & Strategies to Enhance Collections seminar on Monday June 4th at 12:45-1:45 PM.

You can access additional information on dates, times, locations and other educational seminars, as well as information on how to register to attend the conference online here.

An Overview of How a Divorce Could Affect Your Taxes Part 3: Property Divisions, Dependency Exemptions and Child Care Credits

John S. Eory — Thu, 26 Apr 2012 08:25:17 -0500

This blog is part three of a three-part series discussing how a divorce could affect your taxes. You can read the first blog post in this series here, and the second here.

In 1962, the United States Supreme Court decided United States v. Davis, which created difficulties for divorcing parties and attorneys. Although, there was no sale and no money changing hands, the transfer of appreciated property in exchange for marital rights was considered to be a “sale” with the transferor liable for payment of capital gains taxes. The gain was determined by the fair market value of the asset on the date of the transfer with the transferor deemed to have received the value equal to that portion of the fair market value transferred to the other spouse. Conversely, the transferee was charged with neither gain nor loss because the marital rights relinquished were not “appreciated property,” even though these rights were considered to be equal in value to the value of the property received. Thus, the transferee of appreciated property received it on a “stepped up” basis equal to the fair market value of the property received.

Imposing a tax on the transferor of property incident to a divorce was largely viewed as a perverse tax consequence since the transferor, who was parting with an asset like the marital residence (and often reluctantly so), considered the imposition of a tax in addition to the taking of an asset to be punitive.

The Domestic Relations Tax Reform Act of 1984 changed the Davis rule so that divorce related transfers after July 18, 1984 are treated as gifts which result in neither gain nor loss to either party and thus have no tax consequences. The transferee receives the asset at the original basis rather than the stepped up basis and is taxed on the gain when the property is ultimately sold. The transfer is not a taxable event since no tax is immediately imposed on the transferred property.

With regard to transfers of appreciated property, such as real estate or stock between spouses incident to a divorce, prior to 1984 these were considered to be taxable events. The transferor was subject to capital gains taxes on the gain from the original basis of the property to the fair market value on the date of transfer. The theory justifying the tax was that even if the transferor received no money, the consideration for the transfer was “money’s worth” in exchange for the transfer. Again, the transferee took the property at the new “stepped up basis”. The Domestic Relations Tax Reform Act of 1984 likewise changed the law by providing that the property would pass to the transferee at the original basis with no tax imposed. Of course, the transferee was required to eventually pay the capital gains taxes or qualify for an exemption when the property was ultimately sold.

The shift of the tax burden from the transferor to the transferee was temporarily rendered more onerous with the passage of the Tax Reform Act of 1986 that eliminated preferential capital gains tax treatment and imposed tax on capital gains at ordinary income tax rates. The Taxpayer Relief Act of 1997 eliminated taxes on capital gains of up to $250,000 realized from the sale or exchange of the taxpayer’s principal residence.

Deferred compensation payments from non-qualified plans and stock options transferred incident to divorce do not trigger an immediate tax consequence to the transferor. The tax liability is imposed on the transferee upon exercise of the options or receipt of the deferred compensation. However, cashing out a retirement account and transferring the proceeds results in an imposition of tax to the transferor. To avoid an immediate tax consequence, the transfer must be made of the transferor’s interest in the account by way of a rollover directly into the transferee’s account or by changing the name on the account.

With regard to dependency exemptions, prior to 1984 a parent could claim a child if he or she paid more than 50% of the child’s support for the year in question. Application of this test generated disputes between parents and significant administrative problems for the IRS. In cases where both parties claimed the dependency exemption, they were required at an audit (usually years later) to produce proof of their expenditures for food, clothing, medical care, shelter and so on.

These provisions were changed in 1984 to entitle the primary custodial parent to claim the child absent a written waiver to the other parent. This was an important feature because as personal exemptions were phased out for high income taxpayers, it cost little or nothing for a payor in a high income tax bracket to grant the exemption to the other party for whom the exemption actually confers a benefit.

Congress created an additional benefit to parents in 1997 in the form of a child tax credit which acts to offset actual tax liability. The child tax credit is an addition to the dependency exemption and is available only to the parent entitled to claim the exemption.

An additional credit, the Child and Dependent Care Credit, is available to a custodial parent even if he or she waives the dependency exemption in favor of the other parent.

From a simple concept one hundred years ago to provide a source of revenue for the Federal Government by taxing income, federal tax law has steadily evolved and expanded. Despite periodic expressions of intentions to simplify the tax Code, it has grown ever more complex. Changes in tax law over the past fifty years have generally been modifications that are responsive to the needs of divorcing couples and their children. When considered as a whole, such changes have, almost without exception, been improvements.

Divorce lawyers have used their experience in applying the tax consequences of transactions incident to divorce into catalysts for change. The current state of the tax law as it applies to divorce remains a work in progress; however, it improves with each change.

John Eory is the Co-Chair of Stark & Stark’s Divorce Group in the Lawrenceville, New Jersey office. For questions, please contact Mr. Eory.

New York Law Protects Minority Shareholders From Oppression

Scott I. Unger — Tue, 24 Apr 2012 08:28:17 -0500

New York law provides protections for oppressed minority shareholders. These protections are contained in under New York's minority oppression statute, it's interpretation by the Courts along with New York's recognition of the fiduciary duties majority shareholders owe the minority.

"Although the term ‘oppressive actions' is not statutorily defined, the Court of Appeals has held that ‘oppression should be deemed to arise when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner's decision to join the venture.'" In re Dissolution of Upstate Medical Assoc. P. C., 739 N.Y.S.2d at 767 (citing Matter of Kemp & Beatley, Inc., 64 N.Y.2d 63, 73 [N.Y.1984] ['A shareholder who reasonably expected that ownership in the corporation would entitle him or her to ... a share of corporate earnings, ..., or some other form of security, would be oppressed in a very real sense when others in the corporation seek to defeat those expectations and there exists no effective means of salvaging the investment.'] ).

'The relationship between majority and minority shareholders in New York is a fiduciary one. Brunetti v. Musallam, 11 A.D.3d 280 [N.Y.App. Div., 1st Dept.2004] Pursuant to that fiduciary duty, a majority shareholders in a closely held corporation may not to engage in oppressive actions toward minority shareholders. McCagg v. Schulte Roth & Zabel LLP, No. 601566/04, 2008 WL 4065920, at *8 (N.Y. Sup.Ct., New York County 2008); see also In re Dissolution of Upstate Medical Assoc. P.C., 739 N.Y.S.2d 766, 767 (N.Y.App.Div., 3rd Dept.2002).

In addition, New York Court have consistently held that corporate directors and controlling shareholders of close corporations owe minority shareholders the extreme measure of candor, unselfishness and good faith.’ Harger v. Price, 204 F.Supp.2d 699, 707 (S.D.N.Y.2002) (citing Kavanaugh v. Kavanaugh, 226 N.Y. 185, 193 [1919] ).

Thus, if you are being oppressed by the majority in a closely held, New York Corporation, you may be entitled to relief.

An Overview of How a Divorce Could Affect Your Taxes Part 2: Alimony & Child Support

John S. Eory — Thu, 19 Apr 2012 08:18:31 -0500

This blog is part two of a three-part series discussing how a divorce could affect your taxes. You can read the first blog post in this series here.

Alimony comes in many forms, including permanent, rehabilitative, limited duration, reimbursement and temporary (pendente lite) support. It is important to recognize that whether payments qualify as alimony under federal tax law is determined by the characteristics of the payment and not by how they are labeled under state law.

In 1954, the Internal Revenue Code added two key provisions, Section 71, which provided that alimony payments were includeable in the taxable income of the recipient and Section 215, which provided that such payments were deductible to the payor. These provisions remain part of current tax law although they have been subject to revisions over the years.

Initially, to qualify as alimony, the payments have to be “periodic”. Thus, installment payments of a principle sum did not qualify for periodic payment treatment unless the installments were payable for a period of more than ten years. This ten year requirement was rigidly enforced. Payments over a shorter period of time could qualify as periodic provided that the total sum was rendered uncertain by a contingency, such as the death of either party or the remarriage of the recipient. Additionally, the payments must be in discharge of a support obligation, as opposed to payment for transfer of property or a property settlement.

Additionally, the payments must have made pursuant to a decree, court order or written agreement. In the case of an agreement, the requirement was that it be signed by both parties.

Thus, agreements for payment of support that were confirmed by an exchange of letters between lawyers did not qualify, nor did oral agreements between the parties. Importantly, the requirement of a writing has remained unchanged despite subsequent amendments to the Internal Revenue Code.

The Domestic Relations Tax Reform Act of 1984 and Tax Reform Act of 1986 amended the Internal Revenue Code and dramatically changed tax law with respect to alimony. Most of the changes are beneficial to divorcing parties and have provided lawyers with previously non-existent planning possibilities.

For example, since1984, parties have been able to designate alimony payments as non-taxable to the payee and non-deductible to the payor and this designation is accepted without question by the IRS. The concept of alimony “recapture” was also introduced to prevent “frontloading” or disguising property settlements as alimony to gain tax advantages. To eliminate such problems, the new law placed limits on accelerated alimony by “recpaturing” excess payments in earlier years and adding that excess back to the payor’s income. The recapture rules do not apply to temporary support or to fluctuating payments not in the control of the payor, such as an obligation to pay a percentage of income. Importantly, the rule is applicable only to qualifying payments in the first three post-separation years.

Unlike alimony, child support payments are neither deductible to the payor nor taxable to the payee; however, payments that are “unallocated” between spousal support and child support are entitled to alimony treatment under the Internal Revenue Code. Unallocated payments became a popular device which resulted in making additional funds available to the family assuming that the payor is in a higher tax bracket than the payee, he or she could afford to pay a larger amount, a portion of which would be retained by the payee rather than paid out in taxes. This principle proved to be so popular that many states have adopted the unallocated payment structure.

The next and final article in this series will deal with the tax considerations of property distributions, dependency exemptions and childcare credits.

John Eory is the Co-Chair of Stark & Stark’s Divorce Group in the Lawrenceville, New Jersey office. For questions, please contact Mr. Eory.

The Use of Experts and Other Professionals in a Collaborative Divorce

Maria P. Imbalzano — Wed, 18 Apr 2012 08:46:31 -0500

In a previous post, I posed the question "are you a good candidate for a collaborative divorce?" Once we have determined that the collaborative divorce process is right for you and your spouse, and you have each retained a collaboratively trained attorney to help you through the process, it may be necessary to add other professionals to the team.

In addition to each party’s attorney, other trained professionals may be called upon to help you navigate through the issues in your divorce case. Not all of these professionals are used in every case, but one or more may be helpful, depending on the issues in your case.

Divorce Coach: This is a licensed mental health professional who guides a party through the emotional issues that many times hinder the settlement process. A divorce coach can help prioritize issues, aid with communication between the parties, and support that party through the emotional ups and downs of divorce. Each party should have their own divorce coach to deal with their particular issues.

Child Specialists: These are trained professionals who work with children, parents and families in transition. They advocate for the children in this process by communicating the children’s concerns to the parties. The child specialist can make recommendations to the parents based on their education and experience as well as the children’s needs and desires. The goal is to establish a workable parenting plan taking all family members’ needs into consideration.

Financial Specialists: This team member can aid the parties by analyzing assets, debts, incomes and budgets with the goal of having everyone understand the financial situation. In addition, he/she can identify options in dealing with that situation. Issues of cash flow, tax consequences, and net worth, fall within their purview, as well as determining true income for support purposes in the event there is a closely held business in the mix.

Appraisers: If the value of real estate, a business or personal property is at issue, various experts in these fields should be hired as neutral experts to value said property.

The above professionals are hired on an as needed basis and can greatly aid the parties in first understanding the issue and them coming to a workable settlement.

Maria Imbalzano is the Co-Chair of Stark & Stark’s Divorce Group in the Lawrenceville, New Jersey office. For questions, please contact Ms. Imbalzano.

Selecting a Qualified Business Valuation Expert For A Minority Oppression Case

Scott I. Unger — Tue, 17 Apr 2012 08:13:13 -0500

I often tell clients that selecting a qualified expert maybe more important that selecting a well qualified attorney who knows how to represent oppressed minority shareholders. An expert is usually required to provide opinion testimony as to the “fair value,” of the subject company. Often, that is the central issue in minority oppression litigation. Before an expert is permitted to provide opinion testimony as to the value of the company, they must possess the education, training and experience to render the opinion. Business valuation experts often have various designations.

This blog post will provide a quick overview of those designations.

Certified Public Accountant (CPA) While it is helpful to retain a CPA, that designation alone may not be enough to qualify as a business valuation expert. That is because the CPA examination does not focus on business valuation.
Accredited in Business Valuation (ABV) This is a person who has been certified by the American Institute of Certified Public Accountants. A person with the ABV designation has demonstrated to the AICPA that they have the knowledge and experience to value businesses. This designation is achieved by passing a test.
Accredited Senior Appraiser (ASA) This is a designation given by American Society of Appraisers. Because the American Society of Appraisers certifies a number of valuation disciplines, it is important that the correct discipline is chosen for the engagement.
Certified Business Appraiser (CBA) This is a designation created by the Institute for Business Appraisers. This is a good designation. A person who has this designation must pass a test, complete a course, have an advanced degree and perform business appraisals.
Certified Valuation Analyst (CVA) This is a credential created by the National Association of Certified Analysts. Often experts will combine the CVA designation with other designations.

How to Invalidate a Decedent's Will Based Upon Undue Influence

Paul W. Norris — Thu, 12 Apr 2012 08:05:33 -0500

A beneficiary may seek to challenge the validity of a Will based upon an allegation of undue influence at the time the decedent created the Will. Generally speaking, this means that the Will was not the product of the decedent’s own free will and volition, but instead, was the product of undue influence asserted by another individual over the decedent thereby rendering the Last Will and Testament that was drafted not reflective of the decedent’s true intentions, but instead, the wishes of the party asserting undue influence.

In order to establish the invalidity of a Will based upon an allegation of undue influence, the challenging party must present evidence which demonstrates that the type of conduct which occurred caused the decedent to execute a Will which did not accurately reflect his/her true intentions, but instead, those of the other party.

During a Will contest, a party may be successful in shifting the burden of proof to the other side to demonstrate that there was no undue influence in the execution of the Will. The shifting of the burden of proof may occur when there is a confidential relationship between the proponent and the decedent, such as any attorney/client relationship, a power of attorney relationship, or any other relationship where trust and confidence naturally exists. Should a party also establish the existence of suspicious circumstances, it may shift the burden of proof to the proponent of the Will to demonstrate its validity.

If a party is successful in establishing the invalidity of a Will based upon an allegation of undue influence, then the Testator may be deemed to have died intestate, or in the alternative, it may revert to a previous Will of the decedent provided a copy still exists. Factors that the Court may consider in determining whether a Testator may have been subjected to undue influence concern a decedent’s health at the time the Will was executed, the relationship between the decedent and the person who benefitted by the newly drafted Will, and whether the decedent was in good mental and physical health during the same time. There is no set formula in this regard; however, factors which demonstrate a mental or physical weakness may make the individual more susceptible to undue influence.

Should a party wish to challenge a Will based upon undue influence, it is suggested that they consult with any attorney as this is a complex process.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

An Overview of How a Divorce Could Affect Your Taxes

John S. Eory — Fri, 06 Apr 2012 08:04:57 -0500

The impact of federal tax law has evolved into an important aspect of my matrimonial practice. This is the first of three blogs which will discuss how the divorce process can affect your taxes, as well as the difference between the need for joint and individual tax return filings during a divorce.

Most married persons file joint returns because it saves them money. The quid pro quo for lower taxes is joint and several liability on the return. Since joint tax returns are favored, the parties are permitted to amend filed tax returns to joint tax returns within three years from the due date of the original returns.

The marital status of the parties at the end of the tax year determines their federal filing options. If a couple is divorced at any time during the year, including December 31, they are considered single.

Although same sex couples are legally entitled to marry in a growing number of states, these marriage are not recognized under federal law pursuant to the Defense of Marriage Act. Thus, federal benefits, including application of the tax laws, are available only to spouses in heterosexual marriages. As a result, legally married same sex couples are not entitled to file joint tax returns. Other federal tax benefits, including alimony treatment of post-dissolution payments are also unavailable to same sex couples.

Whether a joint tax return is accepted by the Internal Revenue Services is determined by the intent of the parties in the context of the circumstances. When a couple has historically filed joint tax returns and one party withholds his or her signature, a joint tax return filed by the spouse may be accepted. For example, in Federbush v. Commissioner, (1960), it was determined that the tax return was a joint filing even though Mrs. Federbush refused to sign it, since her refusal had nothing to do with the contents of the return, but was related to other marital problems.

In Anderson v. Commissioner, (1984), it was determined that Mrs. Anderson did not intend to file a joint tax return but signed it only when ordered to do so by the divorce court.
Mrs. Anderson had no income and was not even required to file a tax return. She resisted signing the joint return because she had concerns about the propriety of her husband’s deductions. Such concerns proved to be justified when a deficiency resulted from the IRS disallowing the losses. The determination that Mrs. Anderson did not intend to file jointly return relieves her of any liability for the deficiency.

When the issue of intent is driven by threats of abuse or duress, such facts operate as a defense to joint liability, provided that the conduct is directly related to the signing or the refusal to sign the tax return.

An exception to the rule of joint and several liability is known as the “Innocent Spouse Doctrine”, which was introduced in 1971. Initially, to qualify as an innocent spouse, a taxpayer was required to prove not only that he or she did not know the item on the return was incorrectly reported but also that he or she did not benefit from the underpayment of taxes.

In response to criticism, the Tax Code was revised to afford broader protection for innocent spouses. Under the new law, a party could seek relief from joint liability by establishing a lack of knowledge of the understatement of the taxes and that it would inequitable under the circumstances to hold him or her liable for the deficiency.

Joint tax refunds can also involve substantial funds. Federal tax law often dictates a different result from State divorce laws. Although a federal tax refund check is drawn to the order of both parties, they do not necessarily have equal joint ownership rights to it. Instead, it is the source of the overpayment which determines ownership of the refund. Overpayment by a married couple filing a joint tax return is owned by each spouse separately to the extent that he or she contributed to the overpayment.

One of the potential hazards of filing jointly that one of the joint filers may appropriate a tax refund to which the other is entitled. In United States v. MacPhail, a 1997 Separation Agreement contained a provision requiring the parties to file joint tax returns for the previous year but made no mention as to the payment of any taxes due or entitlement to any refund. As a factual matter, the taxes due were almost entirely attributable to Mrs. MacPhail’s income from the family business. When the parties requested a filing extension, it was accompanied by a substantial payment from Mrs. MacPhail’s funds. When the return was eventually prepared, it showed an overpayment of approximately $300,000 which was designated as a credit against the parties’ tax liability for the following year. Now divorced, the parties filed separate returns. Mr. MacPhail filed first, showing a tax liability of approximately $1,000 and claiming the credit. As a result, the IRS applied the overpayment to his tax liability and issued him a refund check of $299,000. When Ms. MacPhail later filed her tax return, and claimed the $300,000 credit she thought she thought she had coming, the IRS refused her claim, stating that Mr. MacPhail had already received the refund. Eventually the IRS acknowledged that the funds had been paid to Mr. MacPhail in error and granted Ms. MacPhail a credit on her separate tax return. The IRS then demanded payment from Mr. MacPhail but he had already spent the money and was essentially judgment-proof. When the issue was further litigated, it was determined that the credit was correctly given to Ms. MacPhail because she was the source of the overpayment and that the IRS was required to look to Mr. MacPhail for repayment, although by this time, a futile act.

In summary, the ownership of a joint federal tax refund belongs to the person who made the overpayment and not necessarily the person who earned the income.

The upcoming blogs in this series will deal with the tax considerations of alimony, child support and division of property in a divorce.

Are You A Good Candidate For A Collaborative Divorce?

Maria P. Imbalzano — Fri, 30 Mar 2012 08:49:30 -0500

In “The Collaborative Way to Divorce” by Stuart G. Webb and Ronald D. Ousky, the authors put together a short quiz to help you determine whether the collaborative process is right for you.

Take the following quiz and add up your score: (PDF)

If your total score is higher than 40, you are a good candidate for the collaborative process. If the total is between 30 and 40, you may still be a good candidate, but you should work on the areas producing 1's and 2's. If your total score is between 20 and 30, you may not be quite ready for this process. If your score is below 20, the collaborative process may not be right for you.

If a Beneficiary Wishes to Challenge A Decedent's Will, the Decedent's Mental Capacity May Be Called Into Question

Paul W. Norris — Wed, 28 Mar 2012 08:09:36 -0500

A party also may seek to attack the validity of a Will by asserting that the decedent had a diminished mental capacity at the time the Will was executed. In general, a legal presumption applies that the decedent was of sound mind and was competent at the time he/she executed a Will. In fact, the law only requires a minimal degree of mental capacity when executing a Will. Generally, the inquiry is whether the decedent comprehended the property of which he/she wanted to dispose, the beneficiary of said property, and the act of executing the Will. Moreover, this understanding must only be present at the time the Will was executed. Even if the provisions of a Will may be shockingly unnatural or unfair, if it appears that the Will was executed at the time the decedent was competent and that it was the free and unconstrained product of their mind, then the Court should uphold the Will.

Should a beneficiary wish to challenge the validity of a Will based upon the mental capacity of the decedent, the beneficiary would bear the burden of proof to overcome the presumption that the Will was valid. As such, a beneficiary who seeks to uphold the terms of the Will need not establish its validity, but instead, a party who wishes to invalidate a Will must establish the incapacity of the Testator at the time the Will was executed. A challenge to the capacity of a descendent may involve a review of the relevant medical records, testimony of first-hand witnesses, as well as other factors which relate to the competency of the Testator at the time the Will was executed.

This is a general overview as to the mental capacity required of a descendent to execute a Will, as well as what an attack levied by another party seeking to invalidate a Will on the grounds of lack of capacity may entail.

Paul Norris is a Shareholder in Stark & Stark's Litigation Group in our Lawrenceville, New Jersey office. For questions, or additional information, please contact Mr. Norris.

Valuation Technique Used In Minority Oppression Litigation: Capitalization of Income.

Scott I. Unger — Mon, 26 Mar 2012 08:08:22 -0500

In one of my previous posts, I identified three sub-parts or methods within the income approach used by business valuation experts to opinion as to the fair value of a closely held company in minority oppression litigation. One of the three sub-parts I identified was the “Capitalization of Income,” approach.

The basic definition of the “Capitalization of Income” approach is what would a reasonable buyer and seller be willing to pay or accept to sell or acquire the income stream generated by the business? This method assumes that the business will generate a certain level of income for an indefinite period of time.

The expert employing the “Capitalization of Income” approach first determines the “income stream,” generated by the company. In order to do so, the business valuation expert must determine an appropriate capitalization or “cap rate,” for the subject company. A cap rate is the inverse of a multiple. It is the number of years that the subject company’s income for which one is paying/receiving to acquire the income stream. For example, a cap rate of 25% means a multiple of 4 – the value of the business is four times its assumed earning stream.

The expert determines the “cap rate” by engaging in a process called the “build up method,” which considers the “growth” and “discount” rates for the subject company. This is done by taking into consideration various considerations such as to the anticipated growth of the company, current income stream the company generates and comparing it to the risk that the current or future income will be reduced or eliminated. In doing so, the expert considers and utilizes published sources regarding expected returns on investment such as the current 20 year treasury note as of date of valuation along with published guidelines that set forth opinions for industry specific risks.

Paid and Unpaid Interns Must Be Treated in Accordance With Wage & Hour Laws

Amy Beth Dambeck — Mon, 19 Mar 2012 08:37:31 -0500

Given the tough job market and with summer approaching, many employers can expect college students, recent graduates and currently unemployed workers to seek out internships with their organizations.

Many employers do not realize that they, generally, must pay at least the minimum wage and overtime to their interns under federal and state regulations. In fact, some employers would be shocked to learn that their use of interns (aka trainees, assistants, or learners) for whom they provide little or no pay for the work performed may violate wage and hour laws. Employers who wish to employ unpaid interns must do so carefully to avoid exposure to legal and financial liability.

Background
The federal Fair Labor Standards Act (FLSA) defines the term “employ” very broadly as “to suffer or permit to work.” Covered and non-exempt employees who are “suffered or permitted to work” must be compensated under law for the services they perform. Internships in the “for-profit” private sector will most often be viewed as employment, unless certain criteria relating to training are met. Accordingly, interns in the “for-profit” private sector who qualify as employees, rather than trainees, typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek. (See U.S. Dept of Labor Wage and Hour Division Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act)

The Test for Unpaid Interns
There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation. The determination of whether an internship or training program meets this permitted exclusion to the general rule depends on all of the facts and circumstances of each such program.

The following six criteria must be applied in making this determination:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
The internship is for the benefit of the intern;
The intern does not displace a regular employee, but works under close observation of existing staff;
The employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, the employer’s operations may actually be impeded;
The intern is not necessarily entitled to a job at the completion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The Take-Away
Whether or not interns at a company are “employees” under the FLSA will depend upon all the circumstances surrounding their activities. To the extent that an organization wishes to utilize unpaid interns, programs, policies and procedures should be developed which satisfy the above factors and which are tailored to the particular organization.

For more information regarding the use of paid or unpaid interns, including practical suggestions about the development and implementation of internship programs and policies, contact Amy Beth Dambeck, member of Stark & Stark’s Employment Group, via email: adambeck@stark-stark.com.

Raise Money and Awareness For Organ & Tissue Donation With a Simple Click!

Stark & Stark — Fri, 16 Mar 2012 08:56:29 -0500

Kristyn Testa, a Legal Secretary in Stark & Stark's Lawrenceville, New Jersey office, underwent surgery this past October to donate her kidney to her brother, Michael. Michael was suffering from kidney failure and had been on dialysis for the past two years.

On Sunday April 15th Kristyn and her team will participate in the 17th Annual Dash for Organ & Tissue Donation Awareness in Philadelphia, PA. We'd like to help Kristyn and her teammates raise money, and awareness, for this great cause.

Visit Stark & Stark's Facebook page from March 15 - April 15 2012 and "like" us. For each "like" we receive, Stark & Stark will donate $1 to Kristyn's Team: Got Kidney?

For more information on the Donor Dash, and the Gift of Life Organization, please visit their website online here.

Declaratory Judgment Actions: Combating the Coverage Denial Letter

Tara A. Speer — Fri, 16 Mar 2012 08:21:35 -0500

Suffering a first party insurance loss or facing a lawsuit from a third party can be two of the most difficult and unsettling experiences for an individual or business. To add to the turmoil, being told by the insurance company that there is no coverage for the claim can be enough to turn that bad situation into an unbearable one. The daunting prospect of being forced to navigate the financial or legal landscape alone is overwhelming. On top of that, finding out that the money you spent on insurance premiums does not provide the necessary coverage when it is needed most is like adding insult to injury. Rest assured, there may still be hope.

Insurance is a business, and like any business, the ultimate goal of the insurance companies is to make money, not to spend it. This automatically places an insured in an adversarial position to an insurance company when a claim is made. Given this dynamic, it is not surprising that the insurance company is going to use any avenue to avoid having to pay money. The most likely scenario is that an insurance company will interpret policy language or exclusions in a way that turns an otherwise covered claim into one that is not. However, contrary to what many insured's may think, this does not mean the insurance company's interpretation is the only one, or even the right one.

In essence, an insurance company is gambling when it issues a coverage denial letter. It is betting that the insured will take its policy interpretation and carefully crafted denial letter at face value and will fold his or her hand. Luckily, however, the law in New Jersey allows insureds to call the insurance company's bluff. Through a Declaratory Judgment action, an insured can make an application to the Court to have a judge review the contract of insurance, in light of the facts of the case, and make a judicial determination as to whether coverage exists. Better yet, New Jersey Courts have held that any policy provision which is found to be "ambiguous" is to be resolved in favor of the insured.

The Declaratory Judgment action may be just what an insured needs to resolve a coverage dispute with an insurance company. This is especially true if the implications of the coverage denial could have drastic financial effects for the insured in the long term. Declaratory Judgment actions can be useful in establishing an indemnification obligation in a first party insurance claim and may be useful in establishing a defense and/or indemnification obligation in a third party insurance claim. Further, in a third party claim it is not necessary for the insured to wait until after it receives a judgment against it to file a Declaratory Judgment action. Therefore, a favorable determination could potentially save the insured from having to pay tens of thousands of dollars in defense costs out of pocket to fight the underlying lawsuit. In addition, a successful insured in a Declaratory Judgment action based on a third party lawsuit can recover the costs of instituting the Declaratory Judgment action from the insurance company.

While some insurance companies will take it upon themselves to file Declaratory Judgment actions where they feel their rights and obligations to an insured are questionable, in the event that they issue a coverage denial letter without taking this prudent step, it can be a powerful mechanism for insureds to utilize as well. Although an insured may be wary of taking on the task of getting the Courts involved, when the alternative is having no coverage available for a claim, it may be the best option available. Before taking this step, it is important to have a qualified coverage attorney review your insurance policy and evaluate the strength of your coverage claims so you can make the most informed decision possible. Know your rights and take steps to avail yourself of the all that is available to you.

Tara Speer is a member of Stark & Stark’s Insurance Coverage & Liability Group in the Lawrenceville, New Jersey office. For questions, please contact Ms. Speer.