Posts in: August

Til Death Do Us Part – Marriage and Asset Protection

August 15, 2017 Asset Protection Comments Off on Til Death Do Us Part – Marriage and Asset Protection

The question of whether a spouse can be held liable for the debts of the other spouse is often asked from married  (or to be married) couples, but the answer is not uniform and depends largely on  the laws of the state where you reside.

MOST STATES – COMMON LAW TREATMENT

The large majority of states that are NOT one of the nine “community property” states discussed below operate under the “common law” system, derived from Great Britain.  In these common law states, the liabilities of married couples are generally determined under the “title” theory, meaning whichever spouse is on title for the asset owns the asset, and whichever spouse was responsible for incurring the debt is solely responsible for that debt.  Spouses in common law states are generally not jointly liable for debts unless they both are involved in procuring the debt as a “joint debt.”  As a result, if a married individual in a common law state alone incurs a debt, the creditor would generally be limited to recovering from that individual’s assets only, and no recovery could be made from assets titled in the name of that individual’s spouse.   On the surface, this would encourage married couples to segregate their finances so that valuable assets are held in the name of the spouse with lessor risk, and corresponding debts in the name of the spouse with higher risk.  However, these rules are very state specific and, of course, moving your assets around when a creditor is already on the horizon raises fraudulent conveyance concerns, and so any asset protection planning should be done before the need arises.

Some common law states create an exception to the “title” rule for debts that are deemed for “necessities” or for “family expenses.”  In those states, spouses may be jointly liable for debts that are necessary for the family such as education, household, or medical debt even if the debt was obtained by one spouse only.   States also vary in how broadly they define debts deemed to be “necessities” or for “family expenses,”  and so it is important to understand how your state defines these terms to understand under what circumstances a creditor can attach the assets of a both spouses for the debts of only one.  Other states impose joint liability if the liability was created when a spouse was deemed to be acting as an agent of the other spouse, and so anyone concerned about spousal liability would need to familiarize themselves with the rules unique to their state.

TENANCY BY THE ENTIRETIES

In states that recognize “tenancy by the entireties,” assets owned jointly by the spouses as “tenants by the entireties” are deemed to be owned by the couple as a whole, and not owned by each spouse individually.   In these jurisdictions, a creditor of one spouse is generally unable to attach property owned “by the entireties” unless the other spouse also joined in the creation of the debt.   Therefore married couples in states that allow “tenancy by the entireties” often hold valuable real estate in this manner which can provide effective asset protection against creditors of just one of the spouses.   Again, these rules are not uniform as some states may find that a debt entered into by one spouse is nevertheless a joint debt if the non-debtor spouses knows, benefits, consents or ratifies the debt.

COMMUNITY PROPERTY

In the nine community property states (CA, AZ, TX, WA, ID, NV, NM, WI, and LA) which derives their marital property law from the Spanish system, each spouse in a marriage is deemed to own a ½ interest in assets that are deemed community property.  Since each spouse has a half-interest their individual debts could be attached and satisfied by a creditor against their 1/2 interest.  Therefore, by contrast to the common law system which relies heavily on “title,” the key component in community property states is not who owns the property, but how the property is characterized.   For these reasons, experts generally agree that community property states are more creditor friendly than their common law counterparts.  For example, assume a couple consisting of a primary wage earner and a homemaker.  The wage earner purchases a house during marriage using wages from employment, and takes title in the wage earner’s name only.  The homemaker then gets into a car accident which is not fully covered by insurance.  The resulting liabilities would obviously depend on the specific state but generally, in a common law state, the house could be protected from the homemaker’s liabilities because title is held in the wage earner’s name only, whereas in a community property state, ½ of the house could be exposed because the property would likely be deemed community property which the homemaker owns a ½ interest.   Therefore, marriage in a community property state could effectively expand the potential assets that creditors of either spouse can reach to the extent a married couple acquires assets characterized as community property.

Since exposure of assets in community property states depends on characterization, there is an incentive for married residents in community property states to consider marital property agreements that alter the characterization of assets (i.e. pre-nuptial or post-nuptial agreements).   The procedural requirements to form an enforceable marital property agreement, and the extent to which such agreement will protect your assets will depend on the laws of the state.  Therefore, consulting with an expert who understands these nuances in the respective state is essential to ensure that any asset protection goals are maximized.

Any married individual concerned about asset protection would be well served to understand the specific rules in your state governing the exposure of your assets to creditors, what tools exist in your state to mitigate your exposure to spousal liability, and how to utilize these tools in a manner that maximizes your protection in the event of an unforeseen liability.   Most important is the need to engage in this planning before it is actually needed as any planning done when a creditor is already in the fray may be vulnerable to attack as a fraudulent conveyance.

Pokémon No! How Pikachu Ended Up Getting Served with a Class Action Lawsuit

August 10, 2017 Law, Litigation Comments Off on Pokémon No! How Pikachu Ended Up Getting Served with a Class Action Lawsuit

Remember Pokémon Go? About this time last year, the “augmented reality” game in which players use their smartphones to capture and train various species of Pokémon was a global phenomenon, with nearly seven million daily downloads. It was sort of the “thing to do” of Summer 2016.

While Pokémon Fever has certainly subsided a bit, the game still has plenty of rabid fans. In fact, last month’s Pokémon Go Fest in Chicago drew 20,000 Pokémon Go die-hards to the city’s Grant Park. The Fest was billed as a chance for Pokémon Go “trainers” to compete against each other and bag rare Pokémon characters. Instead, as it turned out, attendees encountered hours’ worth of lines, a lack of data connectivity, problems with the game’s software, and malfunctions of the game’s servers. The Fest has been almost unanimously derided as a disaster.

In an attempt to quell the uproar regarding the fiasco, Pokémon’s parent company, Niantic, Inc., has offered to refund attendees’ the price of admission ($20) and give them $100 of in-app purchase credit. While definitely a nice gesture, that compensation isn’t cutting it for many Pokémon trainers who traveled from across the country, and the world, to attend.

One disgruntled Pokémon Go fan from California has gone so far as to file a class action lawsuit against Niantic on behalf of all who attended Pokémon Go Fest, seeking damages for, among other things, violation of the Illinois Consumer Fraud Act, which broadly prohibits unfair or deceptive business practices. The suit seeks to have Niantic reimburse Fest-goers for their travel and accommodation costs. It also goes after punitive damages to teach Niantic a lesson.

Virtually every state in the Union has a similar “consumer fraud” or “deceptive trade practices” statute. These statutes are designed to protect the public from business activities by that are meant to mislead consumers into purchasing a given product or service.

While each state varies in how offenses are dealt with (i.e. whether a private lawsuit can be filed or a class action is available), the acts that are illegal are at least fairly uniform across state lines. They usually include:

1) False representation of the source, sponsorship, approval, certification, accessories, characteristics, benefits, or quantities of a good or service (Niantic could have a problem here);
2) Representing goods as original or new when, in fact, they are deteriorated, altered, reconditioned, reclaimed, or used;
3) Falsely stating that certain services, replacements, or repairs are needed;
4) Advertising goods or services with the intent of not selling them as advertised, or with the intent of not having enough in stock to meet reasonably expected demand (another possible problem area for Niantic);
5) Disconnecting, turning back, or resetting the odometer of a vehicle to reduce the number of miles indicated;
6) Passing off goods or services as those of another (i.e. selling counterfeit goods); and
7) Representing goods or services as having a sponsorship, approval, sponsorship, or certification of goods or services.

Many of these seem like no-brainers, but as a consumer, it is important to know your rights, and if you are aggrieved to know that you may very well have the weight of a state statute behind you, in addition to common law claims for fraudulent misrepresentation and unjust enrichment.

As a business owner, it is crucial that you know when the conduct of your business may put you at odds with the consumer protection statute(s) in your state – so that you can do your best to make sure that you (as well as your employees and other representatives) DO NOT cross that line.

A little homework can go a long way in helping you protect yourself – both as a consumer and a business owner.