AAML NJ Blog

By Kriste J. Rodriguez, CPA/ABV | EisnerAmper, AAML NJ Gold Sponsor

Overview of the Marital Balance Sheet

One of the tasks as a forensic accountant is to prepare a marital balance sheet to help facilitate the division of the marital assets/liabilities. The assets and liabilities of the marital balance sheet may include, but are not limited to:

• Real estate
• Bank accounts
• Automobiles, boats, etc.
• Tangible property, including artwork, furniture, jewelry, collectible items, wine, etc.
• Brokerage accounts including stocks, bonds and securities
• Retirement accounts, including pensions, IRAs, profit sharing plans, 401(k)s, etc.
• Value of a business interest
• Employee benefits, such as restricted stock, stock options, etc.
• Cash surrender value of life insurance policies
• Liabilities include mortgages, lines of credit, notes payable personal loans and credit card liabilities

The value of certain assets listed above, such as real estate, pensions, jewelry, and wine collections, are determined by appraisers that specialize in these areas. Kelly Blue Book or similar services are often used to determine the value for automobiles, boats, etc. Account statements are reviewed by the forensic accountant to determine the value of assets, such as bank, brokerage and retirement accounts. Forensic accountants are tasked with determining the value of an interest in businesses to help attorneys determine the parties share of the business value for equitable distribution.

Failure to Consider Tax Implications Could Result in Inequitable Division of Assets

Certain assets may appear to be equal in value on the surface. However, certain events could trigger tax consequences, which could result in very different values.  

Take, for example, the marital residence. There is no issue if the parties agree to sell the marital home and split the proceeds.  However, if one of the parties remains in the house and subsequently sells the home, the tax consequences, specifically capital gains tax (if any), could impact the value to that person after it is sold.

The assets in a brokerage account portfolio may not really be equal in value. A brokerage account with cash of $100,000 does not have the same value as a brokerage account with $100,000 of stock on an after-tax basis. Once the tax implications are considered on stock when it is sold, the values become very different. The gain on the sale of stock is the difference between the cost basis and the sale price. This gain will be either subject to long-term or short-term capital gains, resulting in an after-tax value less than $100,000. Similarly, if the parties have two brokerage accounts each with $100,000 of stock in the portfolio, the cost basis for each of those accounts could be very different, resulting in more or less taxes. The tax consequences should be considered so that the asset is equitably distributed.

Retirement Account Division – Understanding the Rules

The division of retirement assets, such as 401(k)s should be carefully considered. Not only are tax implications involved, but specific rules also apply to the transfer of certain retirement assets. Failure to comply with these rules could result in unintended consequences. For example, if one party is entitled to a portion of a 401(k)the money should not be withdrawn and transferred to the other party without executing the proper paperwork. Failure to do so could result in early withdrawal penalties and incomer tax consequences. A document known as a qualified domestic relations order or QDRO should be drafted, which specifies how the spouse will receive their portion of the 401(k) without triggering any income tax or early withdrawal penalties. Eligible withdrawals from a 401(k) will be taxed at ordinary income tax rates and should also be considered when dividing this asset during settlement. The use of a forensic accountant with income tax experience can help you avoid the pitfall that can be encountered with 401(k) distributions. 

Liquidity of Assets

The liquidity of an asset or the ability to turn the asset into cash is very important to consider when dividing up the marital estate. Cash in a savings or checking account is the most liquid asset. However, assets such as homes, wine collections and/or art collections are less liquid because it takes time to sell this type of asset. It is not practical for one spouse to receive mostly liquid assets and the other to receive primarily illiquid assets.  Significant cash flow problems could result for the person receiving the mostly illiquid asset portfolio. One of the parties may keep the marital residence, in exchange for fewer liquid assets. It is imperative, specifically when there is a lack of liquid assets to be received in settlement, that a proper budget is considered to cover the expense of maintaining the home and other lifestyle expenses.

Life Insurance Policies 

It is common in marital settlement agreements (MSA) for one of the parties to maintain a life insurance policy to cover their alimony and/or child support obligation should that party become deceased before their support obligation is over. The spouse that the insurance is obtained for should either be the owner or irrevocable beneficiary. This will ensure that the beneficiary will be notified if the premiums are not being paid or if there are any other issues with the policy. Failure to control the policy could result in a lapse or cancellation of the policy. As an alternative, the spouse that is maintaining the policy should provide proof of the policies on an agreed-upon time frame, whether quarterly, semi-annually or annually.

Conclusion

Any one of these common areas discussed above in a marital settlement agreement could cause significant financial loss and/or future financial distress if not addressed properly at settlement. Therefore, it is imperative to analyze the assets and consider all financial/tax consequences that each asset may have so that the division of the marital estate is fair and equitable.  

By Christina Vinters, J.D., Family Law Mediator, “ex” Divorce Lawyer, and Author of Pathways to Amicable Divorce: Directions for the Beginning of Separation | Our Family Wizard, AAML NJ Silver Sponsor

Looking for relatable marriage separation advice that doesn't leave you feeling overwhelmed? And wondering what should you not do during separation? Most people have heard horror stories about married couples turning on one another during divorce and would like to avoid that. An adversarial divorce could involve massive legal expenses, high levels of stress, and prolonged conflict which ends up harming the children.

The good news is that there are ways of managing separation that will help your family make the transition during divorce from one household to two without destroying the functionality of your partnership as parents and your respective savings.

Some of the steps you will need to take to get started on a healthy marriage separation may seem counter-intuitive to you. However, there are specific strategic advantages for each one. Keep in mind that de-escalation of conflict needs to be an ongoing priority. Keep reading for our conflict-free marriage separation advice.

1. Treat Your Co-Parent as you Would Treat a Business Partner

These are the basics of any decent relationship but are frequently overlooked or disregarded during separation. When you get separated you need to start a new relationship paradigm – that of business partners:

You will have to continue to work together on the resolution of all of the issues arising out of the breakdown of your relationship, and if you have children, you will have to continue to work together and co-exist as parents of shared children for years to come (including attending birthday parties, graduations, weddings, and so forth). 

It can be helpful to consider how you’d like to see your relationship years down the road – for example, you probably don’t want your children to have to worry about how to plan a wedding with both of you in attendance. Don’t do anything now in the heat of the moment that will create tension and unpleasantness for years to come.

Separation can be an overwhelming time of intense mixed emotions, including sadness, guilt, denial, relief, anger, and fear, to name only a few. 

Although it can be tempting in a moment of disagreement to let your anger flow, it's better in the long-term for your family if you take a deep breath and maintain your patience. 

Sorting out the details of a legal separation usually takes longer than people hope and expect. Give both you and your partner time to understand the shifting needs of your family as you move from being a one-household family to a two-household family. 

Handling your emotions in a constructive and respectful way is an important component of moving ahead on the path towards an amicable divorce.

2. Don’t Make any Significant Changes

If you have been paying for all of the family bills, continue to pay all of the bills until you and your partner have reached an agreement on how expenses will be handled going forward. 

Neither of you should withdraw or spend significant sums of money without the consent of the other – in most cases, this is not the time to buy a new vehicle or take a trip to Las Vegas! 

Some people find comfort in making arrangements with their financial institution to require both of their signatures for withdrawals from savings and investment accounts until they have divided their accounts.

If there is no safety concern, do not move out with the children. The children are entitled to a stable environment and shouldn’t be moved around more than necessary. 

Wait to move until you have worked out a parenting plan. However, safety is the first priority and you should obtain legal advice immediately if you believe that you need assistance with moving yourself and your children to a safe location.

3. Discuss the Various Options for Pathways to an Amicable Divorce

A little individual reading and research can be helpful before discussing your dispute resolution options. Familiarize yourself with mediation, mediation/ arbitration, and collaborative law, and then discuss the options so that you are on the same page in terms of pros and cons. 

Discuss which option seems appropriate given the level of complexity of your issues and the state of your ability to communicate with each other at the present time.

You may find that one person has no particular preference while the other person is drawn to a certain process option. It may or may not be difficult initially to agree on a process. 

Take the path of least resistance and choose a process that you could each “live with” as a test run. You can then work on choosing the appropriate professional(s). The processes are voluntary so either of you could choose to end the initial process if you feel that it is not working well for you.

4. Choose Your Family Mediator and/or Lawyer

Regardless of which dispute resolution process you choose and even if you don’t hire a lawyer to represent you throughout the process, you should get independent legal advice from a family law lawyer at some point in the process, whether it is at the beginning, partway through negotiations, and/or before signing the draft Separation Agreement.

Ask for a Referral

Ask around for recommendations. Ask your friends, neighbors, co-workers, and family members for feedback regarding specific family law lawyers.

You should find out what they liked about certain lawyers and what they didn’t like – this is important because it may be that the other person’s goals were quite different from yours and that the recommendation would be poorly suited to your situation.

Consider Personality

Don’t forget that lawyers are not one uniform kind of person, even within a certain area of law – some are peacemakers at heart while others enjoy the thrill of debate and banter; some are diplomatic and some take pride in their reputation for being a bulldog; some are more focused on the big picture of reaching overall resolution while others are focused on advocating for a win on every legal issue.

Some might say that these are all strategies that can be employed by any lawyer depending on the situation, rather than being characteristics. Regardless, in my opinion, it is the rare individual who does an excellent job with both styles of dispute resolution.

An amicable problem-solver and a tenacious litigator have very different skill sets, experiences, outlooks, and instincts. Most lawyers will have a dominant strength in one or the other style. Lawyers who also do a lot of work as mediators will often have a more resolution-oriented style.

There is no right and wrong in terms of style and each style has merits in certain circumstances. The key is to choose the right style to help you reach your goals in your circumstances.

If you and your partner are both reasonable people who disagree about some issues, you will probably benefit from a mediator or lawyer who will work towards a resolution with you without involving court processes.

In this case, you will do well to research the professionals in your area who are trained in mediation or collaborative law.

Consider Your Personal Scenario

If you are in a relationship with someone who is a bully, an abuser, and/or has a serious personality disorder, mental health issue, or substance use problem that prevents him or her from engaging in rational discussion, you may do better with a family law litigator who takes an aggressive court-based approach.

Trust Your Gut

Lastly, given that we’re human, there’s no getting around that some professionals are more knowledgeable, better organized, more emotionally intelligent, and/or better communicators than others, attributes that don’t necessarily have anything to do with a person’s years of experience or hourly rate. Try to find out about these types of characteristics as well.

Make your choice based on a trusted recommendation and some of your own research.

5. See a Counselor and/or Doctor

Separation can be devastating for families, whether or not there are children involved. There are many issues that arise with which a lawyer can’t help because they are not legal issues. 

Our society has become overly focused on the law with respect to the breakdown of a family but the law is not equipped to provide all of the assistance that most families need. 

Mental Health is Just as Important as Legal Counsel

Serious emotional issues can arise for the separating couple and for the children, during the deterioration of the relationship and upon separation. These issues will not resolve themselves.

There are many different approaches to counseling so research the options to decide which will work best for you and your family. Many people don’t want to be involved in the stereotype of counseling: flaky discussions reflecting back on their childhood. 

There are now future-focused, pragmatic, behavior-based methods that can help with specifics, for example, appropriate communication for co-parenting or handling feelings when the other person re-partners.

Unresolved emotional issues very frequently interfere with the resolution of legal issues. It can lead to one or both people causing long delays by refusing to engage in discussion. 

Parties may get stuck on a particular issue, and/or create conflict in situations that should objectively be fairly uncomplicated.

In addition, even if you and your partner are doing your best in good faith to move towards an agreement, it may be that you experience a significant amount of stress and anxiety during the process due to the many unknowns in your future. 

Gathering and exchanging the necessary documentation and negotiating the terms of an agreement can take longer than people hope and expect. Unfortunately, when you are working towards an agreement, you need to move at the pace of the slower person. 

Be Patient Even When it's Difficult

One person will always be further ahead than the other in the grief cycle relating to the breakdown of the relationship and therefore will have to wait for the other person to become mentally ready to finalize the details of the separation by agreement. 

The very nature of an agreement is that you need the other person to agree with you, which cannot be forced. If you are the person who is ready to move on and waiting for the other person to come around, you may need to deal with your anxiety with the help of a counselor or medical professional. There’s no remedy in law for anxiety.

Provide Emotional Support and Resources for Your Children

If you have children, there is no question that your children have been affected by your separation. They may seem fine. They may be acting out. Either way, allow them to express their emotions and get some professional assistance with the best way to help your children move forward.

6. Wait to Start a New Relationship

This suggestion is not based on moral considerations; it is a strategic issue. More often than not, a new boyfriend or girlfriend on the scene is massively disruptive to the negotiation process underway for the Separation Agreement.

Regardless of which person ended the relationship, a new relationship can cause surprisingly intense emotions for the “replaced” partner. This often translates into complications such as some manner of a financial backlash, parenting altercations, and general escalation of disagreements.

Depending on the nature of a new relationship, it can have bearing on whether and how much spousal support may be payable. 

The new partner may also become a factor in the parenting arrangements for the children (for example, the new partner will be under scrutiny to determine whether his or her presence around the children is in their best interests).

If you can manage to wait to start a new relationship until your Separation Agreement has been finalized, you will avoid one possible hot button issue that commonly derails originally amicable discussions.

7. Start Your Dispute Resolution Process Sooner Rather Than Later

I have found that the longer uncertainty continues, the more likely it is that communication will deteriorate and tension will escalate. Change is difficult for most people and particularly so when they are not in full control of the outcome. 

You can reduce the fear and anxiety that arise for most people during separation by dealing with your issues promptly. 

Don’t encourage your partner’s imagination to wander into worst-case scenarios by dragging your heels on starting the resolution process. 

Conflict-Free Separation is Possible

The separation will be challenging, but if you follow most of these 7 tips, you will give yourself the best chance of achieving a healthy and efficient resolution. It will be hard work and it will likely take all of your willpower but your future self will thank you for your effort.

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

There are plenty of ways New Jersey law firms can make their business different from the next. One way to set yourself apart from other businesses is by providing quality services to your clients. Legal professionals can utilize available technology in order to do so. 

In 2015, Nielsen conducted a study that resulted in many insightful statistics about consumers. One of them being that two-thirds of all consumers choose to do business with entities that have been referred to them before. This means that the quality of services that New Jersey law firms provide could be the deciding factor for a client choosing your firm over another. 

LEAP has been a legal technology leader for nearly thirty years, setting the standard for firms looking to maximize efficiency, productivity, and profitability. Here are 4 tips on mastering quality client services, from LEAP Support:

1. Be Flexible

Helping clients is more than answering emails and phone calls. When it comes to receiving information, clients’ preferences can vary and it’s important to accommodate them.

How LEAP Support achieves this:  LEAP provides the following features at no additional cost: 

How law firms can achieve this: LEAP offers several channels that law firms can use when communicating with your clients. With LEAP, law firms can: 

2. Ask Questions

Be sure to listen to your clients for feedback. One of the best ways to know if you are providing quality client service is to ask. 

How LEAP Support achieves this: After each support case is resolved, the client that reported the case will receive a short survey asking for their thoughts on their experience with us. Each response is reviewed by a manager to determine if the case is resolved, or if further action is required.

How your firm can achieve this:  Implementing a dependable feedback loop doesn’t need to be difficult. By creating a simple online survey for your clients to complete periodically you can avoid the interviewer effect. Regardless of the application, it’s important to view all feedback with an open mind and be willing to make necessary changes. 

3. Always Reply

This doesn’t mean you must respond to everyone at any hour of the day or night. Instead, focus on making sure that channels of communication are clear, and prompt. Taking more than a day to reply can turn away clients and prospects alike. 

How LEAP Support achieves this: Replying to any communication in a timely manner is important at LEAP. The average time anyone can expect to wait for a chat support response is no more than 13 seconds. We prioritize ensuring that an experienced specialist is available to discuss any issue or question almost instantly. 

For more complex issues, clients can submit a request via email or our website and will receive a response after more consideration. Clients can also use our online booking system to schedule meeting time that works best for them.

How your firm can achieve this: Set up an automatic responder if an email inbox will be unmonitored for a period of time.  Establish client expectations by explaining when they will get a response from you. In addition, you can review and update any voicemail messages regularly.

LEAP Web Portal is another option to allow your clients to get in touch without your direct involvement. Here are just a few of the many tools you can use:

The LEAP Web Portal feature is available to every user at no additional cost. 

4. Go Mobile

In 2015 the ABA found that lawyers were doing 25% of their work away from the office, this number has likely increased due to the pandemic of 2020. It is increasingly important now more than ever to have access to everything on-the-go.

How LEAP Support achieves this:  From ticket creation to internal messaging and document storage solutions, LEAP utilizes the cloud. This results in a seamless switch to working remotely for all LEAP users, so much so, that LEAP offers further support to help clients make their own pivot to working from home.

How your firm can achieve this:  Consider how you access your most important data. How many times during the day do you need to access important case information while away from your desk? With LEAP, you can be sure that all your data is securely stored via Amazon Web Services . This means you can access all your matter information at any time, from anywhere, with one single sign-on. 

Quality service is more than offering support to clients when things go wrong. It’s receiving a clear communication in a way that suits their needs, getting access to helpful knowledge, and dedicated specialists providing the best possible experience.

Implementing quality service can be difficult, but instead of feeling stuck, know that there are legal technology tools available to help your New Jersey law firm grow in this area.  Contact us today and schedule a demonstration to see how LEAP, the #1 legal practice productivity solution, can help your law firm master quality client service.

By Jeralyn Lawrence, AAML NJ Chapter President

In January 2020, the New Jersey Appellate Division made an unexpectedly timely ruling on the use of video testimony in family matters being heard by the court. While the state's Court Rules neither explicitly allowed for nor prohibited video testimony, courts have made an array of rulings in different cases regarding the acceptability of witnesses appearing over a video link. In Pathri v. Kakarlamath (462 N.J. Super. 208 (App. Div. 2020)), the Appellate Division refined the factors for judges to consider when responding to a request to deliver testimony via video.

Only a few short months later, the COVID-19 pandemic dramatically changed the way all cases, including family matters, are heard in the New Jersey courts. Even if that change is  temporary, the decision in Pathri helped to lay a firm foundation for the ensuing hearings. Whether due to health considerations or other concerns, the technical revolution in video technology made the court's decision timely and highly relevant for all practitioners in New Jersey. Many are hopeful that these technological advances remain in place indefinitely.

Case Background

The Pathri case concerned a family that had immigrated to the United States, arriving from India in 2007. In 2018, the husband filed for divorce shortly before returning to India; the wife then filed a counterclaim. She lived in Maryland with the couple's two children. Once the case was scheduled for trial in May 2019, the plaintiff sought an order granting permission for him to appear via video remote testimony, saying he was unable to obtain a visa to the United States to appear in court.

While it does not appear that contradictory facts were presented indicating that the husband would in fact be able to receive a visa, the trial court rejected his motion after the wife opposed it. To this end, the court relied on Aqua Marine Products, Inc. v. Pathe Computer Control Systems Corp. (229 N.J. Super. 264 (App. Div. 1988)) a contract case in which a witness sought to present testimony via telephone link.

The Aqua Marine court created a two-part test to determine whether remote testimony was acceptable:

In the Pathri case, the judge ruled that her ability to determine the credibility of the plaintiff's testimony would be negatively affected by his lack of physical presence. The plaintiff then appealed, and the decision from the Appellate Division followed.

A Modern Approach to Video Testimony

In Pathri, the Appellate Division recognized the necessity of an approach to remote testimony that reflects the array of technological options that were impossible and, indeed, unimaginable, at the time of the Aqua Marine decision. The court began by noting that the Court Rules allow for testimony to be presented without physical presence, as in the case of capacity hearings or physicians providing trial testimony via videotape.

Distinguishing the present case from Aqua Marine, the court noted that there had been no prior discovery of the witness who sought to testify remotely in that case. In addition, the only option offered for contemporaneous remote testimony was telephonic, without the additional opportunities that modern video technologies offer to allow thorough questioning and examination of the witness.

In the Aqua Marine ruling, the court noted that it would be difficult to determine the credibility or even verify the identity of the speaker, given that they would appear only as a voice over the telephone. While modern technology eliminates some of the practical issues in Aqua Marine, there remain important reasons why courts may remain skeptical of video testimony, at least when other witnesses will appear in person at the same time. (When all witnesses appear via video, the same limitations are broadly shared.)

The court did not overrule Aqua Marine, noting that the test presented in the case was correct. It referred to the Federal Rule of Civil Procedure 43(a), which allows testimony via live video transmission "for good cause in compelling circumstances and with appropriate safeguards..." a standard very similar to that applied in Aqua Marine. While the two texts use different language to describe those circumstances, the rationale presented is equivalent: That is, witnesses may testify remotely when the circumstances are appropriate.

Pathri Test for Remote Appearances

The court laid out seven factors for judges to consider when evaluating a request to appear via a live video link. These factors are:

The court noted that video testimony is most appropriate when witness testimony is not essential. The more heavily disputed the facts relayed by the witness, the greater the weight against live video testimony. In addition, in cases where a judge is finding facts rather than a jury, video testimony may be more acceptable, as judges are more experienced than laypeople in determining credibility and assessing the value of testimony.

The court also noted that the interests of justice allow for video testimony that alleviates problems with scheduling, prevents delays or allows greater efficiency in the trial process. To this end, the court noted New Jersey Rule 1:1-2, which notes that the rules should be construed to "secure a just determination, simplicity in procedure, fairness in administration, and elimination of unjustifiable expense and delay." It emphasized that decisions about video testimony should serve the aims laid out in this rule.

Further, the court did not distinguish testimony on matrimonial matters from other types of testimony. The Aqua Marine case reviewed as precedent was a contract dispute, while the court referenced telephonic hearings in guardianship procedures as a useful example.

However, the court warned of attempts to avoid appearing at trial, noting that if the witness is responsible for their inability to be present, this may weigh against allowing video testimony. In light of these factors, the Pathri court sent the case back to the trial court for further consideration.

Repercussions of the Pathri Decision

The Appellate Division's ruling reflects a preference for obtaining testimony, even if imperfect, over not allowing testimony at all. The court noted the potential unfairness in disallowing remote testimony with the effect of leaving only one party to speak. However, the court also made room for many conditions on the testimony as well as consideration of multiple factors that could weigh against allowing such video appearances. The court also noted practical factors that judges may consider, such as the ability of the judge or jury to see the witness's face or body language as they speak or potentially requiring testimony to take place in a specific location.

The court also requested the rules committee of the Supreme Court to consider the issue for formal inclusion. Since the Pathri ruling, live video testimony has become the norm, as have remote appearances by judges and members of the jury. The changes created by the COVID-19 pandemic built upon an existing technical framework and the decision in Pathri, allowing the courts to continue to function despite significant limitations on the ability of people to appear in person.

Video Testimony After the Pandemic

In March 2020, the Administrative Office of the Courts issued a directive allowing trials to proceed via Zoom, Microsoft Teams and other platforms, including divorce proceedings. Even as the pandemic waned and attorneys, litigants and judges returned to some in-person hearings, many matters have continued to proceed remotely. Judges have the authority to schedule in-person proceedings based on the circumstances or facts of each case.

Remote trial testimony outside the pandemic may raise additional concerns for some of the reasons cited by the court. Witnesses may attempt to avoid more thorough scrutiny by making themselves absent for trial, leading to credibility determinations becoming more challenging. Technical glitches, certainly a factor in court-over-Zoom during the pandemic, could also make remote testimony an additional challenge during an in-person hearing. However, there are also significant positives to remote proceedings, such as convenience and in keeping costs down.

Takeaways for Practitioners

There are a number of issues with which practitioners may wrestle when dealing with requests for video testimony, especially as an exceptional matter. When representing a client or seeking to present a witness who is unavoidably overseas, engaged in work travel, located in a remote or inaccessible area (such as oil and gas workers) or unable to attend the trial for any reason, the ruling in Pathri provides clearer guidance as to the arguments that must be made. The Appellate Division provides seven factors that are relevant to a judicial decision,and presenting arguments for each of those factors would be beneficial to any practitioner seeking approval for remote testimony.

When the opposing party seeks to present remote testimony, the court also provides useful factors for determining whether to oppose the application. If a practitioner is concerned that the opposing party is specifically seeking to avoid scrutiny or dodge questions of credibility, the Pathri factors provide space to emphasize these issues. The ruling, while providing a broader scope for video appearances, also presents clear issues of concern for the court.

While video testimony and Zoom court have become the norm in the period following the Pathri decision, the elucidation of clear factors for video testimony and the recognition of modern technologies present a useful framework for all practitioners seeking or opposing permission to appear remotely.

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.

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.

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: 

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: 

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: 

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. 

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.

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. 

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.