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  • 10 Feb 2022 11:47 AM | AAML NJ Administrator (Administrator)

    By Carla Fried | Marc Demetriou - Guaranteed Rate, AAML NJ Gold Sponsor

    Save Money and Reduce Emotional Wear and Tear

    Making the decision to end a marriage sets off a string of consequential decisions, starting with the framework you’ll rely on to navigate the legal process of a divorce.

    There are alternatives to the traditional model of straight-out litigation, in which you each hire your own lawyer, who then are predisposed to “fight” for your best interests.

    Most litigated divorces are settled long before it is necessary to have a judge step in, but it’s important to understand the dynamic with litigation. The lawyer you hire is motivated to do right by you. That can mean pushing hard, or spending lots of billable time in back-and-forth discovery with your spouse and his/her lawyer.

    Collaborative Divorce Option

    Collaborative divorce is another option. You each have your own lawyer, but the dynamic is not competitive. As its name implies, the process is one in which all four of you work together to hash out an agreement. 

    The heart of the process is done in real time with the four of you sitting together (in person, virtually) to discuss matters. Right off the bat that reduces the usual back and forth in which clients only communicate with their lawyers, who then discuss among themselves and return to their respective clients with a report on progress or lack thereof.

    A key element of most collaborative divorce proceedings is that the lawyers explicitly agree that if you can’t reach an agreement using this process, neither lawyer will be involved if you and your spouse start over with full-blown litigation.

    The In-Between Route

    Collaborative divorce might be the Goldilocks option for couples who don’t want the aggressive nature of litigation, but are not sure divorce mediation is the right approach either. With divorce mediation, you and your spouse hire one mediator. The mediator works for both of you, helping you navigate through issues to reach agreement.

    Once a mediated settlement is agreed to, a lawyer (it may be the same mediator) will draft the legal divorce agreement and shepherd it through your state’s filing system.

    If that approach doesn’t appeal to either of you, or if you sense it’s not the right method — say, if there is a significant power imbalance in the relationship — the collaborative divorce approach gives each of you your own legal representation, but without the more aggressive nature of litigation.

    State Laws About Children

    It’s important to understand that a state’s laws regarding childcare, child support and alimony provide the framework for all divorces. No matter which approach you take, at the end of the day your agreement must abide by state law. Sure, there is room for negotiation, but this is not some free-for-all. You can begin to get a sense of your state’s laws at Divorce.net’s website.

    And you can arrange a consultation with a divorce lawyer to walk you through the ins and outs of the process in your state. (You don’t have to hire them to be your lawyer, just agree to an hourly fee to give you an Intro to Divorce in your state.)

    Cost of Collaborative Divorce

    In terms of cost, collaborative divorce will typically fall in the middle ground between mediation (less expensive) and traditional litigation (more expensive).

    With mediation you’re hiring one professional to do most of the heavy lifting with you; lawyers might only come in at the end to help each of you review the agreement. Collaboration involves two lawyers, each charging you an hourly fee.

    A survey by Martindale-Nolo found that the average national hourly rate is $270, though there is wide variation, depending on location. The Nolo book “Divorce Without Court” offers an illustrative example using a $350/hour lawyer fee. The all-in cost for both parties using a collaborative divorce was less than $24,000, compared to more than $90,000 for the same divorce conducted through litigation. Mediation would typically cost less than half the charge for collaborative.

    The Mediation Option

    If your motivation for collaborative divorce is because you have complicated financial issues to work out, and think you both need separate lawyers, you may find that mediation can work.

    The reality is that when there are tricky financial matters to consider — valuing an interest in a business, computing the future value of pensions, etc. — a lawyer is likely going to turn to a financial pro, such as an accountant. If you’re both open to hiring one pro as an uninterested third party to do the number-crunching, you might not need to hire either a collaborative lawyer or a divorce litigator.

    Hiring a divorce mediator along with using a financial pro to spreadsheet the financial issues may be sufficient. Your mediator will likely have leads. Or you can search the website of the Institute for Divorce Financial Analysts for someone who specializes in divorce valuation matters. Once you have an agreement in principle, you can hire a divorce lawyer on a “consulting” basis to review the terms before you proceed with finalizing the divorce by filing the agreement with your state court.

    Originally published on August 26, 2020.

  • 24 Jan 2022 11:29 AM | AAML NJ Administrator (Administrator)

    By Christy L. Watkins, CFA, Senior Investment Advisor and William T. Bennett, CFA, Wealth Investment Advisor | Wilmington Trust, AAML NJ Silver Sponsor

    With the rise of the omicron variant across the nation, divorcing clients continue to face numerous obstacles. During this tumultuous time, what additional factors should those navigating divorce consider? Wilmington Trust’s Christy L. Watkins, CFA, Senior Investment Advisor and William T. Bennett, CFA, Wealth Investment Advisor explore key post-COVID adjustments as clients develop their long-term financial roadmap including detailed investment plans, cash flow expectations and tax considerations.

    Link to article: COVID-19, Your Divorce, and Your Financial Future

    For more information, reach out to Sharon L. Klein at 212-415-0531 or sklein@wilmingtontrust.com.

  • 21 Jan 2022 9:56 AM | AAML NJ Administrator (Administrator)

    By Kelly Clifford, Vice President, Sales | LEAP Legal Software, AAML NJ Silver Sponsor

    Is Cloud-Based Legal Software Right for Your Law Firm?

    To answer this question simply; yes. More New Jersey law firms are choosing cloud-based legal practice software because it’s naturally better than the alternative, on-premises software. 

    On-premises software lives in a physical server at your law firm’s location. Some requirements that come with on-premises software include: 

    • A secured space where the server is stored
    • Upkeep of hardware for sufficient speeds and storage
    • Regularly updated operating system software and security patches
    • Backups that are available around the clock 
    • Manual updates to the most current version of the actual legal practice software

    Before the internet, staff at New Jersey law firms were settled into the responsibility of maintaining this type of data. With new technology advancements, we have higher expectations of data maintenance being incorporated into these software products. 

    LEAP is a one-of-a-kind, true cloud-based legal practice productivity solution that provides what on-premises software can’t. Some examples of this include: 

    1. Decreased IT costs, with far less risk of inflation
    2. Universal and mobile features across multiple devices – including iOS, Android, Apple Watch, and Amazon Alexa
    3. Advanced data security and user access control
    4. Sustainable foundation for growth 
    Decreased IT Costs, With Far Less Risk of Inflation

    Cloud-based legal software products include data maintenance built-into the system, whereas on-premises software requires law firms’ employees to maintain their data. Because of this, on-premises software costs less initially because you get less. 

    On-premises legal software costs are never static. This model requires New Jersey law firms to increase their investment in the software over time as the firm grows, and software or hardware updates are needed. These expenses can be very costly, and depending on your provider, can have a price tag upwards of $10,000.

    LEAP exclusively offers consistent per user pricing, which keeps your budget planning simple, resulting in a decrease in overhead for the long term. 

    Universal and Mobile Features 

    We know that on-premises software does not include data maintenance, but it also lacks several other features such as email management, automated legal forms, and document automation

    LEAP is a great solution for New Jersey law firms with all the needed features available in one place:

    LEAP is also available across multiple devices, so your law firm can access cases and matters via desktop, web browser, iOS, Android, Apple watch, and Amazon Alexa.

    With LEAP, you can avoid “tech bloat” or investing in a new software for each additional feature you need. Find everything in one place at a simple per user price. 

    Advanced Data Security and User Access Control

    Data maintenance can set attorneys back from doing what they need to do, but it’s important to have data security and access control, all of which are included with LEAP.

    LEAP is powered by the global leader in data security, Amazon Web Services (AWS). This allows New Jersey attorneys to focus their time on clients, while LEAP provides easy practice management, and AWS keeps everything secure. It’s difficult for IT providers to compete with the world-class security that AWS provides. 

    It’s never been easier to control user access with LEAP. Attorneys, paralegals, legal assistants, and other legal professionals only need one login for everything they do. LEAP allows complete control over who has access to online intake, scheduling, document management, and more. All of this can be managed from anywhere with an internet connection. Clients’ important information is accessible to anyone who needs it, and no one else. 

    Sustainable Foundation for Growth

    With any business, there are plenty of hard decisions to make as the company grows. With on-premises software, there are even more: 

    • Negotiating contracts with IT providers to cover increasing costs
    • Updating hardware to allow for more storage of data
    • Investing in a larger physical space to store the server(s)

    LEAP makes growing your New Jersey law firm as easy as adding another user account. Data maintenance, security, and unlimited storage are all included in LEAP’s pricing model. LEAP’s cloud-based software doesn’t take up any physical space other than the device used to log in.

    Law firm management has never been easier when using LEAP. New Jersey law firms that use LEAP have one all-inclusive product for working with clients digitally, and there is no longer a need to maintain their own IT. 

    Learn more about how to make your law firm more productive with LEAP today. 

  • 19 Jan 2022 9:56 AM | AAML NJ Administrator (Administrator)

    By Alex Krasnomowitz and Rory Gannon | Smolin Advisory, AAML NJ Gold Sponsor

    Divorce is often a stressful and time-consuming process. For family law attorneys, you may find that estate planning is the last thing on your clients' minds during their divorce proceedings. Still, it's vitally important that they update their estate plans to reflect their new situation.

    Here are a few estate planning strategies you can use to help your clients protect and control their assets after a divorce.

    Using Trusts to Control Assets

    It's unlikely that an ex-spouse will directly inherit a client's property since divorce usually extinguishes an ex-spouse's rights under a will or other trusts. However, it's still possible that an ex-spouse could have more control over their wealth than they'd prefer, especially if they have minor children.

    When a minor inherits property, that property is generally held by a custodian until the child reaches the age of majority, which may be either eighteen or 21, depending on the state. A surviving parent (including an ex-spouse) may act as the custodian in some cases—and this could allow them to make decisions about how inherited assets are spent or invested until the minor child comes of age. 

    Creating a trust (or several trusts) for the benefit of your client's children is an excellent way to avoid this situation. Trusts allow the grantor to appoint a trustee with authority to manage the trust's assets and make distributions. Since the grantor can choose this trustee, your client will ensure that assets within the trust won't be controlled by their ex-spouse.

    Different Types of Trusts to Consider

    The following types of trusts may play a valuable role in the estate planning process for recently divorced individuals.

    Revocable Living Trusts

    This type of trust allows grantors to arrange for the transfer of specific assets to designated beneficiaries. Revocable living trusts are commonly used to complement a will, as they allow the assets they contain to bypass the probate process. 

    Irrevocable Life Insurance Trusts (ILIT)

    These trusts allow the grantor to remove the proceeds of their life insurance policies from their taxable estate by transferring the policies to the trust. An ILIT also allows the grantor's family to pay estate costs using the life insurance proceeds from the trust.

    Credit Shelter Trusts

    Credit shelter trusts can allow the grantor to maximize the benefits of the estate tax exemption and are particularly useful in cases where the grantor has children from a previous marriage and intends to ensure a new spouse's financial security. 

    Qualified Terminable Interest Property (QTIP) Trusts

    These trusts may be helpful for clients that have divorced and then remarried. The surviving spouse will receive income from the QTIP trust until their death—after which the beneficiaries are entitled to the remainder.

    Making the Right Estate Plan Revisions
    The above strategies may allow your clients to exercise greater control over their estates following a divorce. If you have further questions about any of these strategies and how they may help your clients, contact our experienced accountants at any time.
  • 12 Jan 2022 9:43 AM | AAML NJ Administrator (Administrator)

    By Noel Capuano CPA, CFF, CVA, Principal at Friedman LLP | Friedman LLP, AAML NJ Gold Sponsor

    As accountants, we are frequently asked to quantify provisions of settlement agreements.  Often, this becomes necessary in post judgement situations, when the memory of the intent of the agreement - at the time it was negotiated - has “faded” and any ambiguity can provide an opportunity for disagreement.  In these situations, accountants may be asked for guidance regarding the interpretation of those agreements.  

    In divorce matters, attorneys generally spend a great deal of time negotiating the specifics of parenting time – down to memorializing pickup times, holidays, grandparents birthday visits – all with the goal of avoiding future conflict. Unfortunately, for a variety of reasons, certain aspects of the financial settlement may not receive the same attention.  Financial terms can be misused/misunderstood and/or not adequately defined; this very often leads to confusion, conflict, and post judgement litigation over the original intent of the agreement.  The following terms are just a few examples of language that is often used incorrectly and/or misinterpreted.  By understanding the potential for misinterpretation one can design agreements that proactively address those issues that may otherwise arise down the road. 

    1. Net Income

    “Net Income” is defined, in the most simplistic terms, as revenue minus expenses.  Revenue and expenses can legitimately vary (perhaps greatly) between the books and the tax returns. Both are “correct” but each paints a different picture.  We frequently see significant confusion with regard to whether “net income” - as used in the agreement - is calculated before Perks, Owners Compensation, Draws or Distributions.  Depending on the type of entity, these items (which are frequently disputed during the pendency of the divorce)  may or may not be included in the determination of net income.  Don’t assume the parties are informed of your definition of “net income;” include a clear definition in the agreement.  

    A few key considerations for defining net income: Is it before Owners Compensation/Perks?  If there was a valuation performed, is the net income based on the reasonable compensation adjustment used for that valuation? The difference can be substantial, and the time taken to clearly define the specifics is well worth it.  

    As an example, take the situation involving  a buy-out of equitable distribution based on a percentage of the “net income” reported by the business owner.  There was a “floor” based on the prior three years of reported net income, which was clearly meant to be a safety net for the very situation that was to follow.  The first year after the divorce, the owner increased their  salary, thereby reducing net income.  The spouse, who was entitled to review the annual tax returns, objected for various reasons – since net income was much lower than its historic norms.  The spouse’s  position was that the owner increased their salary solely to reduce the buyout, not to recognize any post-marital increase in responsibilities, etc.  The spouse represented that they  were not aware that officer compensation was deducted in the determination of net income, and that had they understood that, they would not have agreed to the arrangement.

    Could this situation have been avoided by using more specific language? Perhaps. Had there been a discussion regarding these very issues that the spouse simply does not recall? Possibly.  The inclusion of the wording that the buyout was to be based on “net income prior to Officer Compensation/Perks etc.” would have not only removed the potential for future disagreement, but also eliminated any potential “divorce-related” incentive for the owner to increase their salary.  The previously referenced “floor” on which the buyout was based most likely accomplished the same outcome, however, the spouse clearly did not understand that and the outcome was post-judgment litigation and additional attorney/expert fees.

    2. Net Proceeds from Sale

    In a situation where a residence or other asset is sold and the “net proceeds” are to be divided between spouses, there should be a clear stipulation as to specifically how net proceeds is defined.

    For example, consider a recent case in which a vacation home that was deeded to the wife was to be sold shortly AFTER the divorce, with the “net proceeds” to be split equally thereafter.  (Remember a second home is not eligible for the exclusion of the gain). In this situation, the sale would be reported on the wife’s individual tax return in the year following the divorce; as such, any potential gain would be reported by the wife as well.

    The husband, based on consultation with his tax advisor, was of the impression that he would not be responsible for any tax on the potential gain because a) the sale would be reported on the wife’s tax return and b) he was not on the deed.  Based on the wording of the settlement agreement which referenced “net proceeds,” that was not clear.  The fact that the sale would be reported on the husband’s individual tax return is more a formality, and practitioners unfamiliar with divorce negotiations can often over simplify the impact of the “mechanics” on the intent of the agreement.  Since the tax to be paid was not insignificant, it is unlikely that the agreement did NOT intend for the “net proceeds” to include a provision for the associated tax liability as the property was going to be sold as part of the divorce and said tax was easily quantified (see below regarding situations in which this is not the case).   

    3. “Net of Tax”

    Unlike the prior example, where the tax burden on a sale can be relatively easy to determine, other situations can pose a myriad of more nuanced issues.  These situations often involve a spouse’s continued “participation” in a future benefit stream.  For example, where a spouse may have stock based compensation that will vest in the future or where they are owners in a pass-through entity from which they receive distributions.  In these instances, the recipient/owner spouse will incur a tax liability that most would agree the payee spouse should share in some way.  This is where very specific language can be of great benefit in avoiding future conflicts.  Limiting the reference to “net of tax” can lead to a variety of interpretations, and in turn, significantly different conclusions.  Will there be an agreed-upon “effective” rate used? Will there be an accountant appointed to prepare a more “exact” computation of the tax liability attributable to the specific income source to which the recipient spouse is entitled? Considering that taxes are often paid, at least in part, the year AFTER the “income” is received, is there a matching of taxes paid to income received? The possibilities are numerous, and while it is often desirable to keep things simple, the mechanism for doing that is to make sure the agreement is as detailed and specific as possible.

    There is no such thing as a perfect agreement.  Having your financial professionals review the language before the final settlement may ultimately save legal and accounting in the long term.  If you have any questions about the financial language within a proposed or pending agreement, contact a Friedman professional today. 

  • 20 Dec 2021 4:00 PM | AAML NJ Administrator (Administrator)

    By Kelly Clifford, Vice President, Sales | LEAP Legal Software, AAML NJ Silver Sponsor

    Advancements in legal technology are helping New Jersey law firms rethink how they run their businesses. Many legal professionals are shifting their focus to “practice productivity” to enhance quality legal services, improve operational efficiencies, and grow their firms.

    Here are four ways that LEAP helps New Jersey law firms, just like yours, become more productive:

    1. Using Automation to Eliminate Inefficiencies

    LEAP enables New Jersey legal professionals to rely on technology for work like client intake, opening and managing matters, and completing legal forms. A prospective client will complete online intake through the LEAP Web Portal and the matter is automatically pre-configured based on area of law and jurisdiction, without any manual setup.

    One of the most popular automation features in LEAP is document assembly. A court form library, with thousands of forms and templates, is readily available for New Jersey law firms. This library includes popular legal forms like Seller’s Residency Certification, 1099-S Reporting, Certification of Insurance Coverage, Summons (Divorce), Affidavit of Title- Individual or Married Couple, Case Management Order, and more. The forms are instantly pre-filled with information directly from the electronic matter. This eliminates any time spent searching for forms and entering information in multiple places to complete a document. 

    The latest version, LEAP 2.3, also includes a Clause Library so that New Jersey attorneys can add their most used clauses with only one click. 

    2. Organizing Information in One Place

    Law firm staff often spend too much time trying to find sticky notes, following up with colleagues for updates, and switching between multiple computer systems to work on a matter. LEAP eliminates all this hassle by keeping all matter information, files, correspondence, and financial records in one place. 

    LEAP also leverages Amazon Web Services, with 99.99% uptime, to provide a secure and modern database for easy access to information and “one version of the truth.” LEAP is a cloud-based legal practice productivity solution that eliminates time being spent on dealing with data corruption, server downtime, managing IT resources, and more. The time saved from these types of tasks can be spent on being productive in other areas of the firm, like business development. 

    3. Ensuring Critical Deadlines are Met

    The latest version of LEAP allows New Jersey attorneys and litigators to streamline how they manage different matters with critical court dates and legal deadlines. A seamless integration with LawToolBox allows law firms to map critical dates, pre-set from the court, and calculate them according to LEAP matters. 

    This workflow allows legal professionals to stay on top of complex legal cases with critical due dates so they never miss a deadline. It also protects New Jersey law firms from legal malpractice risks. With LEAP and LawToolBox, attorneys have peace of mind and can easily calculate, create, and track legal deadlines with only a few clicks.

    4. Keeping Your Law Firm in Your Pocket

    Technology is changing the traditional work model and allowing consumers to have healthcare, banking, and legal services readily available to them from anywhere. This ease of access to information is creating greater expectations from consumers who are paying for these types of services. 

    New Jersey law firms are getting more inquiries, questions, comments, and more at all different times of the day. To keep up with the demand, it’s imperative for law firms to adopt a work model that allows for staff to have flexibility to work from anywhere. The LEAP Mobile App keeps New Jersey legal professionals productive while away from their desks, enabling them to easily correspond with clients, access files, scan documents, instantly capture billable time, and more. 

    With the latest version of LEAP, New Jersey law firms will also benefit from an updated user interface making the mobile app even more intuitive with dashboard overviews for matter details. 

    LEAP is the legal practice productivity solution helping New Jersey law firms exceed client expectations, enhance work efficiencies, and be more profitable. Learn more about how to make your firm productive by visiting www.leap.us/new-jersey/ and schedule a time to meet with a productivity specialist. 

  • 20 Dec 2021 9:57 AM | AAML NJ Administrator (Administrator)

    By Carla Fried | Guaranteed Rate 

    Separate emotion from your financial well-being and make a new plan

    During a divorce, it can make all the emotional sense in the world to want to hold on to the house. You love it. You don’t want to add to the tumult younger kids already feel by adding a disruptive move. You simply can’t imagine uprooting.

    But holding on to the home can be financially risky. Sure, your lawyers will work with you to come up with an equitable split of assets if you keep the house. That’s not the main problem. It’s everything that comes after the divorce.

    Can you afford to refinance? If the home isn’t paid off, you will need to take out a new mortgage. Everything peachy with your soon-to-be ex? Perhaps you’re (both) thinking it’s no problem to just keep the existing mortgage? That’s setting you up for problems down the line. Your relationship may change. And it leaves you legally exposed to each other: If your ex gets sued, the home could be exposed.

    Are you relying on alimony to keep the house? If you can’t cover all your housing costs from your own income, think twice about staying put. What if your ex loses a job? Or falls behind in payments?

    Do you really have the cash flow to handle taxes, insurance and maintenance? Property tax is an especially big issue if you live in a state with high income tax and home values. The tax reform package that went into effect in 2018 sharply limits the total amount of state and local taxes you can deduct on your federal return. That effectively has raised the cost of home ownership in pricey states with pricey homes.

    Will it be affordable in retirement? If you are within 10 or so years of retirement, you need to think long and hard about this. Yes, there are reverse mortgages, but taking out a reverse mortgage in your 60s or early 70s because you can’t otherwise afford to keep the home is a sign that you in fact can’t afford to keep the home.

    Agreeing to sell the house today could do wonders for your later years. If you downsize, you can reduce your living costs, and perhaps your share of a home sale can plump up your retirement savings. Let’s say the two of you sell the big house, you’re able to downsize, and you pocket $100,000 to invest. At 7% compounded annually, you’d have roughly $195,000 more in savings in 10 years.

    Given all the moving pieces you will be considering, it can be helpful to get an expert’s insight on how best to think about keeping or not keeping the home. A certified divorce financial analyst is trained to help you – and your divorce attorney – understand how decisions made today will play out in the future.

  • 17 Dec 2021 9:33 AM | AAML NJ Administrator (Administrator)

    By Jeralyn Lawrence, AAML NJ Chapter President 

    The principle that child support belongs to the child and not to the custodial parent is firmly established in New Jersey law. As a result, the misconduct or failures of their custodial parent may not be used to unduly burden children or deprive them of necessary support. This principle has come up for discussion on multiple occasions, especially in cases relating to child support claims filed later in the child's growth and development and after they have been estranged from the non-custodial parent for a significant period of time. One such case, L.V. v. R.S, 347 N.J. Super. 33, 788 A.2d 881 (N.J. Super. 2002), decided by the Appellate Division in 2002, has become a widely-cited precedent, especially when a noncustodial parent seeks to rely on the delay of the custodial parent to bar the collection of child support.

    The doctrine of laches applies to bar claims or allow for relief when one party has engaged in a "delay for a length of time which, unexplained and unexcused, is unreasonable under the circumstances and has been prejudicial to the other party." W. Jersey Title & Guar. Co. v. Indus. Trust Co., 27 N.J. 144, 153 (1958). Therefore, in theory, and in practice in several cases, it has been relied upon in order to deny an action for child support many years after the birth of the child. Unlike a statute of limitations, laches is an equitable principle, and the court may exercise discretion as to what type of delay is unreasonable and thereby bar relief.

    As noted in L.V. v. R.S., "Laches is an equitable doctrine which penalizes knowing inaction by a party with a legal right from enforcing that right after passage of such a period of time that prejudice has resulted to the other parents so that it would be inequitable to enforce the right." (347 N.J. Super. at 39)
    However, as noted by the Appellate Division, "[s]ince welfare of children is a paramount concern, a public policy conflict arises from the application of the equitable doctrine of laches to a demand for child support." (L.V., 347 N.J. Super. at 40). The Appellate Division has repeatedly ruled that the application of the principle of laches to child support matters is closely circumscribed and that, even if it may be applied to actions by the custodial parent, that principle may not carry over to a claim by the minor child themselves.

    Facts of the Case

    In L.V. v. R.S., the plaintiff, who was the mother of the child and her custodial parent, appealed to the Appellate Division after the lower court denied her application for child support after a trial. The application was filed on behalf of her daughter Michelle in 1998 when Michelle was 16. The case began by seeking a paternity adjudication as well as a child support order, but the defendant, R.S., conceded that he was the father of Michelle after a genetic test established paternity with 99.99% confidence.

    During the case, a pendente lite child support order was entered against the defendant for support of $183 paid weekly via wage garnishment, although its enforcement was deferred until the case was heard. The current wife of the defendant also filed a counterclaim against L.V., stating that she and R.S. had agreed to waive claims for child support, and the two claims were consolidated. The two parents, who were never married, had an off-and-on relationship between 1978 and 1981; in April of 1981, after their relationship had ended, L.V. and R.S. engaged in sexual intercourse. L.V. informed R.S. that she was pregnant with his child, and he sent her $100 for expenses.

    Michelle was born in 1982, and her birth certificate named only the mother as her parent. L.V. testified that she did not want any contact with R.S. nor did she want his involvement in their daughter's life. They had little to no contact in the ensuing years, although R.S. sent L.V. a letter when Michelle was 7 years old, providing contact information and apologizing for past misconduct. L.V. did not respond to the letter or seek child support, although she stated that she was aware of how to file a child support action.

    When Michelle was 16, she sought to find her father, using the internet and other public information. Eventually, Michelle found R.S.'s brother, who provided her with R.S.'s email account. Michelle and R.S. began communicating via email, sharing details of their lives and current photographs; during these email conversations, R.S. referred to himself as "Dad." L.V. called R.S. at work after learning of the conversations, and Michelle expressed that she was angry at her mother for doing this. After the conversations progressed over several months, Michelle asked R.S. for his address. He provided his work address but not his home address. However, Michelle told him that she already had found his address on her own.

    At the trial, Michelle stated that she had asked for the address to file a child support application but said she did not start the relationship with her father for that reason. After R.S. received notification of the support claim, he angrily responded to Michelle, who responded in kind, ending the several months of friendly communication over email. The trial court judge denied L.V.'s support claim on the basis of laches, noting that L.V. did not want R.S. to be part of Michelle's life for many years and that, after their arguments following the support application, they would be unable to establish a bond.

    In terms of any claim by L.V. herself, the Appellate Division agreed that the finding was fair. "While laches does not arise from delay alone, the actions and non-actions of the plaintiff are sufficient to justify the bar of laches to deny her any claim for reimbursement. The record shows that she was aware of procedures to obtain child support and to locate the defendant but chose not to do so in order to inhibit any daughter-father relationship." However, the court differentiated between any monetary award to L.V. and the rights of Michelle to make a claim for ongoing support moving forward. Specifically, the court held that "there is no basis to impute to a child the custodial parent's negligence, purposeful delay or obstinancy so as to vitiate the child's independent right of support from a natural parent." (Id. at 40)

    The New Jersey Parentage Act provides recognition of the child's independent right to seek support or paternity, even if the action is filed by another on behalf of the child. Further, "a child is barred from relief by a prior paternity action only if the mother fully represented the child's right in the prior proceeding." (Id.)
    Therefore, the Appellate Division reversed the trial court's findings and remanded for further proceedings. Specifically, the court noted, "We see no reason why he should not be compelled to support her in spite of plaintiff's actions. As her father, he owes her the duty of support regardless of the quality of their relationship. There is no such tilting of an equitable balance to deprive his daughter of on-going support." (Id.) The date of support would extend from the filing of the complaint to the daughter's emancipation, but the plaintiff could not seek retroactive child support prior to that date.

    Child's Right to Support

    Despite the acts of Michelle's mother, which may have severely hampered the father-daughter relationship and in fact prevented Michelle from benefiting from financial support from her father prior to the age of 16, the Appellate Division was clear that the child would not lose her rights as a result of the actions or inaction of her parent. This has been one of the enduring legacies of this case, which has been cited dozens of times in ensuing actions. While the acts of the custodial parent may bar that parent from a later claim, they do not prevent the child from enforcing his or her own interests, especially when, as is the case here, the child is clearly old enough to understand the action and express her own needs and wants.

    The case also highlights another key principle in New Jersey's child support jurisprudence: The right to support cannot be waived on behalf of the child by the parent. This comes up not only in cases like L.V. v. R.S., where one parent is estranged for many years but also in cases where parties seek to make agreements that do not require child support to be paid by one parent or where parents seek to extinguish child support obligations as part of a property settlement agreement during a divorce. "The purpose of child support is to benefit children, not to protect or support either parent. Our courts have repeatedly recognized that the right to child support belongs to the child, not the custodial parent." J.S. v. L.S., 389 N.J. Super. 200, 205 (App. Div. 2006)

    The Appellate Division distinguished the case from two prior cases in which laches was used to deny a child support claim. In State v. Volk, 280 N.J. Super. 57, 654 A.2d 500 (App. Div. 1995), the Appellate Division held that laches barred a claim for child support which had remained dormant for nine years after the mother and child relocated to Virginia. In the Volk case, no contact had been reestablished between the father and the child, and the prior pending claim had been dismissed after the family moved. Still, the court noted that the child may have an independent claim for support that could potentially be taken up by a guardian at litem.

    Previously, in Moore v. Hafeeza, 212 N.J. Super. 399 (Ch. Div. 1986), the Appellate Division denied a plaintiff's action for support 15 years after a previous claim had been dismissed when filed by the Board of Social Services. The claim was dismissed on the grounds of res judicata and collateral estoppel, but the court noted that laches was an alternative grounds for dismissal.

    However, in L.V. v. R.S., there was no prior dismissed action, and contact, however fleeting, had been reestablished between parent and child. The Court noted, "however sharp the serpent's tooth, an ungrateful child does not relieve a parent of the duty of support ...To the extent that either Volk or Hafeeza may be read to indicate that laches of the custodial parent may vitiate a child's right of on-going support, we disapprove and decline to follow such a holding." (L.V. , 347 N.J. Super. at 43)

    Implications for Practitioners

    L.V. v. R.S. is a widely cited case in a number of New Jersey family law matters, ranging from the right of a child to pursue support to the applicability of laches in child custody, support, or paternity issues. Even when a custodial parent has engaged in some form of wrongdoing or may be barred from seeking a claim against the other parent, this does not extinguish the rights of the child. Further, if the claim could be made in the case of the custodial parent's abandonment or death, it is likely that the claim can still be made by the child in their own interest. Even when the fault of one party may be relevant to property division or spousal support in a divorce action, it is not relevant to child support, as it is the right of the child and not of either parent. This means that children may be able to pursue claims for child support, even after lengthy estrangement and even if their custodial parent is partially or wholly at fault for the estrangement itself.

    Further, the principles underlying the case serve as another reminder that parents may not contract away their children's right to support, whether through a property settlement agreement or another form of contract negotiated between them. The child would retain their rights and may be able to file a claim at a later date. Similarly, children may have a right to intervene in their own interests against both of their parents in marital settlement agreements and divorce proceedings. When constructing a marital settlement of any kind, it is important to explicitly provide for suitable child support, even if this means altering other aspects of the agreement in order to make it clear that the children's interests were not harmed in any future review.

  • 16 Dec 2021 12:28 PM | AAML NJ Administrator (Administrator)

    By Rachel Leberstien, Senior Wealth Relationship Manager and Sharon Klein, President, Family Wealth, Eastern U.S. Region and head of the National Divorce/Matrimonial Advisory Practice | Wilmington Trust, AAML NJ Silver Sponsor.

    As the year comes to an end, your clients face key tax considerations.Your client’s marital status, alimony payments and other divorce related issues can impact their end of year planning, and beyond. Listen as Rachel Leberstein discusses Divorce Tax Considerations at Year End and Beyond with Sharon Klein. 

    For more information, reach out to Sharon Klein at 212-415-0531 or sklein@wilmingtontrust.com.
  • 13 Dec 2021 10:07 AM | AAML NJ Administrator (Administrator)

    By Jasmina Woodson | Withum, AAML NJ Gold Sponsor.

    As business appraisers,  we often have conversations like this:

    Business Owner: These amounts were actually paid! Aren’t I entitled to make decisions regarding my company’s operations that will benefit me? 

    Appraiser: When it comes to business valuation, not exactly…and here is why. 

    A key step in preparing a business valuation under the Income Approach to value is determining the income stream a business would earn if it was managed by an independent party whose objective was to report the highest amount of earnings for the business. We call these earnings “normalized earnings”. Often, in matrimonial matters we deal with the owners of closely held businesses, whose goal is to lower reported earnings in order to reduce taxes. Because these owners typically have the discretion to adjust the operations of the business to achieve their goal, the appraiser must assess the business’ financials (tax returns, financial statements, detailed general ledgers, etc.) to determine what, if any, adjustments are needed to normalize earnings (i.e., what the company would have earned if managed by the unrelated party described above). Some of the more common normalization adjustments are reasonable compensation, personal expenses (perquisites), unreported income and expenses, and extraordinary or non-recurring items.

    However, when valuing the subject interest of a business the appraiser must also consider all related party transactions. One such transaction is rent for the business premises. Most businesses need to rent space for operations or at the least, storage. There are instances, particularly with closely held businesses, in which this property is owned by 1) the business itself, 2) one or more owners of the business, either personally or through a real estate holding company, or 3) a related party of one or more of the business owners (i.e., relative, friend, business partner, etc.). In any of these situations the business appraiser has to assess if the rent paid by the business is at the market rate. For many reasons it may be above or below what is considered market rate. The following examples illustrate some of the motivations for business owners not to pay market rate rent. 

    1. As discussed above, for tax purposes the owner(s) of the business may increase the rent expense to reduce reported earnings. 
    2. The mortgage and expenses related to the property exceed what would be collected as rental income using market rate rent. As a result, the business pays an inflated rent expense to cover any shortfall. 
    3. The business is not earning enough to pay market rate rent; thus, the rental expense is reduced. 

    In order to calculate the normalized earnings, when the business is not paying market rate rent because the property being leased is owned by a related party or entity, the appraiser should consider making a normalization adjustment. To effectuate this market rate rent adjustment the appraiser typically relies on the following sources of information:

    • Real Estate Appraisals -  The real estate appraisal performed by an independent third-party real estate appraiser may contain the market rate rent for the property. This information is available if the real estate appraiser considered an income approach in their valuation. 
    • Lease Agreements with 3rd Parties - Another source of information is a lease agreement with an unrelated party. If the property has multiple occupants and one or more are unrelated, the lease agreements with those tenants can be used as an indication of the property’s market rate rent. 
    • Online Data –The appraiser can also perform a search of reputable websites for the rental rates of comparable properties to determine the market rate rent based on the square footage and type of space utilized. 

    So, overall, how does the market rate rent adjustment impact your client? Without considering any of the other factors that go into preparing a business valuation, if the business owner is paying rent in excess of market rate, then an adjustment to market rate rent will decrease expenses and increase earnings and the value of the business. Conversely, if the business owner is paying less than market rate rent, then the adjustment will increase expenses and decrease earnings and thus, lower the value of the business. 

    Key Takeaways

    What is a Market Rate Rent Adjustment? 

    The market rate rent adjustment is a normalization adjustment used when preparing business valuations in which the company pays above or below market rent to a related party or entity. 

    Why do appraisers make this adjustment? 

    Using the Income Approach to value, the market rate rent adjustment is made to normalize earnings so that the earnings represent those of a business managed by an independent party whose goal is to maximize profits. 

    How does this adjustment impact the business valuation? 

    With all other factors of business valuation remaining constant, if the business is paying more than market rate rent, the adjustment will result in an increase in earnings and an increase in the value of the business. If the business is paying less than market rate rent, then an adjustment will result in a decrease in earnings and a decrease in the value of the business.

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