Asset Protection – Common Misconceptions and the Bucket Theory

  • July 11, 2018

It is quite common for clients to tell me that they thought their standard family revocable grantor trust would serve to protect assets from creditors.  This is a very common misconception.  Your standard revocable family trust does not in fact provide any asset protection.  There are certain types of trusts that can provide assert protection, such as Nevada irrevocable asset protection trusts.  However, it is not always necessary to utilize these very advanced estate planning techniques for the average person to protect assets from creditors.

When seeking to protect assets we seek to achieve two goals:

  • separate your business assets from your personal assets.
  • separate your business assets from other business assets.

For example, if you own a primary residence and two office buildings, your first consideration might be putting the office buildings into an entity (LLC, Series LLC, Corporation or the like) and removing them from being titled under your individual name.  The second consideration would be to separate the assets from each other by putting each office building into separate entities.

Why is this type of structure recommended?  Because if everything is in your individual name and one of the tenants sues for a slip and fall, and obtains a judgment against you, it will be a personal judgment and your personal assets may be subject to that judgment, including your home.  If all of your assets are in your name, you have created one big bucket of aggregated value for a judgment creditor to dip into.

However, if the business assets are held in an entity structure, you are starting to create multiple buckets which hold fewer assets and less value.  The tenant, in this case will be limited to seeking a judgment against the business at which s/he fell and recover only against its assets, which will no longer include your personal home. Further, if we have taken the extra step of separating the business assets from each other, then we are again creating more buckets and minimizing the value that is available for satisfaction of the judgment in each bucket.

Every client’s needs, level of risk and level of risk tolerance are different.  Additionally there may be tax and other considerations when looking at entity structures.  Corporate formalities and relevant laws must be adhered to in any entity structure to maintain the protections they can afford.  It is important to discuss all of these issues with your legal counsel and CPA before forming new entities and transferring assets.

You spent a great deal of time and effort to earn and grow your assets.  A well thought out asset protection plan is important to safekeeping them.

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5 Steps for a Successful Divorce Mediation

  • July 11, 2018

Mediation is emerging as the procedure of choice for couples hoping to obtain closure of their divorce issues without engaging in the time consuming, emotional and costly litigation process. However, mediation is not for everyone and there are definitely several requirements to assure its success.  If all of the ingredients for a successful mediation are not present, mediation can sometimes be as time consuming, frustrating and costly as litigation. The first, and most basic requirement for mediation, is that both parties want to mediate. Mediation requires two active voices in the room. The goal is to get an agreement that reflects what each of you needs, in order to move forward in your life. If you are not both willing and voluntary participants, then there will not be two voices, and the result will likely be failed mediation or, at best, an unbalanced agreement which could be subject to enforceability issues in the future.

Other requirements of a successful mediation:

  1. Both Parties Are Determined to Settle The Matter: If both parties want to resolve everything in mediation, and keep coming back to the table to talk and to try, then they will likely be successful.
  2. Both Parties Must Be Active Participants.  Both people have to contribute to the discussion. This means that you have to be able to sit in the room together, and use your best efforts to listen to your ex, even when you don’t agree with what he/she is saying. If you and your ex have a dynamic where one of you feels intimidated by the other, and you can’t say what you are really thinking with him/her in the room – then mediation is probably not the right process for you. It follows also that neither person should be cognitively or emotionally impaired (e.g., severe depression) in any way that affects capacity to mediate. Neither person should lack capacity due to drug or alcohol abuse.
  3. Both Parties Want To Settle the Case, and Move On.  The breakdown of a marriage is similar to a death and does cause both parties to engage in the grieving process. This can involve transition through various stages such as denial, pain, anger, depression, reconstruction and eventually acceptance. It is often the case that divorcing couples are at different stages of the grieving process which can certainly complicate the ability of both parties to have lucid discussions about child custody, visitation, division of assets, support, etc.  Mediation of these important and often very emotionally charged issues requires a focus on the long-term, and the big picture. You must think about your ex and – on some level – hope to honor your past love for each other, the years of your lives that you spent together .
  4. No Hidden Assets and Full Financial Disclosure . It goes without saying that parties cannot make informed decisions if they do not have all of the information on which to base decisions. In mediation, you will not have the power of the court behind you to compel your spouse to produce credit card statements, bank statements, stock options, small business records, etc. Most couples who choose mediation feel confident that they know what each other has, or can trust the other party to voluntarily produce information without engaging in formal discovery. Mediation would not be right for someone who wants to ‘make a deal’ without revealing their cards.
  5. No Patterns of Intimidation, Control or Domestic Violence. Finally, it is important to note that, if you and your spouse have a history of violence between you, you probably should use more traditional methods for negotiating your divorce. It is difficult to speak freely and express what you want if you fear repercussions or do not feel that you can contribute productively without inciting anger in the abusive spouse.

Whether you decide to mediate or litigate, it is also important that you retain an attorney to assist you during either process. Mediation is a way to conserve resources and funds, but you still need to have an attorney reviewing your agreements to be sure your interests are being protected. Mediators represent the agreement or the goal or resolution and do not have the ability to be representing the interests of the individual parties with conflicting interests. You want to make sure to have any agreements reached in mediation reviewed by your own counsel.

Nevada Has No Corporate Taxes, Right?

  • July 11, 2018

It is true that Nevada does not impose corporate income taxes. This, and the fact that Nevada also does not impose personal income tax, makes it a very business friendly state. However, this does not mean that you can escape taxation simply by forming a corporation or limited liability company in Nevada. First, regardless of where you incorporate, the Fed’s are always entitled to a piece of the action, whether that is recovered through corporate taxes or personal taxes. Second, if you are doing business in another state, you may be required to register to do business in that state, which may mean paying annual registration fees as well as state corporate income taxes or other taxes imposed by that state. Third, if you are not a resident of Nevada, you may be obligated to pay state personal income tax in whichever state you do reside.

So what constitutes “doing business” in another state? Here is a lawyer answer for you – it depends. Every state has a different statutory definition of what constitutes doing business in that state. It is fairly safe to say that if you repeatedly conduct activities in a state, like shipping goods from a warehouse or having salespeople visiting customers on a regular basis, that is likely to be considered “doing business” in that state. This may mean that you need to register your business to do business in that state.

While Nevada is one of the most business friendly states around, which is one of the many reasons we love our beautiful Silver State, forming an LLC or corporation here, if you are not actually conducting business in our fair state, is not necessarily going to help you avoid taxes in another state. The solution of course is for you to bring your business to Nevada. We would welcome you with open arms. But short of that, you should consult with an attorney and/or CPA before electing the state in which you incorporate your business

5 Ways to Keep Your Divorce Clean

  • July 11, 2018

We have all heard people refer to some divorces as “messy” or “ugly”. Fortunately, these cases are not the norm but every so often there are cases that are so fueled by anger and vindictiveness that they take inordinate amounts of time, money and emotional energy to get them resolved. Almost every divorce litigant starts off the process expressing a desire to “be amicable”, “stay out of court”, and “keep it clean”. How exactly can that be done? In my experience, following a few simple steps can result in a successful and fair divorce.

  1. Channel Anger. Anger is almost unavoidable in a divorce, but it has its proper time and place. Feel free to vent when necessary to friends, therapists, support groups, and any others who you can rely on to help you work through it. Try to keep your anger out of the negotiations. Question your own motivations behind your proposals. There is an old expression that criminal lawyers see bad people at their best and family law attorneys see good people at their worst. People who are normally pretty mild mannered and kind often default to “scorched earth” when they sense an attack.
  2. Do An Ongoing Cost-Benefit Analysis. Although the agreement on the table may leave you with less than you feel a judge would award to you at trial, you have to look at the big picture. Your assessment should take into account the literal cost of fighting — attorney’s fees — as well as the emotional cost of further delays.
  3. Accept Compromise. As Mick Jagger says, “you can’t always get what you want, but if you try, sometimes you just might find, you get what you need.” After a divorce, no one feels like they’ve “won” and most believe their exes “won”. Dissatisfaction is guaranteed when you are dividing one household into two and dividing the time you spend with your children. To cope with the grieving process, try and appreciate, or even enumerate, the compromises you are both making. Everyone feels like he or she is losing out. The trick is ensuring you wind up with what you need in order to move on.
  4. Ignore the Peanut Gallery. Do not listen to your well intentioned neighbor or coworker or friend or family member who knows nothing about the law but is able to rattle off the custody arrangements and support awards that all the people they know have obtained in a variety of courts. Listening to these people will cause you to become insecure. It will make you second guess yourself or feel you’re caving too early or being a sucker. Keep in mind that family law cases are determined on a very factual basis. It is guaranteed that the Peanut Gallery only has limited facts about your case and about the other cases. Nobody knows everything about a marriage except the two people in it. Rely on your friends for emotional support only. Unless they are a family law attorney practicing regularly in your jurisdiction, do not rely on them for legal strategy or advice.
  5. Find the Right Professionals. Retain an attorney and/or a mediator who understands your desire to keep things clean and amicable and agrees to help you try and achieve that goal (assuming your spouse and his or her lawyer are on the same page). Don’t just blindly call lawyers out of the phone book. Talk to others about their experiences with various lawyers and find a lawyer who has a good track record for achieving good results for clients outside of court and who is willing to work with you to keep you on track in your efforts to “keep it clean”.

 

Making Contracts Work for You – Part 4 – Contracts: Insurance Provisions

  • July 11, 2018

Insurance

I can already hear it — you know what insurance is.  However, did you know that a promise to procure insurance for another party can sometimes equal an obligation to cover the loss the insurance would have provided if you don’t procure it?  In other words, if you promise to insure another party in conjunction with a commercial agreement, you become the insurer if the agreed-to coverage is not purchased.  For this reason, insurance provisions in commercial agreements can have enormous financial consequences, particularly when a loss occurs which would have been covered by insurance required by the agreement.  As is often the case with indemnity provisions, insurance clauses are sometimes drawn from old, unrelated agreements, and your contract might wind up with unfair or insufficient insurance provisions.  Make sure the insurance clause fits the deal.

Conclusion

Next time you negotiate a commercial agreement, make sure that you are best protecting yourself and avoiding unintended financial risks by including appropriate warranty, indemnity and insurance provisions that reflect your intentions and are enforceable under the state law selected in the agreement.  Happy contracting.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf. Part 1- Boilerplates, Part 2-Warranties , Part 3-Idemnity Provisions

Making Contracts Work for You – Part 3 – Contracts: Indemnity Provisions

  • July 11, 2018

Indemnity Provisions

Indemnity or “hold harmless” clauses are another way of allocating financial risk to a particular party in a transaction.  Indemnity clauses require one party to bear the cost of certain risks defined in the contract, which can range from particular losses, lawsuits, or even non-conformance with prescribed warranties.  Most commercial agreements should have some form of indemnity clause, in which one party agrees to defend (i.e., hire a lawyer) and indemnify (reimburse) the other party for the risks described.

We find that indemnity clauses are often one-sided, and sometimes taken from unrelated contracts, so that the risks which ought to be negotiated and indemnified are overlooked, while the indemnity clause as written produces results which the parties never contemplated. For example, Party A would not expect to find a clause that lays the costs of Party B’s fault back upon Party A. Yet that kind of result can happen when indemnity clauses are not carefully negotiated and drafted.

Indemnity clauses can be quite complex, including provisions regarding the selection and control of the attorneys who will defend the claim.  A well-drafted indemnity clause will include a provision that the benefited party will be entitled to their reasonable expenses incurred to pay the indemnified loss, and any settlement, judgment and defense costs.

Losses are not always caused by one person or one discrete act or omission.  Events like construction site accidents and other industrial accidents are often the result of a combination of factors.  Environmental contamination can have multiple causes spread over decades. In such cases, the wording of an indemnity clause can make a big difference.

The legal effect of an indemnity clause is usually a question of state law.  Different states have varying rules for interpreting and enforcing indemnity clauses.  Therefore, the state law selected in the agreement can have a major effect on the results produced by the indemnity clause.  Some states require particular wording in an indemnity clause before a court will shift the risk of a loss from one party to another.  If  the contracting parties intend to shift the risk of one party’s “active” negligence to the other, such an intent will often need to be specifically spelled out or the indemnity clause will not be given that effect.

Most or all states have limitations on the kinds of liabilities that may be indemnified, and some even have special statutes that change the rules in particular settings, such as construction contracts, for example.  Indeed, California courts have at times distinguished between “Type I,”  “Type II” and Type III” indemnity clauses. (I will spare you those details.)

Ultimately, the effect of an indemnity clause will turn on the state law chosen in the contract, the subject matter of the contract, the words used in the indemnification provision, the circumstances of the loss to be indemnified, and the different parties’ roles in producing the loss.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf. Part 1- Boilerplate, Part 2 – Warranties, Part 4 -Insurance Provisions

Making Contracts Work for You – Part 2- Contracts: Warranties

  • July 11, 2018

Warranties

A warranty is an agreement that the item sold, or some other subject matter related to your contract, conforms to a certain description.  The effect of a warranty is a contractual allocation of financial risk if the item sold (or other subject matter of your agreement) does not conform to the specified warranty.  A warranty is violated when the thing sold doesn’t satisfy the warranted condition. When this happens, the party who made the warranty is liable to the other party for the cost to repair or correct the issue — without regard to fault.  Thus, warranties produce liability without fault, sometimes called “strict liability.”  When a warranty is breached, it may also provide a basis for rescission and restitution — this means unwinding the contract.

Including warranties in contracts is an effective way to make sure your assumptions about what you are buying are included in the paperwork.  Requesting warranties during negotiation and drafting of documents is a good way to find out whether each party has the same understanding of what is being bought and sold. Signing an agreement that contains warranties that you did not agree to make can produce bad results; likewise, failing to include warranties in an agreement to reflect what has been promised to you is also a bad idea.

Often, a seller will attempt to disclaim liability for any breach of warranties by requesting an “AS-IS” provision. The words “AS IS” and similar terms generally trigger a legally enforceable disclaimer of all express and implied warranties, except for warranties set forth elsewhere in the agreement.

Parties relying on warranties will often want a “survival clause” in the agreement to be sure that any important warranties continue in effect after close of escrow, for example.

Read more in the 4-part Making Contracts Work for You, where we discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf: Part 1-Boilerplate, Part 3-Idemnity Provisions, Part 4 Insurance Provisions

Making Contracts Work For You – Part 1: 5 Boilerplate Items You Don’t Read

  • July 11, 2018

In this four-part series, Making Contracts Work for You, I will discuss various ways that you can strengthen your commercial contracts, so that in the case of a dispute, your contract works on your behalf.

Many people and businesses use self-written business forms as contracts and rely on handshakes to seal a deal. When a dispute arises from said deal, many of these people or business later turn to attorneys for a review of said contract.  Having an attorney review the contract will often reveal shortcomings, and then the second-guessing of the agreement then begins.

A few simple, but well-defined boilerplate terms can make your standardized commercial agreement an advantage for you in the case of a dispute, or at least keep the playing field level.  In many cases, a court cannot rescue you unless you give it the ammunition to do so. It makes great sense to improve your leverage and chances of collection, and perhaps even ward off disputes, by improving your standard contract forms with the simple tools mentioned below.

Here are some of the provisions that can make or break your success in a lawsuit that arises from your contract:

  1. Attorney’s Fees Clause — language that says the winner also gets his attorney’s fees recovered.

Why?  Under the “American Rule” you generally cannot recover attorney’s fees in most states, unless you have a right to attorney’s fees in your contract or under a special statutory remedy.  You want an attorney’s fee clause that is properly drafted.

  1. Clear Payment Deadlines and Interest Provisions — terms that state when payment or performance is due and the consequences for delay.

Why?  Disputes can take a long time to resolve.  The accrual of interest can become a powerful bargaining chip, and a significant item of recovery.  Interest compensates you for the loss of use of your money, and, to some degree, the loss of your own time devoted to the case.  Allowable interest rates vary according to the applicable state law.  If you want to charge “compound interest” — in other words, interest on interest — this must be explicitly stated in the agreement.  Otherwise, only simple interest will accrue on the principal sum due. Typically, we see contracts with no interest rate stated; the interest rate only appears in invoices.  The interest rate(s) should be agreed upon, up-front, in the contract.

  1. Choice of Law, Consent to Jurisdiction, and Venue — where a lawsuit must be filed and what law will apply.

Why?  Cases can be won or lost based purely on the financial burden caused by the location of the lawsuit or arbitration hearing.  You want to be in your own home “court,” spending nights at home with your family, trying the case with your favorite lawyer.

  1. Correct Naming of the Parties and Authorized Signatures — are you actually signing a contract with the party you think you are dealing with?

Why?Some level of due diligence is always appropriate.  If you are doing business with a corporation or other entity, you want your contract signed by a properly authorized representative with the corporate name properly stated.  You would be surprised how often this is overlooked.  Are you dealing with the true property owner, or his uncle who just got out of jail?  There is a wealth of publicly available data available on the Internet to verify the correct names of corporations and the true owners of property, businesses, etc., so you can ensure you have the correct, authorized signatures.

  1. Personal Guaranties – an additional source of payment if the contracting party defaults; usually a person with money, property or both.

Why?  It doesn’t take much for an unscrupulous person to form a corporation or an LLC.  If you do not have a solid track record of doing business with a business entity or trust, it may be appropriate to ask for a personal guaranty. Guaranties must be in writing to be enforceable; they can vary from a single sentence to multi-page guaranty agreements.

We are always happy to review our clients’ standard contracts and provide advice that will make your agreements stronger.

Read Making Contracts Work for You –  Part 2-Warranties , Part 3-Idemnity Provisions, Part 4- Insurance Provisions

Chris D. Nichols Joins Incline Law Group

  • May 17, 2018

Chris D. Nichols

Incline Law Group, LLP is pleased to announce an Of Counsel relationship with Chris D. Nichols

Chris is a highly regarded attorney who brings over 25 years’ experience and knowledge in the areas of Estate Planning, Bankruptcy and Debt; Real Estate, Gaming and Business Law. He also serves as general counsel for many of his clients.

Chris has been licensed to practice law in Nevada since 1987 and Utah since 1984 including all Federal and State Courts in Nevada and Utah as well as Ninth Circuit Court of appeals. He received his J.D. from the University of Utah S.J. Quinney School of Law in 1984, and his Bachelor of Science Degree, Cum Laude from Weber State University. Chris is an avid skier and looks forward to spending winters in Tahoe.

“This Of Counsel arrangement with Chris allows Incline Law Group to support the growth of our existing Estate Planning, Real Estate and Business Law services as well as add Bankruptcy and Gaming Law to our practice areas, allowing Incline Law Group to provide legal clarity and support to our clients in the Lake Tahoe region,” said, Cassell von Baeyer, Incline Law Group’s managing partner.

Mr. Nichols is accepting new clients; please contact Incline Law Group LLP at 775-831-3666 or via email to schedule a consultation.

Marijuana Tenants Update – March 2018

  • March 15, 2018

In October, 2015, Incline Law Group published a blog about how the state laws regarding medical marijuana, along with the issuance of the Cole Memo, impacted landlord tenant law.  The article compared the dynamics between the California and Nevada State Laws with that of the Federal Government along with the Federal Government’s ability to prosecute those who violate the federal marijuana laws.

Since that time, both California and Nevada have legalized recreational marijuana.  However, the federal government still considers marijuana to be a Schedule 1 drug, making it illegal for both medical and recreational users.  Former Deputy Attorney General James Cole released the “Cole Memo” in August 2013, which provided guidance to federal prosecutors with regard to marijuana prosecution.  The Cole Memo essentially directeMarijuana Leasesd federal prosecutors not to prosecute certain uses of marijuana if the use did not violate the local state law, which has allowed the industry to blossom.  The Cole Memo also provided landlords who rented to tenants that were involved in the marijuana business a sense of security so long as the landlord and tenant complied with local laws.

In January, 2018, current Attorney General Jeff Sessions, announced the withdrawal of the Cole Memo.  As previously mentioned, the federal government has the right to seize property used in the cultivation, manufacturing or selling of cannabis.  This can include real property where the owner is merely a landlord who does not participate in the cannabis business.  Under the guidance of the Cole Memo, this risk had been significantly reduced.  Now, due to the withdrawal of the Cole Memo, it is expected that prosecution of all marijuana related crimes, whether or not legal under state law, will increase.  This means that any landlord who has a tenant in the marijuana industry, or even a recreational user who is growing their own plants for private use, again risks prosecution under federal law, including, but not limited to the government seizing the landlord’s property.

While the Cole Memo was not legally binding, it provided many landlords with enough confidence that they would not be prosecuted for renting to those in the marijuana industry.  However, all leases must now be revisited based on the withdrawal of the Cole Memo or landlords could be subject to criminal penalties.

If you have questions about your lease and what your legal risks may be, please contact our office.

(Published March 2018)