Know Your Law

Dividing up the Marital Estate upon Dissolution of Marriage

2012-03-08T15:00:00.002-06:00

There are several issues courts consider when dividing marital property in the event of dissolution of a marriage. The first issue is to determine the types of property that will be divided. Property subject to division by the court includes, but is not limited to, homes, automobiles, furniture, bank accounts, retirement accounts, pensions, stocks, and business interests.

Most people are familiar with community property states, such as California, that divide the marital estate equally. Illinois is an equitable property state and, therefore, Illinois courts order a fair division of the property based on the following factors:

Contribution of each spouse to acquisition of property, including contribution of spouse as a homemaker;

Value of the property;

Duration of the marriage;

Economic circumstances for each spouse;

Custodial provisions for children;

Age, health, occupation, and needs of each party;

Any obligations or rights arising from prior marriage;

Pre-nuptial agreement;

Whether distribution of property is in lieu of or in addition to maintenance;

Opportunity of each spouse for future income;

Tax consequences of property division on each spouse; and

Any dissipation.

The second important issue the court will deal with when dividing the martial estate is whether property is considered marital or non-marital. Marital property means all property acquired by either spouse subsequent to the marriage. The following is considered non-marital property:

Property acquired by gift, legacy, or descent;

Property acquired in exchange for property acquired by gift, legacy, or descent;Property acquired after judgment of legal separation;

Property excluded by valid written agreement of the parties;

Any judgment or property obtained by judgment awarded to one spouse from the other spouse;

Property acquired before the marriage;

Any increase in value of the above-listed property; and
Any income from the above-listed non-marital property, as long as the income is not attributable to the personal effort of a spouse.

Although an equitable division of the marital estate is considered on a case-by-case basis, the court is prohibited from considering marital misconduct when dividing the marital estate. Property will be divided fairly without the court acknowledging the transgressions of either spouse.

By Maggie Pucher

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Preparing for Bankruptcy

2012-02-20T14:41:00.003-06:00

Filing for bankruptcy can be an overwhelming process. There are a considerable number of documents to gather, forms to fill out, and courses to complete. Your attorney will determine which forms the Bankruptcy Court requires for your particular situation, and can help you complete them properly. However, your attorney is only as helpful as the information you provide. If your records are shoddy, then completing the forms could take a couple tries, which costs you valuable time and money. That’s why diligence and organization is crucial in bankruptcy.

Regardless of the chapter of the Bankruptcy Code that you and your attorney decide to file under, there is some basic information that you will need to assemble. Below is a checklist that the attorneys at O’Flaherty Law ask their bankruptcy clients to complete before filing the petition to ensure the bankruptcy process goes as smoothly as possible.

Credit Counseling Course: You will need to complete an accredited online credit counseling course. Go to www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm and find your state in the drop down menu. If you live in Chicago or one of the collar counties, you need to find a course accredited by the Northern District of Illinois. Most courses are approximately $50 and will take a couple of hours to complete. At the end of the course, you will receive a Certificate of Completion by e-mail. Provide your bankruptcy attorney with that certificate.

Schedules: You will need to fill out schedules, listing all of your assets, liabilities, income, and expenses. Please use the linked Schedules as a worksheet to help organize your finances before you meet with your attorney. Your attorney can then ensure that everything was filled out properly and answer any questions. Below is a breakdown of what each schedule entails and how to best fill it out.

Schedule A: List all of your real property (i.e., land, houses, condos, etc.), the approximate value of the property, and the amount of debt secured by the home. Be sure to include all loans secured by your home, such as mortgages and home equity lines, when calculating the secured debt.

Schedule B: List all personal property that you own and the approximate value of the property. Personal property includes more than we often think it does. Please review this schedule carefully because it is itemized to ensure you do not miss anything. Use Kelly Blue Book to value your motor vehicles and use resale values for your furniture, collectibles, luxury items, etc.

Schedule C: This schedule lists property that is considered “exempt” for bankruptcy purposes. This means that the trustee cannot take these assets from you in order to satisfy debts to your creditors. I have purposely excluded Schedule C from the linked .pdf because every state has different rules regarding what kind of property is exempt and for what amount. This schedule is better left for your attorney to complete.

Schedule D: List all debt that is secured by collateral, such as mortgages, car loans, etc. Include the name and address of the creditor, as well as the account number and amount of the debt.

Schedule E: This schedule lists the kinds of debt that you will not be able to discharge through bankruptcy. Check off and list all debt that falls into the categories listed on Schedule E.

Schedule F: List all other debt that you have not listed on previous schedules. This will consist of unsecured debt, which is any debt that is not secured by collateral (i.e., credit card debt, medical bills, etc.).

Schedule G: List all leases and executory contracts (i.e., timeshares) that you are subject to.

Schedule H: List all “codebtors” and the name of the creditor to whom debt is owed by you and the codebtor. A codebtor is someone whose name is also on any of the debt listed in Schedules D, E, or F.

Schedule I: List your monthly income by filling out this schedule accordingly.

Schedule J: List all monthly expenditures by filling out this schedule accordingly.

Proof of Income: Gather and provide your attorney with evidence (i.e., paystubs) of all payment received by you within the two months prior to filing the petition.

Proof of Payments: Gather and provide your attorney with evidence of all payments toward your debts that you have made within the three months prior to filing the petition. If you have paid back debt to a family member, keep track any payments made within one year prior to filing the petition.

Fees: Gather the necessary amounts for attorney’s fees and court costs. Typically, attorneys in the Downers Grove area charge anywhere from $1,300-$2,500 for a Chapter 7 or Chapter 13 filing, and attorneys will typically require a flat fee for a Chapter 7 filing. The court filing fee is $306 for Chapter 7 and $281 for Chapter 13. Keep in mind that certain amendments made to the Schedules during the course of the bankruptcy proceeding may carry additional fees.

Financial Management Course: Keep in mind that you will be required to complete an online Financial Management course toward the end of the bankruptcy proceeding. The completion process is similar to that of the Credit Counseling course.

-- Submitted by Elizabeth M. Keleher

Incorporation Issues for Professionals

2012-02-06T10:29:00.000-06:00

I was recently asked the following question relating to professional corporations in response to my recent video blog: Which Corporate Form is Right for Your Business?

Q: Hi Kevin! I ran across your video blog about corporate forms on Facebook - looks like things are going well for you guys! You mentioned emailing with any further questions...I have one. I have a full-time job, but I am now taking on private clients (home-based speech therapy services). I have liability insurance already. Do I HAVE to incorporate or can I just consider it a side job and claim it appropriately on my taxes?

A: Thanks for contacting me. I'm glad you enjoyed the video blog.

In answer to your question, incorporation would probably only be beneficial for you for tax purposes at this point. Speech pathologists and certain other professionals are required to form "professional corporations" or "PCs." PCs, unlike other corporate forms, will not protect you from malpractice liability. As your business grows, you may want to consider forming a PC to protect you from liability for your business' contracts. However, at this time, since you probably do not have a lease or other such contracts to worry about, a PC would probably not be helpful for liability purposes.

Although incorporation will not protect you from the type of liability you are likely to incur with a home-based speech pathology business, forming a PC and filing an S-Corp election with the IRS may be beneficial for tax purposes. Sole proprietors must pay self-employment tax on their profits (including salary), while S-Corp shareholders only pay self-employment tax on their salaries, not their profits. You can learn more about this by reading my article: LLCs vs. S-Corps: Selecting a Corporate Form for Your Small Business.

Whether you are taking in enough profit with your business to make an S-Corp beneficial is something you should discuss with your accountant. If you do not have an accountant that you are happy with, I recommend D Zorea (info@ddzgroup.com) or Joe Leo (jleo@scanlanleo.com).

We offer free "tune-up" consultations to small business owners to discuss both legal and non-legal issues that you may be facing (e.g. website, insurance, accounting issues, regulations, contracts, etc.). If you think this might be helpful, I would be happy to schedule a time to meet with you.

Enforceability of Non-compete Agreements

2012-02-01T17:30:00.000-06:00

As part of your employment contract, you may have signed an agreement not to compete. These agreements give employers the protection they need to prevent employees from jumping ship to a competitor and bringing along any skills, information, client lists, and secrets they may have obtained from their previous employer. Employers need not worry about competitors poaching their most valuable employees to their detriment. However, these agreements inhibit an individual’s freedom to choose their own place of employment, and are oftentimes harsh or overly broad. As a result, such agreements are frequently contested in court. How do you know if your non-compete agreement is enforceable?

Primarily, a non-compete agreement must be reasonable in scope. This is determined by whether it protects a legitimate business interest, doesn’t place an undue hardship on the employee, and doesn’t violate public policy.

A business that has a near-permanent relationship with its clients, such as physicians or insurance companies, has an interest in protecting their continued business with the client and may restrict an employee from attracting their clients to their new employer. Similarly, if an employee has learned trade secrets or confidential information, their employer may restrict their freedom to work for a competitor in order to protect this information. A clause that prohibits a former employee from doing any activity with a competitor, even activities that aren’t a threat to their interests, may be considered too broad to be enforceable.

For example, an enforceable agreement may prevent a salesman or a researcher from taking a job with a competitor for the same position, and bring his clients or expertise to his new job. However, an agreement that prevents a salesman or a researcher from going to a competitor to work as a mechanic may be unenforceable, as the expertise he will be applying at his new job wasn’t acquired at his old job and isn’t a threat to his former employer’s interests.

Additionally, the agreement not to compete must not impose undue hardship on the employee. A clause prohibiting the employee from working for a competitor in a 10 mile radius may be acceptable, but one that prohibits him from working for any competitor in North America may not.

Finally, the agreement must not go against public policy. Agreements that are illegal, give employers virtual monopolies on the workforce in that field or location, or unduly deprive an employee from choosing to go work elsewhere may be unenforceable.

All agreements must be supported by independent consideration—in other words, getting something in return for your promise to adhere to the agreement. Most of the time, the offer to hire in return for accepting the non-compete agreement is sufficient. If you are already hired and are offered a non-compete agreement, continued employment with the employer or a monetary payment can also be acceptable.

Though it may seem like non-compete agreements are easily contested, in reality most agreements are upheld. Contracts in general are highly valued by the courts, as they are hesitant to override an independent agreement between two private entities. Determining whether an agreement is reasonable is done on a case-by-case basis and you should contact an attorney before deciding to leave an employer with which you have a non-compete agreement.

-- Submitted by Eric Z. Turner

Video Blog: Which Corporate Form is Right for Your Business?

2012-01-25T09:32:00.001-06:00

In this month's Know Your Law video blog, Kevin O'Flaherty discusses the differences between C-Corps, S-Corps, LLCs, and Sole Proprietorships in order to help you determine which form is the right fit for your business.

For more Know Your Law videos, please visit our youtube channel.

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Debt Collection Process Explained

2012-01-16T17:01:00.000-06:00

If you are a small business owner dealing with past due accounts receivable, or if you are having trouble paying your monthly bills and are receiving notices from creditors, you should acquaint yourself with the collection process. This article will provide a summary of that process. The narrative will be from the creditor’s perspective, but it will be equally helpful to debtors.

Bear in mind that each of the following steps tends to increase the pressure on the debtor to settle his debt. Each successive step will only be required if the debtor is non-responsive to the previous steps. In practice, it is usually unnecessary to take a collections case all the way through Step 7.

STEP 1: Internal collections procedures: Before you speak to a collections attorney, you should be sure to refine your own collection procedures. Every business is different, but the following tips may help you increase your collections on your accounts receivable:

In your contracts with your customers, include an attorney-fee provision providing that if either party is required to take action to enforce the contract, the other party will be required to pay attorney fees and other expenses.
In your contracts with your customers, include a late fee provision, informing your customers that late fees will be charged on late invoices.
On the face of each invoice, you should explain your collection procedures. Let your customers know in advance that if their invoice is x days past due they will be required to pay late fees, and that if it becomes y days past due, the invoice will be sent to collections.
Follow up on past due invoices with letters explaining the consequences of continued failure to pay.

If you believe that it will not be possible to collect an account internally, you should hand the account to your attorney to begin a collection suit.

STEP 2: Demand Letter: Once the past due account has been turned over to your attorney, he should send the debtor a demand letter to the debtor informing him that suit will be filed unless payment is made within a specific time period.

STEP 3: File suit and obtain a judgment: If the debtor does not respond to your attorney's demand letter, he should file a complaint against the debtor in the proper county (usually the county where the defendant does business or resides). In my experience, debtors tend not to defend collections cases. If the debtor does not defend the case, the court will enter a default judgment (judgment for failure to defend) in your favor at the first court date. Default judgments can be easily vacated (reversed) if the defendant files a motion within thirty days. Your attorney will therefore wait for thirty days after judgment before initiating post-judgment proceedings.

STEP 4: Citation to Discover Assets: Often, obtaining a judgment against a debtor is the easy part. Once you have a judgment, the next step is to find the debtors assets. Sometimes, you will be able to discover real estate or vehicles owned by the debtor through an advanced internet search. If this search does not provide you with assets sufficient to satisfy your judgment your attorney will file a citation to discover assets. A citation is a demand that the debtor appear in court on a specific date to testify under oath as to his assets.

Like the complaint, the citation will have to be personally served upon the debtor by sheriff or special process server. If you have any previous checks from the debtor, you will be able to determine at least one of the debtor's banks. Your attorney should send the citation to any banks at which you suspect the debtor maintains an account. These banks will be required to freeze the debtor's accounts until the citation is lifted.

STEP 5: Rule to Show Cause: In my experience, debtors rarely appear at the original court date set for the citation. If the debtor fails to appear, the court will enter a Rule to Show Cause order. A Rule to Show Cause is an order requiring the debtor to appear at a second court date to explain to the court why he should not be held in contempt for failing to appear on the citation. Like the citation and the complaint, the Rule to Show Cause will have to be personally served upon the debtor by sheriff or special process server. If the debtor appears at this court date, the citation will go forward and he will be interviewed as to his assets.

STEP 6: Body Attachment: If the debtor fails to appear on the Rule to Show Cause, the Court will enter a Body Attachment. A Body Attachment is a warrant for the debtor's arrest. Your attorney will deliver this to the sheriff, who will seek to enforce it. If the sheriff is successful, the debtor will be arrested and will usually be required to spend the night in jail until he can be brought before the judge to answer for his failure to appear on the citation. At this point, the judge will fine the debtor and set a new date for the citation.

STEP 7: Turnover of assets: Once your attorney discovers assets held by the debtor, he will seek an order from the court instructing the debtor (or his bank) to turn over all such assets to you by a specific date, except for those that are exempt from collection. If the debtor fails to do so, he will be held in contempt of court. If your attorney discovers the debtor's place of employment, he will serve a wage garnishment upon the debtor's employer, which will require the employer to directly pay you a percentage of the debtor's wages. If your attorney discovers real estate or vehicles, a sheriff's sale will be held with the proceeds going to satisfy the debt in question.

How to Get Out of a Contract - Defenses to Breach of Contract Explained

2012-01-09T11:24:00.000-06:00

That contract you signed with Oppressive Corp. seemed like a pretty great deal at the time, but no your circumstances have changed and you are looking for a way out; or maybe you didn't read the fine print before signing on the dotted line. Are you still bound by the contract? Maybe not.

The following contract defenses provide an arsenal of not-so-secret weapons that you can use to get out of an unfavorable contract. This article will provide you with a basic understanding of these defenses, enhancing your understanding of the contracts you sign as well as your ability to identify the situations where an attorney consultation may be useful.

Defenses to breach of contract:

Material breach by the other party: If the person that you contracted with has himself breached the contract, then you are no longer bound by it, so long as the breach is material. A breach is material if it is the type of breach that defeats the purpose of the contract. In other words, a minor deviation from the terms of the contract by the other side does not absolve you of your duty to perform.

Anticipatory Repudiation: If the other party represents or takes action to indicate that he does not intend to perform his obligations under the contract, you are absolved of your own obligation to perform. This defense would arise if, for example, you contract to buy a television from a friend only to discover that, between the time of contracting and the exchange, your friend has put the television up for auction.

Duress: If you were forced to sign the contract against your will, you are not bound by it. This defense includes not only physical duress (the proverbial gun to your head), but also economic duress. Economic duress is defined as the unlawful use of financial or economic pressure or threats to force a person to contract.

Unconscionability: An unconscionable contract is one that is extremely one-sided in favor of the party with superior bargaining power. An example of an unconscionable contract is an unfair contract that exploits a poorly educated or impoverished consumer. Individual clauses within contracts have also been held to be unconscionable. This usually occurs in the context of a take-it-or-leave-it contract, called an adhesion contract, where the party with superior bargaining power drastically limits the rights and remedies of the other party without significantly limiting its own.

Mistake: Courts will not enforce a contract where there is a material mistake regarding the subject matter, so long as the mistake is mutual. If only one party is mistaken, courts will not enforce the contract if the other party knew of the mistake and should have acted to prevent it.

Fraud: If you entered into a contract because of a material misrepresentation of fact by the other party, the contract is not enforceable against you. It will, however be enforceable against the party committing the fraud. Bear in mind that failure to disclose material information (omission) also qualifies as fraud.

Undue influence: A contract will not be upheld where one party exercises control over another party so as to overcome that party's independent judgment. The definition of undue influence includes, but is not limited to, exploitation of a vulnerability, such as a mental deficiency; exploitation of a confidential relationship; blackmail; bad faith threats of criminal prosecution; or extortion.

Impracticability: If an unexpected event makes performance of the contract impossible or impracticable, neither party will be bound by the contract. Examples of impracticability include the death of an individual who is to provide a service; destruction of property that is the subject of the contract through a natural disaster, or a new law that renders the contract illegal.

Some other considerations:

Loopholes: The terms of the contract may provide you with a loophole that provides you with an out. Be sure to have your lawyer review your contract.

Statutes: State or federal statutes may invalidate your contract or certain clauses within it.

One-sided clauses: Many states will interpret a one-sided contract clause as reciprocal. For example a provision requiring only one party of a contract to pay attorney fees if it loses in litigation may be applied to both parties by the courts.

Ambiguities: Ambiguities in the contract will be interpreted against the drafter, especially where the drafter has superior bargaining power.

Modification: Often the other party will be willing to renegotiate and modify the contract based on changed circumstances.

How to Transfer Your Assets to a Revocable Trust and Save on Legal Fees

2012-01-03T16:56:00.000-06:00

In our previous article, "Crash Course in Wills and Trusts: Part I," we discussed the importance of a good estate plan and introduced you to the basic elements of such a plan. In "Trusts and Wills: Which is Right for You?," we generally recommended a revocable living trust over a will as the primary vehicle for your estate plan. This week, we will explain the trust funding process. Hopefully, we will be able to help you determine which parts of the process you can accomplish without an attorney, with the aim of reducing your legal fees.

As we explained in the above articles, trusts are legal instruments that direct how certain property will be distributed and maintained. However, your property must generally be transferred to a trust before it will be subject to the trust's provisions. In this respect, trusts differ from wills, which must merely describe the property in question and indicate how you wish the property to be distributed.

Before we dive into how to fund your trust, a few notes:

You Retain Control: If you are worried about transferring title to your property to your revocable living trust, never fear. In most cases the creator of a revocable living trust is also both the trustee and beneficiary of the trust during his or her lifetime. This means that if you transfer your assets into a revocable living trust, you will retain the same amount of control over those assets during your lifetime that you had prior to the transfer. You will always have the ability to revoke or amend the trust.

You Don't Have to Transfer All of Your Assets: If certain assets totaling less than $100,000 have not been transferred into your trust at the time of your death, the executor can file a small estate affidavit. This affidavit will act to sweep up to $100,000 of personal property (i.e. property that is not real estate) into your trust, allowing this property to avoid probate. For this reason, we generally do not recommend transferring your primary checking account into your trust. The small estate affidavit can also cover your cars and furniture so long as the total amount of personal property that you leave out of your trust totals less than $100,000.

You Must Transfer SOME Property to Your Trust: Trusts are not legally effective until they have been funded with at least SOME property. This means that you cannot rely on the small estate affidavit to sweep ALL of your property into the trust upon your death. If your trust is drafted, but does not possess title to any property at your death, your estate will be treated as if no trust was in place at all.

So, once your trust is drafted, how do you go about transferring your property to the trust, and how much of this process can you accomplish on your own? The answer to this question depends on the type of property you are trying to transfer, the amount of time you are willing to personally allocate to trust funding, and your comfort level in dealing personally with financial institutions and forms. Your attorney should provide you with an outline of the steps necessary to fund your trust, based on your particular asset structure, at which point you will be able to decide which steps you would prefer to handle on your own.

Below is a list of the steps necessary to transfer particular types of assets to your trust:

Retirement Accounts: The institution that manages your accounts can provide you with forms to change the beneficiary designation for your account. We generally recommend that if you are married, you name your spouse as the primary beneficiary and the trust as successor beneficiary.

Stocks and Mutual Funds: In order to transfer stocks or mutual funds, you should fill out a stock assignment form supplied by your brokerage company.

Bonds: Savings bonds can be transferred to your account by filling out form PD F 1851 E, which can be obtained from www.savingsbonds.gov.

Life Insurance: Your insurance provider will be able to provide you with change of beneficiary forms. Like your retirement account, you should generally name your spouse as the primary beneficiary and the trust as the successor beneficiary.

Business Interests: If you are the owner or part owner of a closely held corporation or LLC, you should either transfer your shares of the company to the trust or amend the company's bylaws or operating agreement to deal with succession of shares upon your death. The most effective way to accomplish your goals with respect to your company will depend on your individual circumstances. This process should be handled by your attorney.

Real Estate: Generally, you should execute a deed transferring your real estate to the trust. Again, the best way to handle this process will depend on your individual circumstances and goals. This is another step that should always be handled by your attorney. Once drafted, you or your attorney must record the deed with your county's Recorder of Deeds.

Bank Accounts: Depending on the amount of personal property you possess, it may be advisable to transfer your savings accounts, and possibly even your checking accounts, to the trust. This can be accomplished by delivering a letter of instruction to the bank retitling such accounts so that they are held by the trust.

Remaining Personal Property: Again, depending on the amount of personal property you own, it may be advisable to transfer all of your personal property (e.g. furniture, art, heirlooms, etc.) en masse, to the trust. To accomplish this, your attorney should draft a quitclaim bill of sale.

Even the most savvy individuals should leave real estate transfers, business asset transfers, and quitclaim bills of sale to their attorneys. However, depending on your tolerance for dealing with financial institutions, you may be able to save on legal fees by personally handling, after consultation with your attorney, the transfer of your retirement accounts, life insurance policies, stocks, mutual fonds, bonds, and bank accounts.

Although the trust funding process may seem like a lot of effort, the time and attorney fees that you spend properly funding your trust will pale in comparison to the time and money that you will ultimately be saving your loved ones.

New Laws for Illinois in 2012

2011-12-30T10:19:00.002-06:00

Illinois will add 200 new laws on January 1, 2012. This article by Christen Drew of WSILTV.com provides an alphabetical list of the new laws. We hope you find it helpful!

Thanks to our friend, Caryn Coyle, for asking us about this topic on our facebook wall.

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

How to Appeal Your Property Tax Assessment

2011-12-28T11:05:00.003-06:00

Property values in the past few years have plummeted, yet homeowners find themselves paying higher property taxes than ever before. Your property taxes are linked to the fair market value of your home; however, when the fair market value of your home is uncertain, the tax assessment may be inaccurate. Due to the slow-paced real estate market, fewer homes are being purchased, making it difficult to get a fair estimate of what someone might pay for a home in your area, let alone a home similar to yours. Assessors do not have the raw data to work with as they did in the past, so they must refer to outdated information and do the best they can. Therefore, because many homeowners feel they have more accurate information than the assessor, they decide to appeal the assessment of their property.

Appealing your tax assessment is a daunting task, but if you are up for the challenge, there are a few things you should remember. Although the assessment of real property in State of Illinois is governed by Illinois law, each county and township can create additional rules and filing procedures. And, even though your individual township’s assessor may be the office actually valuating your property and mailing the notice of reassessment, assessment appeals are often processed through your county. Also, since each county has its own appeal procedure, it is crucial to read through your county’s rules for filing the appeal. For example, Downers Grove residents will receive their assessment from the Downers Grove Township, but will need to follow the Rules of the DuPage County Board of Review.

Most counties have a strict time limit in which you can file your appeal. For example, DuPage County residents have 30 days from the date the assessment was published to send the Board of Review the appeal form and supplemental documentation. The last day to file an assessment appeal is typically provided on your assessment notice. All documentation must be filled out appropriately and sent to the Board by this date or the resident is barred from appealing his or her tax assessments.

Once it is clear that the time limit has not expired, you will need to fill out the required forms and provide supplemental documentation before the review board will give you a hearing to argue your position. Assessments can be appealed for two reasons: (1) the property was assessed at more than one-third (1/3) of its market value or sale price or (2) the property was assessed at an amount not uniform with the rest of the community. In either case, sufficient documentation needs to be provided to support your claim that the value of your home is not what it was assessed at. In order to do this, you should provide the review board with more detailed information about your property, as well as detailed information about other comparable properties in the area. Documentation may be in the form of:

a. Listing contracts;
b. MLS catalogue pages, other listing catalogues or websites;
c. Closing statements;
d. Contractor’s affidavit of costs of new improvements;
e. Appraisal made by an Illinois State Licensed or Certified Appraiser; or
f. Assessed value of comparable properties.

In many counties, residents are required to fill out a residential grid form, comparing specific features of the property in question to other properties with similar features that have been recently sold in the neighborhood. Specific features often include: lot acreage, building and basement square footage, age of building, number of bathrooms, air conditioning, fireplaces, pools, decks, etc. It is important to find comparable properties with as many similar features to your property as you can. Taking the time to acquire accurate information and to diligently fill out the forms is the most crucial stage of the process.

If you fill out the forms completely and provide the best possible documentation available, you should hear back from the review board with a scheduled hearing date. At the hearing you will be able to demonstrate to the review board that the assessment of your property is inaccurate using the evidence you have previously collected. Please note that many counties require all documentation to be provided to the review board by the assessment appeal due date, meaning that additional documentation may not be sent later or presented at your hearing. That being said, some counties will allow an appraisal to be submitted within a specified time following the due date. For example, DuPage County allows residents to submit an appraisal by an Illinois State Licensed Appraiser within 10 days of the assessment appeal due date.

Appealing your taxes is a research project that requires attention to detail and a commitment to finding the best possible information about your property and comparable properties that is available. Therefore, many homeowners choose to use the experience and expertise of an attorney in this process. If you are considering using an attorney or another qualified individual to appeal your tax assessment on your behalf, remember to include in your appeal packet to the review board a letter authorizing that individual to act on your behalf in the matter.

Contributed by: Elizabeth M. Keleher
O'Flaherty Law

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Child Support Explained

2011-12-22T12:17:00.002-06:00

Child support is the responsibility and obligation of both parents to provide for a child’s physical, emotional and mental well-being. It is not simply a financial matter, as many people assume. In any instance where a child’s parents are no longer living together or married, the residential parent is entitled to support from the non-residential parent.

The main question most parents have when the topic of child support comes up is how the court determines the amount of child support which the support paying parent will be ordered to pay. The Illinois Marriage and Dissolution of Marriage Act provides a detailed outline as to the state minimums the court will use to determine child support obligations. The IMDMA guidelines require the support-paying parent to pay from their net income as follows: twenty percent (20%) for one child; twenty-eight percent (28%) for two children; thirty-two percent (32%) for three children; forty percent (40%) for four children; forty-five percent (45%) for five; and fifty percent (50%) for six or more children. The net income is determined as the income after taxes, social security, retirement contributions, health insurance and several other deductions permitted under state statute.

The court may order child support that deviates from the state required minimum if the court finds it is in the best interest of the child. The court can use several factors to determine the best interest of the child. First, the court will determine the financial needs of the child. Second, the court will consider the financial responsibilities and needs of both the residential and non-residential parent. The court may also consider the physical, emotional and educational needs of the child. Finally, the court will consider the standard of living the child would have enjoyed had the parents not divorced.

Once an order of child support is entered, the order may only be modified, whether increased, decreased or abated, if a court finds that a change in circumstances warrants a modification. Further, an order for child support will terminate upon the child turning eighteen years old or upon graduation from high school if the child turns eighteen and is still in high school. However, child support will usually not be ordered past a child’s nineteenth birthday. Several courts will make an order for contribution towards post high school education even though child support, as required under state statute, has terminated.

It is important for parents to keep in mind child support is an independent obligation and should be preserved despite other problems which may arise between parents, such as disagreements regarding visitation. It is important to note, however, that recent studies have shown non-residential parents are more likely to pay support in a timely fashion when their visitation with their child(ren) occurs without interference from the residential parent.

By Maggie Pucher

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

2011-12-09T09:31:00.000-06:00

Thank you so much to Kirsten Rider for allowing me and my firm to be spotlighted in the American Bar Association newsletter, ABA Member Pulse. What an honor!

To read it, click here.

What You Need to Know About DUI Law

2011-11-29T10:57:00.005-06:00

With the holiday season upon us, holiday parties will most certainly be on everyone’s calendar. While you are enjoying a night out with friends and family you must remember the importance of driving responsibly. Arrests for driving under the influence are extremely prevalent around the holidays. Police are on high alert for drivers who may be driving over the legal limit. If you find yourself arrested for a DUI here are some important factors to consider.

If it is your first offense, you can attempt to have the charges dismissed or reduced. If the State is not willing to dismiss or reduce the charges and you should then request court supervision. First time DUI offenders in Illinois are entitled to court supervision. Court supervision will allow you to avoid having your license revoked and having a conviction placed on your record. Court supervision comes with several conditions such as fines, an alcohol evaluation, Victim Impact Panel, and community service. When you complete the requirements of supervision the case will usually be dismissed after approximately twelve months.

If it is your second or more DUI, the situation is much more complicated. First, you are not eligible for court supervision. Also a revocation of your license is guaranteed upon a conviction. There is also the possibility of jail time although many courts will agree to extensive community service in lieu of jail time. Finally, if this is your third DUI it is considered a felony.

Aside from a conviction for driving under the influence, you also have to worry about a statutory summary suspension of your license. In Illinois, when you are pulled over for suspected DUI the officer will request that you submit to a chemical test, usually a breathalyzer. If you refuse to submit or if you submit and have over .08 BAC, your license will be suspended. If you have not more than one DUI in a five year period and your BAC is over .08 your license is suspended for six months. However, if you refuse to submit to the test your license will be suspended for one year.

It is important to understand that although the consequence of refusing to submit to a breath test is a longer statutory suspension, submitting and testing over the legal limit provides the prosecution with irrefutable evidence of your guilt. It is difficult to argue against test results that demonstrate your level of intoxication. Either suspension period automatically starts 45 days after your arrest.

When your license is suspended under statutory summary suspension you are entitled to hearing, despite the suspension automatically starting 45 days after the arrest. You are permitted to file a Petition for a Hearing within 90 days of your arrest. If you do not file the Petition within 90 days, your right to a hearing is considered waived. Once the Petition is filed the State is required to set the hearing within 30 days or the suspension will be dismissed.

At a statutory summary suspension hearing you can challenge the following:

Whether the officer had probable cause to pull you over
Whether a proper arrest was made
Whether you received the proper warnings for statutory summary suspension as required by Illinois law
Whether there was actual refusal or failure of the breath test

This is only a brief overview of what you will experience as a result of being arrested for driving under the influence. The best advice is to avoid being in this situation all together. When you go out for a drink this holiday season, have a designated driver or call a cab to ensure your safety and the safety of everyone else on the road.

By Maggie Pucher

O'Flaherty Law is based in Downers Grove and Chicago, Illinois. Our attorneys have expertise in Corporate Representation, Commercial Litigation, Divorce, Bankruptcy, Estate Planning, and DUI defense. Please visit our website at www.oflaherty-law.com for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Trusts and Wills: Which is Right For You?

2011-11-23T10:35:00.003-06:00

Happy Thanksgiving to all of O'Flaherty Law's friends family and clients! While you spend time with your family this holiday season, you may want to think about implementing an estate plan to protect their future well-being. Below is a breakdown of what you need to know about the features of wills and trusts. For a more in depth discussion of the subject, please visit our estate planning resource page or view the below video of our recent estate planning seminar, the remaining portions of which can be viewed on our youtube site.

Consequences of Intestacy (No Estate Plan)

Probate: Probate case must be opened

After opening the probate case with the court, the personal representative takes the following steps:

inventory and collect the decedent's property
pay any debts and taxes
distribute the remaining property to the beneficiaries

Estate is diminished by attorney fees

Heirs do not have immediate access to assets
Bond: Executor must pay surety bond to probate court
Distribution: Assets are distributed according to state intestacy laws

Advantages of a Will over Intestacy

Waiver of Bond: Although estate will still go through probate, the executor’s surety bond can be waived
Distribution: Assets are distributed according to decedent’s wishes
Guardianship: Ability to name a guardian for minor children

Advantages of a Revocable Trust over a Will

Probate Avoidance: Any assets transferred to a trust during your lifetime will avoid probate at death
Diminished attorney Fees
Immediate access to assets
No need to appear in court or obtain court approval for payment of debts, distribution, and termination of the trusts
Disability Planning: A revocable trust allows a trustee to manage a disabled client’s trust assets without the need to resort to guardianship arrangements, which can be expensive
Confidentiality: Unlike a will, a living trust is not filed with the probate court when the client dies. Therefore, the details of the client’s estate plan do not become a part of the public record.
Protection from Renunciation: Under Illinois law, a surviving spouse may renounce a will and elect to take a third of the estate (half if there is no descendant after payment of creditors). Trust assets are not included in the estate for this purposes.
Financial Control: By properly drafting your trust, you can ensure that the assets in question are distributed in a financially responsible manner to your heirs.

Note: Wills DO have some advantages over trusts

Ability to Select a Fiscal Year: The estate can select a fiscal year, while the trust must be a calendar-year taxpayer.
Shortened Claims Period: Probate shortens claims period from two years to six months – For professionals who have personal exposure for their work, probating may be desirable.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Corporate Formalities: How to Maintain your S-Corp

2011-11-14T12:57:00.003-06:00

Most small business owners are aware that it is preferable to operate your business as a corporation, an LLC, or an LLP rather than as an individual, because doing so shields your personal assets from business creditors. However, many business owners that I have met with did not know that in order to maintain this liability protection, they are required to do more than simply file articles of incorporation. In fact, your corporate liability shield will only be effective so long as your corporation continues to maintain certain corporate formalities throughout its operation.

Since we generally recommend S-Corps rather than LLCs or LLPs (for more information, read our article: LLCs and S-Corps: Selecting a Corporate Form for Your Small Business), I will limit this discussion to the corporate formalities required for S-Corps.

Do not be intimidated by the procedures listed below. You should be aware of these formalities, because you are the person ultimately responsible for following them; however, your attorney should guide you through this process and should handle most of the procedural work.

You and your attorney should work together to ensure that your corporation follows the following procedures:

File Articles of Incorporation with the Secretary of State - this filing will create your corporation and name its shareholders.
Draft Bylaws - Bylaws are the rules for the operation of your corporation and the interactions between shareholders. Even if your corporation only consists of one shareholder, you will need a set of bylaws in order to show that the corporation is distinct from the shareholder as an individual.
Hold an Initial Meeting of Shareholders - At this initial meeting, you should adopt your bylaws and elect directors. Your attorney should draft minutes from this meeting and file them in your corporate book. Again, even if you are the only shareholder in your corporation, it is important to hold and keep minutes of initial and annual shareholder meetings.
Create a Stock Ledger - A stock ledger is a document recording the issuance and transfer of all shares, as well as the names and addresses of all current shareholders as well as the number of shares held by each.
Create a Corporate Book - This is a book that should be created and maintained by your attorney to house all corporate documents including your bylaws, meeting minutes, and notices.
File Annual Reports - This is an annual filing required by the secretary of state to update the information on file for the corporation. An accompanying fee is required to be paid on an annual basis.
Hold an Annual Meeting of Shareholders - At least one shareholder meeting per year is generally required. In preparing for the meeting, it is important to comply with the notice requirements in your bylaws. Minutes of the meeting should be recorded in your corporate book.
Hold Special Meetings of Shareholders as necessary - Depending on your bylaws, certain decisions may require a shareholder vote, rather than simply director consent. If this vote cannot be taken at the Annual Meeting of Shareholders, you should hold a Special Meeting with proper notice to all shareholders.
Follow the Bylaws for Corporate Action - Your bylaws should indicate which corporate actions require the Directors to vote or consent in writing, which require the vote or consent of shareholders, and which require neither. You should know what your bylaws require and comply with them before taking corporate action.

Depending on the number of shareholders and the operational procedures you desire, you may choose to file your Articles of Incorporation as a Close or Closely Held Corporation, which will allow your S-Corp to do away with some of the decision-making formalities listed above. Close and Closely held corporations will be the subject of next week's article.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Pet Trusts in Illinois

2011-11-07T16:12:00.003-06:00

A year and a half ago, my wife and I added Leah, a stoic black lab, to our family. As any dog owner would expect, Leah is much more than "just a pet" to us. She is the closest thing to a child that we have at this point.

When my wife and I are out of town, we call my friend, Kristin Skelton, owner of Floofins & Co., which provides pet sitting and dog walking services, to make sure that Leah is taken care of while we are gone. Kristin recently told me that many of her clients had asked her about pet trusts, which are trust funds you can establish to ensure that your pets are taken care of after you pass away. Being a dog lover myself, I was thrilled to write an article on the subject at Kristin's suggestion.

Pet trust law, including the validity of such trusts, varies from state to state. Fortunately, Illinois recently enacted a statute that explicitly provides for the creation of pet trusts.

When you create a pet trust, your attorney will draft a trust document naming your pet as the beneficiary of the trust after you pass away and also naming a trustee, who will be responsible at that time for managing the assets of the trust for the benefit of your pet. You and your attorney can then transfer assets into the trust.

Such assets will remain in your control during your lifetime, but will not be included in your estate at your death. Instead such assets will be legally held by the trust until they are distributed for the care of your pet according to the terms of the trust.

For more information on trusts in general, please visit our estate planning page, where you can watch a short video of our recent estate planning seminar.

If you are considering a pet trust, you should keep the following information in mind:

Trustee: It is advisable for the trustee to be someone other than the caretaker of the pet. You should also name at least one successor trustee in case the original trustee should be unwilling or unable to perform his or her duties. The Illinois statute provides that no portion of the trust assets can be used for the trustee's own purposes, unless specifically provided for in the trust document. Your trust document can provide for compensation to your pet's caretaker or to the trustee, should you so choose.

Beneficiary: You may identify each beneficiary pet by simply stating your pet's name. However, you can also reference your pet's microchip, if you have had one inserted. In addition, you may include any descendants of your pet as beneficiaries.

Management: In the trust document, you may provide a detailed description of how your pet should be cared for, including naming specific veterinarians that are authorized to care for your pet.

Termination: The trust will terminate when no beneficiary pet is living. The trust document should describe how you want the remaining trust assets to be distributed at this point. If the document does not contain such a description, the remaining assets will be distributed to your heirs, according to statute.

Funding: The trust may be funded by transferring your assets to the trust during your lifetime. However, it may also be funded by a life insurance policy, of which the trust is the beneficiary. If the assets in the trust are substantially more than reasonably necessary to accomplish the trust's purpose, the court has the power to reduce the amount of assets held by the trust.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

O'Flaherty Law will donate 1/3 of its November estate planning fees to the Olivia Cerone Foundation

2011-10-31T11:45:00.001-05:00

Thank you to everyone who attended our estate planning seminar last week! We had an amazing turnout, and Beth, Maggie, Ryan, Stephanie and I had a great time getting a chance to talk to all of you.

If you were unable to attend, but would like to learn about wills and trusts, you can view the embedded video of Justin Villanueva and I speaking on the subject. Additional segments of the video are available on our youtube channel.

We would like to thank the Olivia Cerone Foundation for helping us put on the event. The foundation is a not for profit charity that supports Children's Memorial Hospital's childhood asthma research. We have pledged to donate 1/3 of our November estate planning income to the foundation, so if you are planning on having your estate plan updated, please do not hesitate to contact us for a free consultation. If you are not in need of estate planning work at this time, but would like to make a donation to the foundation, you can do so directly from our website.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Oct. 25: Open Bar and Estate Planning Forum at Shanahan's in Woodridge

2011-10-10T12:09:00.002-05:00

The O'Flaherty Law team invites you to join us on Tuesday, October 25, 2011 for an informative and fun evening at Shanahan's bar (1999 W. 75th St., Woodridge, Illinois). The party starts at 7pm. Open bar and appetizers will run from 7pm to 9pm.

Attorney Kevin P. O'Flaherty and financial adviser Justin J. Villanueva will discuss current strategies for setting up and funding your estate plan. Whether you are recently married, starting a family, or simply wish to learn how to update your current will or trust, this event will provide you with a powerful head start, allowing you to save on attorney fees while enjoying a cocktail.

After the presentation, we hope you will stick around and get to know the O'Flaherty Law staff.

If you have any questions about this event or any other topic, please feel free to give us a call at (630)621-8329, drop us an e-mail at info@oflaherty-law.com, or check out our website. We look forward to seeing you there!

Filing a Petition for Dissolution of Marriage

2011-10-03T16:23:00.001-05:00

It is an unfortunate reality that a large percentage of marriages end in divorce. Divorce proceedings can be extremely emotional and stressful for all the parties involved. The process of obtaining a divorce or dissolution of marriage, as the courts refer to it as, can be made less traumatic when parties understand the procedure. In this article, I will discuss the first step of dissolution proceedings, which is filing a Petition for Dissolution of Marriage.

A Petition for Dissolution of Marriage is the initial filing in a dissolution proceeding. It is a document in which a Petitioner is praying for a Judgment of Dissolution from the court. It requests the court to make decisions involving the care, custody and control of the parties’ minor children, the equitable division of the real and personal property, the equitable division of the debts and obligations of the parties and any additional matters the parties need resolved.

The Petition needs to outline several important key points. It is crucial to incorporate all information regarding the parties, the marriage, any children, assets, and debts in order to educate the court as much as possible. The more information the court has the easier it will be to reach an equitable decision.

The first point the Petition should address is the court where the Petition will be filed is the proper venue. According to the Illinois Marriage and Dissolution of Marriage Act, proceedings should be held in the county where the plaintiff or defendant resides. Any objection to venue will be waived if it is not made within the time defendant's response to the dissolution or legal separation petition is due.

Next, the Petition will outline basic background information of the parties. Many clients wonder why courts need to know their age, address and occupation. The reason is that it helps the court “get to know” the parties. For example, the parties’ addresses can help with jurisdiction matters and also determine where the respondent will be served. The Petition also must outline the specifics of the marriage. Parties will state the date of the marriage, as well as where the marriage was registered.

It is required to state in a petition for dissolution in Illinois that both parties are domiciled in the state of Illinois and that they have been for in excess of ninety (90) days. Domicile means to live in a locality with intent to make it a fixed and permanent home. Parties can have multiple residences but only one domicile.

The next element in a Petition for Dissolution, is to state the grounds for which a party is seeking the dissolution. This is an area many people are familiar with, especially the most commonly used grounds of irreconcilable differences. There are eleven (11) grounds for dissolution of marriage in Illinois and they are as follows:

1. natural impotence at the time of the marriage and continuing thereafter;

2. bigamy;

3. adultery;

4. willful desertion or absence from the petitioner for one year;

5. habitual drunkenness for a time of 2 years or more;

6. gross and confirmed habits caused by the excessive use of addictive drugs for 2 years or more;

7. threatening the life of the other by poison or other means showing malice;

8. extreme and repeated physical or mental cruelty;

9. conviction of a felony or other infamous crime;

10. infecting the other spouse with a communicable venereal disease; and/or

11. irreconcilable differences

In the event the parties have children, they should be listed in the Petition for Dissolution, along with their individual dates of birth. It is also important to specifically state in the Petition that the wife, regardless of whether she is petitioner or respondent, is not pregnant at the time of the filing. Further, all children should be listed regardless of whether they were born of the parties or adopted by them. All of this information will be relevant when issues of child custody and visitation come about. The Petition should make a specific request regarding custody of minor children and visitation rights of the non-custodial parent.

The Petition also addresses the matter of marital property and the equitable division of that property. Generally, parties will have a marital residence, joint bank accounts, retirement accounts, pensions, automobiles, furniture and other personal property that will need to be divided upon the dissolution of the marriage. The Petition will not get into specific assets, rather it will generally state there are assets between the parties that will need to be equitably divided. The division of the marital property is usually incorporated into a Marital Settlement Agreement which will be incorporated into the Judgment for Dissolution and filed with the court.

Finally, the Petition should mention marital debts and the allocation of payment of such debts. Marital debt is approached in a similar manner as marital property in the Petition for Dissolution. The Petition should state there is marital debt to be addressed between the parties and a Marital Settlement Agreement should be drafted to divided up these debts.

The Petition is only the first step in a divorce proceeding. The Petition informs the court of the circumstance of the marriage and pending issues between the parties. A well drafted petition will help to reach an equitable resolution that is in the best interest of the individual parties and their families.

- by Maggie E. Pucher

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Solutions for Distressed Businesses, Part II: How to Restructure or Erase Your Debt

2011-09-26T14:32:00.001-05:00

In last week’s article we discussed five basic strategies for business owners to deal with oppressive business debt. These include:

1) Negotiation with creditors;

2) Restructuring your company’s debt through Chapter 11 bankruptcy;

3) Liquidating your company through Chapter 7 Bankruptcy;

4) Voluntary dissolution; and

5) Simply walking away from the business;

In this week’s article, we will discuss the factors that you and your attorney should consider in deciding between these five strategies. Determining which strategy is best for your business will depend on your particular circumstances and goals. For the purposes of this discussion, we will assume that your business is a corporation or an LLC.

If you have a profitable business model except for a particular debt or group of debts, your first course of action should be to have your attorney contact your creditors and negotiate with them to reduce, defer, or restructure your debt in order to bring your monthly expenses low enough to allow your business to continue.

If some of your business’ creditors are unwilling to negotiate, you may be able to use a Chapter 11 bankruptcy to restructure your debt. In a Chapter 11 bankruptcy, your attorney will work with your major creditors draft a plan to restructure your business’ debt. Your creditors will then each vote “yes” or “no” to the implementation of this plan. One of the major benefits of Chapter 11 bankruptcy is that it is possible to have the court affirm the plan despite the dissent of certain creditors. However, Chapter 11 bankruptcy is often prohibitively expensive.

If restructuring your debts is not possible, your goal should be to liquidate your business and start fresh without any personal liability. A corporation or LLC is properly dissolved by filing Articles of Dissolution with the Secretary of State, sending notice to all known creditors, liquidating assets, and properly distributing those assets to creditors and shareholders.

Unless your business has an extremely limited set of creditors and liabilities, it is rarely advisable to simply shut your doors and walk away without following proper dissolution procedure. If the dissolution process is handled improperly or ignored, the defunct business’ directors and shareholders can become personally liable for the business’ debts.

Often, when a company is dissolved, its principals wish to resume or continue the company’s business through a new debt-free corporation. Depending on your circumstances, a seamless transition from one corporation to the next without business interruption may be possible through voluntary dissolution and incorporation of a new company.

However, in order to ensure that none of your distressed company’s debts follow you to your new company, a Chapter 7 bankruptcy may be advisable. Creditors can apply your previous company’s debt to your new company if they can show that the new company is a mere continuation of the previous company, with the test being continuity of ownership. This means that if the shareholders of the second company are identical or nearly identical to those of the first, the first company’s debts may follow its shareholders to the second company. This problem can be solved through Chapter 7 bankruptcy.

Unlike a Chapter 11 bankruptcy, in a Chapter 7 bankruptcy, the bankrupt company does not survive the bankruptcy, but rather is liquidated to pay its creditors. At the conclusion of the bankruptcy, the company’s debts are discharged. This discharge allows the company’s shareholders to begin a new enterprise without worries about personal liability or the mere continuation rule.

If your business is distressed, it is important to meet with an attorney to help you assess the health of your business and the state of its debts in order to determine reasonable goals as well as the best strategy to achieve those goals with a view toward the survival of your business and the avoidance of personal liability.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Solutions for Distressed Businesses, Part I: Five Basic Strategies

2011-09-19T17:41:00.001-05:00

If your business’ debts are threatening its continued operations, you should consult with your attorney about pursuing one of the following courses of action to either restructure your business’ debt or obtain a fresh start without incurring personal liability for your business debts:

Negotiation with creditors: This is often the most efficient way to solve your business’ problems. If your business files for bankruptcy or dissolves, your business’ creditors face the risk of being left with nothing. They usually have incentive to negotiate a long-term payment plan that that will allow your business to survive. Often they will even agree to reduce the amount of your debt.
Restructuring your company’s debt through Chapter 11 bankruptcy: In a Chapter 11 Bankruptcy, your business can work with your creditors to reorganize your debt and allow your business to continue to operate. Chapter 11 bankruptcies can be prohibitively expensive to many small business owners. However, they offer two important tools to debtors. First, during the pendency of the bankruptcy, creditors are not allowed to pursue their claims against your business. Second, reorganization plans can be confirmed by the court even if certain creditors vote against them. Although a Chapter 11 bankruptcy does require the debtor business to negotiate with its creditors, the debtor’s limited ability to cram down a plan over creditor objection and the automatic stay of creditor legal action can improve the debtor business’ negotiating position and force reluctant creditors to come to the table.
Liquidating your company through Chapter 7 bankruptcy: In Chapter 7 Bankruptcy the business’ assets are liquidated by the trustee and distributed to the business’ creditors. The business ceases to exist and corporate debts are discharged.
Voluntary dissolution: Voluntary dissolution is a process whereby the company itself, rather than a bankruptcy trustee, liquidates its assets and distributes them to creditors and shareholders in order of priority. If a corporation is not properly dissolved, its shareholders and directors can become personally liable for its debts.
Simply walking away from the business: Closing your business’ doors without properly dissolving your corporation or LLC is only a good option for corporations with next to no liabilities or assets, as it will open up the business’ shareholders and directors to personal liability.

Your attorney will be able to assist you in determining which of these options is correct for your business, based on your business structure, the nature of its creditors and debt, and your goals. In the next part of this series, we will discuss the different considerations that will allow you and your attorney to effectively choose between these five strategies.

Please visit our website for more information and resources or e-mail us at info@oflaherty-law.com with any questions or suggestions for future articles.

Employees and Independent Contractors, Part II: Independent Contractor Agreements

2011-09-12T11:05:00.001-05:00

In last week’s article we learned how your business can use independent contractors to shield itself from liability. Once you have consulted with your attorney and determined how to structure your relationship to your independent contractor you should then work with your attorney to draft an independent contractor agreement is appropriate to your situation.

The two purposes of this type of agreement are: (1) to ensure that the relationship between your business and the person or entity that you are hiring will be treated as an independent contractor relationship rather than employer/employee by the courts; and (2) to put you in a favorable legal position with respect to any disputes that may occur between your business and the contractor.

Below is a non-comprehensive list of some of the most important clauses that employers should include in their independent contractor agreements:

· Services and Rate: These clauses describe the services to be performed by the contractor under the agreement and the pay that the contractor will receive for such services. The expectations of the parties should be explicit and detailed, so as to prevent after-the-fact disagreements as to each party’s obligations.

· Characterization: This clause explicitly characterizes the relationship as an independent contractor relationship. The intent of the parties is one factor courts use to determine whether an individual is an employee or an IC. A proper characterization clause will make this intent clear.

· Conflicts: The agreement should prevent the contractor from engaging in activity that conflicts with your company’s business interests.

· Expenses and Taxes: Making the contractor responsible for his or her own expenses and taxes in connection with the agreement not only saves your company money, but is another indication that the IC is not an employee.

· Benefits: The contract should make clear that the contractor is not entitled to participate in your employee benefit plan.

· Agency: The contractor should not have the authority to enter into contracts on behalf of the company.

· Indemnification: This clause provides that, should your company be sued based on the contractor’s actions, the contractor will be responsible for paying the expenses of your defense.

· Confidentiality: The contractor should be prohibited from disclosing any trade secrets or other confidential information of the company.

· Applicable law: You should decide which state’s law will apply to the agreement. This will prevent confusion as to each party’s rights under the agreement. It will also prevent either party from cherry-picking favorable state law should a conflict arise. Since it is usually more difficult for employers to successfully forum shop, this clause will tend to benefit the employer.

· Licensing: The contractor should warrant that it is licensed to perform the agreed-upon services. If the contractor is not licensed and makes such a warranty, this clause makes it easier for the employer to recover from the contractor. It also protects the employer from liability to third parties.

· Insurance: The contractor should be required to cover sufficient liability insurance and to name the employer as an additional insured. Again, this protects the employer from third party liability.

· Non-compete: Depending on your business model, it may be appropriate to require the contractor to engage in any business that competes with your company for a reasonable period of time and within a reasonable distance from your business.

· Enforcement: Any attorney fees or other costs or expended by either party to enforce the agreement or recover damages for a breach should be recoverable from the breaching party. Often, without this clause, enforcement of the agreement is not economically feasible, because the recovery would not be sufficient to outweigh the costs of enforcement.

There is no such thing as a one-size-fits-all independent contractor agreement. After reviewing your particular situation, your attorney can help you tailor each of the above clauses to your business' needs and add additional language that will work to your benefit.

Employees and Independent Contractors, Part I: Using Contractors to Avoid Liability

2011-09-02T14:23:00.001-05:00

In last week’s article we discussed how incorporation of your business can protect you from personal liability for business debts. This week we will discuss another liability shield: the characterization of your workers as independent contractors rather than employees.

As an employer, you are liable for your employees’ acts that are committed while acting within the scope of their employment. However, you are not liable for the negligent or intentional acts of independent contractors that you have hired.

Let’s say that Lexcorp, Inc. hires General Zod to drive a shipment of kryptonite from Gotham to Metropolis on Superman’s birthday. En route General Zod hits the bicycling Jimmy Olsen with his truck.

If Zod is an employee of Lexcorp, Jimmy can now sue Zod and Lexcorp, Inc. for his damages, because Zod was acting within the scope of his employment when the accident occurred. (Remember from last week's article that because Lex Luthor was smart enough to properly incorporate his business, Lex himself is not personally liable for Zod’s actions.)

When Jimmy brings suit against Zod and Lexcorp, Lexcorp’s attorney will argue that Zod is not an employee of Lexcorp, but was instead acting as an independent contractor when he hit Jimmy, and that therefore, Lexcorp is not liable to Jimmy for Zod’s actions.

In order to determine whether Zod was acting as an employee or an independent contractor, the court will look at a series of factors (described below). Since Lex Luthor, president of Lexcorp, consulted with his attorney prior to hiring Zod, he was able to structure Lexcorp’s business relationship with Zod such that the court would find Zod to be an independent contractor. Lexcorp is off the hook and is able to concentrate its financial resources on killing Superman rather than paying damages to Jimmy Olsen.

So what did Lex and his attorney talk about before hiring Zod? First, Lex’s attorney would have told him that there is no rigid rule for determining whether a person is an employee or an independent contractor. Second, simply referring to the person you intend to hire as an independent contractor in your contract will not be determinative—rather it is important to structure the entire business relationship in such a way that the individual is an independent contractor regardless of what the contract says.

Courts consider the following factors when determining whether an individual is an employee or an independent contractor:

• The employer’s right to control the manner in which the work is performed;
• The employer’s right to discharge the employee/contractor;
• The method of payment;
• Whether taxes are deducted from the payment;
• The level of skill required to perform the work; and
• The furnishing of the necessary tools, materials, or equipment

No single factor is determinative, but the right to control the manner in which the work is performed is considered to be predominant.

With these factors in mind, Lexcorp required Zod to supply his own truck and fuel. Lexcorp made a one-time payment to Zod and did not withhold taxes—Lexcorp certainly did not place Zod on salary!

Most importantly, Lexcorp’s agreement with Zod left Zod the freedom to transport the kryptonite from Gotham to Metropolis in any manner that he chose, so long as the kryptonite arrived in Metropolis by Superman’s birthday. Considering the fact that Zod possesses powers of super strength and flight, it is surprising that he chose to transport the kryptonite by truck. However, had Lexcorp specified in its agreement with Zod that Zod must fly the kryptonite to metropolis, Zod would be one step closer to being treated as an employee rather than an independent contractor.

It is important to note that Zod could still be considered an independent contractor even if he performed work for Lexcorp on a regular basis, as opposed to a single job.

With that in mind, next time your business is hiring, you should consult with an attorney to determine whether it might be advantageous to fill the position with an independent contractor rather than an employee. If you seek to hire an independent contractor, it is important to structure your relationship with the contractor in such a way that a court would not treat him or her as an employee. Once you have determined the structure of your business relationship, you should have your attorney draft an Independent Contractor Agreement to memorialize this business structure.

Requiring your independent contractor to sign an Independent Contractor Agreement is important not only to protect your business from liability for the contractor’s negligence and torts, but also to protect your business should a dispute arise between your business and the independent contractor. In Part II, we will discuss the benefits of a properly drafted Independent Contractor Agreement as well as the importance of the different provisions that you should include in such an agreement.

-By Kevin P. O'Flaherty

LLCs vs. S-Corps: Selecting a Corporate Form for Your Small Business

2011-08-26T15:24:00.001-05:00

Incorporating a business is important for two primary reasons: (1) to protect personal assets from business creditors; and (2) to obtain favorable tax treatment for all business income. The purpose of this article is to educate small business owners regarding the two types of corporate entities that are particularly preferable for small businesses: the Limited Liability Company (LLC) and the S-Corporation. In deciding between incorporating as an LLC or as an S-Corporation, there are a number of considerations to take into account:

A. Similarities between an S-Corps and LLCs: favorable tax treatment and limited liability

Both S-Corps and LLCs prevent double-taxation (taxation at both the corporate and individual level) and limit the personal liability of shareholders.

1. Prevention of double-taxation

One benefit that LLCs and S-Corporations have over other corporate forms is that they allow all income to pass through the business and flow directly to the business’ principals. This is important because all losses and or earnings are reported on the principals’ tax returns, rather than on the business’ income report. This eliminates the corporate tax, otherwise as the “double tax” of standard corporations.

In the case of standard corporation (or a C-corporation), the net income of the corporation is subject to the corporate tax. The crucial distinction between a C-corporation and an LLC or an S-Corporation is the tax implication on the remaining income after the corporate tax. In the case of a C-corporation, after the corporation has been taxed, all remaining money is taxed a second time when it is distributed as dividends to the shareholders of the corporation. This is not the case for an LLC or an S-Corporation.

2. Protection of personal assets

When a business is properly incorporated as an LLC or as an S-Corporation, it will take the brunt of any potential lawsuit that may occur during the operation of the business, while shielding the owner’s personal assets from the company’s liabilities.

B. Differences between S-Corps and LLCs: distribution of income and employment tax

The most important differences between LLCs and S-Corps involve:

(1) differing rules regarding ownership and distribution of income to shareholders

(2) differing rules for employment tax.

1. Ownership and Distribution of Income

S-Corps are subject to many restrictions that do not apply to LLCs. For example, S-Corps must have 75 or fewer shareholders, all shareholders must be U.S. citizens, and shareholders cannot be LLCs or corporations. However, certain types of entities are not allowed to file as an LLC, and must therefore file as an S-Corp.

Among the restrictions that S-Corps place on their shareholders is a restriction on the way corporate profits are distributed. All S-Corp profits are distributed based on the ratio of stock an owner holds in the corporation. For example:

Al, Ben, and Charlie form ABC, Inc. as an S-Corporation. Al invests $10,000, while Ben and Charlie each invest $5,000. Al would have 50% ownership in the corporation with Ben and Charlie each having 25% ownership in the corporation. When profits are distributed, Al would receive half of all profits distributed, while Ben and Charlie would each receive a quarter of the profits.

LLCs do not have as many restrictions as S-Corps. In the case of an LLC, the wishes of the owners, not the stock-ratio-system, determine how corporate profits are distributed. For example:

Al, Ben, and Charlie form ABC, LLC. Even if Al invests $10,000, while Ben and Charlie each invest $5,000 (as in the previous example), Al, Ben and Charlie could decide to distribute corporate profits according to each shareholder’s ownership percentage. Since ABC, LLC is an LLC and not an S-Corp, Al, Ben, and Charlie would be restricted to the stock-ratio distribution.

2. Employment tax

First, a disclaimer: the tax implications for the various corporate forms are complex. Below is a general description of the way that LLCs and S-Corps are treated differently for employment tax purposes. The employment tax is currently set at 15.3% for both S-Corps and LLCs. However, this tax is applied differently two the two business types.

An S-Corporation’s owner’s salary is the only corporate income that is subject to the employment tax. Conversely, in the case of an LLC, the entire amount realized in the business (profits before subtraction of salary) is subject to the employment tax.

Back to our example:

Let’s say that ABC, Inc.’s total earnings for the year equals $200,000. ABC, Inc. pays each of its owners, Al, Ben, and Charlie, a salary of $50,000 (a total of $150,000 in salary). Since ABC, Inc. is an S-Corp, ABC, Inc.’s remaining profits are not subject to the employment tax and will pass directly, untaxed to its owners. Therefore, the total unemployment tax for the owners of ABC, Inc. will be $22,950 (15% of the $150,000 paid out in salaries).

Now let’s take a look at how this would play out for ABC, LLC. Again, the corporation realizes a $200,000 profit. This entire profit is subject to the employment tax at a rate of 15.3%, before salaries are paid. Al, Ben, and Charlie’s total employment tax would be $30,600 (15.3% of $200,000 total profit).

We can see from this example that Al, Ben, and Charlie can save $7,650 in employment tax by forming an S-Corp rather than an LLC.

C. Which entity is right for your business?

As a general rule, S-Corps are more restrictive than LLCs, but receive more favorable employment tax treatment. In determining which business entity works best for your business, you should make a careful assessment of your particular needs and consult with your attorney and accountant. In making your assessment, you should bear the following features of each entity in mind:

LLCs:

The owners can be paid by the amount of work they do, rather than by the percentage of stock owned.
LLCs do not place restrictions on their potential shareholders – nonresident aliens for example, can be shareholders in the corporation and are not affected by the LLC structure.
Some entities cannot file as an LLC.
Employment tax applies to realized profits

S-Corporations:

Owners receive the same pass-through tax implications LLCs enjoy – thus eliminating the double tax.
S-Corporations Restrict who can be a shareholder:
- There must be 75 or fewer shareholders
- The shareholders must be resident of the United States; and
- Shareholders cannot be other LLCs or corporations.
The S-Corporation must allocate funds proportionate to the shareholder’s stock interest.
Employment tax applies only to the owner-employee’s salary

- By Kevin P. O'Flaherty and Ryan J. Waite

Crash Course in Wills and Trusts: Part I

2011-08-19T15:04:00.001-05:00

A lot of my friends either are starting to have children, or are thinking about having children. As you might expect, this means that I am fielding a lot of questions about wills and trusts. These conversations inevitably start with wills, because this is the estate planning instrument that most people are familiar with (e.g. "if you don't attend University of Iowa, I am removing you from my will"). However, wills are just one component of a healthy estate plan--and not even the most important component.

In following articles, I will explain in detail the different components of a proper estate plan. In this article, I will first explain the importance of having an estate plan. I will then briefly explain why I recommend a Revocable Living Trust as the primary instrument for most estate plans, as opposed to a will.

Your estate plan is an investment. A proper estate plan will ensure:

that your assets are allocated according to your desires;
that your heirs (and/or spouse) will have immediate access to the assets you leave for them (as opposed to having to wait as long as a year for the resolution of probate on your estate);
that a large portion of your estate will not be expended on probate attorney fees;
that your assets will avoid both federal and state estate taxes to the greatest extent possible;
that if you become incapacitated, your partner (or the individual of your choice) will have the ability to immediately make financial decisions on your behalf and for your benefit without the need for a lengthy and expensive guardianship proceeding;
that if you become incapacitated, your desires as to medical treatment will either be made clear to your doctor in advance, or placed within the authority of the individual of your choice (without the need for a guardianship proceeding);
that the guardian(s) of your choice will be named for your children;
that, should both you and your partner pass, a person you trust will be named to administer your assets for the benefit of your children until they reach the age of your choosing;
that, as time passes, disbursements from your estate are made to the estate’s beneficiaries according to your wishes.

When most people think of an estate plan, they think: “I have kids now--I should probably have a will.” However, the estate plan system we generally recommend focuses on an instrument called a Revocable Living Trust instead of a will. A Revocable Living Trust is preferable to a will for many reasons.

First, if a will is the primary instrument of your estate plan, your estate must go through probate before your heirs have access to your estate’s assets. Probate is a legal proceeding for the purpose of ensuring that an estate’s assets are distributed correctly. It takes from six months to a year. In probate, the estate’s executor typically hires an attorney to handle the probate case, which will cost your estate (and your heirs) thousands of dollars. Unlike a will, a proper Revocable Living Trust will avoid probate and the associated attorney fees, providing your heirs immediate access to the assets to which they are entitled.

Second, a Revocable Living Trust allows you to have greater control over how your assets are handled after your death, allowing you to ensure that your heirs are properly cared for. A Revocable Living Trust also allows you to maintain complete control over your assets during your lifetime.

Third, a Revocable Living Trust can be used to minimize taxes on your estate.

That being said, the optimal estate plan can and should vary from individual to individual. We offer free consultations to explain your options, answer any questions you may have, and discuss the type of estate plan that is right for you and your family.

The Written Discovery Phase of Litigation Explained

2011-08-19T08:59:00.002-05:00

Despite what many television programs portray, only about 0.6% of civil cases actually make it to the trial phase.[1] So, what is your attorney doing the rest of the time? Simply put: discovery. Your attorney’s job is to literally discover how strong or weak your case is, and how to proceed from there. In order to do that, your attorney has to do a considerable amount of research. And, we’re not talking legal research here, I mean factual research. Your attorney has to uncover as much as he or she possibly can about you, your adversary, and the situation leading to you hiring an attorney to determine what course of action is best for you. The vast majority of civil cases settle during this discovery phase because one side or other comes across facts that tell the attorney the client would be unlikely to win at trial. So, how does this whole process begin?

Civil Litigation begins with the filing of a Complaint in the appropriate court (we will discuss how to determine which court is appropriate in subsequent articles on Jurisdiction and Venue). In the Complaint, the Plaintiff alleges the facts that underlie his or her claim against the Defendant and requests damages or other relief from the court. Once the Complaint is on file and the Defendant is served with a summons (i.e., notice that the Complaint was filed), the Defendant is given the opportunity to respond to the Plaintiff’s allegations. Assuming that the Complaint survives any Motion to Dismiss filed by the defendant, the Defendant will file an answer to the allegations of the Complaint. Once the Complaint has been answered, the case is “at issue” and the discovery phase of litigation begins.

The first step of this phase is to issue written discovery. Written discovery consists of four primary types of documents: (1) written interrogatories; (2) requests for production of documents; (3) requests for admission of facts; and (4) third party subpoenas.

· Written interrogatories are written questions to the opposing party, to which that party must respond in writing.

· Requests for production of documents are requests for the opposing party to make available to the requestor certain documents in its possession.

· Requests for admission of facts are requests for the opposing party to admit or deny certain facts, or the validity of certain documents.

· Third party subpoenas are written interrogatories and requests for production of documents issued to people and organizations that are NOT parties to the lawsuit.

Typically, each side will initially object to certain interrogatories and requests for production, on one of the following bases:

· that the discovery request seeks information that is not relevant to the case;

· that the discovery request is overly broad (i.e., not narrowly tailored to discovering only relevant information);

· that the discovery request is unduly burdensome (i.e., the burden of gathering the information sufficiently outweighs the relevance of the information); or

· that the requested information is subject to attorney/client or some other privilege.

An objecting party will often withhold the information that it claims is not discoverable. If the requesting party feels that the other side’s objection is meritless, or if the other side fails to timely produce the requested information or documents, the requesting party must send a letter to the party that it believes is wrongfully withholding information or documents in an effort to resolve discovery objections outside of court. This letter should detail the deficiencies in the other party’s discovery responses, explain why such responses are deficient, and request that the withholding party supplement its deficient answers within a specified time period.

If, after this time period expires, the parties are not able to work out their discovery differences, the requesting party is entitled to file a Motion to Compel Discovery. Both Illinois and Indiana law require that the parties attempt to work out their discovery differences outside of court before a Motion to Compel will be granted. If the judge grants a Motion to Compel, he or she will order the answering party to answer the requesting party’s discovery more appropriately or fully, and may assess attorney fees expended by the requesting party to obtain such information. If the answering party fails to appropriately respond within the time period established by the court, the answering party will be held in contempt.

As new information comes to light throughout the course of the written discovery phase, each side will issue a second or third set of interrogatories and production requests is necessary.

Both sides will usually wait for complete and satisfactory answers to their written discovery requests and subpoenas before scheduling depositions. The reason for this is twofold. First, depositions are expensive, and free written discovery allows us to narrow our focus in order to lessen their cost. Second, complete written discovery is a useful tool to keep the deponent from evading complete answers in his or her deposition.

The written discovery phase can range from two months to longer than a year, depending on the complexity of the litigation and the willingness of the opposing sides to cooperate with one another. Although a lengthy discovery phase can be frustrating to litigants, thorough discovery is an important step to assembling a winning case. Assuming competent lawyers on both sides, most cases are won or lost based mostly on the facts that come to light during written and oral discovery.

[1] Brian J. Ostrom, Ph.D. et. al., Examining Trial Trends in State Courts: 1976-2002, 1 Journal of Empirical Legal Studies 768 (2004).