Robert A. Gordon Joins Lerch Early Leading New Bankruptcy/Financial Restructuring Practice

Robert A. Gordon has joined Lerch Early as a principal after 14 years as a judge on the U.S. Bankruptcy Court for the District of Maryland. Lerch Early is now better-positioned to advocate for our domestic clients in this important area that will become even more important in the wake of the pandemic, which will likely lead to an avalanche of bankruptcy filings.

Before coming to the bench, Robert represented clients in every aspect of insolvency law, in both federal and state courts, with extensive experience in bankruptcy cases that involved the enforcement of domestic, or family law, claims.

Family law issues are treated with specially designed care in bankruptcy, and Robert has managed those issues with thoughtfulness and resolve, whether they concern the impact of the Bankruptcy Code’s automatic stay upon ongoing domestic cases, the exclusion of debts and obligations from the bankruptcy discharge that arise from divorce proceedings, or the outright dismissal of a bankruptcy case due to its bad faith interference with an pending domestic case.

While a sitting judge, he ruled in numerous cases involving domestic disputes with a virtually perfect record of affirmance of matters appealed from his decisions. We welcome Robert and his skill at representing spousal interests in bankruptcy cases as the leader of our new Bankruptcy and Insolvency Group.

We’re pleased to welcome Robert to the firm. Please reach out to your Lerch Early family law attorney for more information on how Robert can help your business. You can learn more about him on his web bio: https://www.lerchearly.com/people/robert-a-gordon

What You Need to Know About Maryland’s Revised Child Support Guidelines

Maryland’s Child Support Guidelines, which are used by the Courts to establish and set child support in most cases in Maryland, had not been substantively adjusted in 10 years. The new law, which updates the prior Maryland Child Support Guidelines statute, is effective for all cases filed after October 1, 2020.

There are two noteworthy updates to the Maryland Child Support Guidelines statute – one, intended to address the “cliff effect” (i.e. a substantial decrease in child support) that occurs once the non-custodial parent reaches “shared physical custody”, which was formerly 128 overnights per year or more (or 35% of the overnights or more). The other – extending the presumptive application of the Guidelines to families earning up to $30,000 per month, thus doubling the former threshold.

1. Increasing the Threshold for Application of Guidelines

Prior to October 1, 2020, the Courts, unless they found sufficient reason(s) to deviate therefrom, were required to apply the result of the Maryland Child Support Guidelines calculator in all cases in which the combined adjusted actual income of the family was $15,000 per month (or $180,000 per year) or less. Now, the Maryland Child Support Guidelines calculator result is the presumptively correct amount for all families earning a combined adjusted actual income of $30,000 per month (or $360,000 per year).

This should provide more prompt and predictable results for families earning between $180,000-$360,000 per year. Above $30,000 per month or $360,000 per year, the Court has discretion in determining the level of child support.

2. Addressing the “Cliff Effect” in Shared Custody Situations

Under the former Maryland Child Support Guidelines, a family transitioned from using the “sole custody” calculation method to the “shared custody” calculation method once the non-custodial parent had the child or children in his or her care 35% or more overnights per year. That transition produced a “cliff effect” – a large drop in child support for the custodial parent once the 35% threshold was met. Not only was the “cliff effect” hard to understand for parents and courts alike – it also led to custody and access disputes motivated, in part, to manipulate child support.

The new Maryland Child Support Guidelines define shared custody as the non-custodial parent having the children for at least 25% of the overnights or more, with incremental adjustments in child support when a parent has between 25% and 50% overnights, to lessen the impact of the former “cliff effect” at 35% overnights. This means non-custodial parents who have their child or children 25% of the overnights or more should see their child support obligations decrease under the new guidelines from what they would have been under the former guidelines.

As to how a non-custodial parent who has their child 25% or more of the overnights will see their child support obligations decrease, take as an example a family where both parents of one child earn adjusted actual incomes of $12,000 per month ($24,000 combined). If Parent A has the child 75% of the overnights and Parent B has the child 25% of the overnights, under the former guidelines, Parent B would pay child support of $1,554 per month, but under the new guidelines, Parent B pays child support of $1,330 per month. If in that situation Parent A has the child 66% of the overnights and Parent B has the child 34% of the overnights, under the former guidelines, Parent B would pay child support of $1,554 per month, but under the new guidelines, Parent B pays child support of $746 per month.

For cases filed after October 1, 2020, the new child support guidelines will be used to establish initial child support orders, both pendente lite (pending trial) and permanently, as well as to establish the level of child support in cases involving modifications of existing child support orders.

Existing child support orders can be modified based only on a material change of circumstances. Courts have found a material change of circumstances in numerous instances, including but not limited to loss of a job, medical issues, retirement, education issues, changes in the needs of the child, etc. However, the adoption of the new child support guidelines is not, in and of itself, a material change of circumstances for purposes of modification of child support.

If you have minor children, adult destitute or adult disabled children, you should consult a family law attorney about how the new guidelines may affect your child support obligation or award.

Not All Dollars Are Equal: Which Assets Are Most Valuable in Divorce?

AvatarErik Arena, Principal

One thing is usually certain in the aftermath of a divorce: You’ll experience a reduction in net worth and in standard of living. This is unavoidable as one household becomes two.

But just because it will happen doesn’t mean you can’t take steps to lessen the blow. By choosing wisely and unemotionally when dividing the marital assets with your spouse, you can minimize the reduction in your net worth post-divorce.

Not all Dollars Should be Valued Equally in Divorce

Although all asset transfers between spouses (incident to divorce) are tax-free events, some of those assets may later be subject to sizeable income and/or capital gains taxes that must be paid entirely by the receiving spouse, significantly diminishing their net value. It is imperative that these consequences be known and understood by you and your attorney so that you don’t end up with less than your fair share of the net assets.

Which Assets and/or Dollars are Most Valuable?

Value means many different things to many different people. When dividing assets between spouses, it is important to keep in mind the classes of assets identified below, which vary in net present value. If you and your spouse are trading assets from different classes, adjustments may need to be made to ensure you are not losing fair value.

  1. Cash is king! It is both liquid and not subject to any further taxes. It doesn’t get any better than that!
  • Cash, funds in checking and savings accounts, and the money market portion of any investment accounts.
  • Home sale proceeds. If the family home is sold as part of the divorce, those proceeds are also liquid and not subject to further tax (as any capital gains due will be paid at the time of sale, after application of your combined spousal $500,000 capital gains exclusion).

2. Other assets not subject to any further tax. Generally speaking, the replacement cost for these items exceed their private re-sale value. Retaining those items as part of your divorce will mean less dollars spent by you post-divorce to get yourself situated.

  • Furniture and home furnishings.
  • Automobiles.

3. Assets subject to capital gain but not income taxes. These assets will fluctuate in value and will be subject to capital gain taxes if you need to sell them to generate cash. The order of priority in each case will vary depending upon the tax basis of each asset or holding:

  • Stock and/or mutual fund holdings in investment accounts. These may also throw off interest and/or dividends, which, in some cases, is taxable income to you.
  • The family home. Depending upon the home’s tax basis, you may face a hefty capital gains bill if you assume ownership and then sell it later. Further, at the time of that sale, you’ll only be able to use your own $250,000 capital gains exclusion, as opposed to the combined $500,000 exclusion for spouses.
  • Other real property not used as primary residence. Any capital gains problem is compounded with these properties because there is no applicable capital gains exclusion.
  • Stock options
  • Vested restricted stock
  • Some artwork

4. Assets subject to income tax at the time of exercise or withdrawal. These assets will also fluctuate in value. However, when it comes time to withdraw from them, you’ll be taxed on those withdrawals and/or distributions at your ordinary income tax rate in the year in which you take the distributions. Accordingly, the present value of retirement assets, when compared to cash assets, must be adjusted for both present value (as cash is available to you now, whereas retirement, if drawn early, is subject to an additional 10% penalty tax) and after-tax value.

  • Most employer sponsored retirement plans (note: IMF and World Bank pensions are not taxable)
  • IRAs
  • Certain pension plans
  • Retirement annuities

Each divorce is different and there can be legitimate reasons why assets are divided a certain way. The information above is intended to inform and educate you, so you can use that knowledge to move forward in a strategic fashion.

What Happens to the Family Pets in Divorce?

AvatarErik Arena, Principal

The American Veterinary Medical Association reported that, as of 2016, about 57% of American households have a least one pet among their family. While the number, species, and breeds vary widely from home to home, most of us become quite attached to our furry, scaled, or feathered companions – so much so that we consider them family. 

So what happens to the family pet upon divorce if you and your spouse do not agree to a custody arrangement? Let’s just say the courts won’t treat Fido like a member of your family.

Pets are Treated Like Objects – Not Beings

While the laws on this topic vary widely from state to state, Maryland and the District of Columbia treat pets similarly, and not kindly. Pets are seen as property, if recognized at all, and awarded to one spouse or the other as such. This means whichever spouse is deemed the legal owner ends up with exclusive control and responsibility of and for the pet.  This also means the other spouse may never see their pet(s) again. 

How is it determined who is the legal owner?  Sometimes it can come down to something as simple as whose name is on the adoption or purchase paperwork.  Or who paid the adoption fee. 

Other states such as Alaska, Illinois, and California treat pets like beings and award custody to the pets based upon a best interests standard.  Something comparable may soon be forthcoming in the District of Columbia. Nothing comparable is on the horizon in Maryland to date. 

You Can, However, Reach Agreements Sharing Custody of Pets and Pet-Related Costs

There is no limit to the imagination you and your spouse can apply to pet agreements, if so inclined.  And once consummated, those agreements will be honored and enforced by our courts.  But not modified. 

What might such an agreement include?  It could include, among other terms:

  • Custody and access provisions (i.e., when the pets will be with which spouse and/or the children, if any)
  • What will happen to the pets if one spouse relocates
  • A right of first refusal allowing a former spouse to care for the pets if the other is unable or unavailable
  • Provisions concerning introducing and/or integrating the family pets into households with other people and/or pets (i.e. allergies, incompatible animals, animals incompatible with small children, etc.)
  • Health insurance and payment of uninsured medical costs
  • Advanced medical care planning

Again, the sky is the limit as far as what you and your spouse might deem appropriate for your pet family members. 

Given what may unfold upon divorce if you and your spouse cannot agree, some find it prudent to execute pet-nuptial agreements at the time they purchase or adopt their family pets. That way, they can provide for the types of arrangements outlined above in Section 2, to assure themselves are role in their pet’s lives beyond their own relationship.

Welcome to Your Source for Divorce Law

The Divorce/Family Law Group at Lerch, Early & Brewer is proud to present our new Divorce Law Source blog.

In an age where Google searches and web browsing are the go-to for most people to find information about everything, we are thrilled to provide an easily accessible one-stop shop for all things family law and divorce.

Featuring content authored by each of our accomplished and skilled family law attorneys, we encourage you to use this forum to find the answers to commonly asked legal and practical questions our clients confront pre- and post-divorce, review explanations and analyses of pertinent legal concepts and principles, and receive updates on new practices, rules, laws, and the family court system in Maryland and D.C. We will be featuring new posts and content each week. We look forward to welcoming many regular followers and invite you to recommend desired topics for future posts. Please subscribe to the blog on the right-hand side of this page.

Lerch Early’s family law attorneys represent clients in every facet of family law including divorce, custody, child support, alimony, property division, modifications of custody, child support, and alimony, prenuptial and postnuptial agreements, litigation, divorce and custody settlement agreements and alternative dispute resolution, guardianship, and adoption. For more information, please check out our website.

We hope to see you soon on our blog!

In Health,

Heather Collier and Erik Arena
Co-chairs, Divorce/Family Law Group