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The Ins & Outs of Owning Recreational Property

By: Rick Malad, Attorney

Let’s say you acquired some recreational land like I did years ago. You will likely encounter many issues that you did not expect.

Recreational Land Liability

Liability is always or should be a concern. If you use your land for hunting and/or fishing and you invite your friends and family to participate or you are concerned about trespassers, you should know the following;

Indiana Code 34-31-9 Limited Liability Arising from Agritourism Activities. Agritourism is defined, among other things as natural resource-based activities. This includes hunting, fishing, hiking, and trail riding. A provider (owner) is immune from liability for injury to a participant. There are many exceptions, however, such as if the provider charges a fee or knows of some dangerous condition on the land that is not disclosed.

Waiver and Release/ Insurance

Notwithstanding the statute, which is a good one designed to encourage an owner to share his good fortune with his friends and family, the owner should require each participant to sign a waiver and release of liability agreement where the inherent dangers of the activities are acknowledged by the participant. I even include surrounding landowners as releasees since it is always possible for a participant to cross over the boundaries of the owner’s property.

Always purchase insurance on your recreational land and improvements and include liability insurance and medical pay insurance to protect you.

Limited Liability Corporation or Other Entity

You may choose to acquire the recreational land in the name of a Limited Liability Corporation (LLC) or other legal entity which gives you an extra layer of protection. This is beyond the scope of this piece, but certainly recommended in some situations.

Trespassers

An owner owes very little duty to a true trespasser. The owner cannot willfully or maliciously cause a trespasser harm. The best protection you can have is to make sure you have signs on your property indicating that it is private property and no trespassing, for any purpose, is allowed.

Indiana Code 35-43-2-2 Purple Paint Law. Effective July 1, 2018, Indiana followed several other states to enact the Purple Paint Law. Keeping uninvited people off your land can be a full-time job. The Purple Paint Law allows an owner to use purple paint markings to deny entry to his property, basically informing a person, just like a sign would, that the property is private and no trespassing is allowed. Signs are expensive, labor intensive to install, and difficult to maintain. This statute sets out where you must place the markers, the distance between the markers and the size and height of the purple markers.

Ways to Generate Income

Some owners want to simply enjoy and share the enjoyment of this recreational land. There are ways, however, to generate income.

Farming/Farm Leases

Recreational land assumes that you do not farm your land for profit. If you have some tillable land you may be able to lease it to a local farmer. Those leases should contain information including

1. The term of the lease and extension, if any;
2. Participation, if any, by the owner which could include paying for a portion of the seed and fertilizer cost;
3. Cash rent amount per acre and when it will be paid if no participation by the owner;
4. Any other provision such as exclusivity, release and waiver of liability and lease limitation

Timbering

Conservationists now pretty much agree that selective timbering periodically is healthy for your woods. Hire a well-respected timbering company and, like I have, negotiate a timber management plan that coincides with your wishes and uses for the property. It is a good way to pay for improvements you might want to make on your property.

Hunting Leases

If you are not a hunter you may be able to lease all or a portion of your land to a third party and his guests for hunting and hunting preparation activities. I would not recommend this if you truly want to enjoy your recreational land. I lease land from other landowners for hunting and recreational purposes. Hunting leases are very complex and beyond the scope of this piece.

Tax advantage options and “keeping it as it is”

There are some options to accomplish both of these things at the same time. My goal for the future of my recreational land is to “keep it as it is” while allowing some limited future option. Two programs that I have taken advantage of are:

Classified Forest— Enrolling in the Indiana Classified Forest program is relatively simple, inexpensive and very tax advantageous. Contact the District Forester in your county for an application and procedures. Basically, if you have over 20 contiguous acres and are willing to observe the rules regarding the classified forest program (such as no development, no timbering without an approved timber management plan and no commercial activities) you may enroll all or a part of your land in the programs and obtain a significant property tax reduction.

Conservation Easement — This is a more complicated and restrictive program. Contact an accredited land trust organization. I used Sycamore Land Trust in Bloomington, Indiana, to start the process on my land. A conservation easement, in its simplest terms, is an agreement between the owner and the land trust to prohibit certain activities from ever taking place on the real estate and specifically allowing certain activities to take place. While there are many negotiable activities, the land trust will insist on certain prohibitions such as raising livestock, use as a commercial enterprise, mining, development of any kind and timbering without an approved timber management plan. Certain allowed activities may be specifically allowed such as hunting, fishing, trail construction and management, some farming and food plat cultivation. Some of your land may be excluded if you have some plans to do development like build a home or, in my case, to expand an already improved area of my land. You must have your land surveyed and you will need to pay a monitoring fee for the land trust to walk your property once a year to make sure all the “promises’ in the conservation easement are followed.

Once you have negotiated your written agreement, an appraisal is made to determine the market value of the land involved before the easement and after the easement with its restrictions. The difference between the two values is considered a charitable contribution to a tax-exempt organization. Both are win-win for an owner who wants to “keep it like it is”. Enjoy your recreational land!

Child Support Modifications: When Child Support Orders May Be Modified

By: Nicole Makris, Attorney

Child support is intended to provide children with the standard of living that they would have enjoyed if their household had remained intact. Once the court issues a child support order, the order may only be modified if statutory criteria are met. The same rules apply to an order for college or post-secondary education expenses, which is in the nature of a child support order. Indiana Code § 31-16-8-1 includes the standards that must be met before a parent may request a modification of a child support order.

Substantial and Continuing Change of Circumstances

The first way that a child support order may be modified is if the parent requesting the modification is able to show that substantial and continuing changed circumstances have occurred that have made the current child support order unreasonable. Examples of these changes of circumstances are the emancipation of one of the children who are subject to a child support order, changes in employment and income of a parent, incarceration of a parent, or if an agreed change in the custodial arrangement between the parents has occurred.

Changes to Factors in Child Support Calculation  

The second way that a child support order may be modifiable is if an updated child support calculation would result in more than a 20% change from the child support order in effect, and if the child support order has been in place for at least twelve months before the petition for modification is filed. A more than 20% change in the child support amounts can come about through an increase or decrease in the income of a parent, or changes to the other factors considered in a child support calculation such as the number of children subject to the order, the cost of the children’s healthcare and/or work-related childcare expenses, or the number of overnights exercised by the non-custodial parent.

If a modification of child support is granted, the earliest date that the modification may be retroactive to is the date that the petition to modify was filed. The two exceptions to this rule are if the parents have agreed to and complied with a different method of payment which is in substantial compliance with the intention of the child support order, or if the parent who is paying child support assumes custody of the child so that a permanent change of custody occurs.

Child support modifications are very fact-sensitive. Consult with an experienced family law attorney regarding the details of your case.

Legislative Update: Indiana Emancipation and Relocation Laws July 2019

By: Nicole Makris, Attorney

On July 1, 2019, new legislation went into effect in Indiana that anyone with a child custody order should be aware of. Primarily, a notable change was made to Indiana Code § 31-16-6-6. Under this statute, a child is emancipated when they reach the age of nineteen, which terminates the non-custodial parent’s child support obligation. Now, the law provides for an exception if a child is a full-time student in a secondary school when they turn nineteen years old. Under these circumstances, the parent or guardian has the opportunity to request that the child support obligation continue until and terminate upon the child’s high school graduation.

In order to ensure that child support continues until the child graduates from high school, it is the parent or guardian’s responsibility to file a notice with the court within the time frame of — after the child’s seventeenth birthday and before the child’s nineteenth birthday. The notice must include proof of the child’s enrollment in high school and his or her expected date of graduation. The parent who is paying child support has the opportunity to file an objection or request for a hearing within thirty days of service of the notice.

Relocation Statute Changes

The relocation statute also underwent changes that took effect on July 1, 2019. These changes to Indiana Code § 31-17-2.2-1 affect anyone with a child custody order or parenting time pursuant to a parenting time affidavit. A parent who is relocating now has thirty days before the date that they intend to move or less than fourteen days after they become aware that they will be moving to file their notice of relocation with the court, whichever is sooner. The non-relocating parent then has twenty days from service of the notice to file their response stating their position on the relocation.

In addition to the change in filing deadlines, the updates to the statute allow for informal notice of relocation in some circumstances rather than a formal filing with the court. The relocating parent does not need to file a notice with the court if the move was already addressed in a court order or if the parent is moving closer to the non-relocating parent. The moving parent also does not need to file a formal notice if the new residence is not more than twenty miles away from the non-relocating parent’s residence and the move will not result in a change in the child’s school. Even if a formal notice is not required, the parent who is moving still needs to provide their home address, all telephone numbers, and e-mail addresses in writing (text message or e-mail is acceptable) to any individual who has or is seeking custody, parenting time, or grandparent visitation with the child.

If the parent is required to file a notice of intent to relocate, the notice must include specific information, including the parent’s new residential/mailing address, phone numbers, expected moving date, and a brief summary of the reason for the move, as previously required. The notice must also state whether the parent who is moving believes that the current parenting time or grandparent visitation order should be modified, and that the parent who is not relocating needs to file his or her response within twenty days of receiving the notice. The parent who is not moving may file a request to prevent the temporary or permanent relocation of the child and/or a petition to modify an order regarding custody, parenting time, grandparent visitation, or child support. If the relocation occurs, all current orders for custody, parenting time, grandparent visitation, and child support remain in place until the court modifies them.

Consult with an experienced family law attorney regarding the specific facts of your case.

Glen Mills Schools Faces Lawsuit Over Child Abuse Allegations

A class action lawsuit has been filed against Glen Mills Schools in Pennsylvania after an investigation uncovered numerous of claims of abuse at the reformatory school for boys. Allegations made by students at the school include counselors and staff inflicting physical violence on the boys like punching, kicking, slamming them into walls or lockers, slapping, and choking them. In one instance, a boy stated he was grabbed by the shirt and slammed onto a pool table for not acknowledging a staff member when the boy walked into the room. The investigation uncovered years of physical abuse at the school. Victims were often silenced with threats of more violence or relocation to a worse school.  Many did not report abuse and went to lengths to ensure family members who saw injuries like cuts, bruises, and sprains did not take action.

The lawsuit alleges that in addition to the injuries from physical abuse and trauma from emotional abuse, students enrolled at Glen Mills were also deprived of their right to an education. It claims that in several instances students were provided self-directed online resources and did not receive instruction or support from teachers. Some were only provided a GED prep book rather than receive secondary education instruction.

State of Pennsylvania closes Glen Mills Schools amid reports of abuse

In April 2019, the State Department of Human Services in Pennsylvania revoked Glen Mills’ license after further investigation into child abuse and cover-ups at the Delaware County facility.

If you or someone you know has a child who attended Glen Mills Schools in Pennsylvania, contact us. Our personal injury attorneys have handled numerous child abuse claims including claims of physical violence and sexual assault and can provide you with a confidential case evaluation at no cost.

When do former clients create conflicts of interest?

By: Arend J. Abel, Attorney

Lawyers often conclude that once representation of a client ends, they are free to take on matters adverse to the former client.  However, that is not always the case.  The Indiana Rules of Professional Conduct specifically provide that there are circumstances where a lawyer may not take a representation that is adverse to a former client.  Indiana Rule of Professional Conduct 1.9 provides that a lawyer may not, absent informed consent, represent a client who is adverse to a former client where the matters are “the same or substantially related.”  It’s easy to tell if matters are “the same.”  The trick is to determine what counts as a “substantially related matter.”

The answer to the question of whether matters are “substantially related” is sometimes counterintuitive.  For example, a lawyer who has generally represented a business owner and obtained information regarding the business owner’s finances likely cannot later represent the business owner’s spouse in a divorce, because the financial information learned from the previous representation may be highly relevant to property settlement issues.

On the other hand, a lawyer who has repeatedly defended employment matters for a business may not be disqualified from later representing persons making employment claims against the former client, because the facts of each separate employment matter stand on their own.

There are some cases that fall between those two types of representations.  For example, the Indiana Court of Appeals in XYZ, D.O. v. Sykes, 20 N.E.3d 582 (Ind. Ct. App. 2014) disqualified a law firm because one of its lawyers had previously represented the adverse party doctor in six medical malpractice suits and the current representation involved an additional allegation of malpractice, coupled with a negligent credentialing allegation against a hospital for failure to adequately investigate the circumstances of the six prior malpractice suits.  The Court of Appeals held that the two matters were substantially related and therefore the lawyer and her firm were disqualified.

The key test to determine whether matters are “substantially related” is whether there is a substantial risk that specific confidential factual information of the kind that would normally have been obtained in the prior representation would materially advance the new client’s position against the former client.  General knowledge of the former client’s policies and practices is ordinarily not enough to result in disqualification, at least for organizational clients.

Before taking on a representation that is adverse to a former client, an attorney must carefully consider the scope of the prior representation and the kind of information that would normally have been obtained from the former client for that sort of representation.  Then, the lawyer must assess whether information that would normally have been obtained from the former representation could be helpful to the new client.  If it is, the lawyer must decline the new representation.

Filing Deadlines Vary for Boy Scout Sexual Abuse Claims

For survivors of childhood sexual abuse, it may take decades to begin processing what has happened to them. The unique struggles and obstacles faced by survivors of childhood sexual abuse can have a negative effect on their ability to pursue a civil lawsuit. This is because the survivor may not recall what occurred or connect their abuse to the harms they have suffered until much later. By the time the survivor makes that connection, the time frame for them to file a civil lawsuit may have lapsed. The legal term for the deadline to file a lawsuit is the “statute of limitation.” Statutes of limitation are laws passed by state legislatures that place time limits on how long a person has to file a lawsuit in court.

Concerns about whether a statute of limitation has expired frequently come into play in childhood sexual abuse cases. As an example, many survivors of childhood sexual abuse by a volunteer of the Boy Scouts of America organization have come forward. The Boy Scouts organization currently faces hundreds of accusers in multiple lawsuits across the country. The survivors filing lawsuits are from all walks of life and the age range for these survivors varies greatly.  Older survivors will have to show that their case fits within their state’s statute of limitations in order to be successful in pursuing their claim.

Some states are changing the statute of limitations to offer more access to justice for sexual abuse survivors

States across the nation are beginning to recognize this obstacle to justice and are taking a closer look at, and changing, their statutes of limitations for childhood sexual abuse cases. Delaware and New York have repealed requirements altogether, meaning that survivors of any age can seek damages in a civil lawsuit. Other states are considering legislation that would either eliminate limitations or expand them to allow more survivors to come forward. This process is referred to as statute of limitations reform.

Under current Indiana law, survivors of childhood sexual abuse have a limited amount of time to file a civil case against their abuser. The Indiana General Assembly is currently studying how statutes of limitations for civil lawsuits uniquely affect survivors of childhood sexual abuse. If the proposed changes to the statute of limitations law are adopted it would open a window of time to allow Indiana survivors of sexual abuse, whose statutes are currently expired, the opportunity to file a claim. Expanding the statute of limitations would allow more survivors to receive compensation for costs associated with treatment and rebuilding their lives. It would also hold perpetrators and organizations who enabled the abuse accountable for their actions and protect future victims.

States expanding or abandoning limitations on civil lawsuits have led the Boy Scouts of America to consider filing bankruptcy due to the large number of pending and potential claims against them. While the Boy Scouts have not officially filed for bankruptcy, they are exploring that option. Other organizations whose policies and actions allowed sexual abuse to occur, like USA Gymnastics, have used bankruptcy as a strategy to limit their losses and protect their assets.

VIDEO: Greg Laker explains statutes of limitation

Talk to an attorney for free to find out if you have a case

Statutes of limitations are always a concern in these types of cases, and the looming possibility of bankruptcy proceedings makes it even more necessary to talk with an attorney as soon as possible to protect your rights and interests. If you or a loved one is the victim of childhood sexual abuse at the hands of a Boy Scout troop leader or volunteer, our sexual abuse attorneys will stand with you throughout the civil litigation process. Please contact us for a free and private consultation on your case today.

Thousands of Boy Scout Members Allege Sexual Abuse

Sexual abuse allegations from former scouts across the country are piling up against the Boy Scouts of America. The Boy Scouts organization, which provides programming for millions of children across the country, is embroiled in multiple lawsuits regarding their policies on background checks.  The civil lawsuits allege the policies allowed more than 7,000 perpetrators of sexual abuse to volunteer. By volunteering, perpetrators had unfettered access to kids as young as five years old. The allegations span many decades and, if founded, are evidence of pervasive and nationwide abuse.

In October 2012, an Oregon court ordered the Boy Scouts to release internal files that were kept to track suspected and convicted child molesters that volunteered for the organization. These files, referred to by the organization as “the red files” or the “ineligible volunteer list,” were nearly 20,000 pages meant for use by the organization to prevent pedophiles from volunteering.

But that list was rarely checked in the hiring process, according to the allegations in recent complaints. The fallout from the release of the red files has been tremendous—current estimates of the number of victims surpass 12,000 boy scouts who were molested and/or sexually abused by troop leaders or other volunteers from 1944 to 2016.

The release of the red files exposed men from every walk of life and every corner of the country, including Indiana. Indiana cases demonstrate the complacency of the Boy Scouts of America in using the red files for their intended purpose—preventing dangerous people from using the organization to gain access to harm children. Thomas Hacker was a troop leader and volunteer for the Boy Scouts in Indiana in the 1970’s before he was convicted of felony child sexual abuse in 1973. Following his conviction, Hacker moved to the Chicago suburbs where he was allowed to re-join as a volunteer with the Boy Scouts, resulting in his molestation and abuse of more children. Fifteen of those Chicago scouts filed suit against the Boy Scouts in 2018.

Yet another Indiana case involved an unnamed troop leader who was added to the red files in 1972 after admitting to molesting young scouts. But officials at the Boy Scouts organization wrote next to his name that he had been “cured” through psychiatric treatments and meetings with his minister, and was subsequently allowed to register as a troop leader once again. Ten years later, the same troop leader was allowed to host a sleepover, after which two boys accused him of molesting them. The troop leader eventually admitted to molesting the boys and resigned from scouting, but there is no indication on whether local law enforcement was ever notified.

If you are a survivor of childhood sexual abuse and exploitation at the hands of Boy Scout leaders and volunteers, you are not alone. Our attorneys have decades of experience fighting for survivors of sexual abuse in the civil justice system. Our sexual abuse attorneys have received professional training to deal with the unique circumstances that survivors of sexual abuse and trauma face. If you or a loved one has been sexually abused, please contact us for a free and confidential case evaluation.

Watch Greg and Ashley talk about how they help survivors

Indiana Court of Appeals upholds and “reforms” covenants not to compete and not to solicit customers or employees

By: Arend J. Abel, Attorney

On April 15, 2019, the Indiana Court of Appeals issued a decision that could mark a major shift in the law relating to non-compete and non-solicitation agreements.  Heraeus Medical, LLC v. Zimmer, Inc., No. 18A-PL-1823 (April 15, 2019).  The decision contains three  holdings of significance:  (1) that a covenant need not have an explicitly defined geographic scope, (2) that a covenant can protect prospective customers with whom the departing employee had recent contact, and (3) that an express provision in a covenant can permit a court to reform an overly broad covenant so as to make it enforceable.

The case involved two medical device companies who had an agreement for one of them (Zimmer) to serve as the exclusive distributor of bone cement manufactured by the other (Hereaus).  Hereaus terminated the agreement in December of 2018, formed its own subsidiary to sell and distribute the product, and hired Robert Kolbe, who had been Zimmer’s Director of Enterprise Solutions for the eastern United States.  Kolbe had a non-compete agreement with Zimmer, which also prohibited him from soliciting Zimmer customers and employees.

In part, the employee non-solicitation agreement prohibited Kolbe from soliciting “any individual employed by Company at the time of Employee’s separation from Company employment.”

The “Restricted Territory” for the non-compete and customer non-solicitation clauses was defined as:

(i) any Customer-specific or geographic territory assigned to, or covered by, Employee during Employee’s last two (2) years of  employment with Company;  (ii) any state or portion of any state assigned to Employee by Company for purposes of any sales or service activities or responsibilities at any time during the two (2) years preceding the termination of Employee’s employment with Company; or (iii) any county, municipality or parish of any state or commonwealth assigned to Employee or in which Employee engaged in any sales or service activities on behalf of Company at any time during the two (2) years preceding termination of Employee’s employment with Company

The customer non-solicitation covenant prohibited Kolbe from soliciting both customers and “Active Prospects, which the agreement defined as:

[a]ny person or entity that Company, through its representatives, specifically marketed to and/or held discussions with regarding the sale of any of Company’s products or services at any time  during the last six (6) months of Employee’s employment with Company and with respect to whom, at any time during the six (6) months immediately preceding the termination of Employee’s employment with Company, Employee had (i) any marketing or sales contact on behalf of Company and/or ii) access to, or gained knowledge of, any Confidential Information concerning Company’s business prospects with such Active Prospect.

Defendants first contended that the failure of the agreement to geographically describe the restricted territory rendered it void.  However, the Court held that Indiana law “requires only that the geographic scope of restrictive employment covenant be reasonable, not that it be spelled out in explicit terms.”  The Court also held that the geographic scope of the covenant could be shown by extrinsic evidence concerning the portions of the country that were assigned to Kolbe.

Defendants also contended that the prohibition on soliciting “active prospects” was invalid, asserting that Indiana Law did not permit covenants that reached prospective customers.  Again, the Court rejected the argument, holding that because the covenant applied only to prospective customers with whom Kolbe had contact during the last six months of his employment with Zimmer, it was “limited in both scope and duration,” and therefore was valid.

Finally, Defendants contended that the employee non-solicitation covenant was void because it was overly broad.  Specifically, it applied to all employees of Zimmer, including “employees such as drivers or shelf stockers.”  The Court agreed that the provision against soliciting employees was overly broad because Zimmer “has not shown that it has a legitimate protectable interest in its entire workforce, which includes many employees who would not have access to or possess any knowledge that would give a competitor an unfair advantage.”

However, the Court refused to invalidate the entire covenant because the parties agreed to a provision in the agreement that “any court interpreting the provisions of this Agreement shall have the authority, if necessary, to reform any such provision to make it enforceable under applicable law.”  The Court acknowledged that prior law held that a court could not “not create a reasonable restriction under the guise of interpretation, since this would subject the parties to an agreement they have not made.”   But the Court held that the reformation provision made all the difference because “ the parties specifically agreed” that a court interpreting the agreement had the authority to reform any unreasonable provision to make it enforceable.

There are several lessons that can be learned from Heraeus Medical.  First, it is permissible to define the geographic scope of a non-compete by reference to the employee’s assigned territory, without expressly naming or describing that territory.   Second, restrictions on soliciting prospective customers are enforceable as long as they are limited to prospective customers with whom the employee had contact within a short period before the employee’s departure.  Finally, and perhaps most surprisingly, a court can “reform” an invalid non-solicitation provision to make it valid as long as there is an express provision in the agreement providing that authority.  Businesses should review (and likely should revise) their non-compete and non-solicitation agreements in light of this new decision.

Prenuptial Agreements and Postnuptial Agreements: What to Know

By: Brian K. Zoeller and Nicole Makris, Attorneys

Prenuptial agreements and postnuptial agreements are practical resources for couples seeking to simplify the property aspects of their relationships by designating how the property and debts of their marriage will be distributed in the event of a future legal separation, divorce, death, or other event.

What is a Prenuptial Agreement?

Far from a new concept, the ancestor of today’s prenuptial agreement, also known as a premarital or antenuptial agreement, is estimated to date back around 2,000 years. Under Indiana Code 31-11-3-2, a premarital agreement is an agreement between prospective spouses that is executed in contemplation of marriage and becomes effective upon marriage. These agreements define the parties’ property rights in the event of legal separation, divorce, death, or other events. Because of this, courts have noted that prenuptial agreements are favored in that they can resolve property issues that otherwise would be the source of litigation.

In order for a prenuptial agreement to be valid, the agreement must be in writing, cannot be unconscionable, and must be entered into freely, without fraud, duress or misrepresentation. Full disclosure between the soon-to-be spouses as to their individual assets and debts is extremely important when entering into a prenuptial agreement to insure their enforcement.

Prenuptial agreements can prove to be extremely valuable in the event of legal separation or divorce by outlining each spouse’s property rights, from real estate to bank accounts. Prenuptial agreements also distinguish responsibility for the debts of the couple, such as student loans and credit cards. Having an agreement on these issues before marriage can minimize the number of issues that the couple would otherwise have to determine if a spouse later files for legal separation or divorce.

What is a Postnuptial Agreement?

Postnuptial agreements, also known as reconciliation agreements, are a useful option for couples who are facing the possibility of divorce but are willing to reconcile. When there has been infidelity or other conflicts in the marriage, postnuptial agreements provide couples with the opportunity to reconcile while outlining their respective rights and responsibilities as to marital property and debts in the event that the relationship ends in the future.

The key distinction between prenuptial agreements and postnuptial agreements is that postnuptial agreements take place after the couple is married rather than before the marriage. As with prenuptial agreements, the couple should fully disclose to one another the extent of their assets and debts.

Prenuptial agreements and postnuptial agreements are useful tools for couples who wish to clearly outline how the marital estate is to be divided in case a legal separation, divorce, death, or other event occurs in the future.

Maximizing the Possibility that Using an Entity For Your Business Will Actually Limit Liability

By: Arend J. Abel, Attorney

Many times, business owners will set up one or more corporations, or other entities such as LLCs, to conduct business.  Typically, the entities are created to limit the owner’s liability for the business’s debts, or to protect one business from the liabilities of another business.  However, often the owner does not go beyond formation of the entity to take the additional steps needed to maximize the chance that having one or more entities will fulfill those goals.  Absent those steps, Courts sometimes disregard the existence of the entities by “piercing the corporate veil” and hold the owners liable for the business’s debts, or hold one entity liable for the debts of another.  Here are some steps that can help avoid such a result.

Keep Finances Separate and Document Transfers

The most important step in making sure the entity is recognized as separate from its owner is to keep the owner’s and the entity’s financial affairs strictly separate.  Among other things, this requires a good set of books for the entity, and a separate bank account.  Multiple entities each should have a separate set of books. Any transfers between owner and entity should be scrupulously documented as loans, capital contributions, distributions, or salary, depending on the nature of the transfer.  Transfers between the entities should be avoided, if possible, unless one entity is a subsidiary of another.  If one entity is a subsidiary of the other, then transfers from the subsidiary should be documented as distributions or dividends.  Transfers from parent to subsidiary should be avoided, but if necessary should be documented as loans or capital contributions.  Other inter-entity transfers should ordinarily be documented as loans and, again, should ordinarily be avoided.

Adequately Capitalize the Entity When Formed

One factor Courts look at in deciding whether to pierce the corporate veil is whether the entity was adequately capitalized when formed.  Many business owners don’t contribute substantial working capital to an entity at the outset, instead simply moving money in and out of the entity as needed.  But the lack of capitalization, and shuffling funds in and out, creates a risk a court will disregard the entity.  Given that a business will inevitably have expenses and need working capital, the owner should put in an amount large enough to sustain the business’s expenses for several months, at least.  A year’s worth of expenses is even better.  The money should be put into the entity when it is formed, in exchange for shares the entity issues to the owner.

Create and Issue Share Certificates

Another step that owners should take is to actually issue share certificates, in exchange for the capital contributions made when the entity is formed.  It is surprising how many business owners fail to take this basic step.  The absence of share certificates suggests that the owner is doing business in his personal capacity, rather than through the entity.  This creates an unnecessary risk of personal liability.

Have Separate Phone Numbers, Addresses and Letterhead

The owner and the business should have separate phone numbers, even if the business number is forwarded to the owner’s line.  They should also have separate addresses.  If the business is run out of the owner’s home, even a P.O. box as a corporate address helps reinforce the fact that the business is separate from the owner.  Multiple entities should also have separate phone numbers and addresses.  The entity should have letterhead for correspondence, and if there are multiple entities, each should have its own letterhead.

Use Distinct Names for Multiple Entities

Another factor courts sometimes look at in piercing the veil between multiple entities is whether they share similar names.  Avoiding similar names is another way to reinforce corporate separateness between entities.

Have a Management Structure and Regular Meetings

If the entity is a corporation, it should have a Board of Directors.  If there is only one shareholder, trusted advisors can act as members.  The Board should meet at least once a year.  If there are multiple shareholders, they should also meet at least once a year.  Even a single shareholder can have a “meeting” at which corporate action is taken.  No Board of Directors is required for an LLC, but if there are multiple members, they should have regular meetings.  The entity should issue notices before the meetings, and a corporate secretary should document all meetings with minutes.  Minutes, notices, and corporate resolutions should be kept in a minute book.

To maximize the chance that entities formed for businesses will effectively shield the owner from personal liability, and will shield the assets of one entity from the debts of another, business owners should consult with an experienced attorney to guide them through the process.