Not your Mother’s SBP

I’ve never been a big fan of the Suvivor’s Benefit Plan (SBP). As you may know, military retired pay ends on the dead of the retiree. Unlike a 401K or IRA, there is no bank account with money in it. Once the retiree dies, the payments from DFAS cease. The spouse or former spouse, gets nothing on the retiree’s death, unless there is SBP.

The SBP is a program created by Congress to provide an annuity for the surviving spouse (and/or children). The program also provides automatic coverage for any servicemember who dies in the line of duty. It is available to all members of the military to include the Coast Guard, the National Health Service and the National Oceanic and Atmospheric Administration. And yes, it covers us second class citizens in the Reserves.

Under the Former Spouses Protection Act, the coverage is automatic. In other words, the spouse has to actively refuse coverage. This provision was placed in the law to protect a spouse who after twenty years of marriage gets dumped by the servicemember upon retirement. A servicemember can opt out. But, the spouse must sign a waiver. This election must be made prior to the first day the member become eligible to receive the retired pay.

A reservist must make an election within 90 days of receiving the 20 year letter: (1) decline to make an election until age 60; (2) elect coverage to begin on the servicemember’s death or upon the date the servicemember would have been eligible to receive the retired pay, whichever is later; or (3) elect coverage to commence upon the servicemember’s death, regardless of the member’s age when death occurs. However, if the election is not made, then the servicemember is automatically enrolled in (3). A reserve servicemember who elects to forgo the SBP in the 90 day period can change his/her mind when he/she is eligible to receive retired pay.

A former spouse can receive SBP. A judge in a divorce can award SBP. The election to the former spouse must be made within one year of the judgment of divorce. Only one spouse or ex-spouse can receive SBP. This is no splitting or allocating. If ex-spouse is getting the SBP, the new spouse is locked out.

SBP used to have a “social security” offset. A spouse would receive 55% of the retiree’s pay until the spouse turned 62. Then the SBP payments would be reduced to 35% of the retired pay. In 2007, the rule changed, as of April 1, 2008 all spouses will received 55% regardless of their age. The social security offset is now gone. From April 1, 2007 to March 31, 2008, spouses over the age of 62 got 50% of the pay. On April 1, 2008, that went up to 55%.

This new law goes a long way to fixing some of the problems inherent with the program.

Equitable Distribution of Post Office Pensions Under New York Divorce Law

As I have pointed out else where, under New York divorce law, pensions earned during marriage are subject to equitable distribution. However, since there are a variety of different pensions available from the multitude of employers, the rules are not always consistent.

For example, military disability pay is not subject to equitable distribution.

The Post Office pensions also presents unique challenges and issues. Since the pension comes from the federal government is it needlessly complicated, as least for the divorce lawyer.

One important issue was recently addressed by Nassau County Divorce Judge, Anthony Falanga. Justice Falanga is one of the brighter and more pragmatic judges deciding divorce cases in New York. He spent over 30 years as a divorce lawyer himself, and understands the issues and concerns of the litigants.

In the case of Grimmer v. Grimmer , published in the New York Law Journal on March 21, 2008, on page 31, Justice Falanga addressed the issue of whether all or just part of a Post Office pension is subject to equitable distribution under New York divorce law. He found that as an employee of the Post Office, the husband, was not eligible to contribute to or receive social security. Instead, a part of his Post Office pension would be a replacement for social security. Social Security is not subject to equitable distribution.

Citing the case of Wallach v. Wallach 37 AD3d 707, Justice Falanga observed that under the Federal Civil Service Retirement System (FERS) a court was directed to “deduct from the value of the retirement benefit the portion thereof that substitutes for social security.”

Based upon the Wallach decision, Justice Falanga found that the entire Post Office pension is not subject to equitable distribution. The portion of the pension that substitutes for social security must be removed. Assume the husband is getting $1500 a month in the pension. He worked 30 years, and was married for the entire 30 years. The court orders that the pension be divided in half. Further assume that the social security substitution is 30 percent. So, only $1000 of the $1500 is pension, while the remaining is counted as social security. The wife would get $500 a month (one half of $1000) not $750 a month (one half of $1500).

An important caveat for the holder of the pension is to make sure that your lawyer knows and understands this fact. Typically, in divorce actions, we divorce lawyers hire a pension appraisal service to provide the value of the pension. Make sure that the pension appraisal takes into account the social security replacement.

Adultery and Equitable Distribution Under New York Divorce Law

Under The New York Law, Adultery by A Spouse Will Not Effect Equitable Distribution

No, you don’t get the house if s/he cheated on you.

One of the most frequent questions I get asked is: “If my spouse cheated on me, do I get the house?” To put this question in proper legalese, the question is “if my spouse committed adultery will it effect equitable distribution.”  People believe that cheating spouse (husband or wife) should pay for this misdeed. Sadly, cheating during marriage is a not uncommon. Just as sadly, the New York Divorce Courts are not really interested in the whys of a failed marriage.

The New York Divorce Courts Do Not Punish A Cheating Spouse by Altering Equitable Distribution

The first thing to keep is mind is divorce law, as opposed to criminal law, is not concerned with punishment. The court is seeking to get an equitable resolution and not punishing someone for a moral lapse. While adultery is considered a moral lapse by many religions, it is not punished in divorce.

Under New York divorce law, the courts draw a line between determining the grounds or reason for the divorce, and the division of property.

While infidelity  is emotionally harmful to the marriage, and can have an adverse impact on the children, the courts will generally not consider it as a factor in division of the marital property. Cheating, by itself will not result in you “getting the house.” Equitable distribution is not effect by cheating. The New York Divorce Courts do not take any moral position about adultery. The court is only interested in a fair distribution of property.

While the cheated on spouse may feel it is fair to get more property, the courts did not agree. The New York Divorce Courts view marriage as an economic partnership. Each party puts an economic value into the marriage. It is this economic value that the court divides with equitable distribution. Emotional hurt, such as that caused by adultery is not considered as a factor by the courts.

But, Sometimes Adultery Can Effect Equitable Distribution by The Courts

I know it sounds like I’m contradicting myself.  On one hand I just explained how adultery does not effect equitable distribution. But, I am not. I said, adultery, by itself will not effect equitable distribution.

Now, lets look at other facts of adultery which could effect equitable distribution. For example, if the cheating spouse diverted marital funds or assets to the girlfriend /boyfriend. (We divorce lawyers use the term “paramour”). The typical examples are the purchase of an apartment or of jewelry. This conduct is called “dissipation of marital assets.” Under those condition, a judge can, under New York divorce law, recover the money that the cheating spouse spend on his/her boyfriend or girlfriend. But, remember, the court is not going to give the non-cheating spouse the house as punishment. So, infidelity  is not punished, but is a factor when showing that assets have been wrongfully taken from the marriage.

Same Sex Divorce – Same Sex Marriage? Trends In New York Divorce Law

The area of Same Sex marriages has become a real hot topic for litigation. Last week’s decision by the Honorable Laura Drager, Supreme Court, New York county has just turned the heat up of notch.

In the care of Beth R . v. Donna M., Justice Drager has extended the decisions from other New York courts regarding same sex marriages obtained in Ontario, Canada. In my some of my prior posts, I have referred to cases where a same sex couple gets married in Canada, and then applied for employment marital benefits in New York. The Fourth Department ruled that the denial of such benefits was discrimination.

Justice Drager has taken that reasoning one step further. If the marriage is valid for benefits, it is valid for application of New York divorce law.

Basically, Beth R. and Donna M. got married in Ontario, Canada. After a few years the marriage fell apart, and the couple parted. Beth R. commenced an action for divorce, and for visitation of the two children born via artificial insemination to Donna M.

Justice Drager found that the couple had a wedding, sent out birth announcements and generally held themselves out to the children and the world as the parents of the children. Therefore, Beth R. did have “parental” rights.

In order to arrive at this decision, Justice Drager had to apply several legal precedents. First, using the same rationale as the Fourth Department in Martinez v. Monroe Community College , she found that the marriage in Canada was afforded recognition. Since the marriage was legal, she reasoned, then the Domestic Relations governing divorces also applied.

It appears that Justice Drager is the first judge to apply the divorce law, including equitable distribution, to same sex marriages contracted outside of New York state.

However, Justice Drager went further and also applied the rules of equitable estoppel. In other posts, I have discussed the issue of equitable estoppel. Basically, if a man raises a child as his own, he cannot later contest paternity, even if he is not the biological father. The rationale is that the child, who believes this man is his father, would be damaged if he suddenly discovered the truth.

Here, Justice Drager applied the same principal of law to same sex marriages. The couple held themselves out as the parents of the children. “The parties taught J.R. to call Plaintiff ‘mom’ and Defendant as ‘mommy’. J.R. calls Plaintiff’s mother ‘nana’ and refers to Plaintiff’s siblings as ‘aunt’ and ‘uncle.’” The parties made joint decisions about pre-school and camp. They jointly made decisions about the pediatrician and the nanny. In all matter the couple acted as parents.

Using the principle of equitable estoppel, Justice Drager found that although, generally, a biological stranger has no interests in a child, in this case, Plaintiff made a showing of entitlement. Further, the court found that an additional factor was the marriage. “Moreover, although people enter into marriages for many reasons, creating familial bonds is one of the most significant reasons, particularly for the benefit of their children. The parties were clearly committed to becoming married, having traveled twice to Canada and having obtained two marriage licenses. It is noteworthy that the Defendant voluntarily entered into the marriage after her first child was born. Furthermore, as Plaintiff argues, the artificial insemination during the marriage resulting in the birth of [the second child] S.R. may require a finding that she is the legitimate child of both parents.”

The ramifications of this decision are murky. First, Justice Drager is a lower court judge. The Court of Appeals in Hernandez v. Robles 7 NY3rd 338 (2006) has clearly stated that New York cannot create a same sex marriage. Therefore, it is not clear what the appellate division, of the First Department will do here. The Court of Appeals will ultimately have to weigh in. Second, Justice Drager’s decision regarding the visitation is also problematic as it is novel. It is one thing to say that a child should not be confused as to who his father is, it is another to extend that reasoning to a same sex relationship.

Until the Court of Appeals or the legislature weighs in, Justice Drager’s decision merely makes a murky situation more confused. I still advise same sex couples to invest in a partnership agreement as a hedge against the current uncertainties of the law. Basing important life decisions on the confused state of the law could be a disaster.

Tax implications for Military Retired Pay

Before I start, let me state that I am not an accountant or tax attorney. Do not make any decisions regarding taxes based upon this posting. Discuss any tax plans with your accountant.

In a recent decision by the U.S. Tax court, Proctor v. IRS, 129 TC No. 12 the division of military retired pay was treated as alimony not a property distribution. This may also have implications for the New York Police or Fire Department VSF.

Under New York law, any benefit to be paid in the future, but earned during the marriage is subject to equitable distribution. Military retired pay is a perfect example. The right to the pay was earned by 20 years of service. The retiree gets paid after she/he retires and as long as he/she lives. Unlike a 401K, there is no account with money to be drawn upon. New York treats this as property, and is subject to property division.

But, apparently, the tax law treats military retired pay differently. In the Proctor decision, the court stated that under Internal Revenue Code section 71(b) payments to an ex-spouse of her share of military retired pay can be considered alimony, and therefore tax deductible to the retiree. The court stated that “in order to qualify as alimony, payments must meet the requirements of section 71(b)(1) (A) through (D)”.

(b) Alimony or separate maintenance payments defined. For purposes of this section–
(1) In general. The term “alimony or separate maintenance payment” means any payment in cash if–
(A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument,
(B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under section 215 [26 USCS § 215],
(C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and
(D) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.

The court found that payment order met the requirements of the statute. This is true even if the divorce decree refers to the payments as part of the division of martial property. The court stated the divorce court’s classifications do not matter. “Labels attached to payments mandated by a decree of divorce or marriage settlement are not controlling.” The court went on to say that “while the designation need not mimic the statutory (B) will generally be met if there is no ‘clear, explicit and express direction” in the divorce decree stating that the payment is not to be treated as alimony.” Since the decree in question does not contain such language the requirements of section 71(b)(1)(B) were met.

The key point is that the divorce decree must either be silent as to the designation of the payments, or state that the payments will be treated as alimony. If you already have a decree, please don’t use this decision as license to take the deductions, talk to your accountant and follow his/her advice.

Same Sex Marriages – Martinez v. Monroe- Trends In New York Divorce Law

An appellate court just issued a decision recognizing as valid a same-sex marriage. (Martinez v. County of Monroe). But, there is a caveat: the marriage took place in Ontario, Canada, and not in New York.

The Court of Appeals of the State of New York stated in Hernandez v. Robles that same-sex marriages performed in New York are invalid. Basically, the court held that under the New York Constitution and statutes, there is no positive right for a same sex couple to get married under New York law. The court did not address whether a same-sex marriage obtained in another state would be valid in New York.

The Appellate Division for the 4th Department, which covers Western New York, issued a decision, published in the Law Journal for February 7, 2008, finding that a same sex marriage performed in Ontario, Canada, must be recognized as a valid marriage in New York.

The court observed that such marriages are legal in Ontario, Canada and there is no law in New York prohibiting the recognition of same-sex marriages. Therefore, the court concluded, “the plaintiff’s marriage to Golden, valid in the Province of Ontario, Canada, is entitled to recognition in New York in the absence of express legislation to the contrary.”

The court, finding that the marriage of legal, stated that the failure of the county of Monroe to recognize the marriage constituted discrimination under the New York Executive law.

The decision joins a growing number of decisions recognizing same-sex marriages when performed in a jurisdiction where they are legal.

One interesting note: the court found that failure by the county of Monroe to accord the Plaintiff with all the marital benefits was discrimination. Therefore, the court recognize a right to enforce recognition of the marriage.

Quite frankly, I don’t know where these cases will finally end up. Either the Court of Appeals is going to weigh in the topic or the legislature. If the Court of Appeals upholds this decision, then absent action by the legislature, same-sex marriages performed in other jurisdictions will be valid in New York.

My advise for any same-sex couple seeking to get married in another jurisdiction, hedge your bets and get some type of partnership agreement signed. In the event either the Court of Appeals or Legislature comes down against same-sex marriages, many separating couples could face significant property issues. It’s best to lock down the rules for dividing up the property before you buy that house. In that case, the name of the person on the deed is the owner and the person not on the deed has no property interests.

Child Custody Cases and the Cost

My father, God rest his soul, had a sign over his desk which read “In the law, nothing is certain but the expense.” He told every client that walked in that the sign was not a joke.

That sentiment is doubly true for custody cases. Let me state up front: custody cases are expensive and there is absolutely no guarantee of success. In fact, I’m going to be adding that language to my retainers because no matter how many times and different ways I say it, someone will hear what they want to hear.

Let’s talk expense. The first thing a New York divorce or family court judge does when she hears the words “custody battle” is to appoint a law guardian. The law guardian is an attorney hired by the court to represent the interests of the child in the battle. Guess who pays for the LG? Not the court, the parties. The court could divide it 50/50, 60/40, or 100 percent to one party. It is based upon the financial resources of the parties, and the discretion of the court. I never predict how that will turn out. But, generally speaking the person making the most money will pay the most money.

In the average custody case, the LG can end up billing at least $15,000 and many times will bill more than that.

Next, the court will appoint a forensic psychologist to interview the parties, the child, and whoever is living with the parties. The average price tag for the report is $10,000. If the psychologist needs to testify at trial, expect another $7,000 to be added to the bill.

Before you even pay your lawyer, you can be out of pocket $25,000.

You must also pay your lawyer. I was involved in a particularly nasty custody battle that lasted three years, had numerous courts appearances, several appeals and ended in a three week trial. The legal cost to my client was in excess of $120,000.

So, what do you get for all the money you shell out? This is not a game, the person with the most money is not guaranteed to win. There are many factors that must be weighed and considered by the court. Ultimately, the decision is in the discretion of the court. Any lawyer who claims to be able to predict the result of a custody battle is a fool or liar.

And as tough as a custody battle is, motion to change custody is even tougher. The courts require that there be a strong showing that the custodial parent is unfit, and it is in the best interests of the child to change custody.

In future posts, I addresses some the factors that the courts consider. But, be advised, custody is expense, emotionally draining, and unpredictable. Before you walk this path, consider your options very carefully. Think it through, discuss it with your family and lawyer. Then chose wisely. In the end, it is your decision whether to take this path.

Divorce and Equitable Distribution Where There Are Hidden Assets, Part II

One of the biggest questions in New York divorce actions involves hiding assets. Many times one spouse controls all the money issues and the other spouse is utterly ignorant of the finances. Other times, property “mysteriously” vanishes without a trace. The challenge for the innocent spouse is how to get his/her fair share.

It is very important to remember that New York uses equitable distribution to divide assets, not title. Under New York divorce law, the courts are not concerned with whose name is in the deed to a piece of property or even on a bank account. The courts will look to a true owner.

This is critical when property has been transfered in order to cheat a spouse in a divorce. For example, if the husband owns a house in his own name, but transfers it to his brother around the time or just before the divorce, the court will reach back and provide the wife her share. The court can also adjust the scale and then award the innocent spouse more than 50 percent. In Niland v. Niland, 291 A.D.2d 876, court did just that. Finding a fraudulent transfer of property, the court awarded the wife 60 percent of the asset. Remember, equitable distribution is not “equal.” Therefore, the court can adjust the scales in the interest of fairness.

New York Divorce Law Pre-Nuptial Basics, Part II

This post will bring together a number of concepts visited in other posts, particularly the ones on maintenance and equitable distribution. New York divorce law and the law of property distribution can be a little hairy and not all the pieces of the Domestic Relations law play well with each other. It really is important to try and understand how the pieces of New York divorce and family law work or do not work together. This area on pre-nuptial agreements is a perfect example.

In the equitable distribution posts I have discussed the issue of separate property versus martial property. The purpose of the pre-nup is to ensure that the lines between the two properties do no cross.

As a general rule, property acquired before marriage is separate property and property acquired afterwards is marital property. But, this simple rule rarely remains simple.

For example, a house is acquired before marriage, and the couple lives there for ten years. During the course of the marriage, the house increases in value from $125,000 to $500,000. The increased value could be considered marital property. Or, wife has a stock account before marriage in the amount of $100,000. During the marriage she uses the money to buy a house, and the couple lives there for the next 20 years. An argument can be made that the entire house is marital. Or, wife gets a personal injury settlement, which is separate property. She puts the money into a joint account with the husband. He claims that since she “co-mingled” the money, he is entitled to half of the personal injury settlement. Finally, husband buys a house before the marriage, ten years into the marriage, he sells the house and uses the proceeds to buy another house. The wife now claims the entire house is martial property.

The way to avoid these problems is to get a pre-nuptial agreement. A will drafted pre-nuptial will reduce if not eliminate headaches and legal expenses. A poorly drafted pre-nuptial could put your lawyer’s daughter through college.

The first step to getting a good pre-nuptial agreement is not to do it yourself. Good legal documents do not come from the internet or by the people who make software packages. Also avoid those places which claim that although they are not attorneys, they can help you with drafting your legal documents.

The next step is to be complete on your assets. I like to get a full list of all the current assets. Then I draft clauses ensuring that not only is the property currently held separate but it will remain separate in the future. I specifically address the issues of increased value, co-mingling and transformation. If these issues are not addressed up front, then you will be opening yourself up for a fight at the divorce.

Finally, consider maintenance. A provision waiving or requiring maintenance can be put into the agreement. But be careful to address not only the current needs of the parties but the future ones as well. An agreement to pay $1,000 a week in 2008 may sound generous, but may be completely inadequate in 2038. The ability to actually pay maintenance must be gauged against future events. I’m sure that many executives at Enron thought their futures were secure.

There are a number of other factors that also need to be considered, but they will vary based upon your particular case. No “one size fits all” pre-nuptial agreement will work. That’s why it needs to be crafted to your particular circumstance. Maybe you don’t have a house, but hold a number of copyrights or patents. May you have an inheritance coming, or have a trust which will mature in a few years. Mature marriages have children from the first marriage to consider. Clauses can be placed in an agreement limited what property can be devised under a will.

For these and other reasons, consider a pre-nuptial agreement, but don’t pull one down from the internet.

National Guardsman Loses Child Custody Due to Deployment

Note: This post pre-dated Albany’s uncharacteristic quick action. After this decision was rendered, there was such a firestorm, that Albany put in a quick fix. It is not perfect, but the fix prevents judges from making permanent changes in custody based during a military deployment. More work needs to be done. But this is a start.

Note Two: The change in the law doesn’t lessen by feelings about the below decision.

Regular readers know I that don’t slam or criticize judges, I merely explain the law. Well that changes with this posting. I am furious at a decision by a panel of appellate judges in Albany who rubber stamped an ill-advised decision to penalize a mother for the crime of being a patriotic American. The case, Diffin v. Diffin involves a mother who got custody of her son as part of a divorce settlement in 2000. On April 2004, the mother got mobilized and went to Iraq.

The father moved for a change in custody, and the mother plead the Servicemembers Civil Relief Act. The Family Court stayed the action, but granted temporary custody to the father until the mother returned from Iraq.

When the mother returned, the Family Court awarded custody to the father. The appellate division, third department affirmed the decision. The reason was that because her military service, she has a less settled life. Therefore, it was in the best interests of the child to change custody to the father.

The Court tried to claim that the military service had no impact on the decision, but then they go on to find that her military service was the primary factor. To put a fig leaf on the decision, they talk about how in the past year the child is in a stable environment and that it would be disruptive to uproot him. But, in the end of the decision the anti-military bias shows through: “although the disruption caused by her deployment was not her fault, this record does not demonstrate that Darrell’s best interests would be enhanced by a order a change (i.e. a return to his mother) in his present physical custody.”

Justices, Cardona, Peters, Spain, Carpinello and Lahtinen, should be ashamed of themselves for this blatantly anti-servicemember decision. Justices Cardona and Spain bear particular responsibility as they are prior military.

There are a large number of single parents in the military and particularly in the Guard and Reserves. The reason we have the Servicemember’s Civil Relief Act (SCRA) and the Servicemembers Employment Re-employment Rights Act (USERA) is to fulfil a public policy of maintaining the Guard and Reserves. Patriotic Americans who go the extra step and serve our country should not be punished by small minded people who are shielded by sacrifices that our military members are making every day.

Here, we have a Guardsman who did not shirk from her duty. She did not make excuses. When the call came, she raised her hand and went into a war zone. The thanks that a grateful nation bestowed upon her was to take her son away from her.

To add insult to injury the knife was wielded by Presiding Justice Cardona, a Viet Nam veteran.