divorceKnowing that his old high school friend Iman Dedbeet had just been taken to the cleaners by his ex-wife Goldilocks in a nasty divorce, Johnny Clueless decided to help Iman out by hiring him as his general sales manager at Clueless Automotive. Johnny knew that Goldilocks got full custody of Dedbeet’s kids and that Dedbeet owes Goldilocks back child support. Nevertheless, when Clueless handed Dedbeet the IRS Form W-4 to complete, Dedbeet urged Clueless to make him an independent contractor and pleaded, “You know what I need Johnny. Goldi doesn’t deserve another penny.” Relenting, Clueless classifies Dedbeet as a 1099 independent contractor. Is Clueless getting taken for a ride?

Employers Must Report New Hires. Within 20 days of hiring a new employee Employers must report the new hires to the Texas Attorney General’s Child Support Division. However, this requirement is limited to new personnel classified as employees. An employer is not required to report new hire independent contractors, allowing new hires to avoid having child support withheld from their paycheck.

Employers Are Liable for Falsely Reporting a New Hire’s Status. Johnny Clueless should know, however, that Texas law subjects employers to a $500 fine for conspiring with a new hire to fail to submit a new hire report, or submit a false report. By agreeing to Dedbeet’s pleas Clueless risks sharing Iman Dedbeet’s responsibilities because he knew that his new hire wants to avoid the possibility of having child support withheld.

Proposed Legislation Would Remove Loophole Senate Bill 1727 currently before the Texas Legislature would add “independent contractor” to the definition of “employee” in Texas and close the loophole used by some to avoid child support withholding.

Tax Issues Both Clueless and Dedbeet also create tax issues by misclassifying Dedbeet as an independent contractor. Clueless will not pay FICA. Instead, Dedbeet will have to pay the Self Employment tax on a quarterly basis.

Tilting the Scales in Your Favor Although misclassifying employees may not look overly penal, it will cause a substantial disruption in your business when you have to deal with the Attorney General’s investigation and, is it worth it? It’s easier (and the law) to classify the employee correctly before the hire for any number of reasons. If a new hire asks to be classified as an independent contractor, and particularly if you know the hire owes child support, make sure that the hire is truly serving as an independent contractor – which means the hire provides all of their own tools and equipment, and has complete control over the manner in which it performs tasks.

baton passRecord Wealth Transfer. Over the next 30-40 years about $12 trillion from those born in 1920s and 30s will be transferred to the baby boomers, and the boomers are expected to transfer some $30 trillion to their heirs, with more than an estimated $59 trillion transferred from 93.6 million American estates from 2007 to 2061. Much of the wealth is the family business.

70% Never Gets to Third Generation. Shirtsleeves to shirtsleeves in three generations. The first generation makes the money, the second spends it, and the third depletes what’s left. For 70% of all wealthy families, the money has been spent, or otherwise lost, before the end of the second generation and 90% of families no longer have their wealth by the end of the third generation. No planning, no leadership, no communication. No money.

High Divorce Rates and Children with Multiple Families. At its peak, the divorce rate at 50% affected these families and their children, many of whom did not grow up with both biological parents. Less than half (46%) of U.S. kids younger than 18 live with two married heterosexual parents in their first marriage. Blood is thicker than water, and often blood isn’t thick enough.

Geographic Separation. In today’s global society, most adult children live a long distance from their parents, relying upon air travel, cell phones and other technological devices to keep in contact across time and distance. Of about 34 million Americans who are caregivers for an older parent, 15% live one or more hours away and nearly one third of those are helping someone with Alzheimer’s disease or dementia.

Why do Wealth and Legacy Fail to Survive?

Success in the Immediate Wealth Transfer. Most have all the proper structures in place for assets to be seamlessly transferred to the first generation. However they have not properly planned and accounted for the impact of divorce on family relationships, families separated by time and distance and children unprepared to handle new found wealth. There are stumbling blocks that doom their success.

Tripping on Their Legacy. The greatest stumbling blocks?

  • No Family Mission – Lack of Purpose
  • Distrust or No Trust – Lack of Communication and Mishandled Communication
  • No Family Leadership – Lack of a Family Governance System and Lack of Family Leadership

Tilting the Scales in Your Favor. There’s more to your family legacy and your wealth transfer than your will. Planning to succeed. Hand off your wealth well and your legacy does not end when you sign your Last Will and Testament. That’s the easy part. Unless you plan for your estate to be liquidated and the cash distributed (and your children to have little contact with each other after you die), there’s more to be done. Start planning now.

Communication – Lack of and Mishandled.

The often present lack of communication or mishandling of communication is exacerbated by divorced parents who don’t communicate, ex-spouses who have different agendas, half-brothers and sisters who dislike the divorce and each other, and the separation of long distances. And, there’s no substitute for being there. While they had their promise, increasing use of ever-expanding computer technology innovations, such as the internet, e-mail Skype, , Facebook, Twitter, iPhone, iPad and so many other hardware and software developments redefined interpersonal relationships and family communications in unexpected ways.

Previous Tilting Articles: No Fracking Way!- Differences Between Surface & Mineral Estate Ownership and Come and Take It! – Denton Ordinance Prohibits Fracking

vaccineYearning to leave the frozen wasteland of Dallas, Texas behind her if just for a moment, Penny McCrathy, an outspoken anti-vaccination advocate, took her unvaccinated children to Disneyland in Anaheim, California. Not knowing that her children had been exposed to measles by a foreign tourist, Penny brought them back to Texas and sent them back to public school, which they attended under a vaccination exemption based on their “personal beliefs”. One week later, her children came down with measles as well. Most of the children in their school were immunized, but unfortunately one young lady, Ima Munenot, had a severe immunodeficiency disorder and could never receive vaccinations. One week after the McCrathy kids came down with measles, so did Ima – but while the McCrathy children got over the disease, Ima was hospitalized with meningitis and nearly died. In addition to their emotional trauma, Ima’s family incurred tens of thousands of dollars in medical expenses. Might Ima’s family have a legal case against Penny for refusing to vaccinate her children and exposing Ima to a deadly disease?

Perhaps. Texas law recognizes a cause of action for the negligent transmission of infection diseases – for instance, plaintiffs have litigated and won cases involving the negligent transmission of genital herpes. Although there are no cases to date involving the negligent transmission of measles where the negligent act is a failure to vaccinate a child, it is certainly possible that a plaintiff might prevail on such a case if they can prove the essential elements of a negligence cause of action: (1) the existence of a duty from the defendant to the plaintiff, (2) breach of that duty, (3) harm to the plaintiff, and (4) that the breach of the duty caused the harm. The two greatest hurdles to a successful lawsuit in this case are duty and causation.

Is there Causation? Ima’s parents must prove both that Penny’s actions in failing to vaccinate her children was both the cause-in-fact of Ima’s disease and that the injury was foreseeable. According to a recent article in the Journal of Law, Medicine and Ethics, medical science can trace the spread of measles from person to person with a high degree of probability both through laboratory and epidemiological studies. It is thus very likely that Ima’s parents can prove that Penny’s children were the source of Ima’s measles. A jury could certainly find that Penny should have foreseen that Penny’s failure to vaccinate her children might spread the disease to others.

Is There a Duty? The larger hurdle for Ima is proving the existence of a duty. Courts, in determining whether a duty exists, traditionally apply a “risk-utility” test comparing the risk of harm by the actor against the social utility of the actor’s conduct. In this case, Penny’s conduct in not vaccinating her children has zero social utility and the risk is high: measles is one of the leading causes of death among young children and the measles vaccine is safe, readily available and inexpensive. Additionally, Texas statutes require that all children be vaccinated. However, those same statutes also state that a failure to comply with the statute requiring vaccination does not create a cause of action, and further that there is a statutory exemption for persons who sign an affidavit stating that they do not wish to vaccinate their children for “reasons of conscience”. In addition, persons who refuse to vaccinate their children for religious reasons may be protected by the Texas and United States Constitutions. Thus, Penny likely has a strong legal argument that she is not liable for Ima’s illness.

Tilting the Scales in Your Favor. The best protection against measles is vaccination, not litigation. However, infants and persons with suppressed immune systems cannot get vaccinated. Parents of children who cannot be vaccinated should demand that schools protect vulnerable students by banning unvaccinated children from attending school during outbreaks of measles and other diseases. In the worst case scenario, however, the threat of litigation may convince parents who are on the fence to have their children vaccinated.

With an ongoing Oklahoma divorce case in mind last month Tilting wrote about Tigh A. Knott, his wife Lucy Knott and how a business owner’s divorce can impact his business and affect his partners. The real players were Harold Hamm and his wife Sue Ann.

Last week the court granted Oklahoma oil tycoon Harold Hamm (aka “Tigh”) a divorce from Sue Ann. Harold was ordered to pay her $323 million before end of 2014 and $7 million a month for 93 months. Harold’s fellow shareholders were relieved. Why? Because Hamm gets to keep his company and they don’t get Sue Ann as a member of the board. A larger property award might well have required Harold to sell controlling interest to get enough cash. Or, worse yet, placed his ex-wife on the board.  Could Harold aka “Tigh” have avoided betting his company?

Absolutely. Either or both of a prenuptial agreement and a company agreement (signed by his wife) could have sidestepped the drama.

The Facts. Harold Hamm is a self-made oilman and the chief executive and majority shareholder in Continental Resources. His foresight and timely investments in the Bakken Shale formation and fracing technology turned his company into a powerhouse and made him a billionaire 18 times over. Due to a lack of planning – a prenuptial agreement or a company agreement – Harold’s ex-wife was awarded over two billion – that’s “billion” with a “b” – dollars worth of marital assets, including a payment that Mr. Hamm must make to his wife of almost one billion dollars. The payment is so large that the presiding judge ordered that it be secured by a lien on twenty million shares of Mr. Hamm’s stock in Continental, valued at over one billion dollars. A copy of the Court’s 80-page long Memorandum Order can be found here.

Tilting the Scales in Your Favor – 4 Reasons to Sign a Prenuptial Agreement.

  1. Protect your business: If you own your own business, a divorce can cause that business a myriad of problems. Protect it with a prenuptial agreement and perhaps a company or shareholder agreement.
  2. Protect your partners: If you have partners, failing to have a signed shareholder agreement with all owners and spouses risks that, upon any divorce or death, the affected spouses may well become your partners with the right to participate in business decisions.
  3. Protect you (and your business) from debt: If most of your net worth is tied up in the value of your business and you have to split it with your spouse, then you either have to sell your stock or go into enough debt to pay off the divorce court’s property award. The right prenuptial and / or company agreements can avoid that risk.
  4. Protect your Business Valuation: Absent an agreement otherwise, a business can be valued a number of ways. Those signing your company agreement can agree in advance the method by which a partner’s ownership interest is valued and how a surviving spouse or ex-spouse will be paid, saving both time and money.

Previous Tilting Articles: Protecting your Business from a Lack of “Wedded Bliss”; How to Dissolve a Business;

To the other four minority owners who enjoyed the meteoric rise of Meddlin Hands Cleaning Products, when Lucy Knott sued their majority partner Tigh A. Knott for divorce, the divorce was anything but routine. Lucy wants half of the business and day to day participation. With no company agreement, the other shareholders face the prospect of an inexperienced partner they never selected. What are Meddlin Hands’ options?

Bleak. Without a company agreement, Meddlin Hands and Tigh A.’s other partners have limited choices – allow Lucy to own half of Tigh A.’s stock and participate in the daily affairs of Meddlin affairs, sell Meddlin Hands and divide the profits, or lend Tigh A. the money to buy out Lucy (at a price that is likely to be at a premium under the circumstances) to permit Tigh A. to remain a partner and serve on the board. Doing so allows the remaining owners to sidestep a disinterested and inexperienced spouse meddling in the business of Meddlin Hands. If Meddlin Hands has ready access to capital or credit, having the business lend Tigh A. half of his interest to purchase from his wife is the likely option. Still, the cash cost is not the end of the repercussions to the shareholders and the company – the detrimental effect upon Meddlin Hands’ reputation, the cooling of any interest from possible buyers, and the risk that all shareholders spend significant time in court dealing with aggressive tactics of divorce attorneys rather than tending to the day to day business of Meddlin Hands.

The rest of the story? Tigh A. and his wife reconciled. He later passed away, and Lucy became a shareholder and a board member anyway – with full majority control.

Tilting the Scales in Your Favor – A Business with Partners.

If your business has third party owners and is going to succeed, its long term viability requires adequate forethought that goes far beyond the LegalZoom.com formation. You need a good shareholder / company agreement. Failing to have a company agreement that makes adequate plans for death, divorce and disability, among other issues and risks, is likely to create problems for any successful business like Meddlin Hands. On the other hand, if your business is not successful, none of this matters.

More than just forming your business entity, whether you and your investors become partners, shareholder or members / managers, your operating agreements should include provisions to protect the interests of the other owners if one of the owners gets divorced, including considering:

  • A requirement that unmarried shareholders provide the company with a prenuptial agreement prior to marriage along with a waiver by the owner’s spouse-to-be of his or her future interest in the business; or MORE LIKELY,
  • A prohibition against the transfer of shares without the approval of the other partners or shareholders and the right, but not the obligation, of the partners or shareholders to purchase the shares or interest of one or both of the divorcing parties so that the other owners can maintain their control of the business, which should be signed by all of the spouses.

Tilting the Scales in Your Favor – If Your Business is Only You and Your Spouse.

If you own your own business, and whether you work with your spouse or not, and if you believe the business is likely to be successful, there are six key steps you should consider before and also after a divorce is filed –

  1. Plan Ahead. Sign a prenuptial, shareholder or buy-sell agreement
  2. Make Sure Your Lawyer is Working for You. Discuss how to streamline the process.
  3. A Team of Smart Advisers is Key. Double check your decisions with trusted advisers.
  4. Hire One Business-Valuation Firm. Accept the one value rather than fighting over two.
  5. Avoid the Two-Headed Monster. Rather than split the business in half, get creative with debt or other assets.
  6. Prepare for the Lasting Effects of Divorce. There are lasting emotional and financial effects of divorce. Figure out what you must do to stay focused.

Previous Tilting Articles: Protecting your Business from a Lack of “Wedded Bliss”; How to Dissolve a Business

Taking advantage of his car dealership owning parents being on vacation in the Bahamas, Cache Bar, a minor, invites his high school buddies over to liberate his parents’ locked libation cabinet. Well lubricated, Cache builds quite the bonfire in the backyard knowing that no one in their hometown of Daughtry, Texas, can water their lawns because of the severe drought.  The bonfire consumes Cache’s backyard grass, and then spreads and destroys three million-dollar mansions on Cache’s street. When Cache is charged with intentionally starting a fire that recklessly damaged his neighbors’ homes, his parents scramble for a defense to help him avoid arson charges – a state jail felony. Cache’s parents read a news article about another Texas teenager who avoided jail by asserting an “affluenza” defense – that the teenager was the product of wealthy, privileged parents who never set limits for their son.  Will “affluenza” keep Cache out of jail? If so, does that affect his parents?

Continue Reading Affluenza – Is It Contagious?

Monitoring his emails and gazing at the sights on Elafonisi beach in Crete, attorney Al B. Wise receives a desperate 4:30 a.m. (Texas time) email from his best client Betty Makit Williams – “Going under Slim Cutter’s knife in four hours for emergency surgery. No will. Can you get me one in case I don’t make it?” Sadly, Betty Makit did not make it. Did her will on a Post It?

Yes, at least in Texas. Knowing that a formal will was out of the question, Al B. Wise advised Betty Makit to write a holographic will – her last will and testament, completely in her own handwriting and signed by her. In addition to a will on a Post It note, Texas heirs have successfully probated wills written on a bedroom wall and on the fender of a vehicle. Even a Canadian will of a man trapped underneath was successful by probating the tractor’s fender as the will. About half of the states permit holographic wills.

Continue Reading Last-Minute Wills….What Counts?

After their respective divorces Anita Will married Shelby A. Reck in Oklahoma. At the time each had a child and an Oklahoma home from their former marriages. Following the blissful event each adopted the other’s child, they moved to Texas, bought a house in Shelby’s name and had a baby. Before he died last year Shelby used an internet site to prepare his will in which he gave all of his assets to his Oklahoma child and failed to mention Anita’s child, their Texas child or Anita. Can Shelby’s wishes in his Last Will and Testament be honored?

While the predictable answer is “it depends,” the likely answer is “Probably Not.” Under some limited circumstances internet sites like LegalZoom.com might be sufficient. Even assuming that Shelby satisfied internet site checklists of the legal formalities of age, capacity, signature, witnesses, writing and beneficiaries, probating a will consistent with the intended distribution of personal assets becomes complicated by Texas community property issues, children (both biological and adopted), ownership of real property out of state and perhaps by prior marriages.

If you are looking to do your own will, the internet is chock full of sites, including LegalZoom.com and a plethora of others. Although you would expect for lawyers to say it’s a bad idea, finding the lawyer sites that tell you why internet wills are a bad idea are few. I did find one lawyer on Practice Blawg who claimed to purchase a “Standard Will” and the troubles he encountered. Even if you use a “Standard Will” and it works for your circumstances, it is equally likely that, for those limited circumstances, there are even better solutions that present fewer complications and headaches.

Tilting the Scales in Your Favor

You can legally write your own will. However, you need to know your state’s legal requirements. Create your own will only if family issues, finances and legal matters are not complicated. Livestrong Cancer Navigation Services recommends that you consider writing your own will only if you:

  • Have limited assets registered in your name;
  • Are unmarried and have no children;
  • Want to leave your assets to only one or two people; and
  • Have no major tax concerns to consider.

Another criteria for Texans would be to own real property only in the state of Texas. An attorney who specializes in estate planning will know what Texas law requires. Tax attorneys, accountants and certified financial planners can also help with estate planning. If a family member challenges your will, it could be declared as not valid. If this happens, Texas might not follow your intentions. Property could then be distributed according to Texas probate laws. A will prepared by an attorney is more likely to withstand legal challenges.

Kevin Seaman, a sophomore at the University of Texas, is looking to make a little money to buy his special gal a present for Valentine’s Day.  Shunning work at the Gap and afraid to be a guinea pig for experimental drug clinical tests, Seaman seeks more romantic fund raising.  Late night searching on Craigslist surfaced a lesbian couple looking for a sperm donor and promised compensation ten times more than the local sperm bank.  Seaman contacts the couple who, after a lengthy meeting, decides Seaman is the man for the job.  Not using a doctor, sperm bank or clinic, Seaman drops off a container with his sperm at the couple’s home and signs a release of all parental rights. The couple successfully handles the do-it-yourself artificial insemination, and from the “procedure” a baby girl is born.  A year later, the couple breaks up, falls upon hard times and files for public assistance from the state.  Not long after that, the State of Texas serves Seaman with child support papers.  Is Seaman liable for child support?

Probably.  Had he carefully followed the provisions of the Texas Uniform Parentage Act, as a “donor” Seaman would not be considered the parent and would not be liable for child support.  Not using a licensed physician could prove problematic for Seaman.  The statute defines a donor as an individual who provides eggs or sperm to a licensed physician for assisted reproduction.  Assisted reproduction is also a defined term meaning causing pregnancy not by sexual intercourse and including: (1) intrauterine insemination; (2) donation of eggs; (3) donation of embryos; (4) in vitro fertilization and (5) introcytoplasmic sperm injection.  Besides not using a licensed physician, the couple did not get pregnant using any of these methods. Accordingly, Seaman risks a court declaring that he is not protected by the statute and that he is responsible for child support.

Tilting the Scales in Your Favor

To avoid future child support liability (among other liabilities), sperm donations in Texas should be made through a doctor, sperm bank or clinic. This is to achieve clear-cut, black-and-white cases of sperm donation and, thus, determination of paternity, thereby reducing misunderstandings about child support obligations, parental rights and fraud against the state.

NOTE: Texas was the first state to enact the Uniform Parentage Act which can be found in the Texas Family Code. Other states may not have addressed the legal issues presented by modern medical technology. Under other states’ laws, like Kansas, the attorneys’ general office may have broader latitude to claim child support liability.

Pregnant Sticky NoteJack and Jill live on a hill, in a comfortable 3 bedroom house with their two children.  The happy couple have decided that they do not want more children because of the high cost of raising them.  (Jack has been unemployed for several years after a nasty tumble down the hill which resulted in a severe head injury.)  Rather than risk an unwanted pregnancy, Jack goes to the doctor and has a vasectomy performed.  Despite Jack’s uncomfortable procedure, Jill gets pregnant two months later and eventually has another healthy child.  Can Jack and Jill sue their doctor for the cost of raising the child and fetch a big pail of money?

As you might expect, when confronted with such an emotionally, ethically, morally and religiously-charged issue, courts around the United States have adopted very different damage models.  The four generally accepted models are the:

  • no-recovery rule;
  • full-recovery rule;
  • benefits rule; and
  • limited recovery rule.

The first two rules are self-explanatory.  The benefits rule allows for recovery of the expenses of education and maintenance offset by the “benefit” to the parent of having the child.  The limited recovery rule, which is the law in a majority of states, including Texas, would permit Jack and Jill to bring a malpractice claim for wrongful pregnancy/conception following the failed vasectomy procedure, but would limit the recovery to certain elements of damage (e.g. actual medical expenses incurred as a result of the failed procedure).  Exactly which elements of damage will be recoverable is a question still being debated among the Texas courts.

NOTE: A cause of action for wrongful pregnancy/wrongful conception should not be confused with a cause of action for wrongful birth or wrongful life.  Wrongful birth is a cause of action brought by the parents of a congenitally diseased child claiming that the doctor failed to properly warn them of the risk or existence of an abnormality and, therefore, the parents were prevented from making an informed decision.  A wrongful life claim is brought by a severely disabled child for failing to prevent the child’s birth.