by James J. Gross

When I was a young attorney, I worked in the General Counsel’s office of a big corporation.  I negotiated contracts fiercely trying to get every last cent on my company’s side of the table.  One day, an older guy in the contract administration department pulled me aside.  He told me that a sign of business maturity was leaving something on the table for the other party.  Afterall, he told me, we want to do more business with these follks in the future.  And if we take to much in one deal, they will find a way to get it back from us in another deal.  It’s a cost of doing business.   You want to leave the other side with good will, not the feeling that they got soaked.

Before everyhing was online, I used a recruiter to find staff for my law firm.  I hired a bookkeeper  and paid her a finder’s fee.  After three months, the bookkeeper turned around and used the same recruiter to find another job.  I called her and asked for a partial refund of the fee I paid.  She refused.  Needless to say I never used her again.  She made a few dollars but lost lots more in future business.

Even if you are not doing buisness with the other party again, your karma will catch up to you.  It’s a small world.  After 40 years of practicing law, I can tell you that I run into the same people sitting across the table from me over and over again.  Some are defendants.  Some have become judges.

 

 

by Michael F. Callahan

In 1993, The Maryland Court of Special Appeals (CSA) held that the court could not divide social security benefits because they were not martial property under state law but rather governed by federal law.  Therefore the CSA affirmed the trial court’s decision equally dividing the marital portion of husband’s pension when received but not dividing the wife’s social security benefit.  The court made no other adjustment to the equitable distribution of marital property for social security.  Pleasant v Pleasant, 97 Md. App. 711, 632 A.2d 202 (1993).

 

Bill advises developers, nonprofit corporations, and public entities on a variety of real estate transactions and infrastructure finance. He has more than 20 years of experience in real estate development, public/private partnerships, land use, and municipal law, and serves as an advisor to national developers seeking tax abatements, tax increment financing, or any other redevelopment opportunities across the St. Louis region.

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Divorce lawyer Morris Green answered his phone on the second ring as was his custom.

“Morris!,” said the angry voice on the other end, “This is Ivana Copernica.  I’m calling you about your client, Stanton Fields.  Did you know that he has taken $10,000 out of his pension plan?”

“Yes, I did know,” Green replied calmly.

“He can’t do that.”

“Why not?”

“Because it’s marital property and my client did not agree,” said Ivana.

“I don’t think that your client’s consent is required.  Marital funds are expended by one party or the other in almost every divorce.  Unless they have separate property, that’s how they pay their living expenses.”

“What did he spend $10,000 on?” inquired Ivana.

“Why, his legal fees, of course.”

“Legal fees are not a marital expense.  That is a dissipation of marital assets and we’re going to ask the court to make him put those fees back in the pension account,” snapped Ivana.

“Before you do that, Ivana, better read the Allison case.  I’ll email it to you.  Let me read you the holding.  ‘We hold that when, as here, a spouse uses marital property to pay his or her own reasonable attorney’s fees, such expenditures do not constitute dissipation of marital assets.’”

Allison v. Allison, 160 Md. App. 331, 864 A.2d 191 (2004)

A 2013 Virginia case, Wright v Wright, 61 Va. App. 432; 737 S.E. 2d 519; 2013 Va. App. LEXIS 53 prompted me to observe that a high earning spouse can increase what he, or she, gets to keep by paying expenses out of marital property and banking the post –separation earnings because in Virginia those earnings are not marital property. Conversely, if you are the lower earning spouse you want prompt filings, quick hearings and, if the stakes justify it, an injunction on expenditure of marital property. See The “Wright” Strategy for Increasing What You Keep in Your Divorce, April 2014.

In Maryland, a spouse’s earnings after separation are marital property in the absence of an agreement to the contrary. So there is no advantage to paying expenses with accumulated marital property and banking post-separation earnings in Maryland. What then is the proper strategy for a high earning spouse in Maryland in a case with a relatively long separation?

First, if there is any existing non-marital property, don’t spend that. And remember that from separation to divorce you are earning marital property, increasing the marital proportion of retirement accounts, and adding to the duration of marriage, which is a factor in determining both alimony and marital property distribution. So it pays to settle early because a Separation and Property Settlement Agreement will exclude subsequent earnings from marital property.
Getting to settlement usually requires making a good offer. Getting to settlement early may require making a good offer early. This runs directly contrary to many negotiator’s instinct to make a low ball offer and move up in baby steps to wear down the adversary and get a “good deal”.
For high earners the good deal achieved by extended negotiations may be at the cost of hundreds of thousands of extra dollars added to the marital estate, and then divided. Sometimes it makes sense to make a really good offer early.
What about the Maryland financially dependent spouse? Certainly this spouse wants to settle temporary support and custody, visitation and access early, if possible. But what about the final settlement distributing marital property? It may pay to delay. But the advantage of dividing a bigger pie later must be balanced against the obligation to negotiate in good faith. Also, the additional costs and stress of getting-to-yes later rather than earlier are big negatives. Perhaps a bigger issue is that if the moment for settlement passes, it may not come again.

In a post titled “Determining Marital Property in Maryland, Virginia and the District Of Columbia” (June 17, 2011), I said:

“This article is about when the accumulation of marital property ends. It starts at the time of the marriage. When you return from the honeymoon and go to work the next Monday morning you are earning marital property – the stuff the divorce judge divides. When is the first day you can go to work and earn separate non-marital property? It depends on the jurisdiction.”

And after reviewing the applicable statutes, I said:

“When you and your spouse have separated, intending to remain separated, and do not have a property settlement agreement, in Maryland and the District of Columbia the property you acquire from the date of separation until the date of divorce is marital property. In Virginia such property is not presumptively marital, and in general is determined to be separate property, unless special facts and circumstances are established to overcome the presumption.”

In a recent case, Wright v Wright, 61 Va. App. 432; 737 S.E. 2d 519; 2013 Va. App. LEXIS 53, the Court of Appeals of Virginia considered whether Mr. Wright’s strategy in the two plus years between the date of separation and date of the divorce hearing required a finding to bring post-separation expenditures of marital property back into the marital pot to be divided with Mrs. Wright.

Husband had certain marital accounts totaling about $2,800,000. Husband earned approximately $1,500,000 per year; Wife was a homemaker. During the post-separation period, the marital accounts declined to about $1,415,000 on account of Husband’s payment of joint income taxes, real estate taxes on the marital home, tuition and school expenses for a child of the parties, spousal support to Wife and his own attorney’s fees and expert witness fees. Husband deposited the money he did not spend on these expenses to his separate accounts which, of course, were not marital.

The Court of Appeals said none of those expenditure were improper so they did not amount to “marital waste.” They explained that there are only two categories of expenditures of marital funds “proper” and “waste.” If your spending of marital funds falls into the “proper” categories it’s okay even if that permits a big decline in marital assets to be divided and a big increase in the separate funds of the party following the strategy.

The result in Wright provides a road map for the higher earning spouse to skew the division of marital property in his or her favor in some Virginia cases. If you are the lower earning spouse you want prompt filings, quick hearings and, if the stakes justify it, an injunction on expenditure of marital property.

Also, for multi-state or potentially multi-state cases, Wright is another reason that in a case with a relatively long separation, all other things being equal, the higher earning spouse probably wants the divorce case to be heard in Virginia. As I’ve said here before, a little planning and a little audacity can get you into the Court you want to be in. And a little more planning during separation can increase the property you get to keep.

Some of the facts here are from an article by one of the lawyers involved in the case. What’s wrong with Wright, Ronald R. Tweel (Virginia Family Law Quarterly, Spring 2014)

Determining Marital Property in Maryland, Virginia and The District Of Columbia

 When you are married, everything you acquire during the marriage is marital property unless it’s a gift or inheritance, proceeds of gift or inheritance, or excluded by a valid agreement.  Whether something is marital property does not affect title to the property, transferability, right to possession or anything else.  It’s a concept that only matters at the time of divorce.  Marital property is what gets divided between the parties by their agreement of the judge’s order.

This post is about when the accumulation of marital property ends.  It starts at the time of the marriage.  When you return from the honeymoon and go to work the next Monday morning you are earning marital property – the stuff the divorce judge divides.  When is the first day you can go to work and earn separate non-marital property?  It depends on the jurisdiction. 

Section 8-201(e) of the Family Law Article of the Maryland Code provides that  marital property means the property, however titled, acquired by 1 or both parties during the marriage.  The applicable D.C statute is Section 16-910 which provides in part that the Court shall value and distribute … property and debt accumulated during the marriage.  The applicable Virginia statute is Virginia Code Section 20-107.3 which provides in part A.2 that  All propertyacquired by either spouse during the marriage, and before the last separation of the parties, if at such time or thereafter at least one of the parties intends that the separation be permanent, is presumed to be marital property in the absence of satisfactory evidence that it is separate property.

When you and your spouse have separated, intending to remain separated, and do not have a property settlement agreement, in Maryland and the District of Columbia the property you acquire from the date of separation until the date of divorce is marital property. In Virginia such property it is not presumptively marital, and in general is determined to be separate property, unless special facts and circumstances are established to overcome the presumption.

Property means anything of value including wages, 401(k) accumulations, vehicles, real property, etc.  In a particular case, like one with a long separation before divorce where one spouse earned a lot more and acquired a lot more property than the other, this difference in the law can make a huge difference in outcome. 

I had such a case a couple of years ago.   It was a second marriage, no children of the marriage, the parties had been married a relatively long time but had not spent much time together.  The higher earner and our client, the wife, spent lots of time on the road for her employment.   The separation was sort of a gradual thing.  They had not seen each other at all for about three years.  They had only spent holidays together for about the four years before that, and had not had marital relations in all that time.  The clearest event establishing the separation was Wife’s purchase of a home in Virginia in her own name with her own funds three years past.  Husband lived in Maryland.

We decided to try to make this a Virginia divorce case even though the Virginia Courts did not have personal jurisdiction  over the Husband who had never lived in Virginia.  I thought it was worth the effort because it seemed unfair that Wife would have to divide everything she had acquired over the seven year period that the spouses had lived apart and had completely separate finances.

I sent a settlement proposal – no response.  I filed a Complaint for Divorce and served it on Defendant by mail with a form called waiver/acceptance of service.  If he signed and returned it we could go forward.  On the last day for a timely Answer I got a call from a Virginia law firm requesting a short extension of time to respond.  I agreed and waited for the motion to dismiss that I expected would be filed and then granted, leaving us with a Maryland case in which our client’s accumulated property for seven years of separation and counting would be on the table.  I updated our client and told her what I expected to happen.

But it didn’t.  Husband’s Virginia counsel filed an Answer submitting Husband to the Court’s jurisdiction and never raised the lack of personal jurisdiction.  In the negotiations Husband’s counsel worked tirelessly, brilliantly and somewhat successfully to discover and assert facts to move the date of final separation forward so that husband could share in the substantial property Wife has accumulated during the early years of the separation.  Nice work but it would have been totally unnecessary if the case had been filed in Maryland as it should have been.  Everything Wife had accumulated for the seven years of separation to date and thereafter continuing to the date of divorce or date of Agreement would have been marital property.

If you have a long separation and a big difference in post-separation property you probably want your divorce case to be heard in Virginia if you are the spouse with more post-separation property and you want it heard in D.C. or Maryland if you are the spouse with less post-separation property.  As you can see, a little planning and a little audacity can get you into the Court you want to be in.

What if one divorcing spouse works for a private company and has a pension and will be eligible for social security and the other is a government employee? The Court will divide the marital portion of the private pension and the government pension but cannot divide the social security.  Should the Court take account of that difference in expected government benefits in dividing the pension?  Not in Maryland.  See Pleasant v Pleasant, 97 Md. App. 711, 632 A.2d 202 (1993).  In that case the Maryland Court of Special Appeals held federal law precluded treating social security benefits as marital property and affirmed the trial court’s holding that the marital portion of husband’s pension, funded by payroll deduction during the marriage, would be equally divided when received and the wife’s social security benefit, funded by payroll deduction during the marriage, would not be divided.  The court made no other adjustment to the equitable distribution of marital property.  Is that unfair? Of course.  The law of Virginia is the same on this point.  See e.g.    Esposito v. Esposito, 2002 Va. Cir. LEXIS 234 (Fairfax County)

Most pensions, 401(k) plans, etc. are in addition to social security.  They are not intended to replace social security and employees covered by these plans are also earning social security credits.  When these plans are equitably distributed between the spouses and the spouses are left with their statutory claim, or no claim, for social security no unfairness results.

 But federal retirement plans and many state government plans are not intended to supplement social security, they are intended to provide a retirement income without social security.  Both the employee deduction and employer contributions are higher, no social security taxes are paid and the federal and state employees are not earning social security credits.