As always, before reading this post, please review my disclaimer by clicking the link above or by clicking on this link. As always, any legal principles discussed apply only to the Commonwealth of Virginia.
Introduction
"It's their fault that I'm in this mess, they should pay your fees, not me." If I had a dime for every time I've heard a client say that or something similar to me I'd... well... probably have a lot of dimes. Attorneys' fees are one of those areas where a particular sense of unfairness hits a lot of clients. If it's not their fault that they need an attorney (maybe they've been wrongfully sued, or wrongfully accused of a crime, or maybe they are enforcing their rights against someone who refuses to do what they are supposed to), it just doesn't seem right that they have to pay their lawyer and can't get the other side to pay.
Well, there are some situations in which your attorneys' fees can, in fact, be ordered to be paid by the other party, but those situations are exceptions, not the rule, and even they are complicated. In this blog post I hope to discuss some of the basics (the details would be far too much for one post) on when you can and cannot require the other party to pay for your lawyer, and how such an arrangement actually works.
American Rule vs. English Rule
Much of the "common law" world (the parts of the world that can trace their legal traditions to Medieval England) follow what is known as the "English Rule" in civil lawsuits. This rule is simple - in a lawsuit, the loser pays the winner's attorney's fees, in addition to his or her own. The United States, however, despite being a common law country, does not follow the English Rule. Rather, we follow the "American Rule," which states that, while there are exceptions, barring the availability of one of those exceptions, each party pays his or her own attorney regardless of who wins and loses.
The merits of this Rule can be debated all you want (and this is not a constitutionally required rule, by the way, meaning the various state legislators could change it any time they wanted to if they wished), but it is the law in all 50 states and the federal court system right now. As a result, you should always enter a legal situation expecting to pay your own attorney.
Now, with that background, it might be worth discussing what the major exceptions are. In Virginia, there are around three major exceptions.
Exception 1 - Statutory Exceptions
Statutory exceptions are situations where Virginia Law expressly provides for attorneys' fees to be awarded in the discretion of the court. Some common situations in which courts have the power to award attorneys' fees to a party of its choosing are Family Law cases (including divorce), estate dispute cases, and all civil lawsuits heard by the Juvenile and Domestic Relations District Courts.
Now, the statutory exceptions themselves will lay out in each specific part how the court makes its determination - and not all statutory exceptions are the same. For example, in a divorce, attorneys' fees are awarded "in light of all the equities of the case" - in other words, the judge is to make an attorney fee ruling he or she considers fair. In J&DR Court cases, however, attorneys' fees are to be awarded based pretty much solely on the relative ability of the parties to pay.
So, as you can see, the statutory exceptions give a great deal of discretion to judges. As a result, if you wish to enforce an attorney fee right which is granted by statute, you must convince a judge that you should be awarded such relief. You cannot simply demand that the other party pay all of your fees.
Exception 2 - Agreement
The next major exception is if the parties have agreed to apply the "English Rule" to their case. Many contracts, for example, will contain provisions that if a lawsuit is filed based on an alleged breach of the contract, the prevailing party will be entitled to his or her attorneys' fees.
With rare exception, when a lawsuit involves a contract and that contract provides for an attorneys' fee award, the judge is largely without discretion. If the agreement provides that the loser pays, then the judge must order the loser to pay. In these cases, it is much more reasonable to demand your fees from the other side at the outset.
Exception 3 - Sanctions
Virtually all court systems have provisions for dealing with lawsuits that are "frivolous." In Virginia, our provision is Virginia Code Section 8.01-271.1. This provision states that the signing of any "pleading" (court document) indicates that the person signing it (be it the attorney or an unrepresented party) has a good faith basis for believing that the pleading is reasonably based on law or fact. If this later turns out to be untrue, and the pleading was filed in bad faith, the lawyer, the lawyer's client, or both can be sanctioned (penalized) by the court. Amongst the penalties the court may impose is an attorneys' fee award.
Much like exception 1, sanctions are largely discretionary. If a judge finds that sanctions are warranted, the judge may not award fees at all, or only award some fees.
How Fee Awards Function
If you find yourself in an exception situation where a fee award might be possible, the first thing you need to understand is that your fees are your responsibility first and foremost. I've had clients say to me "do this, and then send the bill to the other party." No, that's not how it works. You owe the money to your attorney, and it is your responsibility to pay, even when the court has awarded you your attorneys' fees.
If the court awards you fees, it can come in two forms - an order to pay or a judgment. As I've discussed before, an order to pay is a ruling that requires the person to pay under penalty of contempt of court. A judgment, however, only creates the duty to pay on paper, and then you still have to engage in post-judgment collections to get the money.
The easiest way to tell which situation you are in is to see if the judge provided a payment deadline. If they did, then it's probably an order to pay, and if they did not, then it is probably a judgment. More generally, most (but not all) attorneys' fee awards arising out of agreements are judgments, and most (but not all) attorneys' fee awards arising out of sanctions are orders to pay. For statutory exceptions, it generally depends whether the case is "in law" or "in equity" - so divorce attorney fee awards are usually orders to pay, but estate dispute attorney fee awards are usually judgments.
So, the fact that some attorneys' fee awards are just judgments that must be garnished or otherwise collected should tell you right away that you must still pay your attorney first, but then you can try to get that money back. Even orders to pay, however, do not relieve you of your obligation to your attorney, since the other party may still refuse to pay. Most importantly of all, however, almost all attorneys' fees awards (both judgments and orders to pay) are dischargeable in bankruptcy, so if the other party declares bankruptcy, you can't collect the fee award, and you still have to pay your attorney.
In short, there is virtually no situation in which "do this and send the bill to the other party" is actually acceptable.
Conclusion
There are few things more frustrating to a wronged party that realizing that you still have to pay for your own attorney. While there are exceptions, these are frequently hard to understand, and harder still to enforce. If you'd like to discuss whether an attorney fee award is possible in your case, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com for a consultation. Our initial consultations are free for up to half an hour!
Showing posts with label Estate Planning. Show all posts
Showing posts with label Estate Planning. Show all posts
Friday, October 23, 2015
Thursday, October 16, 2014
Defining Marital Property in Virginia
As always, before reading my post please review my disclaimer by following the link above or by clicking on this link. As always, any legal principles discussed apply only to the Commonwealth of Virginia.
Introduction
One of the most important and well-known topics that comes up in divorce law is the division of property. It is also a topic that I have almost completely avoided on this blog. It's not that I don't think it's important - it most certainly is important. Rather, I have had trouble coming up with ways to talk about it while keeping blog posts on the topic of a reasonable length. You see, I can go on and on about the weird rules of spousal support, or how you calculate child support, but in my personal opinion, nothing about divorce law is more complicated than the laws surrounding the division of property.
Virginia is an "equitable division" state. We are also not a "community property" state. What this means is that we do not consider all property owned by married couples to be eligible for division, and when property is divided, there is no presumption that it should be divided 50/50. As a result, there are very complicated statutes on property division, and very, very many volumes of case law interpreting it. Today, I've decided to start addressing some of these issues, and to do so I'm starting at the beginning - what property actually gets divided?
Today's blog post will give a brief overview of the meaning of marital property - the property that gets divided in a divorce. Even this is a complicated concept with volumes of case law, so today's post will remain fairly basic.
Marital Property, Separate Property and Hybrid Property
So, as you can probably guess from the names, marital property is property that is considered to belong "to the marriage," while separate property belongs "to the person." Marital property is divided in a divorce, separate property is not - it stays with its owner. Hybrid property is property that is itself both separate and marital, so only the marital portion of hybrid property is divided.
All property you own prior to the marriage is generally considered your separate property. Similarly, any property you acquire after you separate is also considered your separate property. Some examples of this may be a retirement account that you owned before you were married - it is your separate property. A bank account that only has money in it that you earned after you separated - also your separate property.
All property you acquire during the marriage, however, is generally considered to be marital. Money you earn during the marriage, for example, is marital property, and the things it purchases are marital property.
But what happens when you mix separate and marital property?
Transmutation vs. Tracing
The general rule is that if you mix separate and marital property, the whole property becomes "transmuted" to marital property. There is an exception, however, where the owner of the separate property can "completely trace" his property.
I will give two examples. If you had a bank account before marriage but then started depositing your marital income into that account, the account will become marital. Money is fungible, and as a result, there is no realistic way to figure out what portion of the bank account is now marital and what portion is not.
On the other hand, if you use an entirely separate bank account to pay half the down payment on the house, and you can prove that the money was, in fact, used for the down payment, you now know what share of the initial equity in the house was separate, and can use that to calculate the portion of the house that remains separate.
Marital Contributions to Separate Property
There is another rule of some importance to know as well. If you bring separate property into the marriage, but then contribute marital property to it, or either party makes significant efforts to assist it during the marriage, and the property has a "substantial" increase in value, it might become hybrid property. There are several situations where this comes up - for example, a separately owned house brought into marriage where substantial work and improvements are then performed on it during the marriage. A recent Virginia Supreme Court case also counted as hybrid a pre-marital retirement account to which no contributions were made during the marriage, but on which the spouse who owned it had done a great deal of work in terms of active trading to increase its value during the marriage.
Retirement Plans
Now, I've alluded to retirement plans a couple of times, but they are one of the harder bits of property to define, so I do want to address that as well. Retirement plans come in two forms - defined contribution (such as an IRA or 401k) and defined benefit (such as a pension). Both are considered property in divorce, not merely future potential income, although payments from these plans can be considered income for the purpose of determining support (the interplay between income for support and income for property division is a whole other issue probably worthy of its own post). As a result, both are divisible, even if you are nowhere near retirement age yet.
For defined contribution plans, the "marital share" is generally considered to be all contributions made during the marriage, and the earnings and losses thereon. Contributions (and their earnings and losses) from before the marriage and from after the separation are generally considered a separate portion.
For defined benefit plans, there are a number of approaches that can be taken to determining the marital share, but the most common I have seen is the fraction formula. In the fraction formula, the percentage of the defined benefit plan that is considered marital is equal to an equation defined as x / y * 100 (you can leave out the 100 if you are just going for a decimal fraction rather than the percentage). In that formula, x is the number of months you were employed by the employer offering this plan where your month of work was credited towards your plan and you were married and not separated. For the denominator, y is the total number of months of work credited towards your plan as of the date you retire, whether married or not. Usually x will be defined by the date of divorce, but y will not be, and that's alright - y is not expected to be known yet as of the divorce date and the division can still be done with y unknown.
Now, it is worth noting that unlike the other areas of law in property division, there is a specific rule regarding division of retirement accounts. Specifically, once you have determined the marital share of a retirement plan, the non-owning spouse cannot be awarded more than 50% of the marital share of a retirement account. This was done to prevent people from potentially having their retirement savings wiped out by a divorce.
Restricted Stock Options
Another complicated area of property law is restricted stock options - these being stock options frequently awarded by employers which cannot be exercised until a certain date. If that date is after the separation, then you don't really have these options before the separation, so there is some debate in the law about whether they are marital or not. The general rule as it stands right now is that if they were earned during the marriage (so, for example, they were given as a bonus for work done during the marriage), they are marital, regardless of when they vest. If, however, they were given by employers not as compensation for work done, but rather as merely an incentive to continue working for that employer, then they are separate if they vest after the separation date.
This is an area of law that is still evolving, however, and I cannot say the above is the final word on the matter.
Separate Property Acquired During the Marriage
Now, there are some exceptions to the rule that property acquired during the marriage is marital that are worth discussing. The first exception is that property acquired during the marriage solely with separate property (so, for example, a TV bought with money from a separate, pre-marital bank account) is still separate. The second is that anything inherited during the marriage is separate property, unless the inheritance is from a will that specifically bequeathed the inheritance to the couple, rather than just one of the parties. The third is that any gifts that are given by someone other than the person's spouse to the person during the marriage also remain separate property.
Ownership Presumptions
I'm going to wrap things up here because this post is already longer than I'd like, but I do want to note that the law does have some presumptions regarding ownership that are worth remembering.
First and foremost, any property that is jointly owned is presumed to be marital. You can rebut this presumption with some strong evidence, but it is fairly unusual that a court will consider something jointly owned to be entirely separate - at best, you will sometimes get a finding of hybrid property.
Second, the law also presumes that property that is separately titled is separate. That being said, this presumption is much easier to rebut, because as soon as you show that the property was actually acquired during the marriage, the presumption switches to it being marital property.
Nonetheless, it is important to know these presumptions because of their impact on the burden of proof. If property is jointly owned, the party trying to prove separate ownership has the burden to prove it. If the property is separately owned, the party trying to assert marital ownership has the burden to establish that it was acquired during the marriage, but then the other party would have the burden to establish that it was still separate property.
Conclusion
The law surrounding property division is, in my opinion, the most complicated part of property law. Consider that this entire blog post only even talked about what property gets divided - we didn't even touch how that division is actually done - and we didn't even talk about all the topics in that arena. This is one of the biggest reasons why you should get an attorney if you have any property at all that needs to be divided. If you are involved in a divorce and have property to be divided, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com to set up a consultation. Our consultations are free for up to half an hour!
Introduction
One of the most important and well-known topics that comes up in divorce law is the division of property. It is also a topic that I have almost completely avoided on this blog. It's not that I don't think it's important - it most certainly is important. Rather, I have had trouble coming up with ways to talk about it while keeping blog posts on the topic of a reasonable length. You see, I can go on and on about the weird rules of spousal support, or how you calculate child support, but in my personal opinion, nothing about divorce law is more complicated than the laws surrounding the division of property.
Virginia is an "equitable division" state. We are also not a "community property" state. What this means is that we do not consider all property owned by married couples to be eligible for division, and when property is divided, there is no presumption that it should be divided 50/50. As a result, there are very complicated statutes on property division, and very, very many volumes of case law interpreting it. Today, I've decided to start addressing some of these issues, and to do so I'm starting at the beginning - what property actually gets divided?
Today's blog post will give a brief overview of the meaning of marital property - the property that gets divided in a divorce. Even this is a complicated concept with volumes of case law, so today's post will remain fairly basic.
Marital Property, Separate Property and Hybrid Property
So, as you can probably guess from the names, marital property is property that is considered to belong "to the marriage," while separate property belongs "to the person." Marital property is divided in a divorce, separate property is not - it stays with its owner. Hybrid property is property that is itself both separate and marital, so only the marital portion of hybrid property is divided.
All property you own prior to the marriage is generally considered your separate property. Similarly, any property you acquire after you separate is also considered your separate property. Some examples of this may be a retirement account that you owned before you were married - it is your separate property. A bank account that only has money in it that you earned after you separated - also your separate property.
All property you acquire during the marriage, however, is generally considered to be marital. Money you earn during the marriage, for example, is marital property, and the things it purchases are marital property.
But what happens when you mix separate and marital property?
Transmutation vs. Tracing
The general rule is that if you mix separate and marital property, the whole property becomes "transmuted" to marital property. There is an exception, however, where the owner of the separate property can "completely trace" his property.
I will give two examples. If you had a bank account before marriage but then started depositing your marital income into that account, the account will become marital. Money is fungible, and as a result, there is no realistic way to figure out what portion of the bank account is now marital and what portion is not.
On the other hand, if you use an entirely separate bank account to pay half the down payment on the house, and you can prove that the money was, in fact, used for the down payment, you now know what share of the initial equity in the house was separate, and can use that to calculate the portion of the house that remains separate.
Marital Contributions to Separate Property
There is another rule of some importance to know as well. If you bring separate property into the marriage, but then contribute marital property to it, or either party makes significant efforts to assist it during the marriage, and the property has a "substantial" increase in value, it might become hybrid property. There are several situations where this comes up - for example, a separately owned house brought into marriage where substantial work and improvements are then performed on it during the marriage. A recent Virginia Supreme Court case also counted as hybrid a pre-marital retirement account to which no contributions were made during the marriage, but on which the spouse who owned it had done a great deal of work in terms of active trading to increase its value during the marriage.
Retirement Plans
Now, I've alluded to retirement plans a couple of times, but they are one of the harder bits of property to define, so I do want to address that as well. Retirement plans come in two forms - defined contribution (such as an IRA or 401k) and defined benefit (such as a pension). Both are considered property in divorce, not merely future potential income, although payments from these plans can be considered income for the purpose of determining support (the interplay between income for support and income for property division is a whole other issue probably worthy of its own post). As a result, both are divisible, even if you are nowhere near retirement age yet.
For defined contribution plans, the "marital share" is generally considered to be all contributions made during the marriage, and the earnings and losses thereon. Contributions (and their earnings and losses) from before the marriage and from after the separation are generally considered a separate portion.
For defined benefit plans, there are a number of approaches that can be taken to determining the marital share, but the most common I have seen is the fraction formula. In the fraction formula, the percentage of the defined benefit plan that is considered marital is equal to an equation defined as x / y * 100 (you can leave out the 100 if you are just going for a decimal fraction rather than the percentage). In that formula, x is the number of months you were employed by the employer offering this plan where your month of work was credited towards your plan and you were married and not separated. For the denominator, y is the total number of months of work credited towards your plan as of the date you retire, whether married or not. Usually x will be defined by the date of divorce, but y will not be, and that's alright - y is not expected to be known yet as of the divorce date and the division can still be done with y unknown.
Now, it is worth noting that unlike the other areas of law in property division, there is a specific rule regarding division of retirement accounts. Specifically, once you have determined the marital share of a retirement plan, the non-owning spouse cannot be awarded more than 50% of the marital share of a retirement account. This was done to prevent people from potentially having their retirement savings wiped out by a divorce.
Restricted Stock Options
Another complicated area of property law is restricted stock options - these being stock options frequently awarded by employers which cannot be exercised until a certain date. If that date is after the separation, then you don't really have these options before the separation, so there is some debate in the law about whether they are marital or not. The general rule as it stands right now is that if they were earned during the marriage (so, for example, they were given as a bonus for work done during the marriage), they are marital, regardless of when they vest. If, however, they were given by employers not as compensation for work done, but rather as merely an incentive to continue working for that employer, then they are separate if they vest after the separation date.
This is an area of law that is still evolving, however, and I cannot say the above is the final word on the matter.
Separate Property Acquired During the Marriage
Now, there are some exceptions to the rule that property acquired during the marriage is marital that are worth discussing. The first exception is that property acquired during the marriage solely with separate property (so, for example, a TV bought with money from a separate, pre-marital bank account) is still separate. The second is that anything inherited during the marriage is separate property, unless the inheritance is from a will that specifically bequeathed the inheritance to the couple, rather than just one of the parties. The third is that any gifts that are given by someone other than the person's spouse to the person during the marriage also remain separate property.
Ownership Presumptions
I'm going to wrap things up here because this post is already longer than I'd like, but I do want to note that the law does have some presumptions regarding ownership that are worth remembering.
First and foremost, any property that is jointly owned is presumed to be marital. You can rebut this presumption with some strong evidence, but it is fairly unusual that a court will consider something jointly owned to be entirely separate - at best, you will sometimes get a finding of hybrid property.
Second, the law also presumes that property that is separately titled is separate. That being said, this presumption is much easier to rebut, because as soon as you show that the property was actually acquired during the marriage, the presumption switches to it being marital property.
Nonetheless, it is important to know these presumptions because of their impact on the burden of proof. If property is jointly owned, the party trying to prove separate ownership has the burden to prove it. If the property is separately owned, the party trying to assert marital ownership has the burden to establish that it was acquired during the marriage, but then the other party would have the burden to establish that it was still separate property.
Conclusion
The law surrounding property division is, in my opinion, the most complicated part of property law. Consider that this entire blog post only even talked about what property gets divided - we didn't even touch how that division is actually done - and we didn't even talk about all the topics in that arena. This is one of the biggest reasons why you should get an attorney if you have any property at all that needs to be divided. If you are involved in a divorce and have property to be divided, please feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com to set up a consultation. Our consultations are free for up to half an hour!
Wednesday, April 30, 2014
Virginia Divorce and Death Benefits: What Happens When You Die
As always, before reading this post please review my disclaimer by following the above link or by clicking on this link. As always, any legal principle discussed apply only to the Commonwealth of Virginia.
Introduction
Lawyers tend to live in a little bit of a fantasy world regarding our clients. Our clients, we like to believe, are "perfect" when it comes to protecting themselves under the law. They update their wills every time there's even the slightest change warranting an update, they are always on top of their finances, and nothing is even let go by for a day.
Of course, this is a fantasy, and reality is that most people who aren't lawyers really don't have time to be obsessing over life's relatively minor legalities. So, let me present you with a scenario we see all the time in family law. John and Suzanne get divorced. Two months later, John and Betty get married. Two months after that, John dies. At the time of John's death, he has not updated his will, or his beneficiary designations. He has a will, life insurance policy, retirement account, etc. that all say "everything goes to Suzanne." Given the divorce, and John's remarriage, we know this was probably not what he wanted to have happen. So, what now?
In today's blog post, I will cover some of the legalities that occur if a divorced spouse dies without having updated legal documents designating his or her ex as his or her beneficiary. The ultimate conclusion will be simple - update your designations! Nonetheless, it is worth understanding the "default," in case you find yourself in a situation beyond your control.
General Rule
The general rule, as laid out by the Code of Virginia, is that your divorce automatically revokes all will designations and beneficiary designations of your ex-spouse. Period, end of story. Instead, the will, life insurance policy, etc. is required to act as though the ex-spouse died before you did. Of course, practice is not that simple. For example, what if the insurance company doesn't know about your divorce and pays the money to your ex-spouse anyways? That is where the rules get tricky.
Wills
Wills are probably the easiest topic in this area. The effect of a divorce on a will is laid out in Va. Code Section 64.2-412. Under that section, as stated in the general rule, the will is now executed as though your ex had pre-deceased you. While this may seem ideal, think about what this really means. What if John's will says "everything goes to Suzanne, but if she dies before me, it goes to my brother, Bob." Well, under the law, now John's estate will go to Bob, not Betty. In real life it's not quite that simple because of something called the "elective share," but I'm not going to get too into estate law here, so just know that if John wanted his whole estate to go to Betty, by not updating his will, his wishes still will not be followed, even though his estate will not go to Suzanne.
Life Insurance, Retirement Accounts, etc.
For life insurance, retirement accounts and other finances that are payable on death to your designated beneficiary, Va. Code Section 20-111.1 applies. That section also enacts the general rule. Specifically, your ex is to be treated as though he or she died before you. There is a big caveat however. It is your responsibility to notify the insurance company, financial service provider, etc., of the divorce. If the company pays out to the ex-spouse because it is not aware of the divorce, Va. Code Section 20-111.1(A) specifically exempts the company from liability for the improper payment. As a result, that money is gone, and is not coming back.
So, it is critical that you inform the company of the divorce. If, however, you are already going through the trouble of informing the company, wouldn't it be worthwhile to just go ahead and change your beneficiary designation? Unless the company restricts the times that you can do so, the amount of time involved is going to be similar, and it will result in much less confusion later.
Alternative Orders
There is an exception to the general rule which is also worth noting. If the order granting the divorce itself states that the will or beneficiary designation will survive the divorce, then it does survive the divorce. Now, it is practically unheard of for a judge to make such an order, so the practical effect of that exception is that it gives you the right, when trying to settle the divorce, to negotiate a result other than the general rule. This is just one more thing to think about when you are trying to find areas in which you can reach a compromise.
A Special Twist: Federal Life Insurance
As an attorney, it's always fun when a case from your local court ends up at the U.S. Supreme Court. In my case, this happened most recently with the Court's 2013 case of Hillman v. Maretta, which started in the Fairfax County Circuit Court with a ruling by Judge Michael Devine, for whom I have a great deal of respect. Now, this relates to our topic, because this case involved an issue that rarely comes up anywhere except in the DC area - what about life insurance provided by the federal government for federal employees?
Federal Employee Group Life Insurance (FEGLI) is a benefit offered to federal employees to get life insurance without a medical exam and while paying a much lower premium than they would if they were to get insurance on their own. Life insurance is not an uncommon benefit offered by large employers, and the federal government wants to compete with large employers for the best employees, so that led to the establishment of FEGLI. However, as the federal government is not a "normal" employer, it had to have authority to create FEGLI, so Congress passed the Federal Employee Group Life Insurance Act (FEGLIA) to establish FEGLI. A key component of FEGLIA is U.S. Code Title 5, Section 8705 which designates the order in which FEGLI is distributed. Title 5, Section 8705(a) states that the first person to whom the money is sent is the "person designated by the employee," and then has a linear list of who goes next if that person pre-deceases the employee.
Well, you might be asking why this all matters? If you remember your middle school civics, however, you might have an idea. Specifically, federal law trumps state law, and while Virginia state law says that the designation becomes invalid, it cannot supersede federal law, and FEGLIA has no provision regarding divorce.
Anticipating this problem, the General Assembly passed Va. Code Section 20-111.1(D) which stated that if 20-111.1(A) is "pre-empted" (meaning does not apply due to a contrary federal law), then the money does go to designated ex-spouse, but then the person who would have gotten the money had 20-111.1(A) applied can sue the ex-spouse for that money.
Hillman v. Maretta dealt with exactly this situation. Warren Hillman designated his wife, Judy Maretta, as his FEGLI beneficiary in 1996. In 1998, Hillman and Maretta divorced. In 2002, Hillman re-married. In 2008, Hillman died, having never updated his FEGLI designation. As a result, Maretta claimed the $120k+ life insurance policy on Hillman, and Jackie Hillman sued Maretta for that amount under Va. Code Section 20-111.1(D). The trial court ruled that while 20-111.1(A) was pre-empted by FEGLIA, 20-111.1(D) was not, so it ruled in favor of Hillman. The Virginia Supreme Court disagreed, and ruled in favor of Maretta, so Hillman appealed to the U.S. Supreme Court. The U.S. Supreme Court also agreed with Maretta, and ruled that Va. 20-111.1(D) conflicts with the purpose of FEGLIA and is therefore pre-empted as well. As a result, Maretta got to keep the money.
This can be confusing because 20-111.1(D) is still on the books, even though we know now it is unenforceable. The key takeaway, though, is that if you are a federal employee, you must change your FEGLI designation. The law will not do it for you.
Conclusion
When we divorce, we often don't think about things like wills and life insurance - but they remain critical pieces of our lives that need to be addressed. One of the first things you should do after a divorce is re-write your will and change your beneficiary designations to prevent later issues. Nonetheless, if you find yourself in a conflict relating to a divorce and death benefits, please feel free to call (703)281-0134 or e-mail SLeven@thebaldwinlawfirm.com to set up a consultation. Our initial consultations are free for up to half an hour!
Introduction
Lawyers tend to live in a little bit of a fantasy world regarding our clients. Our clients, we like to believe, are "perfect" when it comes to protecting themselves under the law. They update their wills every time there's even the slightest change warranting an update, they are always on top of their finances, and nothing is even let go by for a day.
Of course, this is a fantasy, and reality is that most people who aren't lawyers really don't have time to be obsessing over life's relatively minor legalities. So, let me present you with a scenario we see all the time in family law. John and Suzanne get divorced. Two months later, John and Betty get married. Two months after that, John dies. At the time of John's death, he has not updated his will, or his beneficiary designations. He has a will, life insurance policy, retirement account, etc. that all say "everything goes to Suzanne." Given the divorce, and John's remarriage, we know this was probably not what he wanted to have happen. So, what now?
In today's blog post, I will cover some of the legalities that occur if a divorced spouse dies without having updated legal documents designating his or her ex as his or her beneficiary. The ultimate conclusion will be simple - update your designations! Nonetheless, it is worth understanding the "default," in case you find yourself in a situation beyond your control.
General Rule
The general rule, as laid out by the Code of Virginia, is that your divorce automatically revokes all will designations and beneficiary designations of your ex-spouse. Period, end of story. Instead, the will, life insurance policy, etc. is required to act as though the ex-spouse died before you did. Of course, practice is not that simple. For example, what if the insurance company doesn't know about your divorce and pays the money to your ex-spouse anyways? That is where the rules get tricky.
Wills
Wills are probably the easiest topic in this area. The effect of a divorce on a will is laid out in Va. Code Section 64.2-412. Under that section, as stated in the general rule, the will is now executed as though your ex had pre-deceased you. While this may seem ideal, think about what this really means. What if John's will says "everything goes to Suzanne, but if she dies before me, it goes to my brother, Bob." Well, under the law, now John's estate will go to Bob, not Betty. In real life it's not quite that simple because of something called the "elective share," but I'm not going to get too into estate law here, so just know that if John wanted his whole estate to go to Betty, by not updating his will, his wishes still will not be followed, even though his estate will not go to Suzanne.
Life Insurance, Retirement Accounts, etc.
For life insurance, retirement accounts and other finances that are payable on death to your designated beneficiary, Va. Code Section 20-111.1 applies. That section also enacts the general rule. Specifically, your ex is to be treated as though he or she died before you. There is a big caveat however. It is your responsibility to notify the insurance company, financial service provider, etc., of the divorce. If the company pays out to the ex-spouse because it is not aware of the divorce, Va. Code Section 20-111.1(A) specifically exempts the company from liability for the improper payment. As a result, that money is gone, and is not coming back.
So, it is critical that you inform the company of the divorce. If, however, you are already going through the trouble of informing the company, wouldn't it be worthwhile to just go ahead and change your beneficiary designation? Unless the company restricts the times that you can do so, the amount of time involved is going to be similar, and it will result in much less confusion later.
Alternative Orders
There is an exception to the general rule which is also worth noting. If the order granting the divorce itself states that the will or beneficiary designation will survive the divorce, then it does survive the divorce. Now, it is practically unheard of for a judge to make such an order, so the practical effect of that exception is that it gives you the right, when trying to settle the divorce, to negotiate a result other than the general rule. This is just one more thing to think about when you are trying to find areas in which you can reach a compromise.
A Special Twist: Federal Life Insurance
As an attorney, it's always fun when a case from your local court ends up at the U.S. Supreme Court. In my case, this happened most recently with the Court's 2013 case of Hillman v. Maretta, which started in the Fairfax County Circuit Court with a ruling by Judge Michael Devine, for whom I have a great deal of respect. Now, this relates to our topic, because this case involved an issue that rarely comes up anywhere except in the DC area - what about life insurance provided by the federal government for federal employees?
Federal Employee Group Life Insurance (FEGLI) is a benefit offered to federal employees to get life insurance without a medical exam and while paying a much lower premium than they would if they were to get insurance on their own. Life insurance is not an uncommon benefit offered by large employers, and the federal government wants to compete with large employers for the best employees, so that led to the establishment of FEGLI. However, as the federal government is not a "normal" employer, it had to have authority to create FEGLI, so Congress passed the Federal Employee Group Life Insurance Act (FEGLIA) to establish FEGLI. A key component of FEGLIA is U.S. Code Title 5, Section 8705 which designates the order in which FEGLI is distributed. Title 5, Section 8705(a) states that the first person to whom the money is sent is the "person designated by the employee," and then has a linear list of who goes next if that person pre-deceases the employee.
Well, you might be asking why this all matters? If you remember your middle school civics, however, you might have an idea. Specifically, federal law trumps state law, and while Virginia state law says that the designation becomes invalid, it cannot supersede federal law, and FEGLIA has no provision regarding divorce.
Anticipating this problem, the General Assembly passed Va. Code Section 20-111.1(D) which stated that if 20-111.1(A) is "pre-empted" (meaning does not apply due to a contrary federal law), then the money does go to designated ex-spouse, but then the person who would have gotten the money had 20-111.1(A) applied can sue the ex-spouse for that money.
Hillman v. Maretta dealt with exactly this situation. Warren Hillman designated his wife, Judy Maretta, as his FEGLI beneficiary in 1996. In 1998, Hillman and Maretta divorced. In 2002, Hillman re-married. In 2008, Hillman died, having never updated his FEGLI designation. As a result, Maretta claimed the $120k+ life insurance policy on Hillman, and Jackie Hillman sued Maretta for that amount under Va. Code Section 20-111.1(D). The trial court ruled that while 20-111.1(A) was pre-empted by FEGLIA, 20-111.1(D) was not, so it ruled in favor of Hillman. The Virginia Supreme Court disagreed, and ruled in favor of Maretta, so Hillman appealed to the U.S. Supreme Court. The U.S. Supreme Court also agreed with Maretta, and ruled that Va. 20-111.1(D) conflicts with the purpose of FEGLIA and is therefore pre-empted as well. As a result, Maretta got to keep the money.
This can be confusing because 20-111.1(D) is still on the books, even though we know now it is unenforceable. The key takeaway, though, is that if you are a federal employee, you must change your FEGLI designation. The law will not do it for you.
Conclusion
When we divorce, we often don't think about things like wills and life insurance - but they remain critical pieces of our lives that need to be addressed. One of the first things you should do after a divorce is re-write your will and change your beneficiary designations to prevent later issues. Nonetheless, if you find yourself in a conflict relating to a divorce and death benefits, please feel free to call (703)281-0134 or e-mail SLeven@thebaldwinlawfirm.com to set up a consultation. Our initial consultations are free for up to half an hour!
Thursday, May 23, 2013
What to Do When Dad's Sending His Money to a Nigerian Prince - Guardianship/Conservatorship Basics
As always, prior to reading this blog post, please review my disclaimer by following the link above or by clicking on this link. As always, the legal aspects of the post are relevant only to the Commonwealth of Virginia.
Introduction
It's the point in time that just about every child dreads. That point when mom or dad (or both) gets too old, is hit with a smattering of dementia, and suddenly starts making ridiculous decisions. Maybe they've stopped paying their bills (usually because they've forgotten about them), or they won't go to the doctor because "they're all quacks." Maybe they've been caught in an international scam, and are spending all their money convinced that "this is the last check before my payday."
Regardless of what your parents are doing, this is a very hard time for any child. You want to help them, and you don't want to hurt their feelings, but you just don't know what to do. You've tried talking to them, but that hasn't helped. You've tried offering to step in and help, but they've refused. You're at the end of your rope, you don't know what to do, but you do know that you can't let them go on like this.
The answer is a guardianship and/or conservatorship. This is a legal process by which you can take some of these decisions away from your parents and give them to someone who will act in their best interests (possibly even you). And by the way, guardianships and conservatorships aren't just for elderly parents. Your adult child is repeatedly attempting suicide but refusing to seek help? Your brother or sister suffers from mental retardation and cannot remember to pay their bills? Your elderly neighbor is being taken advantage of by his children? The fact is, in Virginia anyone can file for a guardianship or conservatorship on behalf of anyone else - just make sure you're doing it for the right reasons, and that you have some actual evidence that such a thing is necessary.
Guardianship vs. Conservatorship vs. Both
Before taking action, however, you need to decide what you want to pursue. Do you want a guardianship, do you want a conservatorship, or do you want both? If granted, a guardianship gives you control over the person, while a conservatorship gives you control over the person's assets. As a result, if you have a guardianship but not a conservatorship, you can force your ward to see a doctor, but you can't force him or her to pay their bills. Similarly, if you have a conservatorship but not a guardianship, you can pay the bills for them, but you cannot make them do anything.
So, why would you want one versus the other, and not always want both? Well, pursuing both is pretty much double the legal paperwork, and if one is not really necessary, it will save you time and money not to pursue both, and for the person you are helping, there is psychological value to retaining some autonomy over his or her life. So, if the potential ward is still fine with handling his or her money, but won't take care of him or herself, then a guardianship alone might be worthwhile. If the potential ward cannot handle their money, but can certainly make good decisions for him or herself, then just a conservatorship may be the way to go. If you can't trust the person with either, however, then both is probably the right path for you.
The Process
As you might imagine, you cannot just show up one day and declare yourself the guardian and/or conservator of a person. You must go through the court. This requires filing a petition for guardianship and/or conservatorship. Once that is done, the court will order the appointment of a "Guardian ad Litem." The Guardian ad Litem is an attorney who will act on the potential ward's behalf, but will make his or her own determination, after meeting with the individual and anyone with potential information as to what "acting on their behalf" actually entails. In other words, a Guardian ad Litem may very well support the petition, even if the potential ward personally opposes it. As a result, the potential ward may also hire his or her own attorney to represent him or her in the proceedings.
If the guardianship or conservatorship is uncontested (as in, the Guardian ad Litem agrees with it, and the potential ward either also agrees or does not mount a defense), the process is fairly simple. After the Guardian ad Litem's supportive report is issued, a guardian and/or conservator will be appointed with a set of powers as delineated in the Virginia Code.
If it is contested (the Guardian ad Litem opposes it, or the ward opposes it and mounts an opposition), a trial will be held, and it can be either a bench trial, or a jury trial. At that point, you must prove by "clear and convincing" evidence (so, more convincing than just 50% + 1, but less than "beyond a reasonable doubt") that the person cannot make the relevant decisions for him or herself.
In either case, if the guardianship and/or conservatorship is granted, the next step is to appoint the guardian and/or conservator. Of course, this can be litigated as well. If you are related to the person, and can show that you would not be likely to engage in "self-dealing" (as in, treating your conservatorship as an advance on your inheritance and spending it on yourself, or putting your own interests above your ward's while acting in your official capacity), you may very well be appointed. If no relative is appointed, however, a law firm will often be appointed. It is best to avoid this if at all possible, since law firms are very expensive when serving in this capacity.
This Process Sounds Terrible! How Can I Protect My Children From It?
A contested guardianship and/or conservatorship process can be absolutely terrible on families. Even an uncontested one can be very expensive. If you want to protect your children from ever having to do this to you, there is a solution.
You can draft either a "durable" or a "springing, durable" general power of attorney. In this document, you can lay out all the powers you are giving your child (or spouse, or both, or whomever you wish to give it to), and you can cover all of the guardianship and conservatorship clauses. If it is not "springing," this power goes into effect immediately, and the person you appoint can act on it even while you are not incapacitated. This is worth doing if you a) really trust the person you are appointing, and b) don't feel like dealing with some of the things you list anymore, even if you are capable. If it is "springing," this means it only goes into effect once you are incapacitated, and you can set the terms for how you are deemed to be "incapacitated" (two doctors agreeing on this, for example).
Certainly, this can still ultimately cause litigation and heartache. In the end, however, it is resolved much more simply, and usually more cheaply, than a guardianship/conservatorship battle - and usually without all the hurt feelings to boot. However, usually these powers of attorney do prevent litigation altogether, since usually the potential appointee will not seek to use the power until you actually are incapacitated, and at that point there's a good chance you won't fight back. In that case, this is definitely a much cheaper and easier option than even an uncontested guardianship/conservatorship petition.
Conclusion
If you are concerned that someone you know is no longer able to take care of him or herself, or handle his or her finances, a guardianship and/or conservatorship may be the way to go. If you don't want anyone to ever have to deal with that, however, drafting a power of attorney now is your best solution. If you are considering pursuing a guardianship or conservatorship, defending against a frivolous appointment of a guardian or conservator, or drafting a power of attorney, feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com. I do not handle these matters, but other attorneys in the firm I work for do, and your initial consultation is free for up to half an hour.
Introduction
It's the point in time that just about every child dreads. That point when mom or dad (or both) gets too old, is hit with a smattering of dementia, and suddenly starts making ridiculous decisions. Maybe they've stopped paying their bills (usually because they've forgotten about them), or they won't go to the doctor because "they're all quacks." Maybe they've been caught in an international scam, and are spending all their money convinced that "this is the last check before my payday."
Regardless of what your parents are doing, this is a very hard time for any child. You want to help them, and you don't want to hurt their feelings, but you just don't know what to do. You've tried talking to them, but that hasn't helped. You've tried offering to step in and help, but they've refused. You're at the end of your rope, you don't know what to do, but you do know that you can't let them go on like this.
The answer is a guardianship and/or conservatorship. This is a legal process by which you can take some of these decisions away from your parents and give them to someone who will act in their best interests (possibly even you). And by the way, guardianships and conservatorships aren't just for elderly parents. Your adult child is repeatedly attempting suicide but refusing to seek help? Your brother or sister suffers from mental retardation and cannot remember to pay their bills? Your elderly neighbor is being taken advantage of by his children? The fact is, in Virginia anyone can file for a guardianship or conservatorship on behalf of anyone else - just make sure you're doing it for the right reasons, and that you have some actual evidence that such a thing is necessary.
Guardianship vs. Conservatorship vs. Both
Before taking action, however, you need to decide what you want to pursue. Do you want a guardianship, do you want a conservatorship, or do you want both? If granted, a guardianship gives you control over the person, while a conservatorship gives you control over the person's assets. As a result, if you have a guardianship but not a conservatorship, you can force your ward to see a doctor, but you can't force him or her to pay their bills. Similarly, if you have a conservatorship but not a guardianship, you can pay the bills for them, but you cannot make them do anything.
So, why would you want one versus the other, and not always want both? Well, pursuing both is pretty much double the legal paperwork, and if one is not really necessary, it will save you time and money not to pursue both, and for the person you are helping, there is psychological value to retaining some autonomy over his or her life. So, if the potential ward is still fine with handling his or her money, but won't take care of him or herself, then a guardianship alone might be worthwhile. If the potential ward cannot handle their money, but can certainly make good decisions for him or herself, then just a conservatorship may be the way to go. If you can't trust the person with either, however, then both is probably the right path for you.
The Process
As you might imagine, you cannot just show up one day and declare yourself the guardian and/or conservator of a person. You must go through the court. This requires filing a petition for guardianship and/or conservatorship. Once that is done, the court will order the appointment of a "Guardian ad Litem." The Guardian ad Litem is an attorney who will act on the potential ward's behalf, but will make his or her own determination, after meeting with the individual and anyone with potential information as to what "acting on their behalf" actually entails. In other words, a Guardian ad Litem may very well support the petition, even if the potential ward personally opposes it. As a result, the potential ward may also hire his or her own attorney to represent him or her in the proceedings.
If the guardianship or conservatorship is uncontested (as in, the Guardian ad Litem agrees with it, and the potential ward either also agrees or does not mount a defense), the process is fairly simple. After the Guardian ad Litem's supportive report is issued, a guardian and/or conservator will be appointed with a set of powers as delineated in the Virginia Code.
If it is contested (the Guardian ad Litem opposes it, or the ward opposes it and mounts an opposition), a trial will be held, and it can be either a bench trial, or a jury trial. At that point, you must prove by "clear and convincing" evidence (so, more convincing than just 50% + 1, but less than "beyond a reasonable doubt") that the person cannot make the relevant decisions for him or herself.
In either case, if the guardianship and/or conservatorship is granted, the next step is to appoint the guardian and/or conservator. Of course, this can be litigated as well. If you are related to the person, and can show that you would not be likely to engage in "self-dealing" (as in, treating your conservatorship as an advance on your inheritance and spending it on yourself, or putting your own interests above your ward's while acting in your official capacity), you may very well be appointed. If no relative is appointed, however, a law firm will often be appointed. It is best to avoid this if at all possible, since law firms are very expensive when serving in this capacity.
This Process Sounds Terrible! How Can I Protect My Children From It?
A contested guardianship and/or conservatorship process can be absolutely terrible on families. Even an uncontested one can be very expensive. If you want to protect your children from ever having to do this to you, there is a solution.
You can draft either a "durable" or a "springing, durable" general power of attorney. In this document, you can lay out all the powers you are giving your child (or spouse, or both, or whomever you wish to give it to), and you can cover all of the guardianship and conservatorship clauses. If it is not "springing," this power goes into effect immediately, and the person you appoint can act on it even while you are not incapacitated. This is worth doing if you a) really trust the person you are appointing, and b) don't feel like dealing with some of the things you list anymore, even if you are capable. If it is "springing," this means it only goes into effect once you are incapacitated, and you can set the terms for how you are deemed to be "incapacitated" (two doctors agreeing on this, for example).
Certainly, this can still ultimately cause litigation and heartache. In the end, however, it is resolved much more simply, and usually more cheaply, than a guardianship/conservatorship battle - and usually without all the hurt feelings to boot. However, usually these powers of attorney do prevent litigation altogether, since usually the potential appointee will not seek to use the power until you actually are incapacitated, and at that point there's a good chance you won't fight back. In that case, this is definitely a much cheaper and easier option than even an uncontested guardianship/conservatorship petition.
Conclusion
If you are concerned that someone you know is no longer able to take care of him or herself, or handle his or her finances, a guardianship and/or conservatorship may be the way to go. If you don't want anyone to ever have to deal with that, however, drafting a power of attorney now is your best solution. If you are considering pursuing a guardianship or conservatorship, defending against a frivolous appointment of a guardian or conservator, or drafting a power of attorney, feel free to call (703)281-0134 or e-mail me at SLeven@thebaldwinlawfirm.com. I do not handle these matters, but other attorneys in the firm I work for do, and your initial consultation is free for up to half an hour.
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