THE GRAY DIVORCE TREND

By Kim K. Steffan, Attorney

            Divorce rates have more than doubled since 1990 for adults 50 and over, while rates have been declining for those under 39, and increasing slightly for persons in between, according to the Pew Research Center.  The trend even has a name – “gray divorce.” Lawyers whose practice includes divorce have seen this trend, with more older divorce clients in our offices than before.

Overall, the rate of divorce peaked in the 1970s and early 1980s.  It has declined steadily since, but a 2016 University of Maryland study says 52.7% of new marriages will end in divorce.  Among those divorces, though, more involve Baby Boomers.  The Pew Research Center reports that of couples divorcing in 2016, about a third had been in this marriage for at least 30 years, and 12% had been married 40 years or more.

While divorce cases have many factors in common, gray divorces raise special concerns:

  1. Retirement savings and planning. Remember that in NC, retirement savings put aside by either party during working years of the marriage are marital property, not that worker’s separate property.  Dividing those assets fairly is critical for gray divorce clients who will have fewer years to rebuild retirement savings and to invest effectively.  Retirement accounts are often one of the largest assets in a long-term marriage. One party cannot unilaterally withdraw assets from an ERISA (employer-based) plan without the spouse’s written consent. For other types of retirement assets and investment accounts, judges can enter a restraining order to preserve those assets intact if that is needed.
  2. Team approach. I find it helps these clients greatly to consult a financial planner and/or accountant. Input from these professionals helps a lawyer arrange a more beneficial settlement, and avoids unpleasant tax or investment surprises.
  3. Social Security. Neither a court’s order nor the parties’ agreement can change Social Security rules.  Generally, you have a choice between drawing on your own Social Security earnings record or claiming a benefit equal to one-half of your former spouse’s benefit if (a) you were married at least 10 years, (b) you are at least 62, (c) you remain unmarried, and (d) your former spouse has qualified for benefits. The good news for the higher income spouse is that your spouse claiming based on your record does not reduce your own Social Security benefit.
  4. Health Insurance. Once spouses are divorced, by federal law one cannot be covered on the other’s health insurance plan. Until Medicare eligibility at age 65, health insurance may be extremely expensive.  One option is for the parties to remain legally separated but delay divorce so that joint coverage can continue.  Another option in settlement is to have alimony increase if health insurance premiums go up.
  5. Estate Planning. It is important to update beneficiaries on life insurance, retirement accounts, and your will after divorce.  Remember that you should never name minor children or minor grandchildren by name on these beneficiary forms or in a will, or you will trigger the need for an expensive guardianship before the assets can be paid out for your beneficiary.

Whether a gray divorce is the result of mutually putting off divorce until the kids are grown, is from parties growing apart and seeking independence, or is the abrupt ending from an affair or other marital fault, financial security goals can take on special importance for those involved in a gray divorce.

 

Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough.  She can be reached at (919) 732-7300 or kim.steffan@steffanlaw.com.

HIRE AN ATTORNEY OR DIY?

One common question is when a lawyer is really needed versus when someone can/should handle a matter on their own (perhaps with online resources or borrowing a friend’s document).

Yes, we lawyers know that legal services not cheap (but we did go through three years of law school and suffer through the bar exam to acquire our expertise).  If a legal need arises unexpectedly or isn’t in your budget, it can be tempting to try to save money by not hiring a lawyer.  Sometimes that works better than others.

What about a traffic ticket?  If it is a simple speeding ticket after a pretty clean record, in NC, you can usually successfully seek a reduction in court yourself.  Having a lawyer is a convenience so you don’t have to miss work and wait in court.  On the other hand, if you have a more serious ticket, if you have a record, or if you are a young driver, a lawyer can give you important advice about your choices, and help implement the best one.

What about a divorce?  In NC, if you and your spouse have been separated over a year and you are absolutely sure that there are no issues of property, debts, or spousal support, then a do-it-yourself divorce is likely fine. In those cases, a lawyer is a convenience to save you time and effort. However, without particular wording included, in NC the divorce judgment cuts off the right to have the court deal with property, debt, and spousal support.  I have seen the after-effects of a DIY divorce where a party learns too late that she could have had her husband’s retirement benefits divided or could have claimed alimony, but she lost those rights by not having a lawyer prepare the divorce judgment.  Retirement plans and cash value life insurance are the most commonly overlooked assets in DIY separations and divorces.  I am sometimes asked to try to “fix” a signed DIY separation agreement that didn’t include everything it should have or was ambiguous about important details.  Sometimes there is a remedy, but this is usually more expensive than if a lawyer had prepared the agreement originally. However, sometimes the person is stuck with the unhappy results of their own work, and no change is possible.  I sometimes see DIY separation agreements that clients think are valid but aren’t, because the person didn’t realize that NC requires signatures on these agreements to be notarized.

Online resources market to small business owners for incorporations, LLCs, and contracts.  The same is true for wills for individuals.  The risk is that, without talking with a NC attorney in detail, you don’t always know what you don’t know.  In these matters, you aren’t paying a lawyer to be your typist; you are paying a lawyer to ask questions or to offer alternatives you would not have known about otherwise.  Particularly when preparing wills or business contracts, clients frequently tell me that I’ve raised important questions or options that they did not know about even if they have read online or library resources.

Also, it is worth considering how bad the worst-case scenario is. If a small, short-term purchasing contract goes badly, it may be easy enough to deal with another supplier next time. On the other hand, if you have a faulty incorporation and someone sues your business, you may see a judge pierce the corporate veil, meaning the claimant can go after your personal assets.  With a poorly drafted will or separation agreement, the legal fees involved in litigating it or trying to straighten it out can dwarf the cost to have had a lawyer prepare the document properly – and some problems cannot be fixed after the fact.

If you are an executor of a small estate where you are the sole beneficiary, handling it yourself may work out fine.  However, if you are not the only beneficiary and you do something wrong, you may have liability to the other heirs; you may not be comfortable with that risk.

Copying a friend’s documents is the most dangerous way to think you are getting “help.”  Your friend’s situation may have been different from yours in ways that you don’t realize.  Using an online resource that is not state-specific to North Carolina comes in second.  Differences in state laws matter.  Also, the quality of online resources varies greatly.  The problems are not always apparent when you look at the document you plan to use.

Online resources can help you ask your lawyer better questions. Think of it like this.  WebMD will help me ask my doctor better questions, but I won’t be using WebMD to diagnose myself.

It is appropriate to ask a lawyer about fees before deciding to hire him or her, and to ask about fees for an initial consultation before scheduling your appointment.  At our office, we offer a no-charge first appointment to prospective clients who are new to our firm.  That way we can discuss what you need and what it will cost before you make any decisions.

 

Kim K. Steffan is an attorney with Steffan & Associates, PC in Hillsborough.  She can be reached at 919-732-7300 or kim.steffan@steffanlaw.com.

SO YOU WANT TO BE AN UBER DRIVER?

You may know from the news, or from using the service yourself, that Uber has permanently changed how we hire transportation. In the past, a need for a ride usually meant calling or hailing a taxi. Uber, which launched in 2012 in the US, had its one billionth rider in 2015. In 2016 Uber estimated it had 40 million riders per month worldwide. Uber (and the similar service Lyft) offers customers quick access to rides from drivers (who operate their own vehicles on their own schedules) who are nearby. Because Uber drivers tend to drive in areas close to their homes, suburban and rural residents may have easier access to alternative transportation, where taxis are not as practical.
Riders and drivers each have their own Uber smartphone app, which links those who want rides with available drivers. When a customer requests a ride, available drivers in the area are alerted, and can either accept or decline.
Some people become Uber drivers because they want to make extra money. Usually these people like driving and conversation. They like the freedom to sign in to the app and be available to drive whenever they want, on their own schedule. If you want to be an Uber driver, what do you need to know?
In 2016, North Carolina passed its own law regulating Transportation Network Companies (TNCs) like Uber. It was prompted by a sad case from California where a 6 year old girl was killed by a negligent Uber driver. The case exposed some shortcomings in how insurance works with Uber. Since then, Uber has incorporated some of these additional protections into its corporate policies.
To be an Uber driver, you must own or be able to use a 4-door vehicle that is less than 10 years old, which can seat 4 or more passengers in addition to the driver. The vehicle must have valid plates and registration. In NC, the car must pass the annual state safety inspection.
You must have a valid drivers’ license, but it does not have to be a commercial or special license. You must be at least 21 years old with one year driving experience (or 3 years’ experience if you are under 23).
What about background checks on drivers? NC law requires national and local criminal background checks. No one can drive for Uber with more than 3 moving violations in the past 3 years, or one major violation in the past 3 years (like evading police, reckless driving, or driving with a suspended or revoked license). Also, having a conviction for DWI, fraud, sex offenses, theft, or acts of violence in the past 7 years makes you ineligible.
Uber requires each rider to set up an account. There are no “anonymous” riders, which helps keep drivers safe.
In NC, Uber drivers must have at least $50,000 per injury/$100,000 per year insurance for bodily injury, with a matching amount of uninsured/underinsured motorist coverage. (Note that this is higher than the NC minimum limits to drive your own vehicle, which is $30,000.) When driving an Uber passenger, Uber must provide a $1.5 million bodily injury policy in addition to the driver’s policy. When an Uber driver is logged onto the app but not carrying a passenger, the driver’s insurance is primary, and Uber has a $50,000 excess insurance policy in place. When an Uber driver is not working, of course, the only coverage is the driver’s coverage.
To avoid a bad surprise, keep in mind that a driver’s ordinary vehicle insurance policy may not provide any coverage (to people the driver injures, to the Uber driver, or for the vehicle used for Uber). This is because most ordinary policies specifically don’t allow coverage when the vehicle is being used for commercial purposes, like hauling paying passengers. It is possible to purchase extra coverage (an “endorsement”) to your ordinary policy to cover commercial use of the vehicle; if you do this, you can rest easier about having coverage in place. NC statutes require that you notify your insurance company and your lender (if you have a car loan) that you are going to drive for Uber.
NC law is clear that Uber drivers are independent contractors, not employees. That means their drivers are not entitled to workers’ compensation or unemployment compensation from Uber, nor are they subject to wage and hour laws. Uber drivers will have to pay their own taxes directly, since there is no tax withholding.
How do you get paid? Most riders pay their fare by Uber’s app, and Uber credits the driver’s share to his/her account. If a rider pays in cash without exact change, the Uber app will make change to put into the rider’s account, so that drivers do not have to carry cash.
After each ride, riders rate their drivers, and drivers rate their passengers. Uber uses this information to avoid matching parties who haven’t had a good experience before. If ratings problems are bad enough, a rider or a driver may be blocked from using the Uber service in the future.

Kim K. Steffan is an attorney with Steffan & Associates, PC in Hillsborough. She can be reached at 919-732-7300 or kim.steffan@steffanlaw.com.

TURNING 18? GOT YOUR POA’S LINED UP?

TURNING 18? GOT YOUR POA’S LINED UP?

By Kim K. Steffan, Attorney

 

High school graduations make me think about kids becoming adults, leaving the nest, or making their way in the world. You may not have thought about why a financial power of attorney (POA) and a health care power of attorney (HCPOA) are important for young adults upon turning 18.

As our teenagers happily remind us, turning 18 makes one legally an adult.  If you are a parent of a 17 year old, you’ve been used to making decisions for him or her, giving permission for activities, maybe opening and managing a savings account for him or her, and receiving medical information.  All of a sudden, once your child turns 18, you as a parent no longer have the automatic authority to do those things, even if your child still resides at home.  A doctor may refuse to provide you medical information about your adult child because doing so would violate HIPAA.  Banks may refuse to allow you to move money from your child’s savings account to his checking account when he is in college, even if you used to do that for him.  How can we avoid these problems?

Young adults, like any other adults, should consider having a financial power of attorney (POA) and a health care power of attorney (HCPOA).  The financial power of attorney appoints someone else to handle their financial matters.  This includes getting their bills paid, moving money from one account to another, and signing contracts.  The POA can be set to appoint someone to act only if the young adult is physically or mentally incapacitated (e.g., due to accident or illness) or it can be set to allow someone he/she trusts to do these things anytime for his/her convenience (e.g., when he/she is away at college, traveling before starting a job, etc.).  A POA should be made effective anytime only if the person being appointed is someone the young adult fully and completely trusts, because it means that person can take actions about his/her finances, credit, and bank account even when the young adult is perfectly capable of handling these things for himself/herself.

A health care power of attorney (HCPOA) appoints someone to make medical decisions only if the person making the document cannot make those decisions for himself/herself.  If a young adult appoints a parent on her HCPOA, it means that if she has an injury or illness making her unable to make medical care decisions, the parent would be authorized to receive information from the doctor or hospital, and to make decisions based on that information.

Young adults most commonly appoint one or both parents (or, if raised by someone else, that person) to serve on their financial and health care powers of attorney.  Over time, the young person may develop other relationships making it logical to change the person appointed, like when he/she marries or has a long-term relationship.  The documents can always be updated later.

Many attorneys will prepare financial and health care powers of attorney for young people who have recently turned18 at a courtesy (inexpensive) fee that doesn’t cover the lawyer’s time.  Lawyers often do this just to help out, because they know it lets the family rest easier.  It is always acceptable to ask for fee information from a lawyer’s office either before scheduling an appointment or before the lawyer begins work for which you could be charged.

 

Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough.  She can be reached at 919-732-7300 or kim.steffan@steffanlaw.com.

 

YOUNG ADULTS AND ALCOHOL LAWS

YOUNG ADULTS AND ALCOHOL LAWS

By Kim K. Steffan, Attorney

 

Here are four terms that are important to understand criminal liability of adults and underage (under 21) persons.  How many of them do you know: “no exceptions state,” “zero tolerance,” “Good Samaritan,” and “400%”?

  1. As a “no exceptions state,” NC makes it a crime (a misdemeanor) for an adult to provide alcohol to someone under 21 for any reason, anywhere. There is no parent-child exception, at-home exception, or a dinner-table exception. Penalties include fines, community service, and possible jail time.
  2. North Carolina is a “zero tolerance” state for underage drinking and driving. It is illegal for an underage person to drive with any alcohol in his system, or while drinking alcohol. If alcohol is detected when the young person is stopped, his license is immediately suspended for 30 days, with a $100 fee to get it back; if convicted, he has a one year license suspension (and if under 18, no limited driving privilege), community service or jail time, a fine of up to $1,000, court costs of at least $190, plus his attorney’s fees.  This conviction may have to be disclosed on college applications, job applications, rent applications, etc.
  3. There are two places where the “400%” appears in this column. If convicted of underage drinking and driving, expect vehicle insurance to increase by about 400% for three years.
  4. If someone under 21 is convicted of purchasing or trying to purchase alcoholic beverages, it means a one year license revocation (which may be surprising, since the offense doesn’t involve driving) with no limited driving privilege, community service or jail time, court costs of $180, a fine, and attorney’s fees if a lawyer is retained. Vehicle insurance rates go up as well.  Penalties for underage drinking include community service or jail, a fine, court costs, and possible attorney’s fees.  Any criminal conviction can cause problems with applications for employment, college, or apartment rental.
  5. NC has a “Good Samaritan” law protecting from criminal prosecution someone who calls for emergency medical help for another person who appears to be having a drug-related overdose, including alcohol poisoning. To get this protection, the caller must give her name to the 911 operator, and must stay with the victim until help arrives.  The victim also receives immunity from criminal prosecution.  If a medical emergency like this happens at a party, fear can cause deadly inaction.  It is important to know that you can and should call 911.
  6. What’s the other “400%” reference? Orange County District Court records show that, from 2010 to 2015, prosecutions for adults who gave alcohol to someone under age 21 have gone UP by 400%.  Orange County law enforcement and courts take this offense seriously.  Alcohol contributes to the three leading causes of death among youths 12 -20 years old (unintentional injury, homicide, and suicide).  Alcohol consumption by high school students tends to spike around prom and graduation.  The most common place teens get alcohol is parents’ homes (theirs’ or their friends’).

 

Knowing the law may help keep you and those you love out of trouble, and from suffering potentially life-changing consequences.  Thanks to Gayane Chambless of the Orange Partnership for Alcohol and Drug Free Youth for assisting with resources for this column.

 

STANDBY GUARDIAN LAW

          Suppose you have been appointed by a Clerk of Court as the guardian (meaning either a general guardian or a guardian of the person) of an adult relative who is incompetent because of dementia, intellectual disabilities, or developmental disabilities. What if you then develop progressive or debilitating health problems of your own? How can you protect your loved one if your health problems at some point make you unable to serve, or even cause your death? A section of Chapter 35A of the NC General Statutes added in 2015 allows you to name a “standby guardian” to take your place if necessary.  It expands upon an existing statute allowing seriously ill parents of minor children to name a standby guardian for their children, to serve in the event of the parent’s death or disability.

          The standby guardian is someone who acts as a back-up guardian, ready to assume the responsibilities of a guardian of the person or a general guardian upon a triggering event, including the current guardian’s death, mental incapacity (as determined by the Clerk), or sooner upon the current guardian’s written consent (which may be a decline in physical health).  Without naming a standby guardian, if the current guardian died or became incapacitated, there would be a gap leaving no one serving as guardian until the Clerk is able to hold a hearing to appoint a new guardian.  Also, in that situation, the Clerk would not have the advantage of knowing whom the original guardian thinks would do a good job next.

          However, the standby guardian process is only available when the current guardian suffers from a progressive chronic or irreversible fatal illness.  It is not available when the current guardian is healthy.  You may be thinking that it should be available to any guardian since even a healthy guardian can be “hit by a bus” and killed – and you’d have a good point.  At some point in the future, a further expansion may permit this for any guardian, but not yet.

          If you are a guardian with a progressive chronic or irreversible fatal illness, you have two options to appoint a standby guardian.  One is by petition.  Until more specific forms are developed, use AOC Form E-209, which is the form for guardians of minor children.  The Clerk will hold a hearing to confirm both the guardian’s progressive illness and the suitability of the person nominated as the standby guardian.  Then the Clerk will enter an order appointing the standby guardian and issue him/her letters of appointment that list the conditions upon which the power becomes effective. When the standby guardian receives documentation of the triggering event (like a death certificate for the original guardian), he/she must file it with the Clerk.

           The other way to name a standby guardian is by a written designation witnessed by two adults.  When the standby guardian receives any of the documents listed in the statute for a triggering event, his authority begins.  However, he still must file a petition with the Clerk within 90 days of receiving documentation of the triggering event. If the Clerk finds the statutory requirements have been met, the Clerk will enter an order appointing the person and issuing guardianship letters to him/her.

          While the statute does not address all problems involved in managing guardianships of adults, it does solve one.  For more information on standby guardianships, contact the Clerk of Court’s office or consult an attorney.

 

 

EXPUNGING CRIMINAL RECORDS FOR YOUNG DEFENDANTS

You may know someone who committed a youthful mistake resulting in a criminal record.  That someone may even be you.  Even if you’ve had a clean record since, this history can interfere with getting a job, renting an apartment, obtaining a professional license, or establishing favorable child custody rights.  Wouldn’t it be great to make this record go away?  For many charges and/or convictions of juveniles or young adults under 21, it is possible to make them go away by a process called “expungement” or “expunction.”

  • Delinquent or Undisciplined Juveniles (e.g., “found guilty” of skipping school, being where minors are not allowed, driving a car without a license, running away, etc.): You can have these records expunged by applying after you are 18, provided you were not found guilty of any later crimes as a juvenile or as an adult.  It is not available to serious crimes (Class A through E felonies).
  • Juvenile Whose Case was Ultimately Dismissed: If you were charged with a crime or alleged to be delinquent or undisciplined but the case was dismissed (including where you completed a deferred prosecution program), you can apply to expunge the charges any time after you are 16.
  • Conviction of Misdemeanor Under 18:  If you were convicted of a misdemeanor like simple assault or shoplifting when under 18, you can expunge the record if you wait two years to apply, and if you don’t have any felony or misdemeanor convictions within that time (except minor traffic offenses).  You are not eligible if the offense involved impaired driving, however.
  • Conviction of Non-Violent Felony Under 18:  If you were convicted of a non-violent felony when under 18 (e.g., felony larceny, felony drug offenses), and if this is the only conviction on your record, you can have it expunged.  To be eligible, you must also perform 100 hours of community service. Expungement is not available for offenses involving impaired driving. The waiting period to apply is four years after conviction (if no sentence was imposed) or four years after finishing probation or incarceration.
  • Conviction of Misdemeanor Possession of Alcohol Under 21:  This can be expunged by waiting two years from the conviction (or from completing probation) to apply, if you do not have any misdemeanor or felony convictions during that time (other than minor traffic offenses).  Note that driving while impaired convictions are not eligible for expungement, regardless of age.
  • First Offender Conviction of Certain Toxic Vapors/Drug Paraphernalia Charges Under 21:  This conviction can be expunged if you completed a first offenders program for toxic vapors or drug paraphernalia. Alternatively, apply more than 12 months after conviction.  You also must have a clean record of no misdemeanor or felony convictions since the original offense (except for minor traffic offenses).
  • Certain Gang Offenses Under Age 17: Expungement is available if this is your only felony or misdemeanor (other than minor traffic offenses) during the minimum two years between your conviction (or completion of probation if you were placed on probation) and your application. You are also eligible for expungement if your charges were dismissed under a conditional discharge for first time offenders program.
  • Dismissal or Not Guilty Due to Identity Theft:  At any age, if misdemeanor or felony charges were dismissed or you were found not guilty as a result of someone fraudulently giving your name to police, you can have the charge expunged.

 

If you have a charge or conviction expunged, you can and should respond to questions about your criminal background as if this event never happened.  That’s the purpose of expungement.

Some expungements are simple, with forms available from the Clerk.  In other circumstances, expungement is more complicated, and you will likely want an attorney to help you.  Some expungements require a Clerk’s fee, and some do not.  More information is available from the Clerk of Court or from an attorney.  Steffan & Associates, PC can assist you in successfully navigating an expungement.

NEGOTIATING YOUR COMMERCIAL LEASE

By Kim K. Steffan, Attorney

 

            If you own or manage a business that wants to rent space, do you know what to look for, and what to look out for, when negotiating and signing a lease with a landlord?  Here are some tips.

            First, remember that whatever the signed lease says, that’s the rule that will apply to your case.  Unlike residential leases where a statute can trump a lease (and can sometimes protect the tenant more than the lease), courts usually enforce commercial leases exactly as written.  That makes it important to pay attention to the terms of the lease before signing it.

            Some commercial landlords propose a lease that is one-sided in their favor.  How much can you negotiate with a landlord?  It depends on the rental market.  If the supply of rental space is tight, the landlord may figure that if you don’t accept his terms, the next person probably will.  When the rental occupancy rate is low, though, you have a good chance of negotiating some changes.  In any event, it never hurts to ask.

            Clients often ask whether they should or must sign a personal guarantee of their corporation’s or LLC’s lease.  It’s always best to have only your company or LLC liable for business obligations (like a lease) and not sign a personal guarantee.  However, many commercial landlords will not lease to a small business without a personal guarantee (much like a bank won’t loan a small business money without a personal guarantee).  You may not be able to avoid it, in which case, be aware what you are signing.  If you are personally liable for a lease, it may make you more cautious about how long the lease goes, how open ended common area management (CAM) fees are, etc.  

            Commercial leases commonly shift all or most maintenance and repairs to the tenant.  Try to negotiate the landlord being responsible for maintenance and repairs that are permanent or long-term in nature, like roof repairs, painting, etc.  Since tenants are commonly asked to be responsible for heating and air conditioning repairs, try to negotiate a dollar limit per year, since replacing a compressor would be expensive and would benefit the landlord long after your lease term has probably ended.

            It is easier for a landlord to evict a commercial tenant who fails to pay rent than it is to evict a residential tenant who is in default.  You may know that residential landlords have to go to small claims court to get an eviction order, but that is not so with commercial leases.  It is legal for a commercial lease to allow a landlord to change the locks to evict a tenant who is in default for a period of time set by the lease.  If a tenant leaves her property in the space and doesn’t pay rent, a commercial lease can allow the landlord to deem the contents abandoned.  The landlord can move it out and sell it, give it away, or throw it away, if the lease allows this.

            I represent both landlords and tenants in commercial leases (just not in the same transaction or in any other situation that would pose a conflict of interest, of course).  I find commercial tenants who see me for problems with their landlord or with their lease often didn’t read the lease carefully before they signed it, and didn’t try to negotiate better terms.  There are some other technical legal issues that are important, but are beyond the scope of this article, like indemnification and duty to mitigate damages; a legal review can address and explain these issues.  An ounce of prevention can be worth a pound of cure when it comes to signing a better lease, or at least signing your lease with your eyes open as to what the rules are.

ARE RETIREMENT ACCOUNTS PROTECTED FROM CREDITORS?

ARE RETIREMENT ACCOUNTS PROTECTED FROM CREDITORS?

By Kim K. Steffan, Attorney

 

            Job losses during difficult economic times caused some people who had always paid their bills to become delinquent on debts like credit cards and consumer loans.  In some cases, creditors got judgments against them, or threatened to.  A common question in those cases is whether their creditors can take their retirement accounts.  Many of those clients have put a little away each year for a long time, and would hate to lose this retirement nest egg.

            The good news is that retirement accounts which you fund while you are working are generally safe from most creditors.  N.C. General Statute section 1C-1601 covers what assets creditors can seize and sell to satisfy judgments – a topic which is entirely separate from filing bankruptcy, by the way.  Under that statute, money in your 401(k), traditional IRA, Roth IRA, and/or 403(b) is protected.  Whether you file bankruptcy or not, NC law applies to allow an unlimited dollar amount of protection for qualifying retirement accounts.  Your contributions to your employer’s pension plan (like the N.C. State Retirement System) are also safe, but for a different reason – because they are held by the pension plan and are not assets in your name. 

            In fact, if you see creditor problems coming up, you might choose to contribute as much as you can (subject to annual limitations by law, which depend in part on your age) to protect those dollars from creditors too.  If those same funds are left in your bank account or used to purchase an extra vehicle, for example, a creditor can easily take the funds or the vehicle to satisfy a judgment entered against you.

            The rule I’ve described governs consumer debt like credit cards, furniture store loans, deficiency judgments on vehicle loans, personal loans, etc.  As you might guess, there are some non-consumer creditors that can seize your retirement accounts – e.g., when the United States, North Carolina, or a County is the creditor, or when needed for paying alimony or child support.

            Some clients follow up with this question:  Didn’t I hear news about a U.S. Supreme Court case making retirement accounts fair game for creditors?  The Clark case in the summer of 2014 held that when you inherit an IRA from someone other than a spouse, your inherited IRA funds are not protected from your creditors.  Why treat IRAs inherited from someone other than a spouse differently than retirement accounts you have funded?  Those accounts are treated differently for tax purposes than the retirement accounts you fund for your retirement.  Inherited IRAs (from other than a spouse) don’t have to be left untouched until you retire.  In fact, the IRS requires that you take the money out of these inherited IRAs within a few years anyway (because they want to tax you on the income).  That makes these inherited IRAs more like money market accounts than like true retirement accounts.  A special rule still protects IRAs inherited from a spouse, because the law recognizes that most couples plan together for retirement using both spouses’ accounts.  A lot of news coverage that was just too summary made it sound like the USSC had held all retirement accounts were fair game for creditors, which is not accurate. 

            So, if you’ve fallen into trouble with consumer debt, you can usually rest easy that your retirement accounts you’ve worked hard to put away for your future are safe.  They will withstand consumer creditor claims and still be there to help support you and your spouse during retirement.

 

PATERNITY QUESTIONS TAKE MANY FORMS

Paternity and legitimation questions come in many forms. Who decides what father’s name is on a birth certificate?  What rights and responsibilities go with paternity?  Can illegitimate children inherit from their father?

First, who gets on a birth certificate, and how?  If the mother is married (even if she is separated), her husband is listed as the child’s father on the birth certificate, no matter whom she identifies as the father. That may seem odd, but a statute requires this because there is a starting presumption that her husband is the father.  If her husband is not the father, then there will have to be additional legal steps taken (and DNA testing) to establish paternity.

If the mother is not married, hospital staff will ask the father’s name.  The father may be there to provide the information himself, which makes things easier. If the father isn’t present and the mother says she does not know who the father is, no father is listed on the birth certificate.  If she supplies a name for the father, that name is listed.

You can see how people might have different ideas about who is or may be the father, and how paperwork at the hospital may create problems.  If a mother lists a father’s name but he denies it, he will need to get a DNA test.  Fortunately, now DNA testing is done by swabbing the inside of baby’s and Dad’s cheeks.  It used to require a blood draw.  A court will enter an order based on the DNA test either confirming paternity or not (and taking the father’s name off the birth certificate if appropriate).

The other side of that coin is when the mother lists no father on the birth certificate, but a man who feels sure he is the father wants to have the legal rights of a father.  He can file a legitimation action (which also involves a DNA test).  If the test shows a match, the court will enter an order recognizing him as the father, determining the child to be legitimate as defined by statute, and adding the father to the birth certificate.

Paternity matters for custody rights and for support responsibilities. Legal recognition as a father includes the right to participate in making decisions about the child, and the ability to ask the court to grant the father visitation or (in the proper circumstances) physical custody. By law, both parents have the responsibility to provide reasonable financial support for their child.  If either parent is under age 18, that parent’s parents (the baby’s grandparents) are required to provide support on his/her behalf until he/she reaches age 18. Once the parent reaches age 18, the responsibility of support for the baby is his/hers; grandparents may choose to help, but aren’t legally required to do so.  If the child’s mother needs help from the county Child Support Enforcement Office to establish and collect child support, that office will also assist with the paperwork necessary to establish paternity.  Establishing paternity is a critical part of establishing a child support obligation.

Legitimation or a legally sufficient acknowledgment of paternity (both of which require taking legal steps) matters for inheritance.  Without that, illegitimate children do not inherit from fathers in NC except through a will.  If a man dies without a will, survived by two children by his late wife and one outside the marriage whom he treated like his own but never legally acknowledged or legitimated, his estate will go to his two legitimate children, excluding the other child.  Without legitimating the child, he could still arrange for the child to inherit from him by having a will that includes all three children.  A will doesn’t solve all the legal problems that arise from having an illegitimate child, but it does solve one.

 

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