Dallas Bar Association
HEADNOTES
Focus Family/Probate, Trusts & Estates
April 2012 Volume 37 Number 4
No Courts, No Justice, No Freedom G. Michael Gruber to Receive Keynote Speaker 2012 Justinian Award trict Judge for the Northern District of Texas. Judge Lindsay is a highly regarded trailblazer who has spent his illustrious legal career supporting our court system and, more importantly, promoting equal By Emmanuel U. Obi and open access to it at various levels. The judiciary is a central aspect of In his former capacity as a Dallas City American democracy necessary to pre- Attorney, Judge Lindsay worked diliserving our rich heritage of liberty, jus- gently to ensure that Dallas citizens had tice and equality under law. The fun- fair and equal access to city courts. In damental necessity of the November of 1997, Judge judiciary can be traced back Lindsay was nominated by to our forefathers’ establishPresident Clinton to be a ment of a three-pronged federal judge for the Northgovernmental structure ern District of Texas, and essential to safeguarding after being unanimously our liberties. In the landconfirmed by the U.S. Senmark decision Marbury ate, became the first Afriv. Madison, the Supreme can-American federal judge Court reinforced this sysin the Northern District of tem of checks and balances Texas, which includes 100 by fortifying the judiciary’s counties. most essential power—judiThroughout his entire cial review. Accordingly, career, Judge Lindsay has it is rather timely that this Hon. Sam A. Lindsay steadfastly remained comyear’s ABA Law Day theme, mitted to maintaining a “No Courts, No Justice, No Freedom,” high level of integrity, hard work, and shines a spotlight on a critical issue that the highest ethical practice of the law. threatens the operational efficacy of our When asked about the significance courts. As members of the legal profes- of this year’s theme, Judge Lindsay sion and the community at-large, this responded, “[i]f there were no federal profound issue deserves our immediate court system, this country would not and sustained attention. have a democracy; the court system The recent global economic cri- is one reason democracy flourishes in sis has had far-reaching ramifications, this country today because it continuincluding the increased frequency and ally reminds members of society that we severity of funding cuts for courts across have a system based on laws and that no the nation. For example, this crisis has one person is above this system or any of constricted the availability of funding its laws.” To this end, according to Judge for, inter alia, pay raises for judges at Lindsay, “[t]he most important goal of the federal level and thereby negatively any effective jurist should be ensuring a impacts the judiciary’s ability to recruit fair process in which the litigants of any competent jurists. On the state level, case are treated fairly.” according to a report published by the As we celebrate Law Day this year, ABA task force examining this issue, it is a good time to recognize individu“the courts of virtually every state have als like the Honorable Sam A. Lindsay been forced into debilitating combina- who have faithfully defended our courts. tions of hiring freezes, pay cuts, judicial We should also commit our focus to findfurloughs, staff layoffs, early retirements, ing fiscally reasonable solutions to the increased filing fees, and outright clo- under-funding dilemma that is unduly sures.” Worse still, as the report high- restricting access to, and the functionlights, is that “the reductions in court ing of, our courts. This will ensure the staff and related resources come at the continued vitality of our court system—a very time when the demand for the judi- critical thread in the democratic fabric of cial resolution of economic claims has American life. In short, as the Honorable increased dramatically.” Thomas J. Moyer, former Chief Justice of Ironically, these funding cuts reflect the Ohio Supreme Court, once remarked, an arguably “penny-wise and pound- “[w]e can compromise on budgets, but we foolish” fiscal strategy. The truth is, as cannot compromise on justice.” noted in the ABA report, any savings The DBA will commemorate Law Day generated in the short-term by increased 2012 with a luncheon on Friday, May 4, cuts to funding and resources are ulti- noon, at the Belo Mansion. Tickets are mately overshadowed by higher long- $35 per person. For more information, or term social and monetary costs. to purchase tickets, contact Amy Smith As in years past, the DBA 2012 Law at asmith@dallasbar.org. HN Day Luncheon will highlight the pressing nature of the issues raised by this Emmanuel U. Obi is a corporate attorney in the Dallas office year’s theme. As such, it is quite fitting of Weil, Gotshal and Manges LLP and a member of the Dallas that this year’s keynote speaker is the Bar Association’s Publications Committee. He can be reached Honorable Sam A. Lindsay, U.S. Dis- at Emmanuel.Obi@weil.com.
Honorable Sam A. Lindsay
By Mary Blake Meadows
As the youngest of nine children in a bluecollar Dallas family, Mike Gruber never anticipated being able to go to college, much less aspire to a successful legal career and a lifetime of community service. As a child, one of the few places his entire family could afford to visit together was the Dallas Zoo, he recalls. Years later, he participated in the effort to successfully privatize the Dallas ZooG. Michael Gruber logical Society, and now serves as its incoming Chairman of the Board. “I thought my life was going to be painting cars and working as a mechanic. I never dreamed I’d have the kind of opportunities that I’ve experienced. The only difference in how our lives develop is the opportunities we’re
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Income Tax Considerations in Divorce by Jerri L. Hammer and Janet E. Stigent-Burns
General Filing Considerations
Governing Rules. Federal tax law respects the characterization of property and income under relevant state law. As such, the Texas Family Code is a necessary tool in the characterizing process. Federal tax law also acknowledges that marital agreements can serve to modify characterization. The validity of such agreements may serve to affect the tax reporting of transactions by the parties. Below are some general rules regarding tax effects of divorce. There are many more, and care must be taken in analyzing the tax implications of divorce. Modification of Community Property Law Application. The IRS has indicated that if certain conditions are met, the general rules for reporting one-half of all community property activity will not apply if: 1. The spouses lived apart for the entire year; 2. The spouses do not file a joint income tax return; 3. Either or both spouses have earned income for the year that is community income; and 4. The spouses did not transfer, directly or indirectly, earned income during the year. This does not include child support payments. The results of this modification are that each spouse reports all of their earned income. Furthermore, each spouse would report onehalf of other community income, such as interest, dividends, etc. Effect of Partition Arrangements on Tax Returns. In both pre-marital and post-marital agreements, earnings can be partitioned to a spouse. This would have the effect of rechar-
Inside 5 Estate Planning Considerations in Divorce 7 Parenting Facilitation: When Parents Don’t Play Well Together 9 Wiretapping, GPS Tracking and Eavesdropping
given, and I’ve been very fortunate to be able to give back.” This personal commitment to improve the lives of others has resulted in Mike being selected as the 2012 Justinian Award recipient, presented by the Dallas Lawyers Auxiliary to a member of the Dallas Bar Association in recognition of volunteer efforts benefitting the community. Mike’s opportunities began with the encouragement of Nancy Solana, his civics teacher during his senior year at Thomas Jefferson High School. Although he was enrolled in the school’s vocational education program for automotive mechanics, and spent his afternoons and evenings fixing wrecks and painting cars to gain experience and help support himself, Mike was inspired by classroom discussions about government and the law. “I loved the class and the challenge of think-
acterizing the income so that it does not follow the normal community property reporting rules. Although a marital agreement may be in place, this does not prevent the spouses from filing a joint return. If the partition agreement contains provisions regarding allocation of the tax burden, this provision should be provided to the tax preparer so that proper allocation can be made.
Tax Ramifications of Typical Marital Assets
Marital Residence. Internal Revenue Code section 121 allows for taxpayers to exclude up to $250,000 of gain from the sale of a residence (or up to $500,000 for joint filers) if certain requirements are met. Generally a taxpayer must meet an ownership and use test: 1. The taxpayer must have owned the residence for at least 2 years; and 2. The taxpayer has lived in the home as their primary residence for at least 2 years out of the last 5 years. If the anticipated gain from the sale of the residence is expected to exceed $250,000, care should be taken in considering whether the house is awarded to one spouse or jointly for the selling process. Retirement Funds—Early Distributions. Generally there is a 10 percent penalty for early withdrawal of retirement funds before the age of 59½. However, there is a specific exception for distributions from qualified plans if required by a divorce decree or separation agreement.
Property Held Within Entities
Partnerships. Because partnerships are “a pass-through entity” distributions may or may CONTINUED ON PAGE 8