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Fatty liver, discrete trial training, salvaged cars, and tattoos (New state laws starting July 1, 2012)

California state laws always start in January or July.  This year’s laws going into effect the other day on July 1 are a strange mix.  If you ever wondered what your state assemblymen were talking about in the green carpeted hall (that really is some ugly carpeting) in Sacramento—its foie gras, autism, tattoos, and bullying.  Of the new laws, I think the bullying law is my favorite, in that it expands the definition of bullying to include online behavior.  I think there is probably more bullying on facebook than on the school bus these days.
  • SB1520 bans the sale of foie gras, duck or goose liver that has been fattened by force feeding the animals with tubes shoved down their gullets (I don’t care how gourmet it is or how depressed your resident gastronome is, foie gras is cruel and wrong);
  • AB1215 requires used car dealers to put bright red stickers labeling salvaged or junked cars;
  • AB300 requires tattoo artists to be vaccinated against Hepatitis B, get basic first aid training, and follow statewide standards on sanitation (about time!);
  • AB1156 provides training for school employees on bullying prevention and expands the definition of bullying to include posting material on social media websites; and
  • SB946 requires health insurance carriers to cover behavioral therapy for those with autism, such as discrete trial training, which can be very costly when paid out-of-pocket.

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Writs of execution (sounds like $$$$)

I was recently asked online whether or not someone’s former spouse could, in his words, “attack my damn pension” because of spousal support arrears.  Many times payee spouses (those who are supposed to be receiving support) feel like there is nothing they can do when the other spouse fails to pay.  They feel powerless. 

That is why we have the writ of execution and wage garnishment.  Under California Family Code Section 5100 et seq.  the payee can get a writ of execution against the other party’s property and have the sheriff collect it for them.  In addition, section 5103 goes on to specifically include employee benefit plans such as 401k plans.  Cars, bank accounts, boats, 401k’s, etc. are all fair game.  One limit is a hardship exception, but that exception does not usually apply. 

In addition to writs of execution, spouses can garnish future wages.  Now, wage garnishment is subject to Federal limitations.  The lesser of the following can be garnished.

  • The amount by which a debtor’s weekly income is greater than 30 times the minimum wage. The current minimum wage is $7.25 an hour, making the 30 hour weekly total $217.50. This leaves the debtor with something to live on, though it clearly can be less than is needed to meet minimum obligations.
  • 25% of disposable income. Disposable income is defined as the income that is left after all legally required deductions are taken from a person’s paycheck. This include Federal and State Taxes, FICA, State Unemployment and Disability Taxes , with “disposable income” defined as income left after legally required deductions from a person’s paycheck, such as FICA. Other obligations, such as voluntary contributions to retirement accounts, deductions for medical, dental or vision insurance, or contribution to a Medical Savings Account are not exempt and will be considered part of the disposable income.

Now, your former spouse may sell their car, hide the cash under the mattress, get an illegitimate cash under-the-table job, not own a boat, or a retirement plan and avoid any susceptibility to your collection efforts.  But here’s hoping they didn’t read this blogpost.  If they are hiding everything at least you get to enjoy the fact that you are making them live life on the run.

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The SUV tax loophole (let’s just write the whole thing off)

The internal revenue code allows business to deduct the expense of vehicles, but puts restrictions (a cap) on the total amount businesses can deduct.  The idea was that dentists and lawyers (those damn lawyers) were buying luxury cars, and then writing off the cost as expense and depreciation deductions.  Congress changed the code (26 U.S.C. §280F) to limit deductions taken for vehicle expenses.  The code section limits deductions to around $12,000 total spread out over the life of the vehicle.  However, the limitation only applies to passenger vehicles.  The code goes on to define passenger vehicles (see § 280F (d)(5)) as any vehicle weighing 6,000 pounds or less.  Uh oh.
So, if you want to depreciate the entire cost of your vehicle it is not going to happen if you buy a Prius.  However, if you choose to buy a tank to deliver flowers in—well then by all means, please depreciate the whole thing.  I would love to drive to the courthouse in a Maraudermyself.  The intent of this exception was to allow farmers and construction workers to depreciate their necessary expenses.  The result is that small business owners have a huge incentive to buy gigantic SUVs. 
The auto industry knows about the tax loophole and designs most of their SUV’s to be 6,000 pounds or greater.  You can even find helpful listsonline of cars you can choose from in this weight category.  I can image the meeting in Detroit where General Motors executives say, “Why do these hippies want us to make the Navigator smaller?  Don’t they realize they will lose their tax benefits?  Let’s make a smaller one for people who don’t own a small business and we’ll call it the Aviator!”  Most car companies now sell a 6,000+ pound version and a smaller than 6,000 pound version of the same car.  The BMW x5 (tank), x3 (not a tank); the Dodge Traverse (tank) Nitro (not a tank); the Lincoln Navigator (tank), the Aviator (not a tank); the Nissan Armada (tank), the Nissan Rogue (not a tank), etc.
California tried to eliminate this tax loophole in 2004 with Assembly Bill 848.  The bill failed miserably as noted in the press release here.  So, carry on my fellow Californians.  Buy solar panels for your home and business.  Use tax money to invest in renewable energy.  Institute a cash for clunkers program to get those SUVs off the road!  Then buy tanks for your business so that you just call write the whole thing off.

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The Tax Ramifications of Divorce (buy a car in december, get divorced in january)

During the tumultuous end of a marriage, spouses seek counsel from therapists, friends, family, and ministers.  Few spouses think of asking their CPA about their divorce.  Divorce has several tax consequences.  I recently spoke with a man who received a $40,000 tax bill following his divorce (ouch) at the same time he started paying spousal and child support.  So, what are the tax ramifications of divorce?
  1. January is a Beautiful Month for New Beginnings (and divorce)
When you marry, the IRS gives you this great new deduction.  Few people think about the flip-side of that deduction at the end of marriage.  The IRS doesn’t care if you were married for part of a year—they only grant you the deduction for being married if you are married the entire year.  The significant date is the finalization of the divorce.  The problem with that date is that it is somewhat hard to predict.  In California, divorces become final six months after judgment.
However, especially when issues are contested it can be uncertain when things will get finalized.  The worst thing that can happen is that a spouse claims their dependent spouse all year long, a divorce is finalized in December, and come April that spouse gets a big tax bill.  Attorneys can help their clients by working slowing or expediting the process to help avoid finalization of the divorce at the very end of the year (like December).
  1. Sell the House Fast  or First (what’s better than capital gains?)
Generally speaking, capital gains are long term investment gains that are taxed at a lower rate.  Capital gains are your friend.  However, the IRS has something even better in store for taxpayers who are married and sell real estate.  Under the tax code (28 USC § 121) if you use real estate as your principal residence for over two years, you can exclude $250,000 of gain if you are single, or you can exclude $500,000 if you are married filing a joint return.  Exclusion means just that—you don’t have to pay taxes on that gain at all. 
So, if you get divorced, then sell the house you only get to exclude $250,000 from gain.  If you are lucky enough to be looking at gaining over $250,000 from the sale of the property, couples should consider selling the property before finalizing a divorce.  The difficulty is that given the harsh real estate market, couples may have the property sitting on the market for some time before the property can be sold.  However, avoiding tax liability on another $250,000 worth of gain may be worth the wait.
  1. Goodbye Tax Deduction (children as dependents)
The IRS helps families by giving deductions for children (a policy that I think is ridiculous and unfair to those without children like me, but I digress).  Post-divorce, the spouse whom the court designates as the custodian of the child gets to claim the deduction.  So, the noncustodial spouse loses the deduction.  If a spouse had been claiming that deduction all year long, then loses custody in December, that can hurt come April. 
But, it gets more complicated: what happens when parents share custody 50/50?  It’s up to parents to figure out who gets to claim the child as a dependent.   If there are 2 children, most parents agree to each take one of the children as a dependent.  If there is one child or an odd number of children, parents usually switch use of the claim each year.  The parents simply need to be careful not to both claim the same child as a dependent, as the IRS will notice and will not be happy.  Whenever parental custody will be shared 50/50, parents should negotiate the claim of children as dependents on taxes as a part of the divorce settlement.
  1. Spousal Support Payments (the double-edged sword)
Spousal support is a double-edged sword for both parties.  For the obligated party (payor), they have to pay support, but can claim spousal support as an above-the line deduction.  That means spousal support does not need to be itemized.  Above the line deductions are better than below the line deductions as the deduction is taken before arriving at one’s adjusted gross income.  So, although the breadwinner may have lost several tax deductions (ouch) and is obligated to pay support (ouch), at least they get to claim spousal support as a deduction.
However, for the payee, things aren’t all cheery.  Although they are receiving support, spousal support is taxable income. 
  1. Child Support Payments (hear no evil see no evil)
For whatever reason, child support is a non-taxable event.  It is not deductible for the party paying.  It is also not claimed by the person receiving the child support.  It is completely tax-neutral.  This is one of the few transactions that the IRS doesn’t care about.

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Cameron Joins the Law Office of Gary W. Norris

I’m excited to announce that Cameron Norris has joined the Law Office of Gary W. Norris in Camarillo, CA.  The firm practices in the areas of Divorce, Support, Custody, Wills, Trusts, Contracts and Business law issues including business formation.
About Cameron:
Cameron Graduated from Southwestern Law School at the top of his class.  While a student he worked on the Hollywood Legal Legacy Project detailing the history of entertainment law in Los Angeles—which resulted in a published article.   Cameron also worked with the Firm of Dickstein Shapiro LLP to facilitate adoptions of foster children in Los Angeles County.  He also received several academic awards at Southwestern including three Dean’s Merit Scholar awards, four Witkin Academic Excellence Awards, eight CALI Excellence for the Future Awards, and the Gary and Pearl Cooperman Memorial Scholarship.  Cameron also maintains the popular blog Norris Ex Curia, which discusses practical legal issues with a focus on family law.  Before attending Southwestern, Cameron developed extensive experience in the finance industry.  In their spare time, Cameron and his long-term girlfriend enjoy horseback-riding and spending time with their five dogs.
About the Firm:
The Law Office of Gary W. Norris is headed by Gary who has practiced law in Ventura County since 1976.  Gary Norris is a member of the California State Bar, numerous Federal District Courts in California, as well as the Federal District Court in Arizona.  The firm practice is primarily focused on the areas of: divorce and family law disputes and court actions involving business, real property and contract matters.  The firm is a member of the Ventura County Collaborative Family Law Professionals group.
Please feel free to contact me.
Cameron Norris, Esq.
805-876-4LAW
Norrislaw.blogspot.com

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Don’t leave your life insurance to your kid unless you really mean it

Life insurance is a convenient way to take care of the ones you love after you are gone.  Not only can you do so without a formal will or trust, but the insurance provides pecuniary support whether or not your own estate would have been able to.  Many times, the person life insureds are looking to protect are their spouse or their children.  Many name their spouse as the beneficiary and their children as the contingent beneficiaries.  Not so fast!  
The Restatement, Second, of Contracts § 311 (2) and (3) read as follows:
(2) In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement.
(3) Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee.
So, you can’t discharge or modify a duty to a beneficiary unless the beneficiary 1) sues on it, 2) relies on it , or 3) manifests assent.  No problem right? 
The problem is that minors are assumed to have manifested assented.  This problem is well illustrated in McDaniel Title Co. v. Lemons, 626 S.W.2d 686 (Mo. Ct. App. 1981).  In McDaniel, the court found that an attempt to change a property settlement agreement was void because it was made for the benefit of a minor, a minor’s assent is assumed, and therefore the Restatement, Second, of Contracts § 311, as adopted by Missouri, prevented the modification of the agreement.
So what do you do?  You don’t leave your life insurance to your kid unless you really mean it.  Also, if you used to be named the beneficiary and have fallen out of favor, you may have a great lawsuit.

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