A House of Cards: Consumer Financial Protection Bureau Cracks Down on Debt Settlement Industry

As reported by USA Today (“N.Y. Mission Debt Settlement Firm Charged With Fraud“), the Consumer Financial Protection Bureau has charged the owner of Mission Settlement Agency and three of its employees with fraud and conspiracy.  The article explains:

“As alleged, Mission preyed upon the financial desperation of people around the country who — like so many ordinary Americans — were simply struggling to pay down their debts after the financial downturn,” said Manhattan U.S. Attorney Preet Bharara.

“Most of Mission’s customers failed to achieve the reduction in debt that the defendants had promised them, and some of them suffered further declines in their credit ratings, were sued by their creditors and/or fell into bankruptcy,” the indictment alleges.

The CFPB alleges that the owner of the debt settlement company used its customers’ fees to pay the expenses of his family’s popular Brooklyn nightclub, luxury car leases, and somewhat ironically, credit card bills.  The article points out that this case,

represents the first criminal charges stemming from a referral by the Consumer Financial Protection Bureau, the federal watchdog agency created in response to the 2007 national financial crisis.

Sadly, there is nothing unique or shocking about this story.  In fact, the “business model” employed by Mission Settlement Agency is used throughout the country by countless so-called “debt settlement companies”.  These debt settlement companies prey on often desperate consumers who are overwhelmed by their level of debt, who are being threatened and harassed by debt collectors, and who are unable to keep up with the minimum payments, late fees, and charges on their debt.  Consumers are typically told to stop making payments to creditors and to make immediate payments to the debt settlement company instead.  In most cases, the majority of payments made by a consumer go directly toward the debt settlement company’s fees, and not to any creditor.  The simple fact is that, when a consumer fails to pay a creditor for a period of time, that creditor will file suit in court against the debtor.  At that point, the debt settlement agency is nowhere to be found and happy to point out that they are not attorneys.

A copy of the three-count criminal indictment can be viewed here.

Our office has recovered thousands of dollars on behalf of consumers who have fallen prey to these debt settlement schemes.  Typically, a client will have paid large sums of money to debt settlement companies, only to have to pay additional sums of money to retain bankruptcy counsel or consumer debt defense counsel to deal with creditors when the illusive promise of settlement fails.  The truth is that there is no quick fix in dealing with debt issues, and only a licensed attorney can advocate for a consumer in court when creditors or debt collection companies enforce debt obligations in court – which they all will.

Vaughn-Martel Law advocates for consumers both in and out of court.  Our consumer debt attorneys have assisted debtors throughout Massachusetts in resolving their debt obligations one debt at a time, with no tricks, gimmicks, or quick fixes.  We have saved our clients hundreds of thousands of dollars by employing pre-suit debt resolution strategies, and aggressively defending our clients when creditors  do file suit.

Federal Children’s Passport Issuance Alert Program: What You Need to Know!

WHAT IS THE CHILDREN’S PASSPORT ISSUANCE ALERT PROGRAM, OR “PASSPORT LOOKOUT SYSTEM”?

The Children’s Passport Issuance Alert Program (“CPIAP”) is administered by the State Department and allows parents to register their U.S. citizen children under the age of 18 in the Department’s Passport Lookout System.  If a passport application is submitted for a child who is registered in CPIAP, the Department contacts and alerts a parent or parents that there are possible plans for international travel with the minor child at issue.  The alert system gives all United States passport agencies as well as United States embassies and consulates abroad an alert if a parent or guardian registers an objection to the issuance of a passport for his or her child.

WHO MAY BENEFIT FROM THE PROGRAM?

If you are a parent that is divorced from your child(ren)’s other parent, a parent that is separated from your child(ren)’s other parent, or a parent who is concerned that your spouse may attempt to take your child(ren) out of the country without your knowledge, the State Department’s CPIAP “Passport Lookout System” may be an invaluable resource for you.  CPIAP provides information to a parent or court when a passport application is submitted on behalf of a registered child.

HOW TO REGISTER THE CHILD.

In order to avail the benefits of the CPIAP, the child must be a U.S. Citizen under the age of 18 and must be registered by filing a written request with the State Department.  It is not necessary for a parent to have any specific custodial rights to the child in order to fill out the request.  The Passport Lookout System Child Registration Form can be downloaded on the State Department’s website at http://www.state.gov/documents/organization/80112.pdf.

Besides a child’s parent or guardian, this form may also be filed on behalf of a child by law enforcement, a court, or someone acting on behalf of a parent.

WHAT ARE THE BENEFITS OF REGISTRATION?

The CPIAP’s mission is to prevent international parental child abduction.  If a child is registered, all U.S. passport agencies and U.S. embassies and consulates abroad are given an alert on the registered child’s name.  If a passport application is submitted for a child who is registered in the CPIAP, the Department contacts the parent or parents of the child, giving the parent advance warning of the possibility the other parent is planning on traveling internationally with the child.

If the child you seek to register already has a passport, the program will notify you if Passport Services receives an application for renewal of the passport. The Department may not revoke a passport that has already been issued to the child.

WHAT HAPPENS IF A PARENT ATTEMPTS TO OBTAIN OR RENEW A PASSPORT FOR THE REGISTERED CHILD?

After receiving notice of the passport request from the CPIAP, the parent will have about 30 days to consent or object to issuance or renewal of the passport for the child.  If the parent who applied for the passport for the child can demonstrate that he or she has sole authority to apply for the passport (for example, by providing a court order indicating he or she has sole custody of the child or a court order specifically authorizing the applicant parent to travel with the child) then the passport may be issued at any time after application regardless of obtaining consent from the other parent.

About the Firm.  Vaughn-Martel Law represents parents and children throughout Massachusetts in divorce, child custody, modifications, co-parenting, and all aspects of family creation and family law.  If you have a question about your specific parenting plan, marital settlement agreement, or court order, or wish to speak to an attorney about effectively parenting with a former spouse or partner, we invite you to contact us.

Amid Constitutional Challenge, A Chance For Same-Sex Couples to Recoup Overpayments in Taxes

Last week, the United States Supreme Court heard two very important cases concerning the federal rights and benefits of LGBT individuals throughout the country.  In particular, the case of Windsor v. United States presents a very real opportunity for the Supreme Court to consider and possibly to strike down the Federal Defense of Marriage Act (DOMA).  The whole country is intently watching and waiting, and the outcome of the Proposition 8 case and the DOMA case will directly impact the LGBT community, particularly the federal rights of married same-sex couples.

DOMA Has Resulted in a Higher Tax Burden for Same-Sex Married Couples.

Since 1996, DOMA, the federal law which defines marriage as the legal union of one man and one woman, has resulted in the non-recognition of same-sex marriage for federal purposes.  As a result, many of the benefits afforded to opposite-sex married couples are denied to their same-sex counterparts.  Some of these benefits include Social Security Administration benefits, marital estate tax exemption, tax treatment of health insurance premiums, and most important for the purposes of this article, the filing of joint tax returns.

If DOMA is Held to be Unconstitutional, Same-Sex Married Couples May Be Entitled to Amend Previous Tax Returns to Obtain Refunds for Overpayments Made Under the Unlawful Act.

If DOMA is struck down by the Court, an outcome which appears to be at least somewhat likely, same-sex married couples who were excluded from filing joint income tax returns will have the ability to file amended income tax returns for the years they were legally married but did not have the ability to file jointly due to DOMA.

However, because federal income tax returns are only amendable for three years (or two years from the date the tax was paid), same-sex couples will lose their right to amend returns outside the time limitation unless additional steps are taken to protect the ability to amend in the future.

Same-Sex Couples Should Consider Filing a “Protective Claim” Now to Preserve the Right to Amend Returns Beyond the IRS’s 3-Year Limit.

Because the IRS limits a taxpayer’s right to amend previous returns to three years, one recommended solution to this problem is the filing of a “Protective Claim for Refund”.  Filing a Protective Claim now allows a taxpayer to file an amended return at some future date when the refund resulting from that amended return is contingent on some future event (such as the Court’s decision in the DOMA case).

For example, a taxpayer who believes she would be entitled to an additional refund for tax year 2009 may file a Protective Claim at any point prior to April 15, 2013, thus preserving her right to amend her 2009 tax return in the event that DOMA is overturned later this year.  As an article in The Tax Advisor explained in December, 2012:

[Tax preparers] should discuss with their same-sex married clients whether to file protective individual income tax refund claims with the IRS using the married-filing-jointly status and other tax benefits that are currently available to opposite-sex married taxpayers.

A protective refund claim can be submitted as a formal written claim or as an amended return on Form 1040X, Amended U.S. Individual Income Tax Return. A protective claim is filed by a taxpayer when the right to the refund is contingent upon the finalization of litigation proceedings such as the constitutionality of DOMA. A protective refund is filed for a taxpayer when the resolution of the litigation will extend beyond the statute of limitation for filing an accurate amended tax return (IRS Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund, p. 14 (2008)).

The same-sex couple must be legally married under state law at the end of the year for which the amended return for the protective claim is filed. A document, such as a marriage certificate, confirming the marriage should be attached to the amended return.

In addition to the above article, Internal Revenue Service Publication 556 provides a helpful checklist for sames-sex couples who may be entitled to a tax refund if DOMA is overturned.  IRS Publication 556 reads, in relevant part, as follows:

Protective claim for refund.   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. A protective claim can be either a formal claim or an amended return for credit or refund. Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. A protective claim preserves your right to claim a refund when the contingency is resolved. A protective claim does not have to state a particular dollar amount or demand an immediate refund. However, to be valid, a protective claim must:

• Be in writing and be signed,
• Include your name, address, social security number or individual taxpayer identification number, and other contact information,
• Identify and describe the contingencies affecting the claim,
• Clearly alert the IRS to the essential nature of the claim, and
• Identify the specific year(s) for which a refund is sought.

Generally, the IRS will delay action on the protective claim until the contingency is resolved. Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim.

Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File.

Taxpayers who believe a Protective Claim for Refund may be beneficial should consult his or her tax adviser to discuss the possible advantages and disadvantages to filing a Protective Claim for Refund prior to April 15, 2013.

Social Security Benefits and DOMA: Know Your Rights, Protect Your Benefits

As we all know, the Defense of Marriage Act disqualifies same-sex married couples from the innumerable federal benefits of marriage, including social security benefits.  At least two federal lawsuits are challenging the legality of DOMA, one of which is presently before the United States Supreme Court.

Boston-based GLAD (Gay & Lesbian Advocates & Defenders) has created a comprehensive resource for same-sex couples outlining the additional benefits that same-sex couples and their children would otherwise be entitled to in the absence of DOMA.  As GLAD’s publication, “Social Security Benefits And the Defense of Marriage Act: Can I Do Anything Now to Preserve My Rights? YES”, explains:

In the Social Security context, DOMA means that a person married to someone of the same sex cannot claim the Social Security benefits that might be due to a spouse, including:

• the spousal retirement benefit;
• the spousal disability benefit;
• the lump-sum death benefit; and
• the survivor benefit.

DOMA also can limit a child’s access to Social Security benefits. For example, when a married working parent dies, DOMA means that a child of the marriage may be denied benefits unless the worker is that child’s birth or adoptive parent or the family lives in a State where the child could inherit from that parent under the State’s intestacy law (this should include all States that permit same-sex couples to marry and Washington, D.C. as well as States that recognize marriages of same-sex couples from other states).

Download the Publication:  GLAD Social Security Benefits and DOMA

GLAD’s publication also describes what same-sex couples can do now in order to preserve their access to social security benefits in the event that DOMA is either repealed or deemed unconstitutional, as many expect that it will be.  In some instances, the law mandates that an applicant apply for social security benefits within a specific time frame, for example within 2 years of the death of a spouse.  Under some circumstances, GLAD explains, it may make sense in certain circumstances to apply for benefits now – expecting your claim to be denied – in order to preserve important rights of appeal in the event that DOMA is overturned.

If you are in a position to access benefits under social security, and you believe that your right to benefits may be impacted by DOMA, reach out to your legal and tax professional.  GLAD encourages individuals to reach out to them with questions on their InfoLine: (800) 455-GLAD.

Vaughn-Martel Law also invites concerned individuals to contact our own Emily Towne McNeil to discuss your estate planning, including social security benefits to which you believe you may be entitled or how to preserve them in the event of a repeal of DOMA.

Vaughn-Martel Law’s Attorney Jessica M. Walsh Named to Massachusetts Domestic and Sexual Violence Council

Earlier this month, Attorney Jessica M. Walsh was voted into membership of the Massachusetts Domestic and Sexual Violence Council (“DSVC”).  The DSVC is a Boston-based organization comprised of experienced lawyers and advocates, hailing from various law firms, legal service organizations, and community support centers in Massachusetts.

The DSVC works to promote awareness of domestic and sexual violence and assist the Massachusetts legal community in working appropriately and successfully with survivors.  DSVC members are chosen because they possess unique knowledge and expertise in working with survivors of domestic violence and sexual assault, specifically in the legal context.

Vaughn-Martel Law congratulates and thanks Attorney Walsh for her continued advocacy on behalf of survivors of sexual assault and domestic violence.

New Massachusetts Law Provides Increased Protections to Renters who Experience Domestic Abuse or Sexual Violence

On January 3, 2013, Governor Deval Patrick signed a bill designed to give survivors of domestic violence, stalking and sexual assault the legal ability to break a lease agreement or tenancy when a survivor’s living situation is no longer safe.  Under the new law, a tenant or co-tenant (a person who has entered into an oral or written lease or rental agreement with the owner) may terminate a rental agreement or tenancy and move out of the residence after delivering written notice to the owner that a member of the household is experiencing domestic violence, rape, sexual assault, or stalking.  Notification must either be given within 3 months of the most recent act of violence or a member of the tenant’s household must be reasonably in fear of imminent serious physical harm.

A landlord will have the right to request proof of the status as a victim including the name of the perpetrator.  Any information given to the owner as proof must be kept confidential by the landlord.  Under the law, a tenant who is not a perpetrator will be discharged from liability for rent or use and occupancy 1 full rental period (and not less than 30 days) after the quitting date. The quitting date is the date that a tenant surrenders his or her interest in the premises.  If the tenant has vacated the premises, the quitting date is considered to be the date notice is given to the owner of the intent not to return to the premises.  If the tenant is still living on the premises, the quitting date is considered to be the date the tenant intends to vacate the premises or the actual date the tenant vacates after providing notice.

For purposes of this law, domestic violence is characterized as the occurrence of 1 or more of the following acts between family or members of a household:

1. Attempting to cause or causing physical harm;
2. Placing another in fear of imminent serious physical harm;
3. Causing another to engage involuntarily in sexual relations by force, threat or duress.

Rape, sexual assault, and stalking retain their legal definitions under the Massachusetts general laws.

If a tenant is experiencing an abusive living situation and submits written notice to the landlord that they wish to terminate their tenancy, they must move out within 3 months of the written notification.  After the three month period expires, the notice to terminate the rental agreement or tenancy is void and they continue to be responsible for all rental payments.  If they still wish to move, they must submit a new notice to the landlord and make sure to move out within the next three months.

As stated above, an owner may request proof from the tenant of the alleged violence. Proof of status as a victim can be satisfied by production of any 1 of the following documents:

1. A copy of a valid protection order (commonly called a restraining order) under chapter 209A or 258E;
2. A record from a federal, state or local court or law enforcement of an action of domestic violence, rape, sexual assault or stalking and the name of the perpetrator, if known; OR
3. A written verification from any other qualified third party (such as a police officer, lawyer, victim witness advocate, DCF employee, etc) to whom the tenant, co-tenant or member of the tenant or co-tenant’s household reported the violence; provided, however, that the verification shall include the name of the organization and include the date of the violent act(s), and the name of the perpetrator if known; and provided further, that any adult victim who has the capacity to do so shall provide a statement, under the penalty of perjury, that the incident described in such verification is true and correct.

A valid restraining order or protection order is not a requirement to avail yourself of the protections of this new law; however it would act as sufficient proof to an owner in the event an owner demands proof.

The passage and signing of this law is a concrete and public declaration that domestic and sexual violence will not be tolerated in our communities.  This law allows survivors to be let out of their leases without fearing that landlords will take them to court and sue them for the remainder of the money owed on their lease.  Massachusetts, and Boston specifically, is home to a large number of renters due to the prevalence of colleges and graduate schools.  This law especially gives security to these younger student renters, often living on lower incomes, and in multiple-tenant living situations, by enabling them to escape dangerous and potentially life threatening abuse without the added financial and legal burdens of being sued by a landlord.  The reality is that, in the past, survivors may have remained trapped, risking their lives on a daily basis with an abusive household member, and being told by a landlord that they were legally and financially obligation to remain locked in their tenancy.

As a practical matter, the new law effectively provides tenants with a defense to suits by landlords for unpaid rent and for breaches of lease agreements.  In other words, tenants who are sued by their landlords for unpaid rent or breaches of their lease agreement may have a defense if they can demonstrate to a court that they have carefully followed the proscriptions of the new law.  A properly drafted lease agreement should still permit the landlord to pursue the perpetrator tenant for all rent owed under the lease while releasing the abused tenant.  While the contours of the new law are unknown and will certainly cause some amount of confusion among tenants, landlords, and courts, it will give survivors a choice they did not previously have available to them.

Aside from relieving certain people from rental obligations, the bill also prevents landlords from refusing to rent to someone because of his or her victimization and authorizes lock changes at a tenant’s expense.

The attorneys at Vaughn-Martel law specialize in issues of tenant-landlord law, domestic and sexual violence, and safety planning.  Whether you are a tenant who believes that this new law may apply to you, or you are a landlord who is unsure of how to comply with its terms, we invite you to schedule a consultation with our office.

Negotiating Health Insurance In Divorce: What You Need To Know

Health insurance has been a hotly debated and discussed topic in the media this year.  One aspect of the health insurance discussion that is rarely addressed is the cost of health insurance in the context of divorce proceedings.  In fact, as health care expenditures increase, health insurance has a growing role in child support determinations.  This is particularly true in Massachusetts, where health care expenditures are growing more rapidly than other economic indicators such as wages, consumer prices, and per capita GDP.  (SOURCE: Massachusetts Health Care Cost Trends: Historical (1991 – 2004) and Projected (2004 – 2020), Massachusetts Division of Health Care Finance and Policy, November 2009.)

When determining child support obligations, the court will address whether the spouse that is paying the child support has health insurance coverage available to him or her at a “reasonable cost” that can be extended to the lower earning spouse and their children after divorce.  Since the passage of the 2006 health reform law, it is highly likely that they do.  In fact, approximately 98.1 percent of Massachusetts residents have health insurance coverage, including 99.8 percent of children.  (SOURCE: Massachusetts Health Reform: A Five-Year Progress Report, Blue Cross Blue Shield of Massachusetts Foundation, November 2011).  Additionally, Massachusetts law ensures that divorced spouses will continue to stay eligible on their spouse’s policy.  Mass. Gen. Laws Ann. ch. 32A, § 11A.  Specifically, Massachusetts does not allow health insurance companies to rescind eligibility for a divorced spouse on their ex-spouse’s policy just because they are divorced.  In fact, insurance companies cannot rescind coverage based on their status as divorced from the policy holder until the divorced spouse remarries.  Even if the policy holder remarries, the divorced spouse will continue to be eligible to stay on the policy.

Once the court determines that health care coverage is available at a reasonable cost, it typically has three options.  It can mandate that the person paying child support (1) exercise the option of additional coverage for the spouse and the children through their current health care insurer, (2) obtain separate coverage for the spouse and children, or (3) reimburse the spouse for the cost of health insurance.

If you are in a contested divorce, it is important to know what health insurance options exist in arguing that a spouse does, in fact, have coverage available to him or her at a reasonable cost that can be extended to you and your dependent children.  For those divorcing parties who are entering into an uncontested divorce, this information is vital to informed cost-sharing discussions with your spouse.

Election 2012: Voters Weigh In On Marriage Equality; Maine, Maryland, and Washigton State endorse Same-Sex Marriage

On November 6, 2012, voters in four states – Maine, Maryland, Minnesota, and Washington – were asked to weigh in directly on the issue of same-sex marriages. For up to the minute updates on the results of these ballot measures, visit the Huffington Post’s excellent maps and data. Voters throughout the nation on Tuesday voted to expand access to marriage rights in the states and reject draconian measures to narrowly define civil marriage. Specifically, voters in Maine are the first in the nation to demand recognition of marriage equality by popular vote alone.

The road in Maine has been a bumpy one but, apparently, you can get there from here. The Boston Globe reports that Maine voters have approved a ballot initiative recognizing the rights of same-sex couples to marry has passed with a small but healthy margin. Only three years ago, voters in Maine went to the polls and voted by equal margins to reject a bill passed by the State Legislature that would have recognized marriage equality. For Maine specific ballot results, click here.

In Maryland, voters were asked to vote on Question 6, which would establish that Maryland officially recognizes the right of same-sex couples to marry. In 2011, the Civil Marriage Protection Act was introduced in the State Legislature to officially recognize same-sex marriage. The bill was approved by the Maryland Senate and the House of Delegates, but was amended so that it would not officially take effect until after voters had an opportunity to weight in on November 6, 2012. Voters appear to support the law and marriage equality in Maryland by solid margins. For Maryland specific ballot results, click here.

In Washington State, Governor Chris Gregoire signed a voter-approved marriage equality bill into law in February, granting same-sex couples the same rights to marriage as opposite-sex couples. The law was set to go into effect in June, 2012, but opponents of same-sex marriage obtained enough signatures to place a referendum on the new law on the November 6, 2012, ballot. In Washington State, while votes continue to be counted, it appears as though Referendum 74 will pass, and same-sex marriages will be recognized. For Washington State specific ballot results, click here.

Finally, in Minnesota, voters were asked to vote on a ballot initiative to amend their state constitution to ban recognition of same-sex marriages. Minnesota voters appear to have rejected the ballot measure with a slim majority. Now that is Minnesota nice! While the law in Minnesota still does not provide recognition of same-sex relationships, a constitutional amendment would have made the march toward marriage equality nearly impossible at the state level. For Minnesota specific ballot results, click here.

The legal implication of Tuesday’s vote cannot be overstated. It is a victory not only for the LGBTQ individuals, couples, and families who live in those states, but also a victory for fairness and access to equal justice everywhere. The map of the United States becomes only slightly less hostile to same-sex couples and families, whose access to basic justice – the right to inherit, the right to parent, the right to equal taxation, the right to protect a child or spouse, the right to divorce peacefully, the right to enforce child and other support obligations, and to care for a child or spouse in need – has been expanded nonetheless.

VAUGHN-MARTEL LAW is a boutique Boston law firm specializing in family creation and protection for the LGBTQ community. Our attorneys assist couples and families of all types in estate planning and asset protection, adoption and reproductive law, marriage and divorce, and courtroom advocacy.

Until Debt Do Us Part: Who Inherits Credit Card Debt?

It is safe to say that America is experiencing a debt crisis.  Most of us have at least one credit card balance that just doesn’t seem to be going down!  So what happens to our credit card balances when we die?

The good news is that, with some exceptions, surviving spouses and family members are not responsible for the leftover debt of their loved one.  The bad news is that our estate is responsible for our leftover debt.  That means that before anyone can inherit a single penny from the estate of a deceased person, all of his or her valid debts must first be paid.  Credit card companies are more than happy to collect money from the surviving family of a deceased credit card holder, and it is important to know as a general rule that you are not responsible for the debt of another – even your spouse.

As a recent article on Bankrate.com points out, there are exceptions that could leave you on the hook for someone else’s credit card balance after that person’s death.

Joint Cardholders v. Authorized Users

If you’re a joint cardholder, meaning you co-signed for the credit card, you’re liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses.

If you’re only an authorized user, you’re not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt.

“Sometimes, people can be on a credit card and not even know it,” says Pennsylvania attorney Linda A. Kerns. “Maybe when they filled out the credit card applications, (the joint cardholder) didn’t even tell them.” These accounts could show up years later, at the time of a death or divorce.

“I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event,” says Kerns.

Checking your credit report annually is easy and free, and is the best way to quickly challenge inaccurate information and take address accounts that are either joint or have been misreported as joint.

Custody of Credit Card Debts in Divorce

It happens too often:  One spouse agrees to pay off a joint card as part of a divorce settlement.  But if the ex doesn’t do it or dies before the debt is paid and your name is still on the card, the credit card company may come looking for you.

Furthermore, according to Texas attorney Glen Ayers, if you live in a community property state, you’d better hope you didn’t receive community property in the divorce. “That divorce judgment does not bind the credit card company. It’s going to chase you,” he says.

The credit card companies don’t care what your agreement with your ex is – they just know that you are legally responsible to them for the debt.  It is extremely important to address all credit card accounts in your separation or divorce agreement, and to place clear deadlines by which all joint credit card accounts must be paid off and closed.  Better still, the responsible spouse should be made to produce evidence of that to the other spouse, or face charges of contempt.

Using a Credit Card After the Death of the Cardholder

Continuing to use a credit card as an authorized user after the cardholder’s death could put you in big trouble.  “That’s got criminal implications,” says Ayers. “If somebody wanted to make a case of that, is that any different than picking up a card on the street?”

The same goes for using the card as an authorized user when you know the debt won’t be paid.  For example, says Kern, “You’d be committing fraud if you knew a parent was near death and the estate didn’t have money and you used it knowing it wouldn’t be paid off.”

Given the Various Exceptions, Time Limits, and Complicated Rules on What Constitutes Estate Property, Talk to an Attorney Before Paying

Even if you are not held personally liable for the credit card debt of a deceased loved one, you’ll feel the effects of it if you’re a beneficiary of the estate.  Debts will be paid from the estate before beneficiaries receive any distributions.  But the estate is only legally obligated to pay debts out of “estate property“.  Property that is titled “jointly”, including real estate, or where beneficiaries are named, including life insurance, may pass outside of the estate, and should not be made available to pay credit card debt.

In addition, there is a specific time period for creditors to file a claim against the estate.  When an estate is probated, creditors are prioritized, but only if they file appropriate notices within the statutory period.  If they don’t, they could be out of luck.

Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle.  So it’s likely the credit card company will be at the back of the line when it comes to paying debts from the estate.

That doesn’t mean the credit card company won’t try to recoup the debt from family members, so don’t fall for it if you know you’re not liable.  Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.

Before any debts are paid out of an estate, including credit card debt, consult your attorney.  Even if credit card balances are owed, it is often possible to negotiate settlement of the balances for less than the full amount owed.  Vaughn-Martel Law represents and assists clients who have been named as the executor, administrator, or representative in managing the estate of a loved one.

Manhattan Businessman Disinherits his Gay Son’s Children; Legal Challenge Filed

As reported over the weekend by the New York Post, the son of a well-known Manhattan businessman has challenged a provision in his father’s will that disinherits his grandchildren unless they are born to a heterosexual married couple.  According to the New York Post:

The edict surfaced in the will of Manhattan businessman Frank Mandelbaum, who specified that none of his money should go to any offspring his son Robert might have if he is “not be married to the child’s mother within six months of the child’s birth.”

Frank Mandelbaum, who died in 2007 at the age of 73, is the founder of the ID verification company, Intelli-Check.  The late Frank Mandelbaum’s will prompted his son, Robert Mandelbaum, a Manhattan Criminal Court Judge, to challenge the estate and to argue

that his longtime partner Jonathan O’Donnell is the only ‘mother’ their 16-month-old son, Cooper, knows. The couple married shortly after Cooper’s birth via a surrogate, entitling the child to a share in a $180,000 trust set aside for Frank Mandelbaum’s three grandkids, Robert declared.

According to the New York Post, Frank Mandelbaum’s wife, Ann Freeman, stated in court papers that her “husband’s will specifically prohibited such a child from becoming a beneficiary.”  Such a child!

According to Robert Mandelbaum, his Father was well aware that he was gay, and noted that his long-time partner, O’Donnell, was included in family dinners and vacations.  Now, Robert and his husband O’Donnell are fighting in court to prove that Frank’s will is discriminatory and in violation of state law and public policy.

“Requiring a gay man to marry a woman … to ensure his child’s bequest is tantamount to expecting him either to live in celibacy, or to engage in extramarital activity with another man, and is therefore contrary to public policy,” the couple’s attorney, Anne Bederka, wrote in court papers. “There is no doubt that what [Frank Mandelbaum] has sought to do is induce Robert to marry a woman.”

In Massachusetts, and many other states, the maker of a will may dispose of her property in any lawful manner, so long as such disposition is not repugnant to law.  An individual may lawfully place conditions on bequests in his will, such as graduating from college or refraining from alcohol, and those conditions should be carried out by the courts so long as they do not contravene some positive rule of law, or are against public policy.  Damon v. Damon, 312 Mass. 268 (1942).

However, conditions that amount to a complete prohibition on marriage will generally not be enforced by the courts, and partial restrictions on one’s ability to marry will be upheld only if reasonable.  What qualifies as a total or partial prohibition, and what is a “reasonable restriction”, is very much open to debate.  In Gordon v. Gordon, 332 Mass. 197 (1955), the Supreme Judicial Court of Massachusetts held that a testamentary provision which disinherited any beneficiary who did not marry a person born of the Jewish faith constituted an enforceable and reasonable partial prohibition on marriage.  After all, the beneficiary could marry any suitable Jewish person he liked!

Is a testamentary bequest that disinherits a gay child unless he or she marries someone of the opposite sex a reasonable partial restriction on marriage, or does it amount to a complete prohibition on marriage for that gay individual?

In the end, controversial restrictions such as Frank Mandelbaum’s are very likely to cost the estate and all beneficiaries a significant amount of money, emotional pain, and legal fees.  Be careful that you are restricting gifts for the right reasons and that you are not inviting costly challenges to your estate when you are gone.