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 VOL. 6 NO. 5 MAY 2005 |
In this Issue
A Word from Gregg Herman
ABA Family Law Section Fall Meeting and “Tax Aspects of Divorce in Wisconsin”Wisconsin Courts Updates
Sub-S income and Child Support; Discovery Sanctions in UIFSA case, Effect of “backdrop pension” on property division and child supportDecisions Across the Nation
Attorneys fees not dischargeable in bankruptcy, Tax exemption, Statute of limitations for legal malpractice in drafting prenuptial agreement, Shirking by not practicing law, Grandparent visitation and more.Family Law & Mental Health
"Falling Through the Cracks: Gaps in Child Support Among Welfare Recipients"Adoption
The Federal Indian Child Welfare Act - Fair or Unfair?Business Valuations
Valuation of Insurance AgencyFamily Law Mediation
Mediating in the Shadow of an AffairFamily Law Related Articles and Publications
“Litigating Domestic Torts”
If you like to plan ahead, the ABA Family Law Section fall meeting in 2005 will be from September 28th - October 1st, 2005, at the Westin Horton Plaza in San Diego, CA. If you have never been to an ABA FLS meeting, it is a great opportunity to get loads of high quality CLE, meet family law attorneys from around the country and have fun. As a future chair of the section (I am running unopposed for vice-chair for 2005-06), I will make it my personal responsibility to introduce you around and ensure that you enjoy the meeting. Just let me know you are coming!
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Please be reminded that on June 2, 2005, CPA Gregory J. Ksicinski, Garrick Zielinski and I will present “Tax Aspects of Divorce in Wisconsin”, a CLE seminar for the National Business Institute. The program will be at the Manchester East Hotel at 7065 N. Port Washington Road in Fox Point.
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In mid-April, the District II Court of Appeals issued their opinion in Winters v. Winters, No. 2004AP747 (Apr. 13, 2005) (recommended for publication), which affirmed the order rendered by the Honorable Paul V. Malloy (Ozaukee County Cir. Ct.) concerning post-judgment child support matters.
As is relevant to this appeal, at the time of the 1993 divorce, the Timothy Winters was ordered to pay 25% of his gross income for child support of the parties' two children to Linda Winters. Additionally, Timothy was awarded his 10% interest in a closely held S-corporation where he was employed. The MSA further provided that 10% (5% for each child) of the Timothy's dividends, distributions or proceeds from the sale or redemption of his stock in the company would be held in trust for the children.
From 1995 - 2002, Timothy reported nearly $114,000 in cash distributions from the company. However, the company practice has been to retain all earnings and only make distributions to shareholders sufficient to cover the tax liability associated with the company's earnings, as the company's income passes through to its shareholders under the S-corp. structure.
In 2002, when the State of Wisconsin commenced an action to convert Timothy's child support payment from a percentage to a fixed amount based upon his earned income, Linda learned of Timothy's actual cash distributions from the company, and filed a motion to include the distributions in his income for child support and require Timothy to place in trust 10% of the distributions already received. Linda sought substantial discovery materials from Timothy.
The circuit court denied Linda's motion, holding that neither Timothy's proportionate share of annual company profits nor the annual company distributions are income available for child support and that the funds to be placed in trust come will be distributed from the ultimate sale or redemption of Timothy's stock. The circuit court also limited Linda's discovery to Timothy's personal tax returns and his financial disclosure statement. Linda appealed and the court of appeals affirmed.
A. With respect to the undistributed income, the court of appeals notes that under the DWD guidelines in effect in December 2003, undistributed income is available for child support where a party "has an ownership interest sufficient to individually exercise control or to access the earnings of the business." Relying on the two-part test set forth in Weis v. Weis, 215 Wis. 2d 135, 572 N.W.2d 123 (Ct. App. 1997) for determining whether to include undistributed earnings in income available for child support [1. Payor's ability to control or access undistributed earnings and 2. Whether there is a valid business reason for retaining earnings], the appellate court concluded that Timothy's small 10% ownership interest, particularly in light of the existence of a majority shareholder, renders the second part of the Weis test moot, and the circuit court property excluded the undistributed earnings.
B. The court of appeals summarily rejected Linda's undeveloped argument that the cash distributions should be considered income available for child support.
C. The court of appeals resolved the parties' dispute about whether the amount to be placed in the children's trust was intended to apply to ongoing dividends / distributions or to the ultimate sale, by concluding that the MSA was ambiguous. The court of appeals found that because the growth in the company was facilitated by retained earnings and thus it is in the best interest of the children to allow the investment to keep growing, and recognizing the contract tenet that ambiguous language is construed against the drafter (in this case Linda's attorney), the circuit court property construed the MSA language to require distribution of the proceeds into the children's trust from the final disposition of Timothy's stock.
D. Lastly, the court of appeals upheld the discretionary determination of the circuit court to limit discovery to matters relevant to the issues before it.
Full Opinion (PDF)
The Respondent-Appellant Linda Winters was represented on appeal by: Carl R. Scholz (Mequon)
The Petitioner-Respondent Timothy J. Winters was represented on appeal by: Thomas D. Klein and Jennifer J. Van Kirk (Milwaukee)
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In mid-April, the District II Court of Appeals issued their opinion in Halko v. Halko, No. 2004AP1228 (Apr. 13, 2005) (recommended for publication), which reversed and remanded the order rendered by the Honorable Michael S. Gibbs (Walworth County Cir. Ct.) that dismissed a UIFSA action because of the petitioner's discovery violations.
The parties were divorced in Illinois. The children were primarily placed with Linda Halko and Lawrence Halko was ordered to pay child support. After the divorce, Linda (and presumably the children) moved to Florida and Lawrence moved to Wisconsin. Upon request of the State of Florida, the State of Wisconsin registered the divorce judgment in Walworth County, apparently with the intention of pursuing alleged child support arrears of almost $40,000.
Lawrence objected to the registration. At a hearing before a family court commissioner, the commissioner concluded that Lawrence presented evidence establishing a full or partial defense and ordered a subsequent evidentiary hearing. The commissioner also found that Linda was a party to the action, equivalent to a plaintiff. (Thus, she was subject to the rules of civil procedure, and more specifically, discovery.) Events thereafter, as quoted from the opinion, proceeded as follows:
"¶5 Linda did not attend a December 4 deposition that Lawrence’s counsel had scheduled in order for Linda to identify some documents, so in January 2003, Lawrence moved the court for an order compelling her to complete discovery. The circuit court held a motion hearing in March and ordered Linda to make herself available for discovery at the convenience of Lawrence’s counsel within thirty days, by April 5.
¶6 In April, Lawrence moved to dismiss the case, alleging that Linda had not responded to the March order. At a June 6 hearing on the matter—at which Linda appeared by telephone—the circuit court informed Linda that if she received a notice of deposition that required her to be present in Wisconsin, she would have to attend or risk sanctions. The court warned her that sanctions might include dismissal.
¶7 On July 3, Lawrence’s counsel sent Linda via Federal Express a notice of deposition requiring her to appear on July 17. Linda received the notice on July 7 but again failed to appear for the scheduled deposition. Lawrence filed another motion to dismiss the case in September, and the court granted his motion at a November 14 hearing. The court stayed the order for thirty days and agreed not to dismiss the case if Linda complied within that time. She did not comply, so the court signed an order dismissing the case on February 2, 2004. The State appeals."
Two matters were raised on appeal:
1. Does the discovery violation sanction of dismissal under Wis. Stat. § 804.12 apply to actions objecting to the registration or enforcement of a child support order under Wis. Stat. § 769.607? The court of appeals answered in the affirmative, both on statutory and inherent power grounds.
2. If so, was dismissal appropriate without the circuit court having considering alternative sanctions or explicitly finding Linda's conduct egregious? The court of appeals answered in the negative, reversing the dismissal and remanding to the circuit court to undertake a consideration of alternative sanctions, of which dismissal is available, but only upon a finding that Linda's conduct was egregious.
Interestingly, though the court of appeals makes it clear that they "do not instruct the circuit court to make any particular order or take any specific course of action," the appellate court is not bashful about suggesting several courses of action for the circuit court to contemplate taking:
"¶15 .... We observe that the circuit court has available to it several potential means of obtaining the desired information. As we mentioned above, for example, Wis. Stat. § 769.318 allows a Wisconsin tribunal to request another state to assist in discovery. Perhaps the circuit court could request the assistance of a Florida tribunal.
¶16 Moreover, Lawrence’s counsel alluded at an earlier hearing to the possibility of a video deposition so that Linda could look at the documents Lawrence needed her to authenticate. Wisconsin Stat. § 885.42(1) expressly permits this means of taking a deposition. See also generally Wis. Stat. §§ 885.40 to 885.47. Commentators have pointed out the benefits of video technology in circumstances when travel is inconvenient or unduly expensive for an important witness. See Stuart G. Mondschein, Lights, Camera, Action: Videoconference Trial Testimony, Wisconsin Lawyer, July 1997, at 14, 16; Gregory T. Jones, Lex, Lies & Videotape, 18 U. Ark. Little Rock L.J. 613, 616 (1996). The circuit court may consider this option.
¶17 The circuit court may also conclude that an appropriate sanction for Linda’s discovery violation might either give Linda sufficient incentive to comply with her discovery obligations or dispense with the need for her cooperation. For example, Wis. Stat. § 804.12(2)(a)1. provides, “An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order.” Lawrence needs Linda to authenticate documents. Based on this section, the circuit court has the authority to admit the authenticity of those documents. It may also stay the proceedings and refuse to enforce the registered order until Linda obeys the court’s orders. See Wis. Stat. §§ 804.12(2)(a)3. and 769.607(2)."
The Appellant State of Wisconsin was represented on appeal by: Lee D. Huempfner (Elkhorn)
The Respondent-Respondent Lawrence M. Halko was represented on appeal by: Terry P. Race (Whitewater)
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In late-April, the District I Court of Appeals issued their opinion in Winkler v. Winkler, No. 2004AP1231 (Apr. 26, 2005) (recommended for publication), which affirmed the order rendered by the Honorable Michael J. Dwyer (Milwaukee County Cir. Ct.) concerning treatment of the husband's backdrop pension received post-judgment.
Following more than nineteen years of marriage Joy and Robert Winkler divorced in 1993. As part of the settlement agreement, as subsequently revised shortly thereafter, Joy was to receive 50% of Robert's Milwaukee County Employee Retirement System pension benefit as reflected on a sheet of calculations prepared by the ERS which showed the benefit at certain retirement ages. Though Robert was eligible to retire on January 1, 1994, the parties understood that Robert would continue working. In 2001, the Milwaukee County pension was sweetened (leading to the infamous scandal) to include, in addition to the traditional pension, a backdrop provision which allows the employee to collect a lump sum of the payments that would have been received from the earliest retirement eligibility date to the actual date of retirement. Robert retired on May 1, 2002, at age fifty-eight, and received a lump sum backdrop payment (covering January 1, 1994 to April 30, 2002) exceeding $168,000. Joy moved to reopen the judgment under Wis. Stat. § 806.07 and requested to be awarded one-half of that amount. The circuit court denied the motion to reopen the judgment, but awarded Joy a lump sum child support award of nearly $23,000, which is 17% of the $168,000 (less a 20% anticipated tax impact to Robert of cashing in the required funds). Joy appealed the Wis. Stat. § 806.07 denial and Robert cross-appealed, arguing that the backdrop is not income available for child support and, even if it is, it is not subject to a lump sum payment. Robert also argued that the circuit court erred in not establishing a trust for the lump sum child support.
The court of appeals affirmed in a unanimous opinion authored by Judge Joan F. Kessler, holding:
1. While the backdrop may be technically marital property, the parties agreed to a specific amount of the pension to be awarded Joy. Neither party had any foreknowledge or part in the creation of the backdrop pension sweetener. It is an unanticipated windfall. The facts are not so extreme as to warrant relief under any provisions of Wis. Stat. § 806.07 and finality compels rejection of the request to reopen.
2. The backdrop is income available for the payment of child support under Wis. Admin. Code § DWD 40.02(13)(a)7 (voluntary deferred compensation) or 10 (all other income, with certain exceptions not found). The fact that Robert is able to defer receipt of the backdrop by rolling it over into an IRA or otherwise cannot be used to deprive the child of support.
3. The DWD guidelines are presumptive and their presumptive application to the backdrop results in a lump sum, which is appropriate. Robert's claim that this lump sum constitutes a retroactive child support increase is rejected based upon the factual findings of the circuit court as to the needs of the child.
4. The circuit court properly denied the imposition of a trust when it concluded that Robert failed to demonstrate that Joy was incapable or unwilling to wisely manage the child support money.
The Petitioner-Appellant-Cross-Respondent Joy M. Winkler was represented on appeal by: Jane E. Probst (Waukesha)
The Respondent-Respondent- Cross-Appellant Robert W. Winkler was represented on appeal by: Phil Elliot, Jr. (Milwaukee)
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Last month, we reported on Derr v. Derr, which we predict will be the lodestar case on nonmarital property for years to come. For further analysis of this case, we have posted on our Web site two articles by Gregg Herman which were published in the Wisconsin Law Journal:
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The following cases are provided courtesy of Contributing Editor Laura W. Morgan, Family Law Consulting. Laura is available for consultation, brief writing and research on family law issues throughout the country. Please visit her Web site or drop her an e-mail.
Eden v. Robert A. Chapski, Ltd.
No. 04-2247
United States Court of Appeals, 7th Circuit
April 22, 2005Attorney’s fees incurred in a divorce proceeding are not dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(5), and survive a Chapter 13 bankruptcy.
Embree v. Embree
No. B174022
California Court of Appeals, Second District
Division Seven
December 29, 2004A former wife's attempt to enforce the provisions of a separation agreement whereby the husband was to establish a lifetime annuity for the wife was time barred.
Curello v. Commissioner of Internal Revenue
T.C. Summary Opinion 2005-23
United States Tax Court
February 24, 2005A divorce decree purporting to award a noncustodial parent the tax exemption for a child is not the equivalent of IRS Form 8332, and thus the noncustodial parent was not entitled to the exemption.
Brown v. Brown
No. 48A04-0402-CV-66
Indiana Court of Appeals
March 21, 2005A trial the trial court does not abuse its discretion in determining that a retroactive lump sum payment of social security disability benefits to the dependent child of a noncustodial parent may not be credited against that parent’s child support arrearage.
Antone v. Merviss
Minnesota Court of Appeals
April 12, 2005In a legal malpractice action based on an allegation that a lawyer was negligent in preparing an antenuptial agreement and thus failed to prevent a former spouse from obtaining property that was to be protected by the agreement, the requisite damages do not occur until the district court awards such property to the former spouse. Thus, the legal malpractice complaint was timely even though it was filed 16 years after the agreement was drafted.
Moore v. Moore
No. A-1800-03
New Jersey Superior Court, Appellate Division
April 5, 2005Even though the husband, age 70, was still working and had not retired, he could be ordered to pay the wife her share of the retirement benefits she was entitled to had he retired at age 65.
Lopez v. Ajose
No. 4863/01
New York Supreme Court, Manhattan
April 4, 2005A lawyer who, shortly after graduation from law school, became disenchanted with being a lawyer and instead decided to attend divinity school was held in contempt for refusing to file the necessary papers to become a member of the New York State Bar and willfully failing to pay over $40,000 in child support arrears.
Ricco v. Novitski
No. 2005 PA Super. 121
Pennsylvania Superior Court
April 5, 2005The trial court erred when it determined that the income from a child’s special needs disability trust warranted deviating from the child support guidelines so that the father owed no child support whatsoever.
Nave v. Nave
No. E2004-00844-COA-R3-CV
Tennessee Court of Appeals
March 29, 2005A mentally incapacitated man’s conservator had authority to maintain an action to annul his marriage, and the trial court properly entered the annulment nunc pro tunc to the final day of trial when the man died shortly thereafter.
Appel v. Appel
No. 75262-1
Washington Supreme Court
April 7, 2005The grandparent visitation provision in Washington’s third party visitation statute is unconstitutional on its face because it infringes upon a fit parent’s right to control the care and custody of his or her child by using a “best interests” of the child test instead of a “harm to the child” test.
••• News •••
Civil Unions O.K.'d in Connecticut
Connecticut became the second state, after Vermont, to approve “civil unions” between members of the same sex.
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The following is provided courtesy of Contributing Editor Christine Harness, Phd. Dr. Harness is in private practice, specializing in individuals and couples therapy and is an approved parenting course provider for Milwaukee County. She can be reached at (414) 961-3208
"Falling Through the Cracks: Gaps in Child Support Among Welfare Recipients" examines gaps in child support among Wisconsin welfare recipients. It documents the degree to which breakdowns at various stages in the legal process contribute to the low rate of child support receipt, and tracks children over a 2-year period of time.
This article was published in February 2003 in the Journal of Marriage and Family, Volume 65 and is available online.
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The following is provided courtesy of Contributing Editors Stephen Hayes and Elizabeth Neary of The Schroeder Group, Waukesha Wisconsin. Attorneys Hayes and Neary are members of the American Academy of Adoption Attorneys and handle adoption, foster care and surrogacy cases throughout the State of Wisconsin. They can be reached at (262) 798-8220 and via their Web Site.
The Federal Indian Child Welfare Act - Fair or Unfair?
Recently, a birth mother who was 1/256th Cherokee identified a proposed adoptive couple for the baby that she was about to deliver. Aware that the Indian Child Welfare Act might be applicable to the case, counsel inquired of the Cherokee Nation whether it would be seeking to assert placement preference priorities and intervene in an upcoming adoption proceeding. Under the terms of the Indian Child Welfare Act, if a child is eligible for membership or enrollment in a tribe, the tribe is entitled to intervene and ask the court to honor placement preference priorities under the Act. The first two preferences are: (1) a member of the child's extended family; (2) other members of the Indian child's tribe. The adoptive couple would be last on the placement preference list.
Most tribes in the United States establish eligibility to enroll based on blood quantum. Thus, in most cases, if the child would have 1/8th to 1/4th Native American blood quantum, the child would be eligible for membership or enrollment. A few tribes have a standard for membership or enrollment that is not based on specific blood quantum. The Cherokee Nation is one of those tribes. Under federal law, tribes are permitted to set their own eligibility standards thus there is no consistency or defined standard among the tribes concerning enrollment eligibility or membership.
The child to be born was 1/512th Cherokee. On inquiry as to whether the tribe would be asserting its placement preferences which would certainly mean that the child would be placed with a Cherokee family, the tribe responded that it would. As a consequence, the birth mother would not be able to place the child with the family of her own choosing. Rather than proceed to place with a Cherokee family or other Native American family, the birth mother has elected to keep the child that she originally wanted to place for adoption. The father had expected the child to be adopted. The court will now deal with child support, birth and medical expense issues.
At the outset, it is necessary to establish the degree of Native American heritage of parents in an adoption, guardianship or certain other custody matters. The Indian Child Welfare Act was passed with the clear intention of not allowing the break-up of an Indian family. Query - At 1/512th, does this case represent the breakup of an Indian family? The adoption by Congress of uniform enrollment and membership guidelines which establish a set quantum would help birth parents and adopting couples develop reasonable, predictable placement plans while still preserving the purpose for ICWA. Although there are exceptions, compliance with ICWA is mandatory even in cases in which one would not expect coverage. See generally ICWA 25 US CS Sec. 1911 et seq.
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The following is provided by Contributing Editor Timothy P. Muehler, JD, CPA/ABV, CVA, Clifton Gunderson LLP, Certified Public Accountantsy. You can reach Tim via e-mail.
Sampson v. Sampson
2004 Mass. App. LEXIS 1223
October 29, 2004
Judge KafkerThere were two issues in this marital dissolution. The first was the valuation of the wife's insurance agency. The second, and more controversial issue, was a "double-dipping" claim by the wife which resulted in the perceived improper division of property. However, no further guidance was provided on the issue.
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The following is provided courtesy of Contributing Editor Kathleen Baird, a family law attorney and mediator in Wauwatosa, Wisconsin. She can be reached via e-mail.
Mediating in the Shadow of an Affair
An affair adds an especially difficult dimension to divorce mediation. Trust between the spouses is severely impaired, the betrayed spouse is most often obsessing about the affair and the parents have usually pressured the children into taking sides. There is emotional chaos. However, in this context, mediation can be particularly helpful in guiding a couple past blame, rage, and guilt to productive problem solving. The greatest challenges for the mediator will be to deal with the betrayed spouse's obsession with the affair, the couple's avoidance of the issues of the ending of the marriage and future contact between the children and the third party. Emily Brown, a mediator from Virginia, has developed a systemic approach to understanding an "exit" affair and strategies for mediating a divorce when there has been an affair. Her suggestions include: acknowledge the betrayed spouses feelings of pain, fear and powerlessness, but cut off excessive ruminating immediately; always maintain tight control over the session, stopping emotional attacks; allow no moralizing about the affair; do not focus more attention on the betrayer that the betrayed; consider delaying the sessions to give the betrayed spouse time to work with a therapist to move beyond an obsessive preoccupation with the affair.
See: "Mediating in the Shadow of an Affair", Emily M. Brown in Divorce and Family Mediation, Eds. Jay Folberg, Ann Milne and Peter Salem.
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The Spring, 2005 issue of the Family Advocate, published by the ABA Family Law Section, is on “Litigating Domestic Torts”. Articles include:
“Domestic Torts: New Ways to Find Fault”
By Robert G. Spector“Cybersnooping: No License to Spy”
By Edward S. Snyder“In Sickness...and in Health: Representing a Spouse in a Sexual Transmission Case”
By Cary B. Cheifetz“Custodial Interference: Undermining the Court’s Decision”
By Edward J. Gross“Marital Malfeasance: Pursuing Tort Remedies for Economic Fraud”
By Brett R. Turner“Third-Party Blame: Novel and Expanding Claims”, by John C. Mayoue and Dennis G. Collard
For ordering or subscription information (the current issue may not be available yet), visit the Family Advocate Web site.
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Our Contributing Editors
Atty. Kathy Baird (Mediation)
CPA Scott Franklin. Kohler & Franklin, Milwaukee (Tax Tips)
Prof. Charles Kindregan, Suffolk University Law School
Dr. Christine Harness, Ph.D., Milwaukee (Mental Health)
Atty. Laura Morgan, Family Law Consulting, Charlottesville, VA (Family Law Cases)
CPA Timothy P. Muehler, Clifton Gunderson LLP
Dr. Sanford Portnoy, Boston, MA (Mental Health)
CPA Everett Stone (Taxes and business valuations)
Scott J. Wildman, CPA/ABV, CVA of V/B Business Valuations, Inc.
Atty. William Brown (Employee Benefits)
Atty. Stephen Hayes (Adoption)
Atty. Elizabeth Neary (Adoption)We thank them for their contributions!
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