Occasionally, we have guest bloggers write on topics of interest that cross over into Ohio personal injury issues. Our guest blogger is Robert L. Mues, an outstanding Dayton, Ohio, family law attorney. I found his interesting and informative blog and website while searching the Net for…interesting and informative blogs and websites! His blog is a must read for folks dealing with the weighty issues of divorce, custody, and other related legal matters. One issue that intersects our legal worlds is how Ohio personal injury claims or proceeds are divided in domestic relations court. Take it away, Robert…

Factual Scenario:

A year ago you were involved in a rear-end car accident which was not your fault. You were the only occupant in the car. You were taken to the hospital from the accident scene and given some pain medication and told to contact your family doctor. The next day, you couldn’t believe your back and neck pain! The pain continued and your wife correctly suggested that you hire an attorney to represent both of you in dealing with the insurance company. As a result of the accident, you missed a week of work at ABC Machine Shop, where you work as a tool maker being paid $17 per hour. Fortunately, all your medical expenses were covered under your health insurance plan except for $100 in co-pays.

In addition, for about a month or so you were not able to cut the lawn, take out the trash and do other chores you usually did. Your wife had to pick up the slack. Your interest in being intimate with your wife also suffered. All of this started causing arguments between the two of you. You generally just went to work and would come home and go to bed early. Your wife started staying out late after work and “going out with the girls”. After much discussion and investigation, you learned she had become involved with a male friend. The two of you decided 7 months after the accident to separate and, unfortunately, to end your marriage and get a divorce. You both hire separate divorce lawyers. In the midst of the divorce, your lawyer on your accident case calls you to tell you that after long and hard negotiations there is a “fair” offer on the table for you and your wife. That is great news you think, since you could use the money to help get back on your feet.

But your accident lawyer tells you that your wife will need to sign both the insurance check and release document. Now you realize that you might have a problem. So you decide to call your divorce attorney and tell her the situation and ask if keeping all the money would be a problem. She says that this is a new issue and that it will “need to be worked out” with your wife’s attorney. “Worked out?” What is there to work out, you think, since it was you that was injured and not your wife? Here is what you are likely to learn from your divorce lawyer about how personal injury claims are typically treated in Ohio Courts.

IS A PERSONAL INJURY SETTLEMENT SEPARATE OR MARITAL PROPERTY?

The general rule is that if the settlement is to compensate for injuries, pain and suffering, loss of enjoyment, or medical bills that do not have any impact on the marital estate, the settlement is separate property and should be fully awarded to the injured person. Realizing this to be the law, your divorce attorneys will try to get you all or as much of the proceeds as possible.

If the two lawyers are not able to negotiate an agreement, the divorce court would need to determine what part of the proceeds are “martial” and subject to equitable division and what portion is “separate property” and not divided. Separate property is defined to include “compensation to a spouse for the spouse’s personal injury, except for loss of marital earnings and compensation for expenses paid from marital assets.” Thus, in order for the settlement to be considered separate property, a person must trace those funds, and those funds must represent something other than a loss of marital earnings or compensation for expenses paid from marital assets. A personal injury settlement is “marital property” divisible upon divorce, only to the extent that it reimburses injured spouse for lost earnings and medical expenses that have adverse impact on marital estate. In characterizing settlement proceeds, it is proper to consider whether injured spouse’s medical expenses had, in fact, depleted the marital estate, or whether employer or insurer had picked up such expenses. It is also common that a portion of the settlement proceeds are intended to compensate the injured person’s spouse for the damage or impact to their marital relationship, which is referred to as a “loss of consortium” claim. Divorce Courts typically view that claim as the separate property of the spouse of the accident victim.

Ohio Courts have held that a personal injury settlement is marital property in the following situations: commingling assets by accepting entire settlement in one check made payable to both parties; compensation for lost wages; and medical bills that have an impact on the marital estate. In addition, when there is a lower settlement amount than what would have otherwise occurred due to low policy limits or a lack of funds from the responsible party, there is no abuse of discretion for the trial court to allocate a portion of the settlement to lost wages even when the settlement indicates that it is for personal injury only.

Many personal injury attorneys are successful in requesting the insurance adjuster to provide a letter breaking down the proceeds by category. That can be very helpful for the divorce lawyer. But if the adjuster will not provide that breakdown, then the Court will need to hear testimony about the injuries and review the demand package sent to the adjuster and apply the law.

CONCLUSION

So, what is my best estimate how a court might allocate the net proceeds in the above scenario if there is no letter from the insurance company setting forth their breakdown? Well, it would seem that the lost wage portion of approximately $680 would likely to be considered “marital” and she would get half of that amount. The medical bills did not impact the parties significantly. Technically, she should get perhaps $50 to reimburse her 1/2 of the co-pays. In my experience, loss of consortium claims typically make up only a small portion of the gross settlement unless the injuries are very significant. But this is a very “grey” area subject to the Court’s equitable discretion. Any amount allocated to her loss of consortium claim would be wife’s separate property. So, in my scenario, the lion’s share of the settlement proceeds will go to you to compensate you for your pain, suffering, and all that you had gone through as a result of the collision.

Robert L Mues is the managing partner of the Dayton law firm of Holzfaster, Cecil, McKnight & Mues. He has focused much of his practice over the past 31 years in the family law arena handling divorce, custody and juvenile law matters throughout Southwest Ohio and in many Ohio Courts, including the Ohio Supreme Court. Mr. Mues has received the highest rating from the Martindale-Hubbell Peer Review for Ethical Standards and Legal Ability. He has been very active in supporting child welfare issues throughout his career as well as serving on various charitable non-profit boards. He loves to write and is very proud to be the publisher of the popular and informative Ohio Family Law Blog. To learn more about Mr. Mues and to be linked to the Ohio Family Law Blog, click here. Link to the blog:
http://www.hcmmlaw.com/blog/

Click here to read the complete article.

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I vividly remember litigating a very contentious divorce case back in the early 1980′s.  The Magistrate who heard the dispute still occasionally pokes fun at me about the case! Husband and Wife wanted to argue and fight over the division of a voluminous list of household goods acquired during the marriage, most having little or no value.  Since then, when I was a young lawyer, I believe I have now been able to gain some valuable insight on litigation of this nature.

Typically, Judges and Magistrates do not want to litigate these type of disputes, partly due to the dollars in controversy, but more often because of the irrational positions and fervor of the contestants.  Now, understand that I am referring to replaceable used household goods, furniture and other sundry items acquired during the marriage, not valuable jewelry, guns or coin collections, separate premarital property or items with sentimental value.

Going to Court and actually litigating virtually any family law issue these days is both a time consuming and an expensive process.  Common sense and logic support making all reasonable efforts to narrow the contested issues in a divorce case to the most significant ones, such as parenting time, custody, major asset valuation, spousal support, etc.  I have also learned over the years that when a client justifies litigating the division of household goods because of the “principle” involved, the lawyer better watch out.  Typically, such a client later becomes incensed at the lawyer upon seeing the bill associated with fighting in Court over minor items.  When the client views the reality of the “fruits of victory” in hindsight,  and then does a cost/benefit analysis, the lofty “principle” involved  usually erodes away and the result left is just an angry, frustrated and bitter client.

Many courts have devised approaches and local rules to try to reduce litigation over household goods.  Montgomery County, Ohio,  has adopted Local Rule 4.40, which provides as follows:

Marital household goods, furniture, furnishings, appliances, tools, and other tangible personal property shall be divided as the parties may agree. If the parties are unable to agree, the Court adopts the following as standards for the division of personal property.

(A) Personal items. Each party shall be awarded those items brought into the marriage, personally inherited or received as an individual gift. Each party shall also be awarded his/her own books, papers, creations, mementos, jewelry, family heirlooms and other personal possessions. Any family photos, home videos, music collections and similar items shall be equally divided between the parties by agreement or duplicated, with each party paying one half of the cost of duplication.

(B) Children’s items. If there are minor children, all furniture, clothing and toys primarily used by the children, plus any clothes washer and dryer, shall be retained by the residential parent.

(C) Remaining personal property. The remaining household goods, furniture, furnishings, appliances, tools, and other tangible personal property shall be divided as the parties may agree. If the parties cannot reach an agreement, the parties shall select one of the following two options:

(1) The parties shall flip a coin with the winner having first choice of one item, the loser having second choice, and the parties alternating selections until all items in dispute are divided; or

(2) All disputed items shall be appraised with the cost of appraisal to be shared equally by the parties; the plaintiff shall have the first option to keep all disputed items by purchasing defendant’s one half interest at one half the total appraised value; upon plaintiff’s refusal, defendant shall have the same option.

(D) The court may appoint a neutral third party to assist in the division of household goods by alternate selection if deemed necessary. Cost of the service shall be divided equally between the parties.

In my 30 plus year career, clients have literally fought over divisions of salt and pepper shakers, the bedside mood candle, X-rated photos and movies of each other . . . and yes, believe it or not, disposable paper bed sheets (which I never knew existed)!  Loud and colorful testimony was offered by both the husband and wife in that case back in the 80′s… If my memory is correct, we were ending the two-day hearing and I believe we were down to fighting over the 8 or 10 paper bed sheets from the parties’ 20-year-old travel trailer. Should the paper sheets go with ownership of the dilapidated trailer, or should they be divided between them?

In the end, I think the Court awarded all the prized disposable bed sheets to my client, and the wife received the cremains of a cherished cat kept in a Maxwell House coffee can on the mantel.  I think it’s difficult to determine which side really prevailed in that litigation! Don’t you agree?

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Recent estimates indicate that possibly more than twenty-five percent of all homeowners are upside-down on their home mortgages, meaning that they owe more on their home loan or loans than the fair market value of the residence.  This makes it virtually impossible to sell at a private sale.  When a couple goes through a divorce or dissolution and needs to divide the assets including such a home, what are they to do?  One answer is to walk away from the house, which will lead to foreclosure litigation and a crippled credit rating.  Another possible answer is to complete a “short sale”.

A “short sale” is when a lender agrees to the sale of a property by the owner for less than the amount owed to the lender.  It means that the lender is willing to accept less than the amount owed.  Except for those lenders who are participants in the Home Affordable Foreclosure Alternatives Program (HAFA), the lender may or may not pursue the difference against the borrower.  If the lender does forgive the difference, it likely will not be considered as income by the IRS as long as it complies under the Mortgage Forgiveness Debt Relief Act of 2007(which most primary residences will qualify).

Lenders approve “short sales” when the seller owes more than the house is worth and the lender agrees that the owner has a hardship (e.g. unemployment, divorce, medical emergency, bankruptcy, death).  The lender usually requires the owner provide a financial statement, hardship letter, tax returns, W-2s, pay stubs, bank statements, and a market analysis or list of comparable sales for the property.

For a “short sale” to work, you must have a cooperative lender and a patient buyer.  The process usually takes several months.  The time frame is typically as follows:  Bank acknowledgment-10 to 30 days; assignment of a negotiator-30 to 60 days; appraisal ordered-a few weeks; review of the file-14 to 30 days.  If all goes well, the bank will issue a “short sale” approval letter.  If the buyer is still interested, the property can close.

But understand that the deficiency balance can be handled three (3) different ways by the lender:

• The lender may agree to cancel the entire deficiency balance;
• The lender can attempt to collect the deficiency balance from the seller after the property has closed; or
• The lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the “short sale”. If the new note amount is for less than the balance of the original debt, the difference would be considered a canceled debt.

It is important to realize that you must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt, and it will survive the “short sale” and become a collection matter.

Effective April 5, 2010, those lenders who participate in the Home Affordable Foreclosure Alternatives Program (HAFA) must fully release borrower from future liability for the first mortgage debt and, if the subordinate lien holder receives an incentive under HAFA, that debt as well. HAFA is part of President Obama’s Making Homes Affordable Program. It provides incentives to lenders who help borrowers modify their loan or help them avoid foreclosure through “short sales”. However, HAFA is not available for FHA or VA loans, and, with respect to other liens, applies only if the lender has chosen to participate in the program.

Obviously, not all sellers nor all properties qualify for a “short sale”.  However, in today’s economy, lenders have been far more willing to consider “short sales” than in the past; particularly, if it makes more financial sense than to foreclose.  For those suffering financial hardship and have no equity in their home and needing to sell their residence quickly, this certainly is an option worth discussing with one’s realtor, lender and attorney.

In a future article, I will be discussing the implications that The Mortgage Forgiveness Debt Relief Act of 2007 has on the taxability of the cancelled debt amount. If you complete a “short sale”, the last thing you would want to receive in the mail is a 1099-C indicating that you owe taxes on the cancelled debt amount!

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Jason C. Brown, the publisher of the Minnesota Divorce and Family Law Blog, recently posted a very practical article outlining some important steps to take if you are anticipating filing a divorce action. I am grateful that he has allowed me to repost it here. I concur with his wise “nuts and bolts” type suggestions. Remember the old adage, “An ounce of prevention is worth a pound of cure”.  Plus, this “ounce of prevention” might well save you thousands of dollars in attorney fees!

Once you break the news of your desire to dissolve your marriage, interesting things may start happening at your house. Critical records and valuable items of personal property may suddenly vanish. It pays to be proactive to ensure that you have all the information you will need to move forward as efficiently as possible.

The wasted time and cost associated with hunting down missing documentation can be staggering. We’ve handled cases where everything from an expensive diamond ring to boxes of business records have taken a “vacation”. We almost always find them, but not without substantial effort. In cases where they are not found, the Court will impose substantial sanctions and assume the missing evidence is favorable to you.

To help avoid the mess, we’ve assembled a list of 12 things you should gather to ensure that you have all critical information in hand before your spouse has a chance to conceal, transfer or sell items. These include obtaining:

To help avoid the mess, we’ve assembled a list of 12 things you should gather to ensure that you have all critical information in hand before your spouse has a chance to conceal, transfer or sell items. These include obtaining:

Investing some time in gathering these items will ensure that your spouse cannot take advantage of you during the divorce process. The denial of the existence of an asset is a fraud upon the Court. Once your spouse knows that we have all of the key information in hand, they are far less likely to engage in bad faith conduct and be honest in their disclosures throughout the process!

If you believe that it is prudent in your case to copy a computer’s hard drive to preserve information, be sure you have a qualified professional undertake the task. It is very easy to accidentally run the “ghost drive” backwards and, in so doing, wipe out the original hard dhard drive! Not good at all!

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As we all know, the typical family from the 1950’s television shows such as “Leave it to Beaver” have become a rarity over the years.  A couple celebrating their golden wedding anniversary is not so commonplace.  Today, approximately fifty percent of all marriages end in divorce.  In the traditional family, estates usually involve wills and the use of “joint and survivorship” ownership between husband and wife or “beneficiary designations” to ensure that upon the death of a spouse everything would pass to the surviving spouse.  However, in today’s modern family, there may be a second or even third spouse and children from prior marriages.  How does an individual take care of his or her current spouse yet protect his/her children from a prior marriage?

The problem with leaving everything outright to one’s spouse in such a family is that the spouse may presumably leave everything to a new spouse or to their own children upon their death, leaving the children from one’s prior marriage with nothing.  Even providing for one’s children in one’s will may not solve the problem because in Ohio a surviving spouse has certain statutory rights.  These include:  (1) the first $40,000 of the deceased spouse’s estate; (2) the right to live in the residence one year rent free; (3) the first two vehicles up to a value of $40,000; and (4) the right to take or elect against the will and receive one-half of the net estate, unless two or more of decedent’s children or their lineal descendants survive, in which case it would be one-third.  One solution to this problem is to execute a prenuptial agreement before marriage.  Each party can waive those statutory rights allowing each spouse to pass on his or her assets upon death as he or she wishes.  Another tool is the use of what is called a QTIP Trust (Qualified Terminal Interest Property Trust).  A properly drafted QTIP Trust also allows deferral of estate taxes until after the death of the surviving spouse.

A QTIP Trust allows an individual to make provisions for a surviving spouse, yet control the ultimate disposition of property upon the death of the surviving spouse.  The income stream from the trust shall be paid to the surviving spouse, but the surviving spouse cannot control the ultimate disposition of the trust assets.  The trust may also provide that principal may be used for the needs of the surviving spouse.  A QTIP Trust is also an exception to the general rule, that to qualify for the marital deduction (exemption from estate taxes) an asset must be given outright to a surviving spouse or put in a trust in which the spouse may withdraw all of the principal.  To qualify for the marital deduction, the trust income must be paid to the surviving spouse on no less than a yearly basis and during the spouse’s lifetime.  No person, including the spouse, is permitted to transfer or appoint any trust property to anyone other than the surviving spouse.  The creator of the trust may choose to also allow the trustee to distribute principal of the trust to the surviving spouse, if necessary, for his or her health, maintenance and support.

The advantages of a QTIP Trust are that the surviving spouse is provided for, the deceased spouse controls the ultimate disposition of the property, and the marital deduction can be utilized resulting in the deferral of estate taxes until after the death of the surviving spouse.  Although complex, a QTIP Trust can be an important part of an estate plan where the primary objectives are to have flexibility in the timing of estate tax payments, along with an assurance that the remaining trust assets will pass to your children or family.  One important caveat is that for a QTIP Trust to qualify for the marital deduction, the surviving spouse must be a U.S. citizen.  If not, other estate planning tools are required.  If you are considering utilizing this type of a trust, discuss its appropriateness with your financial planner, accountant and estate planning lawyer.

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If you are behind on your mortgage payments and facing possible foreclosure on your home, there is an excellent program that the Ohio Attorney General’s office has instituted. The new program is called “Save the Dream”. You can call their hotline for help at 888-404-4764. Hundreds of lawyers statewide have volunteered to provide free legal services for Ohioans to help them avoid foreclosure actions. Be smart and avoid all those predatory lending “quick fix” offers that you see advertised on television or receive in the mail. They will only put you in further trouble!

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This is one of the questions I am asked all of the time. Of course, the correct answer is “It depends.” The home often accounts for a large percentage of the entire marital estate. Whether to retain the home after a divorce is often a very emotional issue, especially if there are children involved. It is natural that parents want to maintain as much stability for their kids as possible when going through a break up. One would assume that keeping the kids in the marital residence after the divorce is important. But interestingly, the psychological studies show that divorced children are not really affected by the retention of the marital home. The key factor is the stability of their parents, not what house they live in.

It is important to realize that unlike spousal and child support, property division terms cannot by law be changed after the divorce is completed. The first step in the analysis is to prepare an accurate anticipated budget and determine if it is feasible to pay the mortgage, taxes, and utilities. Don’t forget to consider necessary repairs and upkeep to the home. Hiring a housing inspector to evaluate these future costs often makes good sense. Also, consider that the spousal support term may be years less than the payoff on the mortgage. Another important consideration is what you would need to pay or trade off to buy out your spouse’s share of the equity in the home. Often times, the only solution is for a party to sacrifice a large portion of the equity he/she would receive from their spouse’s retirement plan. Does that make good sense?

Many courts are requiring the sale of the real estate unless one spouse can refinance the property in a year or less. Divorce court judges attempt to do everything within their power during the initial divorce proceedings to disentangle the parties and their assets as much as possible to avoid future court involvement. But the “flat” real estate market of late has somewhat impeded that laudable objective. However, if it is clear to the judge that it is going to be virtually impossible for one spouse to shoulder the mortgage and associated payments and also remove the other spouse from the note and mortgage, there is typically only one option- require the property to be listed for sale regardless of the poor market conditions. If there is little or no equity in the property, your attorney can also assist in working with the mortgage company to attempt to arrange for a “short sale”. This process, when approved by the mortgage company, eliminates negative equity situations so that the divorcing parties selling their home won’t have to come up with cash at the closing. If, on the other hand, you are one of the fortunate and have positive equity in your home, the IRS allows an exemption of up to $500,000 per couple, or $250,000 per individual, on any capital gains arising out of the sale of the property. There are a few other conditions that must be met to claim the capital gains exemption, so be sure to consider the issue carefully.

Some courts, particularly in other states, allow co-ownership of the real estate for years after the divorce. This does not seem to be the norm in Ohio. Co-ownership often creates an extreme disadvantage to the party not occupying the former marital home because his/her debt ratio would include the prior mortgage obligation, and typically it will result in precluding that party from qualifying to purchase another home until he/she is removed from the previous mortgage. Additionally, co-ownership of real estate requires continued co-operation and this situation is often doomed to failure because of residual animosity.

Parties going through a divorce often don’t have enough income between them to support their life style while living as a family under one roof. Therefore, the reality for most divorcing couples is that they will need to “downsize” their life style. While this may initially appear to be a sacrifice, the prudence of this approach can not be over emphasized. Preserving as much long-term financial stability as possible without undue emotional loss should be a priority for those winding down their marriage. It may be far more prudent to live in a smaller home with a lower mortgage payment and expenses, and protect your future retirement dollars!

Hire an experienced family law attorney that will work with you and other professionals so that you are able to make both an informed and prudent decision. Some divorce attorneys will work in conjunction with other professionals such as certified public accountants and Certified Divorce Financial Analysts to evaluate the “economic side” of this issue. Be careful not to allow your emotions to dominate your decision making process.

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