Michigan Collection Law Blog

My friend and colleague, Howard Young, is a partner at a very prestigious firm here in Michigan called Weisman, Young, Schloss & Ruemenapp, P.C. They are business lawyers with a twist. You see, Howard just started a blog that makes me kind of nervous; it deals with Asset Protection Planning. That is just a fancy of way of saying "How to keep your assets away from creditors."

Now Howard is a good friend of mine, but he is on the opposite side of the table from me. I chase people and take their assets. Howard's skill is keeping those assets out my reach and the reach of others. Howard is incredibly bright and creative. His bounds are marked by high ethics. Fighting with Howard over a case is always a difficult thing to do.

I encourage you to check out Asset Protection Planning - - Before and After the Lawsuit.

We have lunch occasionally and the issues that we discuss can get quite heated. I now plan to take our heated discussions public and you can decide who is right and who is wrong on these issues.

Let the games BEGIN!!!!

I attended the State Bar of Michigan convention this week. It was fabulous. Among the top speakers was a practice management coach named Dustin Cole. His company, Attorneys Master Class, teaches attorneys how to run their practices efficiently. He opened my eyes to so many things this week that my head was spinning when I left his seminar. The ONLY thing he said that I do NOT agree with is that attorneys should never sue for their legal fees. He is wrong. Attorneys should sue for their fees when a client is going to stiff them. Here is how you do it to minimize your risks:

1. When you have decided that you are going to have to sue the client for your fees, send the client a termination letter. In that letter, inform the client that as of today, you are no longer going to represent him and that he should get other counsel. In that letter state that you have not been paid and that the client is in breach of your contract. This way, you have established a date for which you are no longer representing the client. If you are in the midst of litigation on behalf the client, file a Motion to Withdraw. Come to court with an order for the judge to sign that day after she grants your motion. Sent the client a copy of that order if the client does not come to court along with your termination letter.

2. Do not sue until the statute of limitations for malpractice has run in your state. In Michigan the statute of limitations for a malpractice suit is two years from the date of last service or six months from when the malpractice was or should have been discovered by the client. Lawsuits for attorneys fees are usually responded to by vindictive clients with a malpractice action and/or a grievance. Lets talk about these:

Grievance - There are two kinds of attorneys in this world; those who have been grieved and those who will be grieved. Many of us have cross over that threshold a long time ago. As long as you did nothing wrong, don't sweat a grievance. It should not be a deterrent to you pursuing your fees.

Malpractice counterclaim - A client may file a counterclaim for malpractice AFTER the statute of limitations has run. However, because the statute has run, the award on his claim can only be an offset to your claims against him. His malpractice counterclaim award cannot exceed the award you obtain against the client. Hence, even if you did do something that hurt your client, your exposure is limited by waiting two years. Moreover, if you have malpractice insurance, then you have no exposure other than your deductible.

I represent a number of law firms and we follow these rules when pursuing claims against clients. It makes suing a client for fees less perilous and more profitable. Is that the name of the game?

My good friend, Howard Young, is a seasoned and brilliant lawyer. His firm, Weisman Young Schloss and Ruemenapp, P.C. is a group of highly respected business, transaction, and litigation attorneys. The bad news is he works on the opposite side of the table from me. Amongst his specialties (and he has many), is helping people hide their assets.

Howard recently emailed me the following article that he wrote and I wanted to share it with you, not just because Howard is my friend, but because he has some very interesting things to say from an asset protection perspective. I have reproduced his article, verbatim, with his express permission as follows:

CAN AN ORCHESTRATED DIVORCE BE USED AS AN ASSET PROTECTION DEVICE

For years clients under extreme financial distress have asked whether getting a divorce from their spouse will allow them to avoid paying creditors. The typical scenario involves a husband who has guaranteed significant loans to his real estate development company but now, because of deteriorated conditions in the home sales market, is being called upon by the bank to make good on his guaranty as the primary obligor is insolvent. Wife, with a wink and a nod, retains divorce counsel and files for divorce. Negotiations between wife's lawyer and husband's lawyer are amazingly easy as husband agrees to convey all or substantially all of his assets to his wife as part of the property settlement. The bank's lawyers look on in dismay as they recognize they cannot intercede in the divorce proceedings and, thus, may be faced with an insolvent guarantor-but one who may have transferred millions of dollars to his wife in the form of a property settlement. Now, in a case of first impression [footnote 1], the Michigan Court of Appeals has held that a court can review the division of marital assets in a divorce proceeding in the context of a fraudulent transfer claim.
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Footnote 1 Estes v. Titus, 478 Mich. 864, 731 N.W.2d 423 (May 25, 2007).
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The origin of the claim in Estes is not your usual business transaction. Jeff Titus was sentenced to mandatory life imprisonment for shooting Douglas Estes and another hunter two days into the 1990 firearm deer-hunting season. Plaintiff Jan Estes, who was Douglas Estes's wife and the personal representative of his estate, filed a wrongful death action against Jeff Titus. Less than 2 months after the wrongful death action was filed, Julie Titus, Jeff Titus's wife, filed for divorce and was awarded substantially all of the marital assets. Jan tried to intervene in the divorce action claiming that the property-settlement provisions constituted a fraud upon Jeff Titus's creditors, but Jan's Motion was denied. Jan appealed to the Court of Appeals.

The Court of Appeals agreed with the trial court that it did not have jurisdiction to intervene in the divorce case or to modify the judgment of a sister court. However, the Court did find that Jan stated a valid claim under the Uniform Fraudulent Transfer Act and, therefore, the trial court has jurisdiction under that Act to grant relief with respect to property that Jeff Titus transferred pursuant to the agreed-upon division of marital property incorporated into the terms of the divorce judgment. The important distinction made by the appellate court is that any trial court orders under the UFTA would not operate to modify the divorce judgment; they would operate against persons and property within the trial court's jurisdiction. The court concluded that a transfer of marital assets pursuant to a settlement incorporated in an uncontested divorce judgment may be a fraudulent transfer under UFTA with respect to a transferring spouse.

The court found support for its conclusion in both Oklahoma and Oregon cases as well as in California. It then proceeded to analyze whether Jan alleged sufficient facts to present a justiciable claim that the settlement constituted a fraudulent transfer. The court analyzed the Michigan version of the UFTA and found she would be entitled to recover under the facts alleged; namely, (i) even though the alleged fraudulent transfer took place prior to the judgment in the wrongful death claim under MCL 566.35, the claim arose before the transfer was made (ii) the transfer was made without receiving a reasonably equivalent value in exchange and (iii) the debtor became insolvent as a result of the transfer. Also, the transfer to insider provision of MCL 566.35(2) would apply since the transfer to a spouse is a transfer to an insider under MCL 566.31(k).

EDITOR'S NOTE: It is now fairly evident that a transfer of property pursuant to an orchestrated divorce (or marriage for that matter… in such case in the guise of a transfer of property as partial consideration for a party entering into a prenuptial agreement), may well constitute a fraudulent transfer under Michigan's UFTA. (C) Howard Young, 2007.