Recent Articles

May 2021 : Court of Appeals Reverses Trial Court Ruling on the “Marital/Separate” Property Character of a Business Interest Received by Gift before Marriage Wolcott v Wolcott, Mich App No. 351918 (March 11, 2021) Unpublished

View / Download May 2021 Article – PDF File

Tax Trends and Developments Column – Michigan Family Law Journal


Facts

  • In July 1999, W’s father gave her a 10% interest in a closely-held business (Company) at which she was not employed.
  • The parties married a month later in August 1999.
  • During the entire marriage, the parties maintained separate bank accounts.
  • W deposited any distributions she received from the Company into her separate bank account.
  • The trial court ruled that W’s interest in the Company was her separate property.
  • H appealed.

Court of Appeals Decision

  • In an unpublished decision, the Court reversed the trial court’s ruling.
  • In doing so, the Court noted that the distributions W received from the Company – though deposited into her separate bank account – were commingled with her marital income deposited into the same account.
  • Further, the Court stated that W had testified that she used some of the distributions from the Company to pay marital expenses and household bills.
  • The Court ruled that W’s conduct with regard to distributions from the Company indicates that her interest in the Company was marital property.

Comments on the Case

  • The Court’s decision seems unfair to W.
  • The parties evidently, from the outset of their marriage, intended to keep their respective property interests separate, including the distributions W received from the Company.
  • That the distributions were incidentally “commingled” with marital funds does not necessarily indicate an intent to convert them – and certainly not the Company – to marital property, nor does use of some of the funds to pay marital expenses – particularly if other funds were temporarily insufficient.
  • The Court used these two factors to convert a pre-marital gift into marital property.
  • Treating the commingled distributions as marital seems reasonable. But, to treat the entire value of W’s interest in the Company as marital seems excessive.
  • The obvious upshot of the case is, if a party wants to keep separate property separate, then such party:
    1. Should deposit any income from such property in a separate account into which no marital funds are deposited; and,
    2. Should not use such funds to pay marital expenses. If such is necessary because marital funds are insufficient, make a documented loan of the separate funds to pay the expenses, and be sure that the loan is repaid.

About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

Download the PDF file below… “Court of Appeals Reverses Trial Court Ruling on the “Marital/Separate” Property Character of a Business Interest Received by Gift before Marriage Wolcott v Wolcott, Mich App No. 351918 (March 11, 2021) Unpublished”
View / Download May 2021 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

Apr 2021 : Court of Appeals Upholds Trial Court Ruling of a Zero Value for a Medical Practice Woolever v Woolever, Mich App No. 351007 (January 28, 2021)

View / Download April 2021 Article – PDF File

Tax Trends and Developments Column – Michigan Family Law Journal


Facts

  • H, an orthopedic surgeon, had operated his practice out of a building he leased for most of the marriage. He had many employees.
    • But, in 2016, he sold his equipment to a hospital at which he began working on a contractual basis. He retained one employee, his secretary.
  • At the trial, H said the change was prompted by billing and insurance company issues.
  • H said his practice had no value because he was essentially an employee of the hospital, and, further, that he owned no equipment and had no accounts receivable.
  • He also said that he was easily replaceable and could not assign or sell his contractual position.
  • W’s valuation expert valued H’s practice at $600,000. However, he admitted that he did not have complete information based on which to calculate a value and testified that the $600,000 was in considerable part his “extrapolation.”
  • Further, the expert acknowledged that H was, as he claimed, essentially an employee of the hospital.
  • The trial court ruled that H was an independent contractor with the hospital and no longer operated a practice.
    Hence, there was nothing to value.
  • W appealed.

Court of Appeals Decision

  • The Court upheld the trial court’s ruling.
  • In doing so, the Court noted the concessions that W’s expert made noted above and stated “the evidence supported the trial court’s decision.”

Comments on the Case

  • As was noted in the case, there is a trend in the medical practice arena for doctors to form contractual relationships with a hospital instead of operating an independent practice.
  • Many groups of doctors have done this. It is often mutually beneficial in that:
    1. The hospital has the certainty of access to the doctors’ medical services and has control over the cost thereof.
    2. The doctors, in addition to significant relief from administrative matters now performed by the hospital, have a steady source of need for their services.
  • However, it can be a blurry line between a “practice” as such and being essentially “an employee of hospital.”
  • For example:
    • Assume a medical practice group consists of four doctors who make, on average, $400,000 each annually.
    • Depending on the nature of the practice, there may be a holder’s interest value to each doctor’s practice within the group.
    • For the most part, albeit, not exclusively, the group of doctors performs services for patients of one hospital.
    • The group and the hospital agree to enter a contractual arrangement which, essentially, formalizes the mode in which they had been operating.
    • The agreement provides that the doctors will each make $350,000 annually while being relieved of various administrative responsibilities.
    • So, from a de facto standpoint, are the doctors essentially in a very similar economic position as before entering the agreement with the hospital? Or, perhaps, a better position? If there was a holder’s interest value to their practice, has it disappeared?
  • Some relevant questions to consider in similar situations, under subject agreement, are:
    • Are the doctors in fact employees of the hospital or have they retained independent contractor status?
    • Are the doctors restricted from performing services for non-hospital patients?
    • To what degree are the doctors at the “beck and call” of the hospital?
    • Are the doctors on fixed salaries or is their compensation tied to the amount of services they provide?
    • To what degree does the hospital control the doctors’ schedules?
  • As with so many issues in divorce, the “practice” issue in circumstances where there is a contractual relationship with a medical institution is fact specific.

About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

Download the PDF file below… “Court of Appeals Upholds Trial Court Ruling of a Zero Value for a Medical Practice Woolever v Woolever, Mich App No. 351007 (January 28, 2021)”
View / Download April 2021 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

Mar 2021 : IRS Releases Federal Income Tax Data

View / Download March 2021 Article – PDF File

Tax Trends and Developments Column – Michigan Family Law Journal


The IRS released individual federal income tax information for 2018, which was the first tax year after enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017. (Internal Revenue Service, Statistics of Income).

We frequently hear how the federal tax system is tilted toward the wealthy and was made more so by former President Trump’s TCJA. However, the 2018 data released by the IRS indicates that the federal income tax remains considerably progressive.

The following presents some of the information disclosed by the IRS.

The number of tax returns filed in 2018 increased from 2017. However, average tax rates fell across all income levels and total taxes paid declined by $65 billion.

The top 1 percent of taxpayers’ share of total taxes paid increased in 2018 by 1.6% to 40.1%. In fact, since 2001, the share of taxes paid by the top 1 percent rose from 33.2% of the total to 40.1%.

In 2018, the top 50 percent of taxpayers paid 97.1% of total taxes paid while the bottom 50% paid 2.9%.

And, the top 1 percent of taxpayers paid more of the total taxes than the bottom 90 percent combined.

The top 1 percent paid a 25.4% average rate of tax in 2018, while the bottom 50% paid an average of 3.4%. The top 1 percent paid an average tax of $426,639 for the year; the bottom 50% paid an average of $626.

As noted above, as a result of the TCJA, average tax rates declined for all taxpayers. The bottom 50% – making $43,614 or less – saw a 15% drop in their average tax rate from 4.0% in 2017 to 3.4% in 2018.

For the top 1 percent of taxpayers – making $540,009 or more – the average tax rate fell 9% – from 26.8% in 2017 to 24.4% in 2018.

President Biden has proposed increasing federal tax rates applicable to higher income taxpayers.

Former President Obama once proposed a tax on those with $1 million or more in income. This was embraced by some, including billionaire Warren Buffett, who stated the wealthy often pay at lower rates due to favorable tax treatment on capital gains from investments, which are not available to most wage earners.

Federal income taxes are frequently a subject of lively discussion. It brings to mind the old adage – “It depends on whose ox is being gored.”


About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

Download the PDF file below… “IRS Releases Federal Income Tax Data”
View / Download March 2021 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

Feb 2021 : Tribute to Ken Prather

View / Download February 2021 Article – PDF File

Tax Trends and Developments Column – Michigan Family Law Journal


My good friend, Ken Prather, passed away on December 27, 2020. He was 87 years old.

Ken practiced Family Law for 57 years. He was a consummate professional. He knew the law inside-out and was passionate about serving his clients.

Ken was a Fellow of the American Academy of Matrimonial Lawyers since 1973. He was a Super Lawyer and was listed in “The Best Lawyers in America.”

He was Chair of the State Bar Family Law Section in 1984. Ken was one of the pioneers in the early days of the Section.

One of my early encounters with Ken was in 1984 when he chaired the Family Law Section, on which I then served. In July 1984, Congress enacted the first overhaul of divorce taxation since 1948. The Family Law Section’s Annual Summer Seminar was a month later – in August. I had previously been appointed by Ken as the first chair of the Section’s Tax Committee.

We presented a program at the Summer Seminar on the new law that featured two national divorce tax experts – Joe Ducanto of Chicago and Marjorie O’Connell of Washington D.C.

Ken was so excited and proud that the Section gave such a top-drawer presentation just a month after the highly significant law had been passed.

I realize that many of you were then just a gleam in your Daddy’s eye; but I know some will remember those days.

Ken had several notable divorce cases. I worked with him on some as his expert.

Ken once told me the story of his representation of Ms. Kretchmer. The case was set for trial shortly after Michigan passed the no-fault divorce law. Ms. Kretchmer alleged egregious fault on the part of her husband and wanted Ken to highlight it in the trial. Ken told her that fault was no longer a factor in divorce cases. She asked Ken if he believed in the power of prayer. He said “yes” and agreed to present the fault allegations.

That case established the precedent that fault can be taken into account as a factor in dividing property, spousal support, and custody.

Ken taught family law for 17 years at the University of Detroit Mercy. I had the honor of guest lecturing at his classes on how taxes affected family law.

About four years ago, Ken and I were working on a difficult case. Ken was then 83. At one point he sighed heavily and said that this was his last case. Six months later he called me to work on a new case. He so loved family law that it was difficult for him to bring down the curtain.

Ken was an avid reader and a patron of the arts. He possessed a lively sense of humor.

He was generous and compassionate. He cared about the well-being of others. He was a great person as well as a skilled attorney.

And, Ken was an outstanding athlete – playing college basketball at the University of Detroit. He also was an excellent tennis player.

It is difficult to say goodbye to a friend and so it is with Ken. But, it is consoling to know that he had a full life – leaving a loving family, fast friends, and a remarkable imprint in the area of law he so loved and was so devoted to.

Ken’s obituary included one of his favorite Reflections by William Penn:

“I shall pass through life but once. If therefore, there is any kindness I can show, or any good
 
I can do any fellow being, let me do it now! Let me not deter or neglect it, for I shall not pass this way again.”

Ken was exemplary of living Penn’s Reflection.


About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

Download the PDF file below… “Tribute to Ken Prather”
View / Download February 2021 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)

Jan 2021 : 2021 Tax Rates – 2021 Federal Income Tax Rates & Brackets, Etc., and 2021 Michigan Income Tax Rate and Personal Exemption Deduction

View / Download January 2021 Article – PDF File

Tax Trends and Developments Column – Michigan Family Law Journal


Federal Income Tax

The following are inflation adjusted tax rates and standard deductions for 2021 as announced by the IRS (IR-2020-245).

Personal Exemption

There is no personal exemption. It was eliminated by the Tax Cuts & Jobs Act. of 2018.

2021 Long-Term Capital Gain Rates

  • 0% for taxpayers in the 10% or 12% brackets.
  • 15% for:
    • Single filers with taxable income between $40,400 and $445,850
    • Married Filing Jointly with taxable income between $80,800 and $501,600
    • Head of Household with taxable income between $54,100 and $473,750
  • 20% for taxpayers with taxable incomes exceeding the high end of the above ranges

Child Tax Credit

The Child Tax Credit is $2,000 for qualifying children.

A qualifying child is, in general, a child of the taxpayer who resides with the taxpayer for more than half of the year.


Michigan Income Tax

Tax Rate

The Michigan income tax rate remains unchanged at a 4.25% flat rate.

Personal Exemption

The number of personal exemptions a Michigan taxpayer could claim had previously been tied to the number claimed for federal tax purposes. With the elimination of federal tax personal exemptions, Michigan enacted Senate Bill 748 (Bill), signed by Governor Snyder on February 28, 2018.

Under the Bill, the reference to federal exemptions is removed. The Michigan personal exemption deduction for 2021 is $4,900.


About the Author

Joe Cunningham has over 25 years of experience specializing in financial and tax aspects of divorce, including business valuation, valuing and dividing retirement benefits, and developing settlement proposals. He has lectured extensively for ICLE, the Family Law Section, and the MACPA. Joe is also the author of numerous journal articles and chapters in family law treatises. His office is in Troy, though his practice is statewide.

Download the PDF file below… “2021 Tax Rates 2021 Federal Income Tax Rates & Brackets, Etc., and 2021 Michigan Income Tax Rate and Personal Exemption Deduction”
View / Download January 2021 Article – PDF File

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)