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 AAML NJ Blog


  • 27 Oct 2021 11:43 AM | Deleted user

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

    A business owner’s ownership interest is often one of their most significant personal assets. Many business owners are surprised to learn that the courts consider some or all of it marital property. Tax issues related to the family business can complicate divorce matters, often to a far greater degree than owners anticipate. 

    Tax-free transfers

    Following a divorce, most assets can be divided between the business owner and their soon-to-be ex-spouse without any federal income or gift tax consequences. These tax-free transfer rules cover cash and business ownership interests.

    Suppose the business owner’s spouse receives an asset under this rule. In that case, they inherit the tax basis (for tax gain or loss purposes) and its current holding period (for short-term or long-term holding period purposes) from the other spouse. In other words, the spouse who winds up with the asset will have the same tax liability as they would have had if they had been the one to own the asset from the beginning.

    Say, for example, that a business owner swaps their share of the house in exchange for keeping 100% of the stock in their business. This type of transfer would be tax-free, and the existing basis and holding periods for the stock and house would carry over to the person who receives them. 

    This kind of transfer appeals to many business owners because their business is their source of pride and income. Most business owners have put in a lot of effort and sleepless nights to build or grow their business. They are often justifiably proud of what they’ve created.

    Additionally, for small business owners, finding and keeping good employees can be a severe difficulty. This challenge often provides an extra incentive not to rock the boat by involving a soon-to-be ex-spouse in the business.

    Tax-free window

    The tax-free federal transfer rule for the existing basis and holding period applies during a divorce or when it becomes final. It can also apply after the divorce, so long as changes are made “incident to divorce”—meaning that the transfer must occur within a year of when the marriage ends or within six years of the marriage ending if the transfers are made under the divorce agreement.

    Additionally, the tax-free transfer rule is now extended to ordinary-income assets, not just to capital-gains assets. If a business owner transfers receivables or inventory to their ex-spouse in a divorce, the transfer is tax-free.

    Tax implications down the road

    However, while assets can be transferred tax-free during the divorce, that doesn’t mean they won’t be taxed ever. The person who winds up owning an appreciated asset (an asset for which the fair market value exceeds the tax basis) must recognize taxable gain if and when the asset gets sold.

    For instance, if the business owner’s ex-spouse ends up owning a percentage of their highly appreciated small business stock, the ex-spouse won’t face any tax consequences when they initially receive the shares. Instead, it will be as if they owned the shares all along. That said, when the ex-spouse ultimately sells the shares, they’ll owe capital gains tax. Since the business owner no longer owns those shares, they won’t owe anything.

    Thus, the person who winds up owning the appreciated assets must pay the built-in tax liability when they decide to sell them.

    Net-of-tax perspective

    If you factor capital gains tax into the overall value of the appreciated assets, then their value isn’t the same as an equal amount of cash or assets that haven’t been appreciated. This net-of-tax perspective matters immensely for any business owner negotiating a divorce settlement.

    Note that the same net-of-tax perspective would apply to any ordinary-income assets held or transferred during the divorce. When the asset is later sold, converted to cash, or exercised (in the case of non-qualified stock options), the person who owns the asset at that time must recognize the income and pay the tax liability.

    Helping clients avoid surprises

    For many people, getting divorced can feel like taking on an extra job. The legal process can make significant demands on a business owner's time, their most precious asset. However, it’s vitally essential for a divorce client to plan. 

    If you’re handling a divorce case that requires careful tax considerations around a business’s appreciated value or if you have questions about the process, the experienced professionals at Smolin Lupin can assist you—get in touch.

  • 25 Oct 2021 4:23 PM | Mary Adams (Administrator)

    By LEAP Legal Software

    New Jersey attorneys need an easier way to manage the onerous task of creating, filing, and storing legal court forms. 

    Microsoft 365 is an excellent place to start for any small to mid-sized New Jersey law firm. Programs like Microsoft Word are now “must-haves” for attorneys who also manage their practice but it still doesn’t complete a law firm’s practice management toolset. Even with if-then-else statements, merge fields, and Find and Replace, no attorney can argue that Microsoft Word is an application built specifically for legal professionals - whom have the responsibility of creating and filing multiple court forms without any room for error. 

    The following scenario is all too common for law firms in New Jersey: you search for the right court form, consolidate client information from loose post-it notes and journals, and manually key in matter details only to find that you’re missing information from your client or you have accidentally made a mistake. 

    Microsoft 365, although important to your business, is only the first step in properly managing court forms and legal documents. These applications still fail to sync information between client and matter information, provide data input, or follow the strict guidelines of integrity that are applied by New Jersey bar associations. It’s important to take these Microsoft 365 tools and enhance them for your practice with the latest legal technology. Doing so will make your workflows more efficient, your services more attractive for clients, and your firm more profitable.

    Is there a solution that will allow your law firm to adopt this way of practicing? There is. 

    LEAP Legal Software is a true-cloud practice management solution that offers New Jersey attorneys the ability to simplify legal court form and document management with strong Microsoft 365 integrations. In fact, these integrations are part of a feature simply called “LEAP for Word.”

    With strong Microsoft 365 integrations, and a dedicated Design & Automation team with over 25 years’ of expertise, your management of court forms will look much like the scenario above with the adoption of strong legal software like LEAP

    Now, consider how LEAP could improve court form and document management for your New Jersey law firm:

    1. You have a client and need to fill out a form for a New Jersey court. Luckily, LEAP Legal Software has imported and customized the templates into your practice management software already. 
    2. Don’t already have what you’re looking for? LEAP provides an ever-growing library of updated New Jersey court forms readily available. You didn’t have to search a court’s website or have multiple applications running at once - you find these forms in the same place where all your matter information is already located. 
    3. LEAP for Word instantly pre-fills your legal forms with the detail from the electronic matter, allowing customizable options, saving you time and the worry about entering incorrect information on accident. 
    4. You securely share the document with colleagues, clients, and third-parties as needed and request e-signatures once the form is complete. 
    5. You file the form with your New Jersey court and then keep a saved electronic file in LEAP, readily available when needed. 

    Court form and document management can be easier for your New Jersey law firm if you adopt the right tools.

    LEAP Legal Software is everything that you need to run your New Jersey law firm. Learn more about what’s possible with LEAP by visiting www.leap.us

  • 22 Oct 2021 1:25 PM | Deleted user

    By Jeralyn Lawrence, AAML NJ Chapter President

    A June 2021 ruling by the Appellate Division has clarified our law on the amount of evidence required to obtain discovery related to the cohabitation of a supported spouse in alimony cases.

    Alimony in New Jersey may be terminated when the supported spouse remarries or cohabitates with another partner. In 2014, the New Jersey legislature created statutory amendments to the alimony statute (N.J.S.A. 2A:32-23n), laying out specific factors that may be evaluated to determine cohabitation. While it has long been understood that remarriage terminates alimony obligations, some recipients instead chose to live in marriage-like relationships, including having intertwined finances, in order to preserve their alimony. This legislative reform aimed to close that loophole, but it has been difficult to define exactly how a payor may document their argument.

    The Appellate Division ruling in Temple v. Temple (A-0293-20 (N.J. Super. Jun. 17, 2021)), decided on June 17, 2021, lays out specific guidance about how a payor may make an argument for cohabitation and seek a plenary hearing for termination or alteration of their alimony obligation. It also may make it easier for practitioners to obtain the evidence they need to make this showing of cohabitation. The Temple decision was originally issued as an unpublished ruling but has since been published and as such is binding authority.

    Landau v. Landau 

    In Landau v. Landau (461 N.J. Super. 107, 218 A.3d 823 (N.J. Super. 2019)), decided in 2019, the Appellate Division addressed the effect of these amendments on a party seeking to prove cohabitation in order to terminate their obligations to pay alimony.

    Specifically, the Landau decision confirmed that applicants seeking to terminate alimony obligations must establish a prima facie case for cohabitation before obtaining discovery on the issues. However, the court did not address how much evidence was sufficient for a prima facie case for cohabitation nor did it address the merits of any particular claims for cohabitation.

    In the Landau case, the ex-husband argued that the ex-wife and her boyfriend traveled and attended social events together and that they slept over at each other's separate homes. While the court did not address the merits of these claims, it ordered discovery to be conducted, never ruling, however, that a prima facie case had been made.

    The Landau court placed restrictions on the use of discovery to compel evidence relating to the private relationships of a supported spouse, upholding the privacy rights of the supported spouse. It upheld existing case law requiring a prima facie showing of cohabitation to order discovery rather than allowing for discovery to move forward to make that prima facie showing upon the filing of a petition for suspension or termination of alimony.

    As the matter of what constitutes such a prima facie case was left undefined, practitioners were left without clear guidance on what was needed to fulfill the requirements of the statute.

    Temple v. Temple

    Temple v. Temple provides much greater clarity, noting the limitations of the Landau decision in providing an analysis of cohabitation and the need to balance the interests of both parties in arriving at a decision.

    The parties in the Temple case were married in 1986 and divorced in 2004. Per their divorce settlement, the husband was required to pay $5,200 monthly in permanent alimony. However, in July 2020, the husband sought to terminate his alimony obligation on the basis that his ex-wife was cohabitating or remarried to another man. He further asserted that she had been in a relationship with this other party for at least 14 years. Based on the divorce agreement between the parties, cohabitation was a reason to modify or terminate the ex-husband's alimony obligations.

    The trial court misapplied the Landau decision and held that the application made by the husband failed to make a prima facie showing of cohabitation. While the ex-husband provided a range of evidence obtained by a private investigator showing that the ex-wife had lived with the other person for some time, that the other person had called the ex-wife his "wife" on social media, and other indications of a shared lifestyle beyond that of a dating relationship, the trial court stated that the husband did not address all six of the factors specifically elaborated for cohabitation in the statute.

    Statutory Definition of Cohabitation

    The elements defined by N.J.S.A. 2A:34-23(n) to indicate cohabitation are as follows:

    1. Intertwined finances such as joint bank accounts and other joint holdings or liabilities;
    2. Sharing or joint responsibility for living expenses;
    3. Recognition of the relationship in the couple's social and family circle;
    4. Living together, the frequency of contact, the duration of the relationship, and other indicia of a mutually supportive intimate personal relationship;
    5. Sharing household chores;
    6. Whether the recipient of alimony has received an enforceable promise of support from another person within the meaning of subsection h. of [N.J.S.A.] 25:1-5; and
    7. All other relevant evidence.

    As noted by the Temple court, it is difficult to make a clear prima facie case for either points 1 or 2 without discovery, as people are generally private about their finances and financial planning. They do not make this information available publicly nor to their former spouses with whom they have been in litigation.

    While the trial court implied that a showing of all six specific factors was necessary to make the prima facie case required for discovery, the Appellate Division indicated that such would present a nearly impossible barrier, making such cases "as rare as a unicorn." An applicant is not mandated to make a prima facie case of cohabitation for all six statutory factors before being granted discovery.

    Approach Akin to Summary Judgment

    The Temple court likened the issue to that of a summary judgment motion:"We cannot emphasize enough that judges must be cognizant that most information relevant to cohabitation is not readily available to movants. These motions are akin to summary judgment motions filed prior to the completion of discovery ... Although it is true family judges should be careful not to permit a fishing expedition into a supported spouse's private affairs on a weak claim, judges must also remain aware that movants ... do not have access to much of the information relevant to a dispute about cohabitation. In civil matters, courts often quite correctly deny or continue summary judgment motions until discovery is completed ... Contrary to that well-established approach, Jeffrey was put to the burden of demonstrating the factual sufficiency of his claim when most of the relevant information remains in Cynthia's possession."

    Given that issues of material fact were presented by the payor and rebutted only by a statement denying those allegations by the supported spouse, the payor was entitled to an assumption of truth in order to determine whether or not discovery could be ordered in the case.

    The trial court placed an undue amount of weight on the certification of Ms. Temple as opposed to that of Mr. Temple, even though the statements in the certification were unsupported by evidence. The certifications of both parties indicated the existence of a genuine dispute about the material facts in question that went beyond a mere fishing expedition in the private life of the supported spouse. In fact, many of the references to the relationship between the supported spouse and the other party were scrubbed from social media following them learning of the ex-husband's investigation.

    Seventh Factor of Cohabitation

    In the Temple decision, the court emphasized the importance of the seventh factor defined by the Legislature in determining whether a sufficient prima facie case was made out to order discovery to proceed. That is, "all other relevant evidence."

    A dating relationship is not equivalent to cohabitation, and the financial factors are important in proving cohabitation sufficient to suspend, modify or terminate an alimony obligation, which is primarily a financial matter. However, in order to reach the point of a plenary hearing, it may be impossible for the payor to establish any sort of prima facie case on these matters without discovery. As the court noted, the six enumerated factors do not constitute "the alpha and omega of what ultimately persuade a court that a supported spouse is cohabiting."

    Previous cases have indicated that discovery was not available to assist in making that case, while the Temple ruling establishes that a movant must show simply that the supported spouse and another person are in a mutually supportive, intimate personal relationship that indicates the undertaking of duties and privileges commonly associated with marriage, especially when taken together and when the statements presented by the payor are taken for the purposes of assessment as true. While social media posts and the like may not be sufficiently probative to actually terminate an alimony obligation, they can be considered by the court in determining whether discovery may be ordered.

    It should be noted that the strength of the arguments presented in the Temple case vary significantly from the underlying facts in the Landau case and in several other Appellate Division cases since that time which have denied discovery related to a claim of cohabitation.

    In the Temple case, Mr. Temple argued that Ms. Temple and the other party had shared the same home on multiple occasions, had been in a relationship for over 14 years, publicly referred to themselves as married, traveled together extensively and publicly and had spent significant time on vacation together. While the payor's presentation was not sufficient to make the prima facie case of cohabitation necessary for a plenary hearing, it was sufficient to receive discovery that could enable him to do so if the appropriate evidence regarding living circumstances and finances was brought forward in the discovery process.

    Previous cases may be differentiated from the Temple case by the length of the cohabiting relationship alleged and the multiple public declaration by the other party that the supported spouse was his "wife," as well as other factors. While Mr. Temple may have presented a strong enough prima facie case to receive discovery to compel the financial information needed to prove cohabitation for the purposes of terminating alimony, the same is not necessarily true for movants with underlying claims that are weaker.

    The Appellate Division reversed on the discovery matter and remanded the case for further proceedings at the trial court level.

    Key Takeaways for Practitioners

    The significant Temple decision may make it possible for more payors of alimony to make successful efforts to compel discovery in cohabitation cases. Should that evidence establish a clear claim of cohabitation, they may then move forward to a plenary hearing to prove their case and reduce, suspend or terminate their alimony obligations. It provides much greater clarity about the amount of evidence and types of claims necessary, when taken in totality, to move forward to discovery. It should also help to correct the misapplication of the Landau decision in cases where discovery is wrongly denied to movants, removing a seemingly impossible burden in many cases.

    In all cases, the strength of a cohabitation claim depends on the underlying facts and legal argumentation, as well as proper timing of the filing. Cohabitation claims that are brought too quickly following the divorce or the inception of a new relationship may be far more likely to fail than ones that can demonstrate a lasting relationship that can be compared to marriage. Cohabitation inquiries are particularly fact-sensitive, and the unique circumstances of each situation may lead to different outcomes as the factors set out in statute are weighed.

  • 19 Oct 2021 11:58 AM | Deleted user

    By DGR, AAML NJ Silver Sponsor

    Generally speaking, all legal matters are at least somewhat time-sensitive. While some cases are truly urgent (and others aren’t), individuals tend to initiate legal action because they are seeking a resolution—and attorneys want to keep matters moving so that they can collect payment and manage internal workflows. In other words, nobody is happy when a case drags on and on. 

    Although they may not come with a set-in-stone deadline, family law matters tend to fall on the “more urgent” side of the spectrum. Whether they involve child support, custody arrangements, asset division, alimony, or something else entirely, these cases have a particularly profound effect on people’s lives, and they are also frequently of a personal or sensitive nature. It benefits both attorneys and clients to effectuate process services as quickly and efficiently as possible.

    So what happens when a family law matter involves serving papers in another country? International service of process is complex, and it can take time to complete. How much time exactly (and the quickest way to conduct the service) depends on the country involved. There’s no one-size-fits-all solution: different countries allow service to be completed through different channels, and there are exceptions, additions, and little quirks and nuances to every national system. 

    When handling international service of process in a family law matter, it’s particularly important to work with an experienced process server who can help you identify the best method of service for your specific situation, navigate the existing system in the relevant country, and quickly and effectively troubleshoot when things go awry. 

    Methods of international service

    Broadly speaking, there are three primary ways to effectuate service abroad: service via agent, service through the Hague Service Convention, or service via Letters Rogatory. Service via agent is sometimes referred to as “the informal method,” while the other two methods of service are known as formal methods. Different countries allow service in different ways. 

    Using the Hague Service Convention

    The Hague Convention was established in 1965 in order to create an avenue for service outside of diplomatic channels, reducing the amount of time needed to effectuate service. 

    If a country is a signatory to the Hague Service Convention, you can pursue service through this route. Currently, the Convention has over 70 signatories.

    Servicing under this method is a multi-step process:

    1. A “letter of request” is completed and sent to the appropriate central authority along with all necessary documentation

    2. The central authority reviews the documents before submitting them to the local court that has jurisdiction over the defendant.

    3. The local court sends service to an individual to serve the document, then submits documentation to the central authority indicating service was effectuated.

    4. The central authority completes paperwork verifying service 

    5. The central authority forwards the documentation back to the United States

    Service of process through the Hague Service Convention takes, on average, three to six months.

    Using Letters Rogatory

    Not all countries are signatories to the Hague Service Convention. If you need to complete service in a country that isn’t a signatory, Letter Rogatory will likely be the avenue you use. Letters Rogatory is a request to complete service in accordance with another country’s internal rules and regulations. This method uses diplomatic channels and relies on foreign courts to complete service. 

    Once the foreign court receives the Letters Rogatory request, they can decide to comply with the request or deny it. If the foreign court agrees to grant the request, service is then completed under the local rules of their jurisdiction.

    Service via agent

    Also known as the “informal” method, service via agent is the quickest method available for effectuating services of process. The catch? Service via agent doesn’t produce an enforceable judgment—think of it more as means of notification. If you need to let somebody know that they’ve been served, service via agent can accomplish this in a matter of weeks. If you need the country in which this service is completed to recognize or enforce a judgment, however, this method is not appropriate.

    Additionally, some countries do not allow service via this method. Check with your international process server to be sure. 

    Best practices for international service of process in family law matters

    If you need to papers internationally in a family law matter, it’s key to work with a process server who has experience effectuating service in the country in which you need to serve. 

    You can also help expedite service by gathering as much information as you can about the location of the individual you need to serve. Depending on the country involved (and the method of service used), an exact address might also be needed to determine the translation requirements to which your request is subject. 

    Starting the process

    If you need to effectuate service internationally, it can be hard to know where to start—and for family law matters, where your client’s personal relationships and financial future may be at stake—it’s critical to keep the process moving. 

    If you have questions about serving abroad, we can help. DGR has experience effectuating service in over 100 countries, and we’re committed to getting the job done as efficiently as possible (and keeping you informed at every step of the way). 

    Contact us to get started. We’re here to help.

  • 11 Oct 2021 9:45 AM | Deleted user

    By Soberlink, AAML NJ Bronze Sponsor

    According to the American Bar Association, approximately 55 thousand divorce cases involving children also involve a parent who uses alcohol. Unfortunately, alcohol use can add an extra layer of complication to a child custody case, specifically if a co-parent abuses it. 

    Studies have repeatedly shown the importance of shared custody of children. In a meta-analysis of 1,846 sole-custody arrangements and 814 joint-custody arrangements, psychologists concluded that children who get time with both parents are much more settled. These children had fewer behavior issues, higher self-esteem, better family relations, and better school performances.

    With the understanding of shared parenting time often having such a positive influence on the child or children involved, Family Law Professionals have more reason to take steps to make that possible. In co-parenting agreements where excessive drinking may be an issue, alcohol monitoring can foster accountability, provide peace of mind, and ensure safer co-parenting arrangements. 

    This article will discuss: 

    • How digital technology affects all professions and industries 
    • Why it is important to stay ahead of technology trends in Family Law 
    • What Soberlink technology is and how it works 
    • Why remote alcohol monitoring technologies are valuable in Family Law
    • How remote monitoring is directly related to offering empathy to clients 
    The Digital Revolution: How it Affects All Professions

    The Digital Revolution has led the shift from manual or mechanical processes to digitized functions, and these changes have affected all professions, including Family Law. Digital technology is often thought of as something that simplifies mundane functions, such as record-keeping or analyzing documents. However, technology affords numerous techniques to make formerly difficult actions easier in every profession. For example, a doctor can monitor a patient at home via a remote pulse oximeter, a teacher can instruct an entire live class from her kitchen, and a legal professional can use an online AI tool to review extensive contracts in a matter of minutes. 

    Why Family Law Professionals Should Stay Ahead of Technology Trends

    Technology also has a place in the legal field, whether speaking at virtual client meetings or utilizing tech-based devices to streamline litigation. For one, the adoption of new technology may lead to increased revenue. An analysis covered by Family Lawyer Magazine found that using digitized client portals helped law firms grow revenue by an average of $37,000. Even more noteworthy, those firms carried an average of 17 percent more cases. 

    Law clients have grown much more accustomed to legal services with technological elements. For example, 56 percent actually prefer video conferencing instead of interacting over the phone by voice, and 69 percent prefer to electronically submit documents to their lawyer. By staying ahead of technology trends that could heighten the efficiency of everyday processes, a Family Law Professional can better serve their clients, reap new time to dedicate to more clients, and possibly even build more revenue. 

    What is Soberlink?

    Soberlink is a comprehensive remote alcohol monitoring system that combines an FDA-cleared alcohol testing device with automated alerts and reports to document proof of sobriety in real-time. Unlike lab or EtG testing, Soberlink combines facial recognition with tamper detection and Advanced Reporting capabilities to remotely monitor clients for alcohol use. Designed with flexibility in mind, Soberlink’s customized testing fits into any parenting agreement to ensure child safety. Practitioners receive client test results in real-time, allowing for swift intervention if necessary. 

    Soberlink is most used in Family Court to uphold the best interests of the child in cases involving alcohol abuse. Depending on the co-parent’s program level, the Monitored Client will submit 2-3 scheduled tests a day with results sent instantly to all parties listed on the Monitoring Agreement. Innovative technology like Soberlink allows parents to maintain relationships with their children and provides peace of mind to Concerned Parties worried about a child’s safety.

    How Technology Like Soberlink Puts a Professional Ahead of the Curve

    Using technology like Soberlink for remote alcohol monitoring offers various advantages for Family Law Professionals. For one, results gleaned from Soberlink are court-admissible and trusted by judges. Therefore, data mined from tests can be used in court proceedings to substantiate or dispel alcohol abuse claims. 

    A Family Lawyer whose client is facing hearsay could offer Soberlink’s Advanced Reporting as evidence of sobriety in court. Using a universal color code to indicate compliant, non-compliant, and missed tests, Soberlink reports offer helpful insight into a co-parent’s alcohol consumption, helping streamline litigation. 

    Utilizing the latest technologies like Soberlink could be what sets a legal professional apart from the competition. Modernizing your practice may help foster trust amongst clients who rely on your expertise and guidance during a case. 

    The Importance of Empathy in Custody Cases

    According to Lawyer Monthly, empathy is a valuable way to develop rapport with clients. Empathy is perhaps of the utmost importance in child custody cases. The clients that seek legal counsel can be facing some of the most challenging, worrisome circumstances in their lives. Offering empathy and compassion to clients as they work toward a desirable co-parenting outcome can ease some of the emotional turmoil for the client. A professional who can simplify something like alcohol monitoring with technology can display empathy to their clients by offering peace of mind. 

    Conclusion

    Alcohol monitoring can be the defining key in a child custody case and one that makes all the difference in keeping both parents involved in the lives of their children. Thankfully, remote technology like Soberlink can make alcohol monitoring far easier to manage, helping Family Law Professionals streamline custody cases, improve outcomes, and remain an invaluable resource to their clients. 

  • 6 Oct 2021 4:06 PM | Deleted user

    By John O’Grady, CVA, MSA – Eisner Advisory Group LLC, AAML NJ Gold Sponsor

    Often times we are told “just look at the tax return” when it comes to determining a party’s joint or individual income.  The reality is that the tax return does not paint the whole picture.  In this blog, I will explain what is presented on the tax return, what else should be considered, and what other documents and information should be obtained in order to determine the party’s true income/cash flow available to them.

    What information is presented on the tax return?

    Income information that is typically presented on a personal income tax return includes:

    1. Salaries and wages – Form W-2 wages earned by one or more of the parties.

    2. Interest and dividend income – information regarding both taxable and non-taxable (such as on municipal bonds, etc.) interest will be contained on the tax return.  

    3. IRA, pension, or annuity distributions – not all distributions are taxed, however; taxable and non-taxable portion amounts will be presented on the return.

    4. Social security benefits.

    5. Capital gains or losses.

    6. Sales of business assets or ownership in business entities.

    7. Business income or losses reported on Schedule C.

    8. Pass-through income for rental real estate, partnerships, S corporations, trusts, etc. (Schedule E income).

    Most of these items are straight-forward and represent true income received by the parties.  However, pass-through income needs to be discussed a bit further. 

    What is pass-through income and why is it misleading?

    Pass-through income, especially from partnerships, S corporations, trusts, etc., represents an individual’s share of the entity’s income based upon ownership interest.  The term “pass-through” indicates that the taxes are paid by the individual owner(s), not by the entity.  For example, if a party owns 50% of a business that is organized as an S corporation, that party will report 50% of the business’s net income on their individual tax return; the entity itself will not pay any income tax.  This income (or loss) could be misleading in that it doesn’t necessarily mean that the party received that income personally.  Many times, entity income that is reported on a pass-through basis is retained in the entity, and the owners instead receive distributions.  In some situations those cash distributions can be significantly less than the income reported on the party’s Schedule K-1.  Owners are not taxed on distributions, therefore, they are not included in the calculation of taxable income on their individual tax returns.  Distribution totals can be found on the Schedule K-1 that the entity includes with its tax returns and issues to the owner(s).  Therefore, it is important to reconcile the income reported on the K-1 with any distributions received to arrive at the actual cash flow received by the parties.

    What else is not included on a tax return?

    There are other items that could be additional income available to a party that may not be reported on the party’s tax return.  For example, a business owner may have sold their ownership interest to another individual or a trust, and rather than take a one-time payout for their ownership interest, the business established a note payable to the selling owner.  Many times, when this situation arises, the selling owner may have the business pay expenses directly or receive funds from the business and the business treats these expenses or transfers as pay-down of principal and interest on the note payable to the owner.  This activity would not be reflected on the tax return of the individual and would require review and analysis of the books and records of the business, primarily on any transaction activity in the notes receivable/shareholder loan accounts on the balance sheet.

    Additionally, as we see with many closely held businesses, the business pays various perquisites on behalf of the owner(s).  These could include such items as cell phone expenses, automobile insurance, meals and entertainment, travel expenses, etc.  However, there are many instances when the perquisites paid on behalf of the owner(s) include many more items.  Often times, these items are not included in distributions or taxable compensation to the owner(s).  In order to quantify the total amount of perquisites paid, thorough review of the general ledger of the business is required, as well as potentially a review of the bank account and credit card account statements of the business.

    Other potential income items that should be evaluated include deferred compensation, stock options, inheritances or gifts, or additional income received from third parties not listed in the categories discussed.  The parties’ personal bank accounts should be reviewed to determine if any other income sources may exist.  

    Summary

    In summary, when determining the income of the parties in a divorce proceeding, it is critical to look beyond the federal income tax returns as there could be a number of income categories that are not presented on the returns.  At a minimum, information to review to determine available income should include bank statements (personal and business), credit cards statements, business tax returns, and general ledgers of the business.

  • 27 Sep 2021 10:36 AM | Deleted user

    By LEAP, AAML NJ Silver Sponsor

    A senior partner in a law firm once said, “Our client base is a huge and neglected source of potential business. It’s ridiculous that we ignore it and convince ourselves that we are too busy to make the most of it.” How often have you thought about leveraging your client base, if only you had the time?

    The fact of the matter is that New Jersey law firms are busy. Proactive business operations are often sacrificed because of workload, volume of cases, the number of legal matter types firms offer, the number of staff, use of technology, etc. Running a law firm is challenging but growing your law firm can be even more so.

    Technology and automation can help law firms do a lot of the heavy-lifting. From streamlining existing processes to automating repetitive tasks, legal technology can help free up room to focus on other critical functions, such as growing your firm into a more profitable business.

    Once you’ve freed up additional time to implement strategies to grow your firm, where should you start? An often overlooked, but huge, source of potential business is your current client base. According to business-development and client-marketing expert Ian Cooper, most lawyers discover that between 80-90% of new files and matters opened are from either their own existing clients, word-of-mouth referrals from clients, or professional introductions. So, building a communication strategy to help you stay top-of-mind with your existing client base can be paramount to your firm’s overall success.

    Furthermore, legal practice management software can be a fundamental part of building a successful client communication strategy. Once your technology is mastered and legal automation is set, communicating with your clients becomes much easier and more frequent. Building a repeatable process for regular communication touchpoints is a powerful way to gain access to new and untapped revenue sources.

    Interested in learning more about how your law firm can leverage technology and a communication strategy to become more profitable? Download the free e-book, Lawyers: How to Market to Existing Clients and Contacts” today.

  • 22 Sep 2021 3:27 PM | Deleted user

    By Smolin Lupin, AAML NJ Gold Sponsor

    Given the daily work they do to maintain their business, many business owners think they know everything a person can about the business, inside and out. However, that everyday experience doesn’t necessarily mean that the business owner can value their business accurately.

    Particularly in a divorce, where emotions run high, a business owner, spouse, or a spouse who is a co-owner may not have as clear a picture of the business’s financial value as they would like to think.

    Therefore, having a valuation done by a valuation professional can be immensely helpful in putting together an accurate financial picture of the business’s worth—and setting the stage for a potentially amicable divorce.

    Discovery Phase

    In the discovery phase, all relevant documents related to the business’s finances are gathered for review. This process can be pretty straightforward or a source of tension, especially over which documents are considered relevant. Having one of the parties attempt to block access to records through claims of “overreaching” can considerably extend the back-and-forth.

    If the business owner owns more than one entity, it may also be necessary to combine the operations of various entities to come up with the cash flow relating to the owner’s interest in the combined business enterprise.

    Family law attorneys can work with their clients to gather and make copies of the relevant documents early in the process to reduce the likelihood of the opposing party blocking the valuation professional's request for documents. Unfortunately, the longer the wait to gather the documents, the more objections are raised, and the more likely it is that the process will become a significant challenge with increased cost caused by the motion practice and third-party subpoenas.

    Family Ties

    Complications can arise if more than one person has an interest in the business or its related entities. For instance, if a family member owns a real estate entity leasing the building to the company in question, adjustments may need to be considered to adjust the rent to fair market value based on a real estate appraisal.

    Due to the family connection, the rent may be lower or higher than the market rate. Moreover, there may be instances in which there are intercompany loans between the various entities. As part of the forensic analysis, it will need to be verified that the loans are indeed loans (and not disguised distributions) and that the intercompany balances agree between the various entities. The multi-entity business structures lead to more complicated valuations.

    Multiple Dates

    There are also instances where a business needs to be valued over multiple dates.

    Suppose the business interest is in part premarital. In that case, the business will need to be valued at the date of marriage and the date of divorce complaint to determine the incremental increase in value subject to equitable distribution.

    Additional steps and valuation periods may need to be considered if interests were acquired through gift or inheritance during the parties' marriage. While an initial valuation may have been done for gift tax purposes, the valuation would need to be reviewed to determine whether it accurately captures the value at the point of the gifting transaction. The valuation may also need to be adjusted from a fair market valuation to a fair value valuation to adhere to the law in New Jersey. Suppose the parties are unable to stipulate to the prior gift tax valuations. In that case, business valuations may also need to be completed as of the acquisition date and then compared to the values at the date of the divorce complaint.

    Approaches to Business Valuation

    When it comes to valuations, it’s essential to understand and explain to your client the three different approaches to valuing a business: income, asset, or market.

    Income

    To value a business by its income, a valuation professional looks at historical income and current income, as well as risk and other business-related benefits. They then calculate the business owner’s income in the future based on the expected rate of return (as drawn from historical patterns) or by using other forecasting information.

    Asset

    The asset approach considers and values tangible assets (i.e., anything physical, like inventory or a building) and intangible assets (i.e., assets such as patents and goodwill). Liabilities are then subtracted from the total assets to determine the net value.

    However, the process can get complicated if the tangible assets aren’t easy to value, as is the case with restaurant furniture, fixtures, or other used items.

    Market

    A market approach aims to determine how much the business owner would get if they sold their business. In this approach, the valuation professional makes comparisons to other similar companies that have been sold.

    Suppose the business owner has an active intent in selling a business, which may be revealed through the discovery process. In that case, a market approach may be more relevant to the value of the business interests.

    A Clear Picture

    Even in divorces that seem amicable, one spouse can hide the actual value of the business from the other. This situation comes to the surface more often if one spouse is involved in the company and the other isn’t.

    Conversely, it’s common for the non-business owner spouse to think of the business as providing a steady stream of income while the profit margin can sometimes be very thin.

    In both instances, your clients benefit from obtaining a professional valuation of the business rather than allowing an over- or under-valuation to result in one person taking a financial hit that may not be fully evident until years later.

    If you’re handling a divorce case that requires a business valuation or have questions about the process, the experienced professionals at Smolin Lupin can assist you—get in touch.
  • 20 Sep 2021 12:01 PM | Deleted user

    By Alana Gibson, DGR, Chief Operating Officer, AAML NJ Silver Sponsor

    There are a number of things lawyers can do to ensure the fastest and most efficient turn-around time possible when working with a process server.

    Efficient service that holds up in court is always important, but it is particularly critical in family law matters where efficiency and sensitivity to the nature of the service are key. Family law cases more frequently involve evasive individuals, and because matters like child support, custody arrangements, asset division, and alimony are at stake, a speedy resolution is often particularly important to your clients. 

    Even the most proficient and adept process servers know there are certain pieces of information that can help speed up effectuating service.

    1. If you are attempting service at home or work, see if your client knows when the subject will be at that location.

    It’s easier to effectuate service if you know where somebody is. If we know the subject works from 9am to 6pm and usually goes to the gym afterward for an hour, we might attempt service after 7:30pm. This minimizes the number of attempts that will need to be made, but more importantly, it will also produce a higher chance of the individual being served, moving the case forward.

    In addition to knowing when would be a good time to serve, it’s also beneficial for the process server to know when not to serve. Letting your process server know as much as possible about an individual’s schedule might make it possible for your server to avoid effectuating service around children involved in the matter. In the above case, for example, we might intentionally attempt to effectuate service on the individual’s way into or out of the gym, minimizing the effects on children and increasing the likelihood of a smooth and efficient service.

    2. Provide as many details about the subject as possible.

    The goal for all parties in a family law matter, including the process server, should be to reach an amicable conclusion. AS process servers, we try to do our part to be as discrete as possible and not agitate an already sensitive matter. These cases tend to be close to home, and with that, your client has more information than they may know. Important details that can contribute to timely service are vehicle information and photos of the subject.

    Knowing which car in the gym parking lot belongs to the subject lets the process server situate themselves accordingly. Similarly, having photos of the subject allows the process server to easily identify the subject while entering/exiting the facility or while walking through the parking lot. 

    3. Include all possible service locations in your initial request. 

    If no secondary address is given and the individual isn’t at the first address, this is what happens: The server attempts service at a residential address and then comes back to the office and notifies you that the individual is not at the location. You then provide an alternate address, and if possible, the server attempts service later in the day. If not, the service must wait until the following day. 

    If you provide both addresses upfront, however, the server can simply go from the original location to the next available address, cutting down on the amount of time it takes to complete the service.

    All of the above are tips meant to help you speed up the time in which your process service or due diligence is completed (and to move your case along as quickly as possible!). 

    4. Process service and family law matters.

    Family law matters are personal. There’s no way around it. Whether it’s child custody, divorce, guardianship, or something else, family relationships and financial futures hang in the balance. 

    It’s important to keep your case moving in order to minimize the negative impacts on all parties—and to help your clients move on towards a healthy future. 

    For a process server you can count on to handle your family law matters, we’re here to help!

  • 9 Sep 2021 2:41 PM | Deleted user

    By Marc Demetriou, CLU, ChFC, CDLP | SVP of Mortgage Lending/Branch, Manager at Guaranteed Rate, AAML NJ Silver Sponsor

    Relationships can be turbulent. Even for the best of couples. According to an article in the National Law Review from last year, relationship counselors routinely rank financial stress, boredom, parenting disagreements and arguments over domestic chores as the most common obstacles to wedding bliss. And that was before the Covid-19 outbreak.

    During the early stages of the pandemic, most employees were required to work from home for safety reasons. But if a couple’s relationship was already showing signs of emotional wear and tear, being forced to share the same space twenty-four-seven in a state of perpetual lockdown might not help matters much.

    If a marriage was already starting to go bad, the pandemic was almost certainly going to ratchet up the domestic tension. Before Covid, if a couple was having issues, both spouses could probably talk to friends or family members to blow off steam. Once the quarantine began, those pressure values might not have been so easily accessible. In those early days of the lockdown, no one knew exactly how physically close they should get to one another. 

    The stats are staggering

    Being in forced seclusion could create tensions in even the healthiest of marriages. But for ones that were already on the rocks, Covid could create the makings of a powder keg. According to one legal website, 34 percent of couples considering divorce had children under 18 years of age, an increase of five percent from 2019. Here are some other startling stats from that same website:

    Interest in marital separation spiked to 57 percent in April 2020 from the prior two months.
    • 58 percent of those “pursuing a divorce” were married in just the past five years – an increase of 16 percent over 2019.
    • Couples who were married for five months or less and then actually got divorced jumped to 20 percent in 2020 – an increase of 9 percent from the year before.
    • Divorce rates in the South were two to three times higher than in the rest of the country due to the pandemic.
    • Out of fear of a spouse’s sudden death from Covid, 31 percent of divorcing couples increased their life insurance holdings.
    Women and Stress

    A recent U.S. Census report stated that women were twice as likely to not be working due to Covid-related child care issues. Over two million women left the workforce entirely due to the pandemic.Some experts predict the Covid crisis may have set back women in the workplace for the next decade.  

    Even couples currently in relationship therapy saw Covid creep into their sessions. One recent article pointed out that some couples would even argue about whether their current counseling environment was Covid-safe. Tina Timm, PhD, associate professor at Michigan State University’s School of Social Work in East Lansing, said that one couple’s wife “was going crazy” during one session, worrying about whether her gym was safe to go back to due to Covid instead of focusing on her current therapy visit.

    The Good News

    The news on Covid and divorce is not all negative. For some, the pandemic has been a learning experience of a different sort. According to Professor Amanda Miller, Chair of the Department of Sociology at the University of Indianapolis, the pandemic might have the effect of delaying some couples’ decision to marry altogether.At least for a while. The reason? Divorce is expensive. Better not to jump into matrimony in haste.

    A recent American Family Survey (AFS) stated that 58 percent of married couples, ages 18 to 55, said the pandemic had made each spouse appreciate the other even more, while 51 percent said their commitment to marriage had only grown deeper. The same AFS data also stated that the share of married couples who said their marriages were “in trouble” fell by 11 percent (from 40 percent to 29 percent) in 2020, from the prior year.

    The Washington Post also reported last year that the number of engagements seems to be rising, even in the age of Covid. University of Indianapolis Professor Miller was not surprised. She said that “getting engaged can be a low cost” and “certainly much cheaper than having a baby or getting divorced.”9

    1. https://www.natlawreview.com/article/divorce-rates-and-covid-19

    2. https://legaltemplates.net/resources/personal-family/divorce-rates-covid-19/#divorces-increase-in-couples-with-children

    3. https://www.census.gov/library/stories/2020/08/parents-juggle-work-and-child-care-during-pandemic.html

    4. https://www.forbes.com/sites/naomicahn/2021/01/15/why-marriage-and-divorce-rates-are-dropping-during-the-pandemic/?sh=24c6bc3a56c2

    5. https://www.webmd.com/lung/news/20201207/pandemic-drives-couples-to-divorce-or-to_seek-help

    6. https://www.forbes.com/sites/naomicahn/2021/01/15/why-marriage-and-divorce-rates-are-dropping-during-the-pandemic/?sh=24c6bc3a56c2

    7. https://ifstudies.org/blog/divorce-is-down-during-covid

    8. https://www.washingtonpost.com/lifestyle/2020/12/17/engagements-proposals-pandemic-coronavirus/

    9. https://www.forbes.com/sites/naomicahn/2021/01/15/why-marriage-and-divorce-rates-are-dropping-during-the-pandemic/?sh=24c6bc3a56c2

AAML New Jersey

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Ridgewood, NJ 07450

CONTACT US

Office: (201) 445-7007

Email: contact@aamlnj.org
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