Valuation Date Makes all the Difference

May 13, 2015 § 2 Comments

Two things are true when it comes to valuation of the marital estate in equitable distribution: (1) The date selected for valuation can be critical; and (2) Selection of the date of valuation is in the discretion of the chancellor.

The recent COA decision in McKissack v. McKissack, handed down May 5, 2015, illustrated both points.

Billy Stephen McKissack and Terri McKissack had consented to a divorce on the sole ground of irreconcilable differences, and left equitable distribution up to the chancellor. The judge entered a divorce judgment in November, 2008, ruling that some $542,000 in CD’s in Billy Stephen’s name were marital property. Billy Stephen appealed, and the COA reversed and remanded on October 12, 2010, holding that the CD’s were separate property. The chancellor was charged to reconfigure the equitable distribution based on the COA ruling.

On remand, the chancellor did adjust the equitable distribution to accommodate the COA ruling. He found that the financial disparity created by the half-million-dollar separate estate could not be made up by allocating assets, and so ordered Billy Stephen to pay Terri lump-sum alimony to make up the difference. He also left the original asset allocation for the most part intact. In making his ruling, the chancellor used the date of the original divorce judgment as the valuation date, and he relied on his previous ruling to Billy Stephen again appealed, complaining that the chancellor used the original divorce-hearing date for valuation, instead of a post-appeal, later date.

The reason Billy Stephen urged the later date is that he had acquired new debt since the date of the original divorce, the largest of which was a debt he had co-signed with his paramour for an apartment complex that had subsequently been destroyed in a fire.

In the case of McKissack v. McKissack, decided May 5, 2015, the COA affirmed. Here’s how Judge Maxwell, writing for the majority, addressed Billy Stephen’s arguments:

¶9. As Steve sees it, the chancellor’s distribution of marital assets was “unfair” because he gave too little weight to Steve’s newly acquired debt from the apartment fire. He also insists the chancellor should have conducted a Ferguson analysis anew on remand and improperly skimped on the Cheatham factors. After review, we find no error in the chancellor’s methodology.

I. Equitable Distribution After Remand

¶10. There are three general tasks required of a chancellor’s division of marital assets in divorce cases. The chancellor must “(1) classify the parties’ assets as marital or separate, (2) determine the value of those assets, and (3) divide the marital estate equitably based upon the factors set forth in Ferguson.” Rhodes v. Rhodes, 52 So. 3d 430, 436 (¶18) (Miss. Ct. App. 2011) (citation omitted) (citing Ferguson v. Ferguson, 639 So. 2d 921, 928-29 (Miss. 1994)) [Footnote omitted]. We review a chancellor’s equitable division under the familiar manifest-error standard of review. Vaughn v. Vaughn, 56 So. 3d 1283, 1288 (¶17) (Miss. Ct. App. 2011).

A. Newly Acquired Debt

¶11. To Steve, his losses from the apartment fire were reason enough to not have to pay additional lump-sum alimony. And he argues it was wrong for the chancellor not to have re-valued the marital estate, giving more weight to his newly acquired, non-marital debt from the apartment fire.

¶12. But on remand, the chancellor opted to use the property values already “in evidence at the trial on the merits”—rightly noting that the “date of valuation is discretionary with the court.” Because he had already valued the property as of the divorce hearing date when making his findings, he found “any accumulation of additional assets or the appreciation of awarded assets should be classified as separate property[.]” Steve urges it was wrong for the chancellor to use the divorce hearing date as the “point of demarcation for valuation.”

B. Valuation Date

¶13. Steve’s argument is blunted by the fact that chancellors are given deference in setting the valuation date for equitable distribution of marital property. Holdeman v. Holdeman, 34 So. 3d 650, 654 (¶13) (Miss. Ct. App. 2010). Often chancellors deem the date of the divorce hearing or judgment as the line of demarcation. See Wheat v. Wheat, 37 So. 3d 632, 637 (¶15) (Miss. 2010). The date of entry of a separate maintenance order or temporary support order may also serve as the valuation date. Id. (citing Godwin v. Godwin, 758 So. 2d 384, 386 (¶7) (Miss. 1999)). But this deference is measured against the general notion that “assets should be valued as close to the trial date as feasible.” Debbie Bell, Mississippi Family Law § 6.07[3] (2005).

¶14. The trial-date approach is the route the chancellor took here. He made a common-sense decision that the date of the divorce hearing would be the cut-off point. He held any later-accumulated assets or appreciation of already-awarded assets would be separate property. See Henderson v. Henderson, 757 So. 2d 285, 293 (¶37) (Miss. 2000) (On remand, the supreme court held a husband’s one-half interest in the marital home should be valued from the divorce date—not several years after the case had been appealed and retried, during which time the wife had been paying the mortgage on an appreciating asset). The chancellor was, however, aware of authority that post-divorce passive appreciation of asset values could be included [Footnote omitted]. But he found no proof of passive appreciation here.

¶15. What Steve largely overlooks is that his preferred valuation date cuts both ways. It is true the chancellor gave little weight to Steve’s newly acquired debt for valuation purposes. But he also refrained from tampering with Steve’s possibly new assets—though he perceived Steve’s income was greater and his expenses lower than when the couple divorced. Also, the chancellor highlighted that the resulting debt from the apartment fire was not from Terri’s wrongdoing or fault. The apartment was Steve’s separate property. And it was Steve who chose to sign as guarantor for his claimed paramour Millie’s debt in the complex. For these reasons, and those we explain below, we cannot say the chancellor erred in relying more on his initial valuations than Steve’s new debt.

The court went on to uphold the chancellor’s decision to rely on his original Ferguson analysis.

One thing that Billy Stephen apparently did was to put on proof of his preferred valuation date and the reasons supporting it. I have held forth here before about that failure of many attorneys in equitable distribution cases to put on any proof whatsoever in trials of the client’s position on what valuation date is selected. When you do that you are: (a) leaving it entirely in the judge’s unfettered discretion; and (b) depriving your client of a basis in the record to complain about it on appeal.

Every calculation involved in equitable distribution revolves around the valuation date. Remember that.

Playing with Dynamite

May 12, 2015 § 1 Comment

If a husband and wife came into your office and wanted you to represent them both in an ID divorce, what would you say? I think, and would hope, that the vast majority of us would decline on ethical grounds and offer to represent only one, not both.

How would it work, anyway, to represent both parties? You could put them in separate rooms and shuttle between. You could run to one room and advise the husband against agreeing to pay any alimony, and then run to another room and advise the wife to hold out until the husband agrees to alimony. Absurd? I’ll say.

Mississippi Rule of Professional Conduct (MRPC) 1.7 precludes representation of opposing parties in litigation unless certain conditions are met. Ethics Opinion number 80 of the Bar issued March 25, 1983, makes it clear that joint representation in an irreconcilable differences divorce is unethical:

The Committee is, therefore, of the opinion that the representation of both parties to a no-fault divorce violates the Rule 1.7, MRPC, and that it is, therefore, unethical for a lawyer to undertake such multiple representation.

 How to handle it is set out in this language of the Opinion:

There is nothing wrong at all with one of the parties to a No-Fault Divorce being without an attorney, so long as that party, either H or W is properly informed by the spouse’s attorney that (1) that party is not represented by the spouse’s attorney, (2) the spouse’s attorney will not undertake to advise that party on any aspect of the case as to his or her rights, and (3) that party has a right to obtain an attorney to advise him or her and to review any of the agreements, pleadings or decrees which will be prepared. See Rule 4.3, MRPC.

A recent COA case involved dual representation and a challenged outcome. Leta Collins and Kenneth Collins were divorced from each other in 2011. They had filed a joint complaint for divorce on the sole ground of irreconcilable differences. The pleading stated that “The parties together have been represented by [Name of the Attorney], and was signed by that attorney as “Counsel for Leta D. Collins and Kenneth J. Collins.” In the PSA, which was approved by the court, Leta relinquished all interest in Kenneth’s financial assets and retirement.

More than a year later, Leta discovered that she had not known of more than $500,000 in financial assets that Kenneth had at the time of the divorce. She filed a R60 motion, but she did not allege that a fraud had been committed. The chancellor denied the motion, and Leta appealed.

In the case of Collins v. Collins, decided May 5, 2015, the COA affirmed. Judge Fair wrote this for the court:

¶24. Leta argues that the marital property was not equitably distributed because she and Kenneth were represented by the same attorney during the divorce. She alleges that her lack of independent advice and counsel led her to sign the unfair PSA.

¶25. The joint complaint for divorce states “[t]he parties together have been represented by M. Chadwick Smith,” and it was signed by Smith as “attorney for” both parties. Leta testified she and Kenneth believed they were represented by the same attorney. Leta argues this was a direct violation of Mississippi Rule of Professional Conduct 1.7(a), which prohibits representation of “a client if the representation of that client will be directly adverse to another client,” unless certain conditions are met.

¶26. The chancellor addressed this issue in her findings from the bench, stating that

when Mr. Chadwick Smith came in with his document, the final decree, I inquired of him who he represented because the divorce had the words that Ms. Collins’[s] counsel very ably draws to attention, that he represented both. And he stated, “I only prepared the paperwork, Judge. That’s what it says on there, ‘Prepared by.’” Only after the assurances of Mr. Chad Smith did I accept the parties’ divorce, and I signed the same on the 8th day of June 2011. Thus the allegations that Ms. Collins seeks to present that Mr. Collins committed a fraud on this court are fundamentally vested against Mr. Chad Smith.

¶27. Leta testified that she was the one who had actually prepared the PSA, based on her prior divorce papers, with some contributions from Kenneth. Kenneth likewise testified that Smith did not make any decisions for them. As the chancellor found, if Smith violated the Rules of Professional Conduct by engaging in dual representation, it was not a sufficient basis to modify the divorce decree. This issue is without merit.

What saved the attorney here apparently was that the parties had specifically waived financial disclosures, and it was Leta, and not the lawyer, who prepared the PSA. Both parties acknowledged that the lawyer gave them no advice at all. It did not help Leta’s cause, if you read the rest of the opinion, that it took her a year and some months to seek the court’s assistance.

A few thoughts:

  • Don’t let anything about the peculiar facts in this case mislead you into believing it’s ever okay to represent both parties in an ID divorce. It’s not. Ever. It’s unethical. And if it’s unethical, it can cost you professionally. Don’t do it. Ever.
  • Any lawyer who states on a joint complaint for divorce that he represents both parties is asking for trouble. That in and of itself is a statement admitting an ethical violation.
  • I must be getting old (and I admit I am), but I am seeing more and more of people with JD after their names taking the position that “I only drafted papers for the parties,” or “I simply typed and submitted what they gave me,” or “this is what the client insists on doing.” Whatever happened to lawyers (JD’s)  as counselors at law? Have lawyers gone from being legal advisors and guides to being high-priced clerk-typists? What is the point of having a lawyer when anyone with a word-processing program and a laptop can produce pleadings and an agreement? What is the point of having a lawyer if it is not to obtain legal advice? This trend, particularly among young people with JD after their names troubles me greatly. Notice that I said “JD after their names” and not lawyers. Just because you have JD after your name does not make you a lawyer. What makes you a lawyer is representing, protecting, and looking after the legal interests of a client. If all you’re doing is being a paying customer’s stooge, or acting as their clerk-typist, all you are is a JD, not a lawyer.
  • In this case, the parties themselves acquiesced in this awkward arrangement, which created an excuse for it under MRPC. Had they not, I think Ms. Collins had a legitimate beef, and maybe a viable lawsuit against their joint lawyer. But although it gets the lawyer out of this particular bind, I don’t think that the parties’ acquiescence can excuse this ethical breach. The lawyer, not the parties. has the higher duty and is ethically bound.
  • If you ever draft a joint complaint, make doubly, triply sure that you make it clear which party you represent, and that you have not, and will not provide the unrepresented party with any legal advice, and that she has the right to have attorney advise him or her and to review any of the agreements, pleadings or decrees which will be prepared.
  • Better yet: never, ever, ever, ever file a joint complaint for divorce on the ground of irreconcilable differences.
  • And, for Pete’s sake, be an attorney and advise your client. That’s what you went to law school for.
  • Play fast and loose with the ethical rules and you are playing with dynamite.

Before You Draft that PSA …

May 6, 2015 § 2 Comments

Suzie drops by, writes you a check for your retainer and court costs, and fills you in on the terms of the parties’ agreement to get an irreconcilable differences divorce. She hands you a folded sheet of notebook paper with bullet points that read like, ” … Joe will get his truck and pay for it, and I will get my car and pay for it,” and ” … Joe will pay me $5,000 from his retirement account,” and “Suzie will get 1/2 of Joe’s retirement with Ajax Lightning Rod Corp.”

So, what do you do next?

If your answer was to hand the paper to your secretary to start working on a draft, you are wrong. As in deeply, malpracticedly wrong.

The correct answer is that you need a LOT more information before you commence that draft. Consider:

  • What kind of retirement account is the $5,000 going to come from, and when it is it to be paid? If the account is a defined contribution plan, such as IRA or 401(k), a lump sum can be paid if done properly. If, on the other hand, it is a defined benefit plan, such as most pension plans, she could only get the money in the form of an income stream at the time of Joe’s eligibility for retirement.
  • If that retirement plan that is going to fund the lump-sum payment is PERS or military retirement, you can’t dip into it to withdraw cash. The only way to access PERS benefits is to retire and begin drawing a monthly benefit, or to leave employment and get a cash payout.
  • What are the actual names of the retirement accounts? You are asking for trouble if you don’t use the exact name of the accounts, such as “Ajax Lightning Rod Corp. Employee Benefit Program 51-014,” or “Joe Blow IRA Account no. 700-092108, Skinflint Bank & Trust, Lucedale, MS.” Why? Because people have a tendency years after the fact to lose their memory of exactly what it was they agreed to do, and that detail nails down exactly what that agreement was. Not only that, but later when you draft any necessary QDRO, you will need that exact information.
  • Do not lift a finger to draft that PSA until you hold in your hand the most recent statements from all of the retirement accounts. Just because someone tells you they can do something does not mean they can. Also, those statements will have most, if not all, of the information you will need to draft the retirement provisions of the PSA.
  • Make sure you specify the exact date of division. For example, “Suzie shall receive an amount equal to one-half of the account balance as of January 15, 2015 …” The date by which the division is to be accomplished is also critical.
  • Spell out who has the responsibility to do what. If Joe is to accomplish all of this, make sure the agreement says that. If someone is going to hire a financial advisor or lawyer to draft a QDRO, who will pay the expense? Some plans actually charge fees — as much as several hundred dollars — to process divisions. Who will pay?
  • Address who will bear the tax responsibility for his or her share of the division. Remember that IRA and 401(k) divisions are taxed as income, plus a 10% penalty. If that $5,000 payment is made, will Suzie’s share be reduced by 38%, or will Joe bear that burden? Remember that Suzie can avoid any taxes by rolling the money over into her own qualified account.

The most recent object lesson in how not to handle a retirement division is in the case of Miles v. Miles, about which I posted at the link. You don’t want that to happen to you. As I said before, you need to educate yourself about retirement accounts and put some thought into the most effective way to draft a provision that will protect your client and successfully accomplish what she wants to do.

Some of the information in this post is derived from a presentation by Michael D. James of Legacy Wealth Management Group, Hattiesburg, to the Conference of Chancery Judges in April.

The Proof is in the Pudding

April 6, 2015 § Leave a comment

Two recent COA decisions are flip sides of the same coin that you can not get a divorce on the ground of HCIT unless it is supported by substantial, corroborated proof.

The COA affirmed the chancellor’s R41(b) dismissal of a divorce action in Pittman v. Pittman, handed down March 24, 2015. Judge James expounded for the unanimous court:

¶11. A party seeking a divorce on the ground of habitual cruel and inhuman treatment bears the burden of proving his ground by a preponderance of the evidence. Hoskins v. Hoskins, 21 So. 3d 705, 707 (¶6) (Miss. Ct. App. 2009). We have defined habitual cruel and inhuman treatment as:

Conduct that . . . either (1) “endangers life, limb, or health, or creates a reasonable apprehension of such danger, rendering the relationship unsafe for the party seeking relief”[;] or (2) “is so unnatural and infamous” as to make the marriage revolting to the non-offending spouse and render it impossible for that spouse to discharge the duties of marriage, thus destroying the basis for its continuance.

Id. (quoting Kumar v. Kumar, 976 So. 2d 957, 961 (¶5) (Miss. Ct. App. 2008)). In addition, the Mississippi Supreme Court has held that “[h]abitual cruel and inhuman treatment may be established only by a continuous course of conduct . . . . [S]uch conduct must be habitual, that is, done often enough or so continuously that it may reasonably be said to be a permanent condition.” Holladay v. Holladay, 776 So. 2d 662, 677 (¶64) (Miss. 2000). Thus, the evidence required to support granting a divorce on the ground of cruel and inhuman treatment requires “more than mere unkindness, rudeness, or incompatibility.” Id.

¶12. In granting Ty’s motion for an involuntary dismissal, the chancellor, viewing the evidence fairly, found that the evidence presented did not meet the elements of cruel and inhuman treatment. The chancellor noted that, although Propst [the wife] claimed that Ty [the husband] forced her into bankruptcy, Propst testified that she was represented by counsel. The chancellor found there was no evidence that Ty coerced Propst into bankruptcy. As to physical abuse, the chancellor noted that Propst made general allegations of abuse without specificity, except regarding the occasion in which Ty grabbed her from behind when she attempted to leave his house with important papers and the occasion outside Propst’s accountant’s office when Ty forcefully took papers from Propst. However, the chancellor noted that at no time were the police called, nor were medical records produced documenting abuse.

¶13. “This Court must give great deference to the factual findings of the chancellor that are supported by substantial evidence.” Wilbourne v. Wilbourne, 748 So. 2d 184, 187 (¶5) (Miss. Ct. App. 1999). Upon reviewing the record of the proceedings below, we find that there is sufficient evidence to support the chancellor’s finding that Propst is not entitled to a divorce on the ground of cruel and inhuman treatment. Propst failed to demonstrate a continuous course of conduct that was so unkind, unfeeling, or brutal as to endanger her, or put her in reasonable apprehension of danger to life, limb, or health. Gallaspy v. Gallaspy, 459 So. 2d 283, 285 (Miss. 1984). Furthermore, many of her complaints were uncorroborated, except the incident at the Barn that was corroborated by Tyler. Nevertheless, even if taken as true, the complained of incidents are remote and isolated events and fail to rise to the level of conduct that is habitual or so continuous that it may reasonably be said to be a permanent condition.

¶14. We agree with the chancellor that the parties likely have irreconcilable differences; however, “mere incompatibility is not enough to show habitual cruel and inhuman treatment.” Id. “Habitual cruel and inhuman treatment is not the catch-all category to permit a divorce . . . [and,] [a]bsent an agreement . . . that would permit an irreconcilable differences divorce, neither party is entitled to be granted a divorce without providing the proof necessary to support the grounds that are alleged.” Crenshaw v. Crenshaw, 767 So. 2d 272, 276 (¶14) (Miss. Ct. App. 2000). Accordingly, we find that the chancellor did not abuse his discretion by dismissing Propst’s complaint for divorce on the ground of habitual cruel and inhuman treatment. This issue is without merit.

The other case is Walker v. Walker, also decided March 24, 2015. In that case, the COA reversed the chancellor’s ruling that granted a divorce, finding that it was unsupported by substantial evidence, and that the evidence was uncorroborated.

The takeaway is that you need to be sure that the conduct complained of was: (a) habitual, meaning regularly recurring and not isolated incidents; and (2) cruel and inhuman, meaning more than unkindness, with a discernible effect on the complaining party. And there must be corroboration. And all of that is at a minimum. There are some wrinkles, so before you go crashing off into court on an HCIT case, be sure to research the case law.

Quo Vadis Gay Marriage in Mississippi?

March 2, 2015 § 3 Comments

The MSSC has the gay-marriage issue before it, as does the SCOTUS.

Last Thursday the Mississippi court issued an order calling for more briefing and indicating that it may well stay the Mississippi appeal until the SCOTUS can rule.

You can read the MSSC order in the case of Czekala-Chatham v. State of Miss. for yourself, with objecting opinions, but here is what the court wants briefed:

In light of Mississippi’s public policy of not allowing or recognizing a marriage between two persons of the same gender, what rational basis supports the interpretation or application of a law or constitutional provision so as to prohibit Mississippi courts from granting a divorce to a Mississippi resident who was lawfully married in another state to a person of the same gender?

So, what does this portend?

The only clear indication is in the three objections: Chandler clearly would uphold the Mississippi laws; King and Kitchens would not.

Oh, and the other pretty clear direction in this case is that it apparently will be sidetracked to let the feds decide the issue. Justice King decries that as a dereliction of duty.

It’s an interesting case. Stay tuned.

 

Designed to Fail

February 12, 2015 § 3 Comments

The COA case Miles v. Miles, handed down January 27, 2015, is a study in how not to draft a PSA.

Carlos and Brenda Miles had gotten an irreconcilable-differences divorce in 2000. The PSA included the following language:

“[Carlos] shall place [Brenda’s] name on his Individual Retirement Account (IRA) Certificate of Deposit at [the] Bank of Mississippi, as joint tenants with full rights of survivorship.”

When Carlos went to do what the language required of him, he was spurned by the bank because an IRA (note that the I stands for Individual, not joint) can only be in the name of the owner; there is no such thing as a jointly-owned IRA.

A dozen years later, Brenda had to go back to court to get the chancellor to re-jigger the arrangement to get what she should have been entitled to in the first place. That’s a second trip to court, with a second set of attorney’s fees and separate time away from work and other lifely activities to set right what could have been addressed in 2000 with effective language in the PSA.

Aside from the glaring fact that the agreement required the parties to do the impossible, it also failed to set out the balance in the account, or to state that each party was to own one-half (or any other percentage), or to establish who would have the tax responsibility. No date was set to carry out the agreement.

When you draft a PSA, don’t just take your client’s notes and couch them in legalese sufficient to pass your judge’s scrutiny. Engage your brain and bring your training, background, and experience to bear for the benefit of your client.

Your responsibility, as a competent lawyer, is to draft an agreement in such a way that it will do everything it is supposed to do with the result that your client intended, without any court ever having to guess what the language meant. That is a lofty responsibility, and to do it right requires a thoughtful, careful approach. Slapping some words together on a page to satisfy a client today will only buy that client grief and resentment against you later (hopefully after the statute of limitations has run).

If you approach every agreement you draft with this responsibility in mind, you will not achieve the goal 100% of the time. No lawyer is perfect. But if you aim for 100%, your success rate will be considerably better than most other attorneys, and unquestionably better than that of the word-slappers.

The needless train wreck in this case could have been avoided if the agreement had said that the IRA would be divided, one-half each (or even better, stating specific amounts), and that hers would be deposited (or rolled over) into her own qualified account, and that each party would be responsible for the tax consequences associated with his or her own share of the account.

If you don’t understand how these things work, I suggest you refer these type clients to someone who can do a competent job.

The Importance of a Hold-Harmless Clause

January 27, 2015 § Leave a comment

Jeremy and Tiffiny Moseley entered into a property settlement agreement (PSA) that was incorporated into their 2000 irreconcilable differences divorce judgment. One of its terms was that Jeremy would have “exclusive use and possession of the 1998 Chevrolet Camaro,” and that he would be “solely responsible for the payment of all debt, insurance, and taxes associated with said vehicle. The agreement also provided that Jeremy would “hold [Tiffiny] harmless for any debt associated with said vehicle.”

Following the divorce, Jeremy filed for bankruptcy in Arizona, where he had moved. He listed as a creditor the lienholder on the Camaro, Trustmark, but he did not list Tiffiny as a co-debtor or separate creditor based on the hold-harmless language. Jeremy was discharged in bankruptcy in 2001. [Note that this was a pre-2005-amendment non-support obligation that was dischargeable in bankruptcy]

Trustmark sued Tiffiny and obtained a judgment against her for more than $15,000, plus interest.

Tiffiny sued Jeremy for contempt for non-compliance with the hold-harmless clause. The chancellor held that the bankruptcy had no effect on his obligation to Tiffiny under the hold-harmless clause, and awarded her a judgment against him, plus interest and attorney’s fees. He appealed.

In Moseley v. Smith, decided December 2, 2014, the COA affirmed, and Judge Maxwell’s opinion includes some significant language about hold-harmless clauses that you need to file away for future use:

¶16. We begin with the bankruptcy issue. Moseley seems to treat his financial obligations involving the Camaro as a singular debt—a debt he owed to Trustmark, which was discharged in his Chapter 7 bankruptcy. But Moseley actually had two debts connected to the Camaro—(1) the debt to Trustmark bank to repay the car loan, and (2) the contingent debt to Smith, which would arise if Trustmark went after her for repayment of the car loan. While Moseley listed the first debt to Trustmark on his bankruptcy petition, he omitted his second debt to Smith. He also failed to otherwise notify Smith that her rights as a creditor may be affected by his bankruptcy petition. Thus, his debt to Smith was not covered by his bankruptcy discharge. See In re Hill, 251 B.R. 816, 821 (Bankr. N.D. Miss. 2000) …

¶17. In bankruptcy terms, the provision in the property-settlement agreement that Moseley would hold Smith harmless for any debt associated with the Camaro “create[d] a ‘new’ debt, running solely between the former spouses.” In re Jaeger-Jacobs, 490 B.R. 352, 357 (Bankr. E.D. Wis. 2013) (citing In re Schweitzer, 370 B.R. 145, 150 (Bankr. S.D. Ohio 2007)). Under the version of the United States Bankruptcy Code in effect during Moseley’s 2001 bankruptcy, this type of debt was presumptively non-dischargeable as a non-alimony debt “incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record[.]” In re Clark, 207 B.R. 651, 655 (Bankr. E.D. Mo. 1997) (quoting 11 U.S.C. § 523(a)(15) (1994)).

The opinion goes on to analyze the notice requirements in effect at the time of Jeremy’s bankruptcy, and how failure to give Tiffiny notice affected her ability to file a timely objection. Those notice and objection requirements were changed by the 2005 amendments to the bankruptcy laws.

The important point here is that when you add hold-harmless language to your PSA you are creating a new debt between the parties that is most likely not dischargeable, is entirely separate and apart from the underlying obligation, and is enforceable via contempt in chancery court.

It would seem to me that even without the hold-harmless language the agreement between the parties is a separate contractual obligation that would be entirely enforceable; however, the authority cited by Judge Maxwell raises the point to a higher level and should remove all doubt if the hold-harmless language is included.

It’s simple to add that hold-harmless language to your PSA templates. It won’t hurt your client if she is the co-debtor who will not be paying the debt, and it just might make a crucial difference somewhere down the line — and that, after all, is your job.

The Unconscionable Pre-Nup

January 22, 2015 § 4 Comments

It has long been settled in Mississippi law that antenuptial agreements (or prenups) are enforceable in our courts. They are enforced and interpreted as are other contracts, with the added requirements that there be fair disclosure of finances and that they be voluntarily entered into. These heightened requirements are referred to as “procedural fairness.”

But what about the substance of the agreement itself? If the agreement is found to be procedurally fair, does that preclude further inquiry into the fairness of the instrument?

The case of Mabus v. Mabus, 890 So.2d 806 (Miss. 2003) did seem to hold that the trial court could not consider the substantive fairness of a prenuptial agreement, and a chancellor in a divorce action between Mr. and Mrs. Sanderson limited his analysis to the procedural fairness of the prenup, which he found to be fair. He enforced the agreement as written, despite the fact that it was one-sided in favor of Mr. Sanderson. Mrs. Sanderson appealed, charging that it was error for the chancellor not to consider the fairness of the contract.

In the case of Sanderson v. Sanderson, handed down December 11, 2014, the MSSC reversed and held that the substantive unconscionability of a prenup is a matter that should be considered by the trial court. Justice Coleman wrote for the majority:

¶17. Confusion has arisen in Mississippi as to whether courts should consider the substantive unconscionability of prenuptial agreements. The chancellor in the instant case stated in his Final Decree of Divorce that “some states look at both substantive and procedural unconscionability, Mississippi courts do not.” The lack of clarity in the law has arisen perhaps because of the Mabus Court’s use of the phrase “fundamental fairness” instead of “substantive unconscionability.” The Mabus Court wrote as follows:

The claim that the estates of the parties are so disparate that it questions fundamental fairness is of no consequence. An antenuptial agreement is as enforceable as any other contract in Mississippi. Of course, there must be fairness in the execution and full disclosure in an antenuptial agreement in Mississippi.

Id. at 821 (¶ 64) (internal citations omitted). The above-quoted language constitutes a holding that the Mabus prenuptial agreement was not fundamentally unfair but falls short of a blanket prohibition against considering substantive unconscionability in all prenuptial agreements. The Mabus Court’s language does not prohibit considering substantive unconscionability in prenuptial agreements as a rule of law. Mabus also makes two further assertions that have confused our law of prenuptial agreements.

¶18. First, Mabus states that a prenuptial agreement is a contract like any other contract that is subject to the same rules of construction and interpretation applicable to contracts. Mabus, 890 So. 2d at 819 (¶53) (citing Estate of Hensley, 524 So. 2d at 327). However, prenuptial agreements cannot be contracts like any other if courts cannot consider whether a prenuptial agreement can be substantively unconscionable. “The law of Mississippi imposes an obligation of good faith and fundamental fairness in the performance of every contract . . . this requirement is so pronounced that courts have the power to refuse to enforce any contract . . . in order to avoid an unconscionable result.” Sawyers v. Herrin-Gear Chevrolet Co., 26 So. 3d 1026, 1034-35 (¶ 21) (Miss. 2010) (emphasis added); see also Covenant Health & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So.3d 695, 705 (¶13) (Miss. 2009).

¶19. Within contract law, there are many different types of contracts. The Legislature has carved out a remedy for unconscionable sales contracts. See Miss. Code Ann. § 75-2-302 (Rev. 2002). However, Section 75-2-302 has been applied to other types of contracts, such as arbitration contracts. Covenant Health & Rehab. of Picayune, 14 So. 3d at 706. Similarly, the Court has analyzed the unconscionablity of domestic relations contracts. See id. (“We also have found contracts to be unconscionable for clauses other than arbitration agreements.”); In the Matter of Johnson’s Will, 351 So. 2d 1339 (Miss. 1977) (considering unconscionability for a contract between a husband and wife preventing a wife from revoking her husband’s will); West v. West, 891 So. 2d 203, 213 (Miss. 2004) (“A contract may be either procedurally or substantively unconscionable.”). Accordingly, because prenuptial agreements are contracts like any other, substantive unconscionability must be considered.

¶20. The Court has even gone further and defined an unconscionable contract in domestic relations contracts. “[I]t is also the law that courts of equity will not enforce an unconscionable contract. In Terre Haute Cooperage, Inc. v. Branscome, 203 Miss. 493, 35 So. 2d 537 (1948), this Court defined an unconscionable contract as ‘one such as no man in his senses and not under a delusion would make on the one hand, and as no honest and fair man would accept on the other.’” In re Johnson, 351 So. 2d at 1341; see also West, 891 So.2d at 213 (¶ 27) (“Substantively, the terms of the property settlement agreement are less than desirable, but we cannot say that no spouse in his or her right mind would agree to what is, at worst, a begrudging but generous offer . . . to provide alimony . . . .”).

¶21. Second, the Mabus Court appears to have considered substantive unconscionability after stating fundamental fairness was of no consequence. In In re Johnson, the Court explained how to determine if a contract is unconscionable: “In determining whether this contract was unconscionable, it is necessary to analyze what the widow was to receive under the will in contrast to her rights absent the will under the laws of descent and distribution.” In re Johnson, 351 So. 2d at 1342. In other words, the Court considered what the wife would have received if the contract had not existed and if the wife was able to renounce her husband’s will. Similarly, even in light of the premarital agreement, the Mabus Court considered the White factors for lump sum alimony and the Ferguson factors for distribution of the marital property. Mabus, 890 So. 2d at 821-23 (¶¶65-71) (citing White v. White, 557 So. 2d 480, 483 (Miss. 1989); Ferguson v. Ferguson, 639 So. 2d 921 (Miss. 1994)). Also, in Estate of Hensley, in determining whether the prenuptial agreement between the husband and wife was enforceable, the Court noted that “a full reading of the record divulges that Mr. Hensley had actually been very benevolent.” Estate of Hensley, 524 So. 2d at 328. Thus, Mississippi has implicitly considered the substantive unconscionablity of premarital agreements. We hold that, given the contract law on unconscionability, substantive unconscionability for premarital agreements must be considered by trial courts.

¶22. Contract law has largely, with the exception of the sale of goods, remained common law. Therefore, inevitably, contradictions arise. Unconscionability looks at the terms of the contract. See West, 891 So. 2d at 213. Unconscionability also looks at the circumstances existing at the time the contract was made. Vicksburg Partners, L.P. v. Stephens, 911 So.2d 507, 517 (¶ 22) (Miss. 2005), overruled on other grounds by Covenant Heath & Rehab. of Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So. 3d 695 (Miss. 2009). We hold that substantive unconscionability feasibly could be measured at the time the prenuptial agreement is made; measuring it at the time the agreement is made would maintain consistency in the law. It also would ensure that the Court does not “relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated.” Mabus, 890 So. 2d at 819 (¶53) (quoting Estate of Hensley, 524 So. 2d at 328).

¶23. Because the chancellor in the case sub judice operated under the erroneous conclusion that the prenuptial agreement could not be analyzed for substantive unconscionability, we reverse and remand the case for him to do so. We decline the dissent’s invitation to conduct that analysis for the first time on appeal, because the error consisted of making no finding at all rather than the wrong finding. In other words, there is no decision on point for us to analyze for error.

There are some serious ramifications here for the drafting of antenuptial agreements. You will need to discuss the fairness of the agreement with your client, but that is a subject most clients do not care to address; after all, their primary concern is to maintain a status quo that is in all likelihood quite unfair. In Sanderson, for example, the husband’s pre-marital estate was in excess of $3 million, and the wife’s only around $120,000. He wanted to maintain that pre-marital wealth. Is that imbalance unconscionable?

Analyzing antenuptial agreements through the lens of contract law is problematical. The fact is that antenuptial agreements involve considerations that do not enter into negotiation of other types of contracts. As Justice Chandler’s dissent points out, “The decision to marry is not an arms-length commercial transaction, but rather is grounded in personal, moral, religious, and emotional considerations that are off-limits to strangers to the relationship.”

Justice Chandler goes on to add that the majority’s decision ” … leaves our chancellors to forage in the dark, with no guidance as to many issues[;] for instance, whether a prospective marriage partner with children from a previous marriage may protect and provide for those children in a prenuptial agreement, without fear that a court will void the agreement as unconscionable and leave the children at the mercy of the former spouse.” As a drafting or advising attorney, you likewise are in the dark as to whether a particular prenup will withstand scrutiny.

What it takes to Prove Habitual Drunkenness

December 11, 2014 § 7 Comments

Nikki Lee charged her husband, Chris, with habitual drunkenness. The chancellor found the proof supported the claim, and granted her a divorce on that ground. Chris appealed.

In Lee v. Lee, decided by the COA on November 25, 2014, the court affirmed the chancellor:

¶6. Chris asserts that it was error for the chancellor to grant Nikki a divorce on the ground of habitual drunkenness. Chris argues that Nikki did not meet her burden in proving habitual drunkenness. Alternatively, Chris argues that Nikki’s knowledge of his drinking habits prior to their marriage barred the suit.

¶7. On appeal, Chris argues the chancellor erred in finding sufficient grounds for divorce. “A court may grant a divorce on the ground of habitual drunkenness if the plaintiff proves that: (1) the defendant frequently abused alcohol; (2) the alcohol abuse negatively affected the marriage; and (3) the alcohol abuse continued at the time of the trial.” Turner v. Turner, 73 So. 3d 576, 583 (¶30) (Miss. Ct. App. 2011).

¶8. In Sproles v. Sproles, 782 So. 2d 742, 744-45 (¶¶4,7) (Miss. 2001), the court found that the husband’s habit of drinking a case of beer each night, which caused him to become abusive and critical, constituted grounds for divorce under habitual drunkenness. On the other hand, in Culver v. Culver, 383 So. 2d 817, 817-18 (Miss. 1980), the court found that the husband’s habit of drinking four to five beers a night that did not negatively impact the marriage failed to support a divorce under habitual drunkenness.

¶9. At trial, Nikki testified that Chris often made negative comments about her weight. While drunk once, Chris told Nikki that he only finds her attractive and wants to have sex with her when he is intoxicated. On a separate occasion, Chris woke Nikki by urinating on her leg, and, when Nikki protested, Chris started laughing. Chris testified that he had never heard of this incident until trial. On another night, Chris and Nikki got into an argument, and Chris took Will into the house so Nikki could cool off outside. When Nikki decided to go back inside, she found the door locked. After she called Chris and knocked on the door with no answer, she was forced to crawl inside through a back door. She found Chris passed out on their waterbed, with Will face down and wedged between the corner of the bed.

¶10. Nikki testified that Chris often drank five to six beers per day. Chris worked offshore for extended periods of time. When he would return home, he would always have alcohol in his hand. Nikki also testified that on several occasions, Chris would pass out drunk and not remember anything that happened. Finally, Nikki testified that being with Chris after awhile made her depressed, and when they separated, she felt happy again.

¶11. Chris contends that he did not drink as much as Nikki claimed he did. He argues that because Nikki’s testimony was not corroborated by any other witness, it is “wildly inconsistent at best.” However, Nikki’s father, Thomas Godleske, testified that on an icefishing trip Chris drank so much that he passed out in a stranger’s vehicle. Further, Chris testified that he continued to drink at the time of the trial.

¶12. Where there is conflicting testimony, the chancellor is the trier of fact and adjudicates the credibility of each witness. Bowen v. Bowen, 982 So. 2d 385, 395 (¶42) (Miss. 2008). “An appellate court is to affirm findings of fact by chancellors in domestic cases when they are ‘supported by substantial evidence unless the chancellor abused his discretion, was manifestly wrong, clearly erroneous or an erroneous legal standard was applied.’” Robison v. Lanford, 841 So. 2d 1119, 1122 (¶9) (Miss. 2003) (quoting Holloman v. Holloman, 691 So. 2d 897, 898 (Miss. 1996)).

¶13. In review of the record, we find that the chancellor had sufficient evidence to grant Nikki a divorce on the ground of habitual drunkenness: Chris’s alcohol consumption, combined with the negative impact it had on the family, and his continued drinking at the time of trial. Additionally, the chancellor, as the trier of fact, was in the best position to determine each witness’s credibility and to weight the conflicting testimony. Because the evidence supports the chancellor’s findings, we find that he did not commit manifest error in his findings on this issue.

The corroboration in this case seems to be on the weak side, yet it was strong enough to convince both the chancellor and the COA. The state of corroboration highlights an important consideration: Habitual drunkenness is not an easy case to prove because the offending behavior takes place in the privacy of the couple’s home, with few, if any, witnesses other than the parties. The task is made more difficult by the fact that the burden of proof is by clear and convincing evidence.

Negative impact on the other spouse and the resulting havoc on the household are key items of proof. Don’t fail to gather witnesses who can help establish those points.

And don’t overlook that habitual use of alcohol that induces nasty behavior, even without drunkenness, can be HCIT if it has a negative effect on the offended party.

Affirmative Defenses in Divorces

December 9, 2014 § Leave a comment

MRCP 8(c) requires that you plead in your responsive pleadings any matters that constitute “an avoidance or affirmative defense.” Specifically listed in the body of the rule are matters such as statute of limitations, accord and satisfaction, res judicata, etc.

Some of those listed defenses may be available in chancery matters such as contract disputes, land matters, and business dissolution, but they have no application in divorce, as I posted here before; nonetheless, some lawyers plead them in mechanical fashion, raising some humorous implications.

In a divorce case, there are some well-established affirmative defenses to grounds for divorcethat are not listed in R8, but that need to be pled in order to invoke them. They include:

  • Prior knowledge. This applies where the spouse knew, for instance, that the wife was pregnant by another man when he married her, and yet married her anyway. Or that the wife knew before the marriage that the husband was a drug addict, and went ahead with the marriage despite the knowledge.
  • Ratification and condonation. Two closely related concepts. A party gives up a ground by continuing to live with the other after knowledge of fault. These defenses have somewhat limited application in HCIT.
  • Recrimination. An archaic defense no longer favored in our law, by which the proponent may be denied a divorce if he is guilty of a ground for divorce.
  • Reformation. Applicable primarily in habitual drunkenness and drug use cases, where the accused party has quit abusing the substance.
  • Connivance and collusion. Where the parties have conspired either for one to allow the other’s wrongful conduct so as to create a ground, or where the parties have agreed to perjure themselves to do so.
  • Res judicata. Same parties and same issues in a previous matter that was reduced to a final judgment.

A comprehensive look at these and several lesser-known defenses is found in Professor Bell’s Mississippi Family Law, 2d Ed., § 4.03, pp. 99-104. If you practice any family law, and you don’t have a copy of her definitive treatise, you need to get one asap.

The clear and obvious thread running through the affirmative divorce defenses listed above is that they each are “an avoidance or affirmative defense” to a ground for divorce.

If you fail to plead affirmative defenses to grounds for divorce on behalf of your client, the only way you may present them at trial is if they are tried by consent. If, on the other hand, the other side objects, the judge will have to sustain the objection and exclude the testimony.

In the case of Lee v. Lee, decided by the COA on November 25, 2014, Nikki Lee charged her husband, Chris, with habitual drunkenness. He did not plead any affirmative defenses, but at trial he attempted to put on proof that Nikki knew when she married him of his drinking habits. Nikki objected, and the chancellor excluded the evidence, ruling that Chris had waived the defense by not pleading it affirmatively. Chris appealed.

Judge Griffis, for the unanimous court:

¶15. Condonation or antenuptial knowledge, as affirmative defenses, must be specifically pleaded or else the defenses are waived. Carambat v. Carambat, 72 So. 3d 505, 511 (¶27) (Miss. 2011) (citing M.R.C.P. 8(c); Ashburn v. Ashburn, 970 So. 2d 204, 212 (¶23) (Miss. Ct. App. 2007)). “Affirmative defenses that are neither pled nor tried by consent are deemed waived.” Ashburn, 970 So. 2d at 212 (¶23) (quoting Goode v. Village of Woodgreen Homeowners, 662 So. 2d 1064, 1077 (Miss. 1995)).

¶16. Chris did not raise condonation or antenuptial knowledge as an affirmative defense in his pleadings. However, parties may try an affirmative defense through implied consent. Mississippi Rules of Civil Procedure 15(b) provides:

When issues not raised by the pleadings are tried by expressed or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon the motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues.

See also Lahmann v. Hallmon, 722 So. 2d 614, 691 (¶15) (Miss. 1998).

¶17. In his order, the chancellor found that Chris had waived the affirmative defense of condonation, because he did not plead it as an affirmative defense. The chancellor ruled:

“Chris did not plead condonation as a defense in his pleadings. Therefore, to the extent that Chris may have been attempting to raise a defense of condonation, the Court finds that this defense has been waived.” The chancellor did not address a defense of antenuptial knowledge or if the parties tried condonation by express or implied consent.

¶18. From the record, there is no indication the parties agreed to try condonation or antenuptial knowledge by express consent. Therefore, the question remains whether the parties tried the issue through implied consent. While issues not raised in the pleadings may be tried by implied consent, the party relying on implied consent for an issue must demonstrate certain requirements.

¶19. First, in order to find the parties tried the issue by implied consent, this Court must determine if the parties knew “‘that a new issue was being litigated at trial.’” Mabus v. Mabus, 890 So. 2d 806, 814 (¶32) (Miss. 2003) (quoting Setser v. Piazza, 644 So. 2d 1211, 1217 (Miss. 1994)). Further, this Court will not find implied consent “where the ‘questions asked or the evidence presented at trial are relevant to the issues actually raised in the pleadings.’” Id. (citation omitted).

The court went on to analyze the record, and concluded that the issues had not been tried by implied consent, and the chancellor’s ruling was affirmed.

Next time you represent a Chris in a case similar to this, be sure to assert in your responsive pleading every matter you feel may raise a legitimate affirmative defense. I say legitimate because it seriously detracts from your credibility to plead things like accord and satisfaction, or assumption of risk, or injury by fellow servant in your answer to a divorce complaint. But it makes perfect sense to spell out with whatever label you apply that the other party had pre-marriage knowledge, or that he condoned the conduct, or any other matter that legitimately constitutes “an avoidance or affirmative defense.” You are not limited to the classic defenses, but the matter must be an actual, arguable defense.

If you represent a Nikki, object vociferously to any attempt to put on proof of unpled defenses. Protect your record. In this case, Nikki’s attorney protected her record, and the outcome was favorable to Nikki.

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