A question of BANKRUPTCY -- can you hide an asset?

I was discussing bankruptcy on an Internet legal site, and was asked the following question:

Question:
If a family member is on the verge of bankruptcy, can I purchase their house for the small amount still owed to the bank and have the house exempt as an asset when they declare bankruptcy? Or, would this be considered conspiracy to commit bankruptcy fraud?

My answer:

There is no conspiracy here!

Interesting idea, though. Generally, when a person declares bankruptcy, any asset is fair game for creditors. If the house in question has a good amount of equity, and the person declaring bankruptcy sells it for "a song" just before declaring bankruptcy, the trustee will yank it back (generally, a sale within 2 years of bankruptcy will be scrutinized -- beyond that, only if one of creditors ask for an investigation).

He or she will void the sale and take possession of the property in the interest of the other creditors. Now this is just a general overview -- there are exemptions (called "homestead") at both the state and federal level (you must choose one, not both), and there are certain protected transactions.

The bottom line, however, is before someone declares bankruptcy, they should consult a qualified professional to make sure they don't step on a landmine. If you need help with your bankruptcy, or advice on how to proceed, feel free to give us a ring! We have considerable experience in tax, bankruptcy an maximizing exemptions for both!

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

401K Rollover WARNING!

Folks - just a friendly reminder. I wrote a blog about QDRO's a few days past, and I had a couple of questions asked as follow-up to that post. There is a critical error you want to watch for when dealing with 401K and other "qualified plan based" retirement programs. ALWAYS ALWAYS ALWAYS do a rollover from the source retirement plan into a qualified retirement account (usually an IRA of some type is easiest and fastest to setup).

There are some exceptions to this -- especially for folks that are particularly young, or for emergency situations. Here is why you want to do this:

• There is a 10% penalty if you withdraw funds from a retirement plan before you are 59.5 years old. You do not have this penalty if the funds are rolled into another retirement account.
• Taxes are withdrawn from the amount transferred unless the funds are stored in a qualified retirement account.

If you have funds you need moved from an employer qualified plan, be certain to speak to a professional who can help you. Mistakes here can be disastrous.

Do you need help with a divorce or inheritance question regarding retirement funds or protected assets? Contact us! We can help. We operate in Virginia, Maryland, and DC -- and we have many years of family law experience.

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

Drugs in DC - a posted question

I recently answered a DUI/Drug question on a legal board, and I thought the information was relevant to all visitors on our site -- so I am reposting it here:

Question: So I live in DC and me and a few friends got caught the other day with about 6 grams of marijuana between us....the cops took us in finger printed us and all. I have a court date set for February 20th but I do not know what will happen to me in DC since I just moved here. The officer arresting me said that I would not be sent to prison but would likely have the charges dropped or be fined....how much would I be fined though? and would I have to go on probation for a first offense to get my charges dropped? Will i get drug tested in court? Please help...this whole thing is stressing me out...horrible way to start second semester.

Reply: Firstly -- stop using drugs. This is neither humorous nor a light matter. Regardless of your personal view, drugs are still illegal and you will still go to jail.

Next, if you have a clean record there area a variety of options to mitigate this case. These include DSA's (deferred sentencing agreements), dismissal outright, and referral to drug treatment in lieu of prosecution (occasionally, you can the case sent to drug court -- a subset of the Superior Court which tends to be much more flexible in dealing with drug issues).

Yes, you will most likely need to test on the day you go to Court. If there is a problem with you testing, or you think you will fail, you need to contact us right away -- again, this may appear trivial, but could be very serious indeed. We would be glad to help. We have considerable experience handling drug cases in DC.

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

The QDRO - Qualified Domestic Relations Order...or, Divorce and Retirement Funds

This week I helped coordinate the amicable end a cantankerous divorce case -- favorably, I might add. This issue revolved in part around the elderly couples retirement accounts (married for over 26 years - in their late 60's). As I completed the negotiations and concluded the settlement, one remaining task made me think about writing this blog -- the drafting of the QDRO (Qualified Domestic Relations Order). Now, a QDRO is a tricky beast. It involves dividing a qualified retirement plan (that's a 401K, IRA, or really most employer sponsored plan -- which includes non-profits, too!). Interestingly, as a small footnote, military and many federal government retirement plans are not handled via a QDRO, but rather through a separate procedure relative to each federal government plan! Be careful here.

Where is the code defining a QDRO (pronounced "quad-roe") live? That would be 29 U.S. Code § 1056(d)(3)(A) which reads:

Paragraph (1) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order [ed: paragraph one prohibits alienation or assignment of plan benefits], except that paragraph (1) shall not apply if the order is determined to be a qualified domestic relations order. Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.

What qualifies as a QDRO? That's a tricky question, and you want to be sure to speak to an attorney. However, the minimum requirements of a QDRO are discussed at 29 U.S. Code § 1056(d)(3)(B), (d)(3)(C), (d)(3)(D). Essentially, they are:

[A plan] which creates or recognizes the existence of an alternate payee’s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan, and

• (i)the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order,
• (ii)the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,
• (iii)the number of payments or period to which such order applies, and
• (iv)each plan to which such order applies and

• (i)does not require a plan to provide any type or form of benefit, or any option, not otherwise provided under the plan,
• (ii)does not require the plan to provide increased benefits (determined on the basis of actuarial value), and
• (iii)does not require the payment of benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order.

Now a QDRO generally comes in two flavors: shared payment and split interest. The code that discusses these provisions can be found at 29 U.S. Code § 1056(d)(3)(C)(ii) [requires the plan to specify how the benefits should be paid -- see above]. If you don't like ERISA code (that's 29 U.S. Code), you can saunter over to the Internal Revenue Code for the exact same wording -- see 26 U.S. Code §414(p)(2)(B). Exciting.

SHARED PAYMENT: Under this approach, the alternate payee (that's the spouse who is getting part of the benefit in the divorce settlement) does not segregate a lump sum from the participant (that's the person that owns the plan now). Instead, when the participant retires, part of the payment he/she receives each period (usually once per month) is paid to the alternate payee.

SPLIT INTEREST: Under this approach, at the time the QDRO is implement by the plan administrator, a portion is split off from the participant and assigned to the alternate payee. This amount may then be maintained in the plan, distributed to another retirement account, or paid in a lump sum (often with penalties) to the alternate payee.

There is a considerable amount of calculation and planning that must go into advising a client on how best to handle retirement benefits. This includes such things as gain/loss provision for split interest (determining when the actual split occurs such that changes in the value of the plan total are reflected (gain or loss) in the alternate payees distribution -- or not), the duration of the payments under the plan, the taxable implications of rollovers, etc.

QDRO's can be tricky, but can be managed well if planned in advance of the actual divorce trial or settlement. Do not be pressured into agreeing to any term within the QDRO, and be sure to read the QDRO carefully. The differences as to how much is paid, who shares the gain/loss risk, and when payments are made is critical. Further, and most importantly, make sure that a QDRO is the right tool for dividing the retirement amount.

Do you need help drafting or reviewing a QDRO? Contact us! We can help. We operate in Virginia, Maryland, and DC -- and we have many years of family law experience.

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

IRS Regulations Concerning Short Sales and Debt Forgiveness - FORM 982

Tax season is once again upon us. As our firm considers different methods for helping folks, one common theme we often encounter is short sales. We're located in the Northern Virginia/DC Metropolitan area. The number of short sales and foreclosures in this area is, and has been, high. Short sales, and foreclosures, often result in a write-off for the bank that holds the mortgage. This means that the bank cannot collect all the money that you owe on the mortgage itself, and just writes the reamining balance off as a loss. They agree not to pursue you to collect the difference.

The problem, however, is that by writing that amount off, the bank is, in essence, giving you the balance of the loan as a gift. You are being told that you don't have to pay it any longer, and the bank will forgive the debt. Good news when your debt is forgiven. Bad news when it comes to taxes. A debt "forgiven" counts as income, and you should expect to get a tax form from the bank showing that you have been "paid" the amount that was written-off. Called a "cancellation of debt", it is provided on a 1099-C form.

Example of Deficiency "Income" Caused by Short Sale or Foreclosure

For example, if you sold a property with an outstanding mortgage of $500,000 for the approved short-sale amount of $350,000 -- there is a $150,000 deficiency. That amount with be credited as income to you at the end of the year -- and you should expect a 1099-C form from the holder of the mortgage. Imagine getting a notice in the mail that you earned an extra $150,000 this year? That's enough to make your stomach turn!

Fortunately, there is relief. The Mortgage Forgiveness Debt Relief Act of 2007 specifically allows short-sales and foreclosures deficiencies to be excluded from taxable income. In order for this be done, the tax payer must file an IRS Form 982. This form is designed to exclude canceled debt from taxable income, and much of the form does not apply to the residential home owner. However, up to $2 million (jointly filing) or $1 million (individually filing) may be excluded based on the sale, refinance, or foreclosure of your principal residence. Be careful with TurboTax! It won't automatically suggest this.

As an aside, there are many other forms of canceled debt that alsoo qualify for exclusion from your taxes. If you have received a 1099-C from your lender (any lender), be sure to consult with a tax attorney (that would be us!) to see if you can safely avoid paying taxes on the canceled amount. Examples of good reasons for this include insolvency, bankruptcy,and farm debt.

Need help with a tax matter? Give us a ring! We'll discuss your case for free on the phone. We have several VA, DC, and MD lawyers who have considerable experience in sorting out complex IRS matters.

http://www.hanoverlawpc.com
703-402-2723

Sean R. Hanover, Esq.
Principal Attorney
The Hanover Law Firm is located in Washington, DC and Fairfax, VA. We practice
in both state and federal courts in VA, MD, and DC.

Jury Instructions -- key to victory at trial

A jury trial is comprised of multiple steps -- and one of the most critical is the formulation of jury instructions. Instructions are drafted, generally, at the pre-trial conference stage. Opposing parties exchange suggested jury instructions on each area of contested law. Now, if there are nbo novel concepts to consider, then the instructions can be taken from the "generic" jury instruction selection provided by each Courthouse. You can find these in the law library or online from a sevice such as Lexis. However, when specialized, or non-normative instructions are required, you will need to write them yourself.

A jury instruction is comprised of three components: (1) any statute or ordinance on point, (2) relevant case law, and (3) the instruction itself.

An example of a jury instruction on "equitable estoppel" (lulling) might be:

Governing Statute
None known.

Case Law
From JANKOVIC v. INTERNATIONAL CRISIS GROUP, 494 F.3d 1080 at 1086 (2010):

"Similar to equitable estoppel, the doctrine of lulling applies when the defendant “ha[s] done something that amounted to an affirmative inducement to plaintiffs to delay bringing action,” Bailey v. Greenberg, 516 A.2d 934, 937 (D.C. 1986) (quoting Hornblower v. George Wash. Univ., 31 App. D.C. 64, 75 (1908)), as when a defendant promises to settle a dispute outside of court.)

From Property 10-F, Inc. v. Pack & Process, Inc., 265 A.2d 290, 291 (D.C.1970):

Equitable estoppel (lulling) is appropriate where “[The defendant has] done anything that would tend to lull the plaintiff into inaction and thereby permit the statutory limitation to run against him."

Proposed Jury Instruction
Lulling occurs if one party has created an affirmative inducement to the other to prevent or delay them from bringing action on the case.

You must find lulling when a party to a contract has done something that would tend to lull the plaintiff into inaction and thereby permit the statutory limitation to run against him.

An "affirmative inducement" is some action, no matter how minor, taken by a party, designed to intentionally trigger a reaction or action in the other party. Inaction or "doing nothing" cannot be an affirmative inducement.

Once you draft your custom jury instruction, you must submit a copy to opposing counsel and a copy to the judge who will be involved with the case. The final written instructions, including your proposed jury instruction, will be made by the judge. He/She will consider both your proposed instruction, and the instruction of opposing counsel.

Do you need help with an upcoming jury trial? Give us a ring! We've been doing this for a while and would be glad to handle your case, or consult on the jury management process. Remember -- ~30% of the outcome of your case is decided in the proper selection of your jury. Another ~15% is decided by the proper instructions and verdict form. Do the math, folks. That is ~45% of your case decided before the trial starts. Be sure you have an attorney you can trust.

Sean R. Hanover, Esq
www.HanoverLawPc.com
Contact Us
703-402-2723

Voire Dire -- and the jury trial

Ever wonder how a jury trial really works? There are quite a few steps. In the next several articles, I will discuss a few really important aspects of jury trials. While we've been handling complex jury matters for years, we just finished (successfully!) a jury trial where the key elements really made a difference:

• voire dire
• jury instructions
• the jury verdict form

. "Voire Dire" is French, and means to see and to speak. A slightly more easily digestible translation would be "to observe and discuss." Although "question" would be more appropriate, the French word for that is "demander" -- and certainly nothing close to "dire". So we're stuck with observe and discuss. C'est bon! You may have heard the terms translated as: "speak the truth" -- that is pure fiction.

Now, it is important to understand that you must get a good lawyer for a jury trial. Not only must your attorney be an excellent cross-examiner, he or she must be a good tactician. Jury operations are all about tactics. Subtle tactics. Understanding the nuances can make the difference between a sympathetic jury and one the clobbers you. So, be careful and choose wisely.

Voire Dire -- the art of selecting the jury

Calling the jury

Most courts work the same way, but in this example, we will discuss Federal court. Voire dire is initially conducted by the judge. Once all preliminary matters are resolved (before the trial starts), the judge will instruct the clerk to "bring in the jury." The jurors are ushered into the court and seated in the gallery (that's the area with the rows of seats -- in the back), generally in order starting with number one, with five per row (obviously, there are more if the rows are larger). The clerk will also hand each counsel a "jury sheet" which shows each the name of each juror, their juror number, profession, and perhaps a few remarks on demographics. There will also be a line by each juror name for entry of comments.

Initial Questioning by the Judge

Generally, several weeks before the trial a "pre-trial" hearing is held. During this time, jury questions are discussed between the parties and the judge. These are the initial questions the judge will ask the jury directly, and must be agreed to by the parties. During the day of trial, once the jury group is seated in the gallery, the judge have the clerk pass out index cards. As the judge asks the jurors the questions agreed to by the parties at pre-trial, each individual juror will enter the question number and a "yes" if any are true for that juror. The jurors will enter nothing if the question is false or not true. A typical question may be: "1. Do you know any member of the defense team?" or "2. Have you ever owned a business?". A juror would write: "1. yes" if he/she did know a member of the defense team, for example.

Questioning by Counsel

Once the judge has asked all the questions, the clerk will collect the index cards. The judge will call defense and plaintiff's counsels to the bench. Each attorney will stand on one side of the bench. The terms "bench" refers to where the judge sits. The judge will then call each juror by juror number, and ask them to explain his/her answer if a "yes" was given. The attorneys then have the ability to follow-up with their own questions based on the response the juror gives (in explanation) to the judge. The question is one of bias. The attorney wants to learn if there is any bias in the actions of the juror. Also, the attorney needs to get as much information as to motive and interest of the juror as possible. Make notes! Occasionally, a juror will say something that precludes him/her from serving. This is usually obvious. For example, in a DUI trial, a juror that states, "My mother was killed by a drunk driver." would be "struck" for cause. The term "for cause" is legal jargon for removing a juror because they are not appropriate or qualified to sit on the jury. There is a much better chance of a strike "for cause" being accepted if both attorneys agree, however, that is not a requirement. The judge will make the final determination. Once the jurors have been called forth, and questioned at the bench, and those ineligible to serve removed from consideration (for cause), the judge will send the attorneys back to their respective tables in order for them to formulate their peremptory strikes.

Peremptory Strikes

A peremptory strike is the removal of a juror from the list "just because." That is -- for no other reason than the defense or plaintiff's counsel seeks to do so. It is the legal method of stacking the jury. Removing those not favorable to your case. In a civil case, each side receives three peremptory strikes. In a criminal trial, usually the defendant receives 10 strikes and the state receives 6. These numbers are completely at the discretion of the each jurisdictions court rules, so be sure to verify them! A peremptory strike form is provided to each attorney. Thereon, the attorney enters the juror information, as well as demographics information of the jurors who are struck. This ensures that there is an no racial or gender bias in the selection of peremptory strikes.

How to conduct effective Voire Dire

The key to success is knowing the best profile for your jury. What type of case do you have? Is this is a sympathy case for your side? Then seek simple jurors who are family oriented, or females who are more empathetic. Is this a legal, business case where calculations are more valuable? Then seek the professional who is all business. Once you know the profile of the juror you seek, then ask questions at the bench that elicit the bias you seek. While you are respectful and honest in your questioning, this process is not about being fair. It is about stacking the jury with those most sympathetic to your case. Is this a land case? Strike jurors that are clearly large land holders (unless you want them to side with the land-owner!). You get the idea. The key is a thorough and clear understanding of your case, coupled with piercing "bias" questions at the bench.

Jury selection is critical to the theory of your case. Your opening statement and your closing statement will be given directly to the jury. You need to make eye-contact, and the jury must believe you, the attorney. Select jurors that bother represent the closest interest to your client's case, and also who relate to you as an advocate. When the jurors comes to the bench, smile at them. Be gracious and make eye contact. This is the first time you will have a chance to make them yours -- do not squander the opportunity.

Do you need help with an upcoming jury trial? Give us a ring! We've been doing this for a while and would be glad to handle your case, or consult on the jury selection process. Remember -- ~30% of the outcome of your case is decided in the proper selection of your jury. Another ~15% is decided by the proper instructions and verdict form. Do the math, folks. That is ~45% of your case decided before the trial starts. Be sure you have an attorney you can trust.

Sean R. Hanover, Esq
www.HanoverLawPc.com
Contact Us
703-402-2723