06.25.10
Posted in Family Law, Litigation at 09:48 by Administrator
Q. I am a California resident who will soon be getting married. I recently received a substantial inheritance and am considering whether to ask my future spouse to sign a prenuptial agreement. What should I know about prenuptial agreements? Will a prenuptial agreement actually hold up in court, perhaps many years from now?
A. Premarital agreements, also known as “antenuptial” or “prenuptial” agreements, are agreements executed between prospective spouses in contemplation of marriage, which become effective upon marriage.
California is a “community property” state. Subject to certain exceptions, community property is defined as “all property acquired by a married person during marriage while domiciled in California.” Thus, any inheritance (or other property) you receive prior to marriage is your separate property.
Property acquired during marriage by “gift, bequest, devise, or descent” is one of several exceptions to the general definition of community property. Thus, your inheritance, even if it had been received during marriage, would be your separate property.
A writing is required to transmute – that is, change the characterization of – property from separate to community or from community to separate. Thus, a premarital agreement is not needed to prevent your pre-marriage inheritance from being transmuted to community property.
Life, however, is seldom that simple. Although the separate property inheritance you received before marriage will not become community property unless you sign a transmutation agreement which changes its character from separate property to community property, other events may result in the creation of certain non-community property rights to which your spouse will be entitled.
Suppose, for example, the pre-marriage inheritance to which you refer is in the form of a residence, for example the home your parents owned and in which you grew up. Suppose further that there is a loan which is secured by the residence. Such a loan might be one you obtained after inheriting the residence, but before marriage, or one which was obtained during marriage. Absent a premarital agreement, each of these (as well as numerous other) scenarios will result in the creation of certain property rights to which your future spouse will be entitled.
Whether a divorce court will enforce a premarital agreement, perhaps many years from now, will depend on several factors, not the least of which is whether the premarital agreement was created in accordance with all then-existing laws.
Regarding possible future changes in the law, California’s Family Code provides that all statutory amendments are to apply retroactively, thus suggesting that, at a minimum, the continuing validity of premarital agreements is questionable. The argument against amendments which retroactively impair vested (e.g., contract) property rights is that such amendments violate the Due Process clause of the Constitution and, thus, are unenforceable. In any event, the apparent tension between California’s Family Code and the constitutional principle of due process all but ensure future litigation if California attempts to retroactively amend its premarital agreements law. And even if California premarital agreement law is not amended, your future spouse will always be able to challenge whether the agreement is valid under the law that existed when the agreement was signed.
The bottom line: If your prospective future spouse agrees to, and does, sign a premarital agreement that complies with current law, and if the marriage fails at some time in the future, you should expect, at a minimum, that your spouse will challenge the validity of the premarital agreement. From a purely economic perspective, the question is whether (and by what margin) the cost of obtaining, and potentially judicially defending, a premarital agreement is more or less than the present and anticipated future value of the property to be protected. In any event, you should consult with an attorney well in advance of the date on which you plan to marry.
Permalink
06.17.10
Posted in Business Law, Litigation at 19:02 by Administrator
Q. We own a small business in northern California, which provides both products and services to individual consumers.
Because our success depends, in large part, on repeat business, we follow various Internet sites that post customer reviews of our business. Many of our customers have posted positive reviews. However, as the saying goes, we can’t please all of the people all of the time.
Negative postings have the potential to significantly harm our business. What can we legally do to protect ourselves from the occasional – and inevitable – disgruntled customer who publishes a negative review of our business?
A. The First Amendment to the United States Constitution states, in part, that: “Congress shall make no law . . . abridging the freedom of speech, or of the press. . . .” Prior to the Civil War, the First Amendment prevented only the federal government from censoring speech. It was not until passage of the 14th Amendment, that the First Amendment became a bar against state censorship of speech.
A government engages in censorship when (among other things) it allows private parties to use its courts to sue others based on what others publish, either verbally or in writing.
The First Amendment, however, has never been understood to protect against all government censorship. For example, it does not create or protect a constitutional right to make false statements; falsely yelling “fire” in a crowded theater is not protected speech.
Long before the First Amendment banned state government censorship of speech, state laws provided civil causes of action for defamation, the general definition of which is “[a]n intentional false communication, either published or publically spoken, that injures another’s reputation or good name. . . .” Defamation includes both libel and slander.
In the landmark U.S. Supreme Court case New York Times v. Sullivan, the court made a distinction between, on the one hand, public officials/public figures and, on the other hand, all others. For a public official/public figure to recover defamation damages, the Court said that a plaintiff must prove the defamatory statement was published with malice. Malice, in this context, means that the defamatory statement was published with knowledge of its falsity or with reckless disregard for whether it was true or false.
Mere opinions, by definition, are not capable of being either true or false and, thus, are not actionable.
For the purpose of defamation law, the term “public figure” includes businesses. Thus, in order to prevail against a person who publishes a negative review, the business must be able to show that the posting is both false and made with malice. In most cases, the business will not be able to prove falsity, as most such postings are merely the reviewer’s opinion. In cases where falsity can be proven, past court cases inform us that proving malice is usually impossible.
Furthermore, in California, as in many other states, there exists a law against “Strategic Lawsuits Against Public Participation,” or “anti-SLAPP” law, which allows a defendant to obtain summary dismissal of such cases and which mandates an order requiring the plaintiff to pay the successful anti-SLAPP defendant’s reasonable attorney fees.
Thus, businesses who seek to manage their reputations should: (1) provide the best product/service possible, at a fair price; (2) comply with all laws, regulations, and industry standards; (3) engage in a good-faith attempt to satisfactorily resolve disputes; (4) consult with their attorney regarding whether to respond to negative reviews; and (5) have their attorney draft, or at least review, any response to an adverse review that the business intends to publish in rebuttal.
As the U.S. Supreme Court recently said in a case involving censorship of political speech, which was presented in the context of so-called campaign finance reform, “when government seeks to use its full power . . . to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”
Permalink
06.11.10
Posted in Real Estate Law at 18:40 by Administrator
Q. In addition to the California residence where we live, my spouse and I own several homes which we rent for investment purposes. Although our rental properties are managed in a responsible and business-like manner, we are still concerned that a lawsuit could ruin us financially. We’ve been told that forming a Limited Liability Company (LLC) can protect our rental properties from civil judgments. Is this true?
A. Real estate investors who own residential properties generally face potential civil liability from two different types of claims: claims based on contract (rental agreements) and claims based on injury to persons or property.
Claims based on contract, in the context of residential rental properties, typically are brought by the property owner, not by a tenant or third party, and generally relate either to the non-payment of rent or the creation of a nuisance (where the tenant disturbs other tenants or engages in illegal activity).
Claims based on injury to persons or property, on the other hand, typically are brought by a tenant or third party, against the property owner. These are the types of claims which owners of rental properties often seek to protect against through the use of LLCs.
The cost of creating an LLC varies from lawyer-to-lawyer and from state-to-state. Legal fees for creating a California LLC generally run anywhere from $1,000.00 or so, to more than $5,000.00. Secretary of State filing fees are in addition to legal fees.
If your rental properties are all located in California, you might consider creating a California LLC. If, however, your rental properties are located in a state or states other than California, you might consider creating an LLC in a state where at least one property is located, or a state such as Nevada or Delaware, which are considered “friendly” to this type of asset protection strategy. However, regardless of where one or more of your LLCs are created, because you are a California resident, California will want you to register your foreign (e.g., non-California) LLCs with the California Secretary of State – and pay California taxes thereon.
California charges the same minimum annual fee for registration in California of a foreign LLC as it charges to maintain a California LLC: $800.00. In addition to California’s minimum annual LLC fee (annual fees may be higher, based on gross receipts), each LLC will be responsible for obtaining and maintaining appropriate business licenses and permits, and for filing various tax returns.
The total cost of operating an LLC – when taxes, tax return preparation, and licenses and permits, are considered – can easily total $2,000.00 per year or more.
Holding rental properties in an LLC may also complicate financing or refinancing, as well as create future difficulties in structuring tax-deferred exchanges.
Rather than using LLCs for asset protection purposes, married couples or unmarried persons, who solely own rental properties, might be able to adequately protect their assets with insurance. Every parcel of real property must be insured. Thus, the cost of insuring any particular property will be incurred regardless of whether the property is held in an LLC.
In addition to an individual policy insuring each rental property (primary policy), an owner/investor can usually obtain an “umbrella” policy which acts as a secondary policy and which covers that portion of any claim which exceeds the dollar amount of the primary policy. Several millions of dollars of umbrella insurance coverage often can be purchased for much less than the annual cost of maintaining an LLC.
The above-described strategy of using insurance as a means of asset protection is presented for informational and educational purposes only, and does not constitute legal advice. Before selecting an asset protection strategy, owners of rental property should consult with an attorney.
Permalink
06.05.10
Posted in Bankruptcy, Real Estate Law at 09:04 by Administrator
Many homeowners are “upside-down” on their home mortgages, and are looking for a way out. In some areas of California, homeowners have seen home values drop 50% or more, and are deciding whether to “strategically default”, that is, to walk-away from their home. Although a strategic default may be the best option is some cases, in other cases the homeowner may want to consider a Chapter 13 bankruptcy, which provides a mechanism to “strip” junior liens.
Following is an example of how lien stripping works:
Current fair market value of residence: $500,000.
First mortgage/trust deed: $500,000.
Second mortgage/trust deed: $200,000.
Section 506 of the Bankruptcy Code provides that a lien is a secured claim only to the extent there is value in the asset to which the lien attaches. To the extent that claims exceed the value of the collateral, that portion of the claim is unsecured.
Thus, section 506 confers on the Court the power to redefine debts as either “secured” or “unsecured.” Upon a proper showing, the Court will allow the lien to be stripped from the property. Once the lien is stripped, the debt can be “discharged,” – eliminated – by completing the bankruptcy.
In the above example, the home owner’s debt to the junior lender will be discharged and the lien (mortgage/trust deed) “stripped.” When the home owner thereafter sells the property, the owner need only pay the first position loan, even if the property has appreciated since the close of the home owner’s bankruptcy case.
Whether a lien(s) can be “stripped” from a parcel of real property requires an individualized analysis of a debtor’s entire financial situation. Furthermore, filing for bankruptcy – even where the debtor is statutorily eligible to do so – may not be the best decision in all cases. In any event, debtors should obtain the assistance of an attorney before deciding whether to file for bankruptcy, walk away from a property, or take other action.
Permalink
