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Breaking up gets even harder to do
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In an uncertain economy and shaky housing market, divorce is becoming increasingly complicated.
The two largest assets in a divorce are typically the family home and retirement savings. But recently the stock market has been struggling, and 401(k) plans are worth less as a result. Houses across the country, including Massachusetts, are losing value and prices are plunging, and many people have mortgaged their homes to the hilt.
What this means, in essence, is that it’s easier to split up equity compared to splitting up debt.
It’s becoming more common to find both the husband and wife are unable to take over a mortgage alone and re-financing has become increasingly difficult. In some cases, the value of the home is less than the mortgage. If a home is foreclosed on, the remaining shortfall has to be divvied up. One possible solution is to give the property back to the bank and negotiate better terms for repayment.
A better situation is if you can afford to have one spouse stay in the home and attempt to sell it, while the couple continues to split the mortgage payments until the house sells. But given the sluggish housing market, only couples who can afford to continue their mortgage payments as well as have one spouse pay for new housing can
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consider this option.
Another challenge is when one or both spouses have been laid off, which has a huge effect on support obligations. Or another is when one of the spouses suffers a significant loss of income because of a change in a bonus or profit-sharing plan. This means the division of assets may result in smaller shares.
Relocation is always a potential trouble spot in a divorce. If the economy continues to struggle, it could mean spouses will have to move to different areas of the country to look for employment. This will affect child custody.
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‘Independent contractor’ litigation heats up
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FedEx is facing 57 lawsuits in 38 states by delivery drivers who claim FedEx cheated them out of overtime pay, benefits and eligibility for workers’ compensation and unemployment insurance because it classified them as independent contractors instead of employees.
An increasing number of employers are classifying workers as “independent contractors” and in certain industries, like package delivery and construction, it’s become the norm.
Employers see this as a way to avoid liabilities under various employment statutes, and possibly avoid unionization. It’s also a way to pass on operating costs like insurance. If a worker is truly an independent contractor, an employer isn’t responsible for withholding and unemployment taxes, as well as workers’ compensation and unemployment insurance. Independent contractors are also not eligible for various employee benefit plans.
But classifying workers as independent contractors doesn’t always work. For example, in 1996 a federal court decided Microsoft’s independent contractors were instead employees – even though the software giant had required them to sign agreements acknowledging their independent contractor status and waiving their claims to company benefits.
In the FedEx case, the Internal
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Revenue Service has determined that FedEx Ground independent contractors should be reclassified as employees for tax purposes, and ordered the company to pay more than $319 million in back taxes and penalties for 2002.
A California appeals court last year ruled FedEx Ground drivers should be reimbursed for work-related expenses, awarding $11 million in damages.
And the Massachusetts attorney general in December 2007 fined FedEx Ground more than $190,000 for intentionally misclassifying 13 drivers as independent contractors rather than employees.
The IRS and various courts have established criteria to gauge whether a worker is an independent contractor or an employee. The criteria essentially boil down to the amount of control the employer exercises over the workers –such as instructions on how, when or where to do the work and what equipment to use.
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New law dramatically expands potential money awards in wage disputes
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The Massachusetts Legislature recently passed
a law that automatically triples money damages against any Massachusetts business that violates the state’s wage and hour laws.
In passing the bill, state lawmakers signaled that they intend to protect employees in disputes with employers. The new law, the first of its kind in the country, goes into effect July 13.
The old law imposed triple damages only when a company intentionally violated the law. Now, even an unwitting violation of the wage and hour laws will trigger the triple damages award.
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As a result, businesses will be motivated to carefully assess their pay practices to ensure they are complying with overtime provisions, vacation pay policies and the like.
The law will likely mean an increase in lawsuits, including class actions.
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Trust can’t deduct full cost of investment advice
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A trust can’t deduct on its tax return the entire amount it spends for investment advice – at least in most cases, the U.S. Supreme Court has decided.
The case involved a trustee who paid $22,000 for investment advice. He tried to deduct this amount from the $625,000 in income the trust reported on its return.
For an individual, investment advisory expenses are a “miscellaneous itemized deduction,” and they can be deducted only to the extent that these deductions exceed 2 percent of adjusted gross income.
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The trustee argued the rule should be different for trusts, but the Supreme Court said that in most cases the rule was the same for trusts as it was for individuals.
The court said the result might be different if the trust somehow had expenses that would be unlikely for an individual to have. But in this case, the trust received “plain vanilla” financial advice that was similar to what would be provided to an individual.
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Down market prompts new types of sales for buyers
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The down market in real estate has created a “boomlet” in two obscure types of property sales: the “short sale” and the “house swap.”
A short sale is an alternative to foreclosure. If a property owner is unable to make mortgage payments, but the lender doesn’t want to go through the legal hassle of foreclosure, the owner and the lender may agree to a short sale. The property is sold, and if the sale price is less than the balance on the mortgage, the lender writes off the difference.
For lenders, this can be a good deal not only because the cost of foreclosure proceedings is high, but because owners of property in foreclosure often stop caring for the property, resulting in maintenance problems that lower its value.
For buyers, a short sale can be a great deal. You may be able to buy a property from a motivated seller at a price comparable to a foreclosure sale, but without the maintenance and other issues that are common when buying property after a foreclosure.
One drawback to short sales is that it frequently takes the lender a long time to respond to an offer. Before responding, a lender will often want to confirm that the owner really can’t continue making payments, get an appraisal of the property’s market value, and determine that the offer is preferable to what could be obtained through foreclosure. Lenders often want to investigate whether the offer comes from a relative or a friend of the owner who is colluding with the owner to produce a “low-ball” price. And since many loans are sold
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in part to investors, the lender often has to get an investor to agree to the offer.
But if you’re patient, a short sale can pay off.
The other new type of sale is a “house swap.” A number of websites have spring up recently that allow people who want to sell a home and buy a new one elsewhere to connect with people who are selling in their “destination” city and moving to their “home” city. The idea is that these people can buy each other’s homes.
The chances of a perfect match might not be very great, but there have been a few success stories involving homes that wouldn’t sell otherwise.
The websites include OnlineHouseTrading.com, GoSwap.org, and DomuSwap.com. Some swaps are also advertised on Craigslist.org.
One problem with a swap is that you have to make sure the closings are held simultaneously. If you buy the “swapper’s” home, but some difficulty arises and the swapper isn’t able to complete the purchase of yours, you’re probably out of luck.
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Auto carrier has to show ‘prejudice’ before denying no-fault medical payments
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When you are injured in a motor vehicle accident, under Massachusetts law you have the right to claim insurance payments for your medical bills regardless of who is at fault for the accident.
However, you have to apply for those payments – known as personal injury protection benefits – on a timely basis, otherwise the insurance company can deny payment.
However, what is considered “timely” has been unclear. The state law says you have to file “as soon as practicable” although you have up to two years following the accident to do so. Insurance companies argue they need the information as soon as possible after
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an accident so they can promptly investigate the accident.
The Massachusetts Appeals Court recently clarified this area of law, ruling that an insurance company must show that it is “prejudiced” by a delay in filing, as long as the injured person applies for medical payments within two years of the accident.
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Lawsuits target cholesterol drugs
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A wave of lawsuits filed in the wake of a recent study accuses Merck and Schering-Plough of grossly overpricing their Vytorin and Zetia cholesterol medications, and covering up findings that the drugs were no more effective than lower-priced generics.
Marketed jointly by Merck and Schering-Plough, Vytorin is a composite of Schering-Plough’s Zetia and Merck’s Zocor, which is now available as a low-priced generic.
A study released by the companies showed Vytorin is no more effective than the generic form of Zocor in reducing plaque buildup in arteries. Also, it’s only slightly more effective than the generic drug in reducing LDL – “bad cholesterol” – levels.
Fueled by the study’s findings, a flurry of lawsuits have been filed in federal courts in 15 states and some 5,000 potential clients have made inquires about filing a lawsuit.
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The consumer fraud lawsuits accuse the drug companies of misleading consumers about the effectiveness of Vytorin versus Zetia. They also allege that Merck and Schering-Plough deliberately delayed the release of the study for nearly two years. The results were eventually made public only after pressure from Congress.
Additional lawsuits involving other cholesterol drugs are expected in light of recent studies questioning their effectiveness in preventing heart-related injuries and deaths.
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This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please call our firm today.
The information in this newsletter is intended solely for your information. It does not constitute legal advice, and it should not be relied on without a discussion of your specific situation with an attorney.
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