Who Gets the Dog?

As a society our views about animals have changed significantly over the last 25 years.  A recent book by David Grimm, wittily titled “Citizen Canine,” discusses many of the interesting legal issues that arise in the area of animal rights as a consequence of those changes.  One, which we blogged about last month, is that a majority of states now have special laws to permit a pet owner to create a trust to care for his or her pet after death. This week we are writing about pet custody when pet owners divorce. 

Despite the affection we may have for them, pets are still considered property for purposes of divorce law.  That means a prenuptial or postnuptial agreement can be entered into to establish who gets ownership in the event of a break-up.  Family lawyers have observed a rise in pet custody disputes, so entering into an agreement ahead of time may be a good solution. http://www.prnewswire.com/news-releases/pet-custody-disputes-on-the-rise-find-nations-top-matrimonial-lawyers-245220181.html   For example, during the recent temporary (albeit dramatic) break-up of Johnny Weir and his husband, Victor Voronov, one of the subjects of dispute was custody of their Japanese Chin lapdog, Tema.  Although Weir bought the dog, Voronov claimed the dog was gifted to him by Weir and that Voronov was the primary caretaker.  Before they reconciled it was reported that a New Jersey judge had ordered them to temporarily share custody pending a final decision about ownership.      

As with other issues in divorce, mediation may be a good solution to resolve a pet custody dispute.  If the dispute does end up in court, some judges may evaluate the way the parties have cared for the pet and their relationship to the pet in order to decide who gets the pet.  Last year a New York judge held a hearing, reportedly the first of its kind in New York, to determine which spouse’s ownership would be in the “best interests” of a dog named “Joey.”  Such a hearing is similar to those held to determine contested child custody in a divorce.  In a 2007 Virginia case the court actually appointed a lawyer to help determine the best interests of a dog who was the subject of a 4-way custody battle after the death of its owner.   http://voices.yahoo.com/dog-involved-custody-battle-assigned-lawyer-335484.html?cat=17.  In a recent Vermont case a judge held an extensive evidentiary hearing before awarding a dog, “Belle,” to the husband.  The judge decided that the husband had taken better care of Belle during the marriage – the husband took Belle to work with him every day and, in the judge’s words, treated Belle as a dog, while the wife treated Belle as a child. http://www.courthousenews.com/2014/05/02/67558.htm

In general, factors that may be relevant in awarding custody include: whether the pet was owned prior to marriage by one of the parties, who cares for the pet on a day to day basis, whose schedule is better to set up to care for the pet, where the pet will be safest, and where any children of the marriage will be living (it may be the pet should be with the parent who has primary custody of the children). 

Because they are considered property, some courts have taken the view that ownership of a pet must be awarded to one spouse or the other, with no power to direct visitation or other type of shared custody.  In the Vermont case about Belle, the wife appealed to the Vermont Supreme Court, challenging also the judge’s refusal to order any shared custody.  The Vermont Supreme Court, however, agreed with the trial judge. On the issue of shared custody the Vermont Supreme Court said:  "In contrast to a child, a pet is not subject to a custody award following a determination of its best interests. Because a pet is property, the family division must assign it to one party or the other. Like other aspects of the property division, the assignment is generally final and not subject to modification. Unlike child custody matters, there is no legislative authority for the court to play a continuing role in the supervision of the parties with respect to the care and sharing of a companion animal."  Courts in in several other states have reached a similar conclusion.  On the other hand, in a 2010 case a Maryland judge directed a divorcing couple to share custody of a dog named Lucky – with each caring for the dog for 6 months of the year -- based on the theory that the dog was joint marital property under Maryland law.  Lucky’s case shows that some judges may be more sympathetic to pet loving litigants than others.  However,  if the parties want to arrange shared custody it is probably better if they work that out privately rather than relying on a court which may conclude it lacks the power to do so. 

Another family law related issue that has recently come up is custody of a pet in cases of domestic violence.  A proposed New Hampshire Bill would let judges grant custody of pets and include them in a restraining order in some cases. The bill is intended to protect pets from domestic violence, and also give victims of domestic violence assurance that their beloved pets will not have to remain behind and be subject to abuse.  There was concern that some victims of domestic violence might hesitate to leave if they had to abandon their pets.   http://portsmouth-nh.patch.com/groups/politics-and-elections/p/pets-could-be-included-in-domestic-violence-law

Disclaimer – Postings Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.  

Estate planning for the “Modern Family

Do you watch “Modern Family?”  Jay Pritchett is the family patriarch, age 60, a wealthy man presiding over his large family.  He has a young wife, a baby son, a gorgeous home – and two of the most classic estate planning challenges. 

First, he is married for the second time and has children by both his current and his prior marriage.  That is a classic estate planning issue. Fulgencio (“Joe’) is his young son with second wife Gloria.  Claire and Mitchell are his adult children from his first marriage.  A complicating factor is that Gloria is much younger than Jay -- in fact Gloria is about the same age as Claire and Mitchell.  And as if that wasn't enough, Gloria also has a minor child, Manny, from her prior marriage.  Manny lives with Jay and Gloria and Jay considers Manny in all ways to be his son (although as far as we know Jay has not legally adopted Manny).  That is a complicated family situation  

Second, Jay is apparently the sole owner of his successful closet business, but only one of his children, Claire, works in that business.  Although she only recently started working there after taking time off to raise her children, Jay seems to be planning for Claire to succeed him in running the business.    

Jay definitely needs to consult a good estate planning lawyer!  Maybe we will see that episode someday. In the meantime, we can speculate about what his estate plan might look like.

Make sure documents treat Manny as a Descendant. First of all, Jay would provide in his planning documents (Will/trust) that Manny is to be treated as his descendant for all purposes. 

Set things up so Claire can run the business, but the whole family can own it.  Jay would then probably take steps to separate the control of the business from the economic benefits, so that Claire can continue to run the business after his death even as Gloria and other family members also benefit economically.  One way to accomplish that is to restructure the business (via an LLC or LP) to create two classes of ownership interest, one with control rights and one without, and with the control piece representing only a small part of the economic value.  Jay can then gift or bequeath the control piece to Claire. 

And maybe get a little fancy. If Jay wants to give up control during his lifetime, this can be even further refined.  For example the control piece itself might be held by an LLC owned 1/3 by Jay, 1/3 by Claire and 1/3 by Mitchell.  The advantage of this type of structure is that during Jay’s lifetime Claire and Mitchell would have to act together in order to overrule Jay (we can just see the TV episode when Jay tries to convince Mitchell to side with him).   Seriously, Jay has invested a lifetime in the business, has been successful, and has a commanding personality, so this type of structure would probably be more comfortable for him and would also reflect the family dynamic.  Mitchell is a lawyer and Claire and Mitchell get along quite well, so it is suitable for Mitchell to have some voice in the business; in fact, we suspect Claire would welcome his involvement especially after Jay’s death.  Jay would then leave his 1/3 to Claire, so that she would control the business after his death.    

However, there is also a major tax planning issue here because if the business is restructured so that Jay does not own a controlling interest at his death, then the business should also be worth less in his estate.  If we assume Jay’s estate is well into the taxable range (north of $20 million) that may be a beneficial result.  In fact, Jay might consider making lifetime gifts of non-controlling interests to a discretionary trust for the family, in order to take advantage of valuation discounts and other benefits of lifetime giving.  Weighed against that is the fact that a lower estate tax value also means a smaller step up in basis for income tax purposes, and there is a carryover basis for gifts made during lifetime.  We need to also consider that a large portion of Jay’s estate will likely be marital and Gloria is much younger than Jay and so can be expected to live for a long time after his death.  Suffice to say this is a complicated analysis!

Leave Property to the kids in trust - and create the Pritchett Dynasty? . Jay would probably take advantage of the $5,340,000 federal exemption to give or leave property in trust for Mitchell and Claire, their children, and possibly their husbands (as Mitchell and Cam are soon to be married).  Since Gloria is roughly the same age as Mitchell and Claire, they will likely not receive any benefit from Jay’s estate if they have to wait until after Gloria’s death.  Because family relations are good, Claire and Mitchell and their husbands are self-supporting, and there are no special needs, a discretionary trust for the entire family would be a good option for this piece.  Joe and Manny should also be included as beneficiaries of this trust, and Gloria can be included as well for maximum flexibility.  Such a trust could serve as a “Dynasty Trust” to establish a long-term pool of protected wealth for the family which might well appeal to Jay. 

Take Advantage of the Marital Deduction to leave property to Gloria. Jay would presumably use the marital deduction to leave the balance of his wealth to Gloria.  She is young and has two children to care for, so she will likely have significant support needs after his death.  Jay might consider leaving the bulk of that wealth in a QTIP trust, but also a part outright.  Although there are many advantages to trusts, emotional factors are important, and Gloria may well feel that Jay didn’t trust her (no pun intended) if she does not receive a fairly sizeable outright bequest, perhaps 1-2 million dollars.  That would not be inappropriate given what appears to be Jay’s significant level of wealth, and would also permit Gloria to benefit her own mother and other family members.

Watch the Retirement Assets. If Jay has any retirement accounts, those should pass to Gloria at his death.  Because retirement accounts are IRD and Gloria is so much younger than Jay, Gloria will likely benefit from rolling those accounts into her own retirement account and deferring the payout.   

Community Property? We should note that California is a community property state and there is no indication that Jay and Gloria have a prenuptial agreement, so Gloria would be deemed to own ½ of the community property in any case.  With regard to Jay’s business in particular, some part of the business reflecting the earnings during the marriage is presumably community property. However, Gloria would likely be willing to transmute property or otherwise engage in any planning steps that would benefit the family overall.  On the plus side, the entirety of the community property would receive a step up in basis at Jay’s death.

Avoid Probate & Plan for Incapacity with a Living Trust.  Finally, Jay would almost certainly use a living trust to avoid probate, ensure continuity of management for the business and incorporate planning for incapacity.

Pay for Alex to go to college & Lily to go to pre-school. And by the way, Jay should be paying school tuition for all the grandkids, from Lily’s pre-school all the way to Hayley’s community college.  Paying school tuition is one of the best ways to transfer wealth and benefit a modern family.

Disclaimer – Postings Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed.  The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice.  The law changes frequently and varies from jurisdiction to jurisdiction.  Being general in nature the information and materials provided may not apply to any specific circumstances.  Nothing on this blog is intended to substitute for the advice of an attorney.  If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.  

 business prior to marriage and continue to