Posts Tagged ‘phoenix bankruptcy attorney’

TEMPE AND MESA ARIZONA DIVORCE AND FAMILY LAW LAWYER DISCUSSES BUSINESS VALUATIONS

Monday, July 30th, 2012

 

Arizona Divorces, Equitable Division of Assets and Debts, Including Complex Business Valuations:

Submitted by Attorney Douglas C. Gardner

Under Arizona law, the Court must equitably divide the assets and debts of the parties involved in a divorce case.  The general rule is that the equitable division will also be an equal division, though there are some exceptions where an un-equal division is considered equitable or fair by the Courts. 

Many assets and debts are simple enough to divide.  If there is $1,000.00 in a bank account, each party simply takes $500.00.  If one side already took $400.00, then of the remaining $600.00, one party will receive another $100.00, and the other party will get the $500.00. 

Similarly, with debts, each party is generally required to pay 50% of the debts.  Sometimes a house can be sold and the equity can be used first to pay down the debts.  Sometimes one party will do a balance transfer of 50% onto a different card, and each party will then be required to pay their 50% off at their own pace. 

Retirement accounts such as 401(K) accounts can be divided quite readily, though doing so may require a court order or complex paperwork.  The concept though is the same in that each party will get 50%. 

By settlement of the parties, and occasionally by court order, certain items are offset against other items.  The Court may give Husband the $500 pink sewing machine and give Wife the $500 orange chain saw, which would be an equitable division as each party has an item of equal value. 

Some care must be taken when using offsets or setoffs.  For example, $1000 in a savings account is not equal to $1000 in an IRA or 401(k).  The $1000.00 in the savings account has already had the taxes paid.  The $1000 in the IRA or 401(K) will require taxes of approximately 20% and a penalty in most cases of about 10%.  So the $1000 IRA or 401(K) nets only about $700.00 and the $1000.00 in the savings account nets the full $1000.  Similar issues result in property, real estate, stock, and businesses that have capital gains and other tax issues involved.  A qualified and experienced attorney should be able to help you understand the principles, and a CPA or accountant should be able to help you specifically quantify these valuation issues.

Having been involved in many complex divorces, an issue that often arises is the division of a business owned by one or both of the parties.  In cases where one party owned the business prior to the marriage, the other party may still have some claim to a part of the business.  In cases where the business was purchased or built during the marriage, the business must be equitably divided. 

Sometimes the easiest way is to sell the business and each party receives 50% of the net sales proceeds.  This makes things simpler for both parties, both attorneys, and the Judge.  However, in many cases the business is not one that is easily sold, or the business is the livelihood of one of the parties.  In these cases the business may be sold by the community to one of the individuals, or rather the purchasing party will pay the other party 50% of the value of the business. 

Figuring out the value of the business can be expensive and complex.  An appraisal for most houses costs $300-$400, and these can usually be obtained quite quickly.  The abundance of houses, all somewhat similar to one another (most have a kitchen, a family room, a few bedrooms and bathrooms) allow for comparable sales to be used to quickly identify the going rate for houses of a certain size and in a certain location.  With businesses, they are much less one size fits all.  Some businesses such as accounting or medical practices are service related.  Other businesses such as restaurants and grocery stores are retail, merchandise, or goods related.  Some businesses own the real estate used, while others rent or lease.  Some businesses are very risky and demand much higher returns.  Some businesses have intense competition, while other businesses have unique niches. 

Having been involved in many divorces including businesses, and having an accounting, finance and business background myself, I have seen how important it is to have businesses professionally evaluated.  Sometimes this can cost a few thousand dollars, but think for a moment what the cost to just guessing would be.  Hypothetically, the parties “guess” the business to be worth $300,000.00.  A business valuation would have cost $3,000.00.  Each party would have paid half of the business valuation.  If the “guess” is off by more than $3,000.00, one party will get burned.  What if the business was really worth $320,000.00 instead of $300,000.00?  The receiving party would receive $160,000 instead of $150,000.00 for half of the business.   This small difference in value would have easily justified the cost of the business valuation. 

There are some cases where the business is a very small business, or a new business with lots of debt, that is simply not worth much.  In these cases the business may not merit a full blown appraisal or valuation.  There are some options that can be considered to help both parties make appropriate decisions in such cases. 

Once the value of the business is determined, the parties need to ensure that certain adjustments are considered.  A business worth $500,000.00 may not automatically require a buyout of $250,000.00.  What if the business has debts of $400,000.00?  The net value of the business may then be only $100,000.00.  

A more complex adjustment is for anticipated capital gains tax.  If a business has been largely depreciated, upon the sale (other than a sale to a spouse as part of a divorce) the sale will trigger capital gains tax on the business.  This can be up to 20% of the purchase price (and subject to change as tax laws seem to do from time to time).  A business worth $500,000.00 could have a built in $100,000.00 of capital gains tax that would need to be considered and adjusted as appropriate.  This is more complex as there is uncertainty as to when the business would actually sell, and what the future capital gains tax would be. 

If you are involved in a divorce case involving simple or complex asset and debt issues and want experienced legal representation, please call 800-899-2730 and ask to speak with Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.

Arizona Attorney Discusses Child Support and Spousal Maintenance Issues in Bankruptcy

Monday, March 7th, 2011

As a lawyer with many cases in Phoenix and Mesa, Arizona and throughout the state, I often encounter family law cases in which a bankruptcy has been or will be filed. Both parties need to understand what will happen with child support and spousal maintenance in a bankruptcy case.

First, from the point of view of the debtor or person filing bankruptcy in which case the debtor is obligated to pay child support or spousal support: bankruptcy will not discharge an obligation to pay child support or spousal maintenance. Bankruptcy can, in certain cases, discharge or eliminate other types of debts to a spouse or former spouse. However, child support and spousal support will need to be modified or terminated through the family law courts. If you have other debts to a spouse or former spouse which you want to eliminate in bankruptcy, you will need to hire an attorney that can answer your questions and help you through this difficult process. 

Second, still from the point of view of the debtor or person filing bankruptcy, but this time the debtor is receiving child support or spousal support: Your right to collect child support and spousal maintenance is not an asset that can be taken from you in bankruptcy. The income that you receive from actual payment of support will affect your bankruptcy, as more income may make it difficult to qualify to file for certain types of bankruptcy. You will need to ensure that your bankruptcy attorney is aware of any income you are receiving. You should also make sure that your divorce or family law attorney is aware of the status of any bankruptcy or of the potential that you will file for bankruptcy.

Third, from the point of view of the spouse or ex-spouse of a debtor, in which case the debtor is obligated to pay child support or spousal support to that spouse or ex-spouse: there is little to worry about a spouse or ex-spouse filing for bankruptcy as it pertains to child support and spousal support. These debts are not dischargeable in bankruptcy, meaning the debts will continue to be owed even after your spouse or ex-spouse completes bankruptcy. It may even be beneficial, as your spouse or ex-spouse will eliminate other debts and have more funds available to meet his or her obligations to you. Bankruptcy also gives child support and spousal maintenance a “priority,” meaning they will get paid before most other debts will get paid. However, if your spouse or ex-spouse owes you other money for property issues, or is obligated to pay debts that your name is also on, you will need to contact a bankruptcy attorney that is also familiar with divorce and family law issues to ensure that your rights are protected.

Finally, from the point of view of the spouse or ex-spouse of a debtor, and the spouse or ex-spouse is obligated to pay child support or spousal maintenance to the debtor: your spouse or ex-spouse’s decision to file for bankruptcy does not eliminate your ongoing obligation to pay support. The payments will continue to go to your spouse or ex-spouse, and will not be taken by the bankruptcy court or the bankruptcy trustee. If you need to modify or reduce your child support or spousal support, you will need to contact a family law attorney to assist you.

If you have any questions regarding bankruptcy or family law issues, please contact McGuire Gardner, PLLC by calling (480) 829-9081, or check us out on the web at www.mcguiregardner.com.

ARIZONA FAMILY LAW ATTORNEY DISCUSSES RETROACTIVE CHILD SUPPORT

Monday, January 3rd, 2011

In Arizona, either party may ask the Court to change child support when there has been a significant and continuing change in the factors for calculating child support. This can be the increase or reduction of the income of either party, a change in medical insurance costs or availability, an increase or decrease in day care or child care costs, or the emancipation of one or more children.

Child support does not automatically change, and must be changed through the court process. A change can only become effective on the first day of the month following the commencement of a case to modify child support and service upon the other party.

If you need assistance modifying child support in your case, or if the other party has asked the Court to modify child support and you do not agree with the requested change, please feel free to contact the attorneys at McGuire Gardner for a free initial telephone consultation to discuss your case, by calling (800) 899-2730.

MARICOPA SUPERIOR COURT COMMISSIONER SEEKS OPINION OF McGUIRE GARDNER ATTORNEY’S REGARDING INTERPLAY BETWEEN DIVORCE LAWS AND BANKRUPTCY LAWS

Thursday, May 21st, 2009

After an article recently published in the May 2009 Family Law News, a news letter put out by the Family Law Section of the Arizona State Bar, an honorable commissioner in Maricopa County, Arizona, sent an email to McGuire Gardner requesting additional clarification. His email request, my response, and his reply were substantially as follows:

Dear Douglas and Pernell:

I very much enjoyed your article on bankruptcy issues in the May 2009 issue of Family Law News, from the State Bar of Arizona.

As sort of a follow-up to your article, I have a question that I wonder if I could pose to you.  I would appreciate your thoughts.

Arizona has the “one-action” rule, in which all issues are to be resolved within one decree of dissolution.  This has recently been the subject of opinions from the Court of Appeals.  When the divorce case comes up for trial or default hearing and a bankruptcy is proceeding, can the Superior Court proceed with any issues?

Some judicial officers in Maricopa County will not allow a case to proceed to dissolution of marriage if a bankruptcy is pending.  Some of their options are to have the case converted to a custody/paternity case and leave spousal maintenance and property unresolved.

It seems to me, however, that the Superior Court can proceed.  As your article points out, spousal maintenance, child support, custody and parenting time are not restricted by the automatic stay.  Since property division is not handled at the time of the entry of the decree, do the property issues proceed thereafter as a partition action?  Do they proceed back to Family Court as “reserved items”?

I look forward to your thoughts.

****

Dear Commissioner,

I appreciate your inquiry.  Below are my neutral thoughts on the matter, though I may need to make alternate arguments in certain cases, to fully represent my client.

Your question pertains to the interplay between the Federal Bankruptcy laws and our State Dissolution Statutes.

Arizona Statute, A.R.S. § 25-312 provides:  “The court shall enter a decree of dissolution of marriage if it finds each of the following:  . . . (4) To the extent it has jurisdiction to do so, the court has considered, approved and made provision for child custody, the support of any natural or adopted child common to the parties of the marriage entitled to support, the maintenance of either spouse and the disposition of property.”  A.R.S. § 25-313(5) has similar language pertaining to Decrees of Legal Separation.

Accordingly, a mandatory finding in order to grant a dissolution is that the Court has taken care of all issues relevant to the divorce.  There is, however, the limiting language: “To the extent it has jurisdiction to do so.”

In cases where Arizona does not have jurisdiction over the Respondent, Arizona can simply provide for the divorce.  The division of property would then be completed in a state with jurisdiction over the Respondent.  This often occurs when service is accomplished through publication.  Similarly, Arizona can only exercise jurisdiction over child support issues if certain jurisdictional requirements have been met.  A.R.S. § 25-1221.  It is possible for Arizona to have jurisdiction over the children and custody issues under the UCCJEA (A.R.S. § 25-1000 et seq.) and not have jurisdiction over child support.

Turning now to the Federal Bankruptcy Code, 11 USC § 362 sets forth the broad powers of the Automatic Stay.  The general rule is that the filing of a bankruptcy case “operates as a stay applicable to all entities, of (a)(1) the commencement or continuation . . . of a judicial . . . proceeding against the debtor . . . (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; . . .”

However, specifically exempted from the powers of the automatic stay, are certain support provisions, custody,  and the dissolution itself.  11 USC § 362(b) provides that the automatic stay “does not operate as a stay (2)(A) of the commencement or continuation of a civil action or proceeding (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate or (v) regarding domestic violence.”  11 USC § 362(b)(2)(B-C) additionally allows for collection or withholding of income for support obligations.

The logic behind these federal exceptions to the otherwise powerful automatic stay lies in preventing abuse of bankruptcy where the filing of a bankruptcy would be utilized to prevent a spouse or dependent children from obtaining necessary financial support.

Ultimately, under Federal Bankruptcy Law, the state court divorce judge or commissioner has the legal right to proceed in spite of the bankruptcy in all aspects of a standard divorce, except for the distribution of assets and debts of the parties.

Synthesizing the limits of Federal Bankruptcy Law and the automatic stay, with the requirement of the Judge or Commissioner to make provisions for all issues in the divorce case “to the extent it has jurisdiction to do so,” it is my opinion that the court can proceed in granting the divorce, entering custody orders, child support orders, spousal maintenance orders, and all aspects of the divorce, except for the division of property and debts.  Because the state court lacks jurisdiction to do so, the issue of property and debts must be reserved until the bankruptcy is completed or until the Bankruptcy Court has lifted the automatic stay as to the division of the assets and debts.  If a divorce is granted before the expiration or lifting of the automatic stay, the remaining issues of the division of property and debts would be treated separately as a reserved issue, similar to a case in which the parties were divorced in another state but the property and debt issues were not provided for in that jurisdiction, or divorced when service was accomplished by publication.

Sincerely

Douglas C. Gardner J.D./M.B.A.

McGuire Gardner P.L.L.C.

***

Dear Mr. Gardner

Thank you for your response.  As the Judge says in the movie, My Cousin Vinny, “Counsel, that is a lucid, intelligent and well-thought out objection.”  In this case, your comments were not an objection but were lucid, intelligent and well-thought out!  And I am not “Overruling” your comments, as I agree with them 110%.

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For more information about bankruptcy or family law issues, please visit our Website.

Phoenix Bankruptcy Attorney Comments On Failure of “Cram-Down” Bill.

Monday, May 4th, 2009

Last week the Senate voted down the bankruptcy “cram-down” bill recently approved by the House.  The bill was far short of the 60 votes needed, indicating that it is unlikely to be revived. For more information on bankrutpcy in Arizona, please visit our website at, www.mcguiregardner.com.

McGuire Gardner expands offices

Tuesday, March 24th, 2009

McGuire Gardner, PLLC, is pleased to announce that we have expanded our Flagstaff, Arizona office to include four attorneys, and we have opened our Tempe office full time. Our new address in Flagstaff is: 320 N. Leroux, Suite A, Flagstaff, AZ 86001. In Tempe you can find us at 2177 E. Warner Road, Suite 101, Tempe, AZ 85284. We will continue to focus our practice in all areas of bankruptcy law, family law, probate, loan modifications and commercial litigation.