Most business valuations in the divorce context are performed upon long-standing businesses. Valuing an early-stage start-up company poses some challenges. In 2013 the AICPA released a guide detailing a framework for assessing the six typical stages of a business’ lifecycle.
Because business entities are often a large part of a marital estate for divorce, family lawyers and clients should understand how to review the report and spot issues even before hiring or relying upon the party’s own expert for review.
Often in divorces, a spouse or both spouses may own a closely-held business. While the business itself may not be divisible in the divorce, the value of the business entity as an asset of the marital estate can be an important component to the division. There are several considerations at play when valuing a business entity for divorce purposes.
Interesting article in Texas Lawyer this week about the effect of online impersonation having growing relevance in Texas family law. People are increasingly impersonating spouses, paramours, and others online out of spite or to gain leverage. In 2009, Texas made it illegal to pretend to be another person online to harass, stalk, or defraud someone. For example, it would be illegal to create a fake website in an ex’s name and provide personal details about sexual acts. The law says a person commits an offense if he or she, without obtaining the person’s consent, uses the name or persona of another person with the intent to harm, defraud, intimidate, or threaten by (1) creating a page on a website or other commercial social networking site, or (2) sending messages through an existing website or social networking site. This offense is a third degree felony, punishable by 2-10 years in prison.
The Texas Legislature convenes every two years, with 2019 being one of those. Each session, proposed new laws get introduced that will affect family law in Texas. It is expected that a bill will be introduced to remove no fault divorce and require proof of fault grounds for all Texas divorce and extend the waiting period to finalize a divorce (currently 60 days). Neither of these proposals are expected to gain much traction. Reform of the child protective services system will, however, be a hot topic for the legislative session given all of the litigation there has been criticizing how CPS handles matters ineffectively.
The Tax Cuts and Jobs Act passed Congress last December and there is a lot of talk about how it will impact the tax situation for individuals. Few have considered the impact that the new law will have on divorce and child custody. (See How Will the New Tax Law Affect Your Divorce? )
A client recently asked about divorcing her husband who was pending felony criminal charges. Texas is generally a no-fault divorce state. This means that one spouse may seek and be granted a divorce based solely on the irreparable breakdown in the marriage relationship without showing anything else. However, Texas allows for a fault-based divorce decreed in favor of one spouse, which generally only matters when immigration is an issue or when the property available to divide in the marriage is significant. One of the grounds for such a fault-based divorce is the conviction of a felony that results in imprisonment for at least one year. Other fault grounds include cruel treatment, adultery, or confinement in a mental hospital for at least 3 years. It is important to note that fault grounds require proof of the ground and also proof that the grounds actually cause the divorce. In other words, it is insufficient to prove that a spouse was unfaithful during the marriage to get a fault finding. There must be additional proof that the unfaithfulness actually cause the marriage to end. The same would be said for cruel treatment or felony conviction. If the actions were tolerated for many years or ignored and the marriage continued, then fault grounds likely do not exist.
Overwhelmingly, most divorces are granted on no-fault grounds in Texas. The cost incurred of litigating over the fault grounds usually cannot be justified in the overall outcome. There has been movement among very conservative Texas legislators to negate the law allowing no-fault divorce and only permit divorces based on fault grounds. Although the simple concept of making divorce harder to get may sound like a good idea, no-fault divorce actually benefits everyone. No-fault divorce decreases the cost of divorce dramatically by providing one less issue to fight over. Think about it, to prove that a spouse is having sexual intercourse (the standard to show adultery), private investigators would have to be employed in every case. Further, for victims of domestic violence, having to provide proof and testify about the episodes of cruel treatment increases the emotional toil of the divorce.
House Bill 93 was filed in the 2017 legislative session to repeal no-fault divorce and require fault-based divorces in Texas. It was defeated, but many expect a similar bill to be introduced in the 2019 session. A survey by the Texas Bar association shows that 93% of attorneys are opposed to repeal of the no-fault divorce laws. 94% of attorneys believe that the repeal of the no-fault divorce laws would increase the attorneys fees and prolong the time it takes to get divorced. 64% of the Texas attorneys surveyed said that repeal of the no-fault divorce laws would give an advantage to a spouse opposing the divorce in the litigation.
Interesting article in the Dallas Morning News today about efforts to prevent folks convicted of domestic violence or abuse from gun ownership. Under federal law, anyone found to have committed family violence (aka domestic abuse), whether in a criminal proceeding or by way of a civil protective order, is prohibited from purchasing a gun. The identity of the person should be reported to the National Crime Information Center, which is the registry used for gun sales. Unfortunately, the lower level courts in Dallas County have not been reporting convictions. By the end of October, even municipal courts will begin reporting the identities and fingerprints of all people who are found guilty or plead no contest to Class C misdemeanor family violence charges. Class C cases involve verbal threats or physical contact that did not result in visible injury. No one walks away with more than $500 ticket. About 2,200 such cases came through the Dallas courts in the last three to four years.
The new action was inspired by the shooting at Sutherland Springs last year. The gunman had been convicted in military court of domestic assault, but it was not sent to the database. If it had been the gunman would not have been permitted to buy the gun that he used in the shooting.
Dallas council members previously approved $45,000 to buy three Live Scan Fingerprinting systems needed to secure info for the database. While this may seem small in the grand scheme of the City of Dallas budget, smaller cities will have a harder time bearing such costs.
Read the news story here: https://www.dallasnews.com/opinion/commentary/2018/10/15/dallas-keep-guns-domestic-abusers-hands
October is Domestic Violence Awareness Month. The statistics about the common occurrence of domestic violence are astounding.
- THREE women in the US are murdered every day by their current or former boyfriends.
- 38 MILLION + people in the US have experienced physical violence by a partner at some point during their lifetime.
- 4.7 MILLION women experience physcial violence by a partner every YEAR.
- 20 people every MINUTE are victims of domestic violence.
- 1 in 4 women will be a victim of severe domestic violence in their lifetime. 1 in 7 men will fall victim to severe domestic violence. 2 in 5 gay men will experience domestic violence.
- 45% of women in violent relationships are also raped in those relationships.
- Every 9 seconds a woman is beaten in the US.
- 70% of women worldwide will experience physical and/or sexual abuse by an intimate partner during their lifetimes.
- 98% of people who experience domestic violence also experience financial abuse.
- Black women experience domestic violence at rates more than 35% higher than white women.
- Only 25% of physical assaults are reported to the police.
Read more here: https://www.huffingtonpost.com/2014/10/23/domestic-violence-statistics_n_5959776.html
Download a domestic violence fact sheet here: https://www.speakcdn.com/assets/2497/domestic_violence2.pdf
Download the fact sheet about Domestic Violence in TExas here: https://www.speakcdn.com/assets/2497/texas.pdf
I read an interesting study performed by Custody Xchange about parenting time state-by-state. (See How much custody time does dad get in your state?) Bottom line, their study showed that nationally a father is likely to receive on average 35% of time with a child by court order. Interestingly, 40% of states – 20 out of 50 – start with a 50/50 model for parenting time. For example, Florida has a 48 hours on and 48 hours off plan. Contrast this with Tennessee, who scored last of the 50 states, where a father is likely to receive about 21.8% of time with a child. In Tennessee, a father will likely receive a Friday to Sunday period twice a month.
This translates to about 183 days for dad in an equal state like Florida compared to Tennessee which gives an average of 80 days a year. That is a 100 day per year difference depending on the state lived in!
Texas scored close to the average, with fathers receiving about 33% of the child’s time. It was interesting to note in the study that when the 20 states that provide a start of 50/50 are eliminated from the study, Texas scored close to the top providing time for fathers compared with other states that do not provide equal time.
Last year, 20 states considered laws to make equal or shared co-parenting the presumed standard even over objection of one or both parents. (See More than 20 states in 2017 considered laws to promote shared custody of children after divorce from Washington Post.) Shared parenting, advocates say, replaces the “winner take all” attitude of custody cases. In one model, two parents enter a courtroom and at the end, one leaves a “parent” and the other leaves a “visitor”. In the other model, both remain parents even after the breakup of the relationship.
The visiting parent model came from old notions that mothers were better primary caretakers of children, diminishing the father’s role. The tide began to change in the late 1960’s and 70’s as women joined the workforce and roles at home began to change. The “tender years doctrine” favoring mothers has been replaced with a gender-neutral “best interest of the child” standard. Even so, judges still trended toward awarding mothers custody most of the time, making it unusual for fathers to be awarded custody of children in a contested case. Fathers rights advocates feel that more stringent laws imposing equal footing are necessary.
Here is the summary of Texas parenting time schedule from the Custody Xchange study:
Biggest county: Harris County
Source type: RL- Standard Possession Order
Regular schedule: Weekends— On weekends that occur during the regular school term, beginning at [6:00 P.M./the time the child’s school is regularly dismissed] on the first, third, and fifth Friday of each month and ending at [6:00 P.M. on the following Sunday/the time the child’s school resumes after the weekend]. On weekends that do not occur during the regular school term, beginning at 6:00 P.M. on the first, third, and fifth Friday of each month and ending at 6:00 P.M. on the following Sunday.
Weekend Possession Extended by a Holiday— Except as otherwise expressly provided in this Standard Possession Order, if a weekend period of possession by Possessory Conservator begins on a student holiday or a teacher in-service day that falls on a Friday during the regular school term, as determined by the school in which the child is enrolled, or a federal, state, or local holiday that falls on a Friday during the summer months when school is not in session, that weekend period of possession shall begin at [6:00 P.M. on the immediately preceding Thursday/the time the child’s school is regularly dismissed on the Thursday immediately preceding the student holiday or teacher in-service day and 6:00 P.M. on the Thursday immediately preceding the federal, state, or local holiday during the summer months]. Except as otherwise expressly provided in this Standard Possession Order, if a weekend period of possession by Possessory Conservator ends on or is immediately followed by a student holiday or a teacher inservice day that falls on a Monday during the regular school term, as determined by the school in which the child is enrolled, or a federal, state, or local holiday that falls on a Monday during the summer months when school is not in session, that weekend period of possession shall end at 6:00 P.M. on that Monday.
Thursdays—On Thursday of each week during the regular school term, beginning at [6:00 P.M./the time the child’s school is regularly dismissed] and ending at [8:00 P.M./the time the child’s school resumes on Friday].
Holiday schedule: Spring Vacation in Even-Numbered Years—In even-numbered years, beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the school’s spring vacation and ending at 6:00 P.M. on the day before school resumes after that vacation. Extended Summer Possession by Possessory Conservator— With Written Notice by April 1—If Possessory Conservator gives Sole Managing Conservator written notice by April 1 of a year specifying an extended period or periods of summer possession for that year, Possessory Conservator shall have possession of the child for thirty days beginning no earlier than the day after the child’s school is dismissed for the summer vacation and ending no later than seven days before school resumes at the end of the summer vacation in that year, to be exercised in no more than two separate periods of at least seven consecutive days each, as specified in the written notice [include if applicable: , provided that the period or periods of extended summer possession do not interfere with Father’s Day possession]. These periods of possession shall begin and end at 6:00 P.M. on each applicable day. Without Written Notice by April 1—If Possessory Conservator does not give Sole Managing Conservator written notice by April 1 of a year specifying an extended period or periods of summer possession for that year, Possessory Conservator shall have possession of the child for thirty consecutive days in that year beginning at 6:00 P.M. on July 1 and ending at 6:00 P.M. on July 31.
Notwithstanding the Thursday periods of possession during the regular school term and the weekend periods of possession ORDERED for Possessory Conservator, it is expressly ORDERED that Sole Managing Conservator shall have a superior right of possession of the child as follows: Spring Vacation in Odd-Numbered Years—In odd-numbered years, beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the school’s spring vacation and ending at 6:00 P.M. on the day before school resumes after that vacation. Summer Weekend Possession by Sole Managing Conservator—If Sole Managing Conservator gives Possessory Conservator written notice by April 15 of a year, Sole Managing Conservator shall have possession of the child on any one weekend beginning at 6:00 P.M. on Friday and ending at 6:00 P.M. on the following Sunday during any one period of the extended summer possession by Possessory Conservator in that year, provided that Sole Managing Conservator picks up the child from Possessory Conservator and returns the child to that same place [include if applicable: and that the weekend so designated does not interfere with Father’s Day possession]. Extended Summer Possession by Sole Managing Conservator—If Sole Managing Conservator gives Possessory Conservator written notice by April 15 of a year or gives Possessory Conservator fourteen days’ written notice on or after April 16 of a year, Sole Managing Conservator may designate one weekend beginning no earlier than the day after the child’s school is dismissed for the summer vacation and ending no later than seven days before school resumes at the end of the summer vacation, during which an otherwise scheduled weekend period of possession by Possessory Conservator shall not take place in that year, provided that the weekend so designated does not interfere with Possessory Conservator’s period or periods of extended summer possession [include if applicable: or with Father’s Day possession].
Other holidays: Notwithstanding the weekend and Thursday periods of possession of Possessory Conservator, Sole Managing Conservator and Possessory Conservator shall have the right to possession of the child as follows: Christmas Holidays in Even-Numbered Years—In even-numbered years, Possessory Conservator shall have the right to possession of the child beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the Christmas school vacation and ending at noon on December 28, and Sole Managing Conservator shall have the right to possession of the child beginning at noon on December 28 and ending at 6:00 P.M. on the day before school resumes after that Christmas school vacation. Christmas Holidays in Odd-Numbered Years—In odd-numbered years, Sole Managing Conservator shall have the right to possession of the child beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the Christmas school vacation and ending at noon on December 28, and Possessory Conservator shall have the right to possession of the child beginning at noon on December 28 and ending at 6:00 P.M. on the day before school resumes after that Christmas school vacation.
Thanksgiving in Odd-Numbered Years—In odd-numbered years, Possessory Conservator shall have the right to possession of the child beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the Thanksgiving holiday and ending at 6:00 P.M. on the Sunday following Thanksgiving. Thanksgiving in Even-Numbered Years—In even-numbered years, Sole Managing Conservator shall have the right to possession of the child beginning at [6:00 P.M. on the day the child is dismissed from school/the time the child’s school is dismissed] for the Thanksgiving holiday and ending at 6:00 P.M. on the Sunday following Thanksgiving.
Child’s Birthday—If a conservator is not otherwise entitled under this Standard Possession Order to present possession of [the/a] child on the child’s birthday, that conservator shall have possession of the child [include if desired: and the child’s minor siblings] [possession of siblings on a child’s birthday is not part of the standard possession order] beginning at 6:00 P.M. and ending at 8:00 P.M. on that day, provided that that conservator picks up the child[ren] from the other conservator’s residence and returns the child[ren] to that same place. Father’s Day—Father shall have the right to possession of the child each year, beginning at 6:00 P.M. on the Friday preceding Father’s Day and ending at [6:00 P.M. on/8:00 A.M. on the Monday after] Father’s Day, provided that if Father is not otherwise entitled under this Standard Possession Order to present possession of the child, he shall pick up the child from the other conservator’s residence and return the child to that same place. Mother’s Day—Mother shall have the right to possession of the child each year, beginning at [6:00 P.M./the time the child’s school is regularly dismissed] on the Friday preceding Mother’s Day and ending at [6:00 P.M. on/the time the child’s school resumes after] Mother’s Day, provided that if Mother is not otherwise entitled under this Standard Possession Order to present possession of the child, she shall pick up the child from the other conservator’s residence and return the child to that same place.
Percentage custody for non-custodial parent: 33%
This article is limited to transactions on exchanges only. The next entry will address remainder addresses in non-exchange scenarios.
For a better understanding what cryptocurrencies are, please read the first article in this series, available here: https://www.dallastxdivorce.com/2018/08/articles/articles/cryptocurrency-and-family-law-the-basics-part-1/
Everyone in the world can see when cryptocurrencies are transferred. Public addresses are wallets, and generally remain the same, and private addresses are similar to coins, and change upon transfer. When a private address (coin) moves from one public address (wallet) to another (from seller to buyer), one could simply follow the coin’s movement from public address to public address, by following the amount of cryptocurrency transferred between public addresses, similar to tracing cash amounts from bank account to bank account.
However, tracing assets is not as simple as following a trail, as the trail is in a constant state of transition, and it is difficult to determine who the buyer/recipient is. As discussed in the previous article, private addresses always change when transferred. Public addresses generally stay the same. However, while sales/transfers from a seller’s transmitting public addresses don’t change the transmitting public address, when only a portion of the cryptocurrency held in a transmitting public address is transferred to a single recipient, a third public address is created where the seller holds their remaining funds. A seller would then have the old public address where the seller could still receive funds, and a new one where the seller could keep the funds or enact a secondary transfer. Below is an example of how public addresses can be traced, and demonstrates how a remainder address is created.
Subdivisions would appear as follows:
(0.75 BTC) (0.25 BTC)
Seller (1uS) transfers a portion of her Bitcoin holdings (0.75 BTC) to Buyer (3Uk). Remember, the sale is a transmission of a private address, however, for purposes of this demonstration that private address (coin) is not shown, only the amount transferred is shown, as we are demonstrating how public addresses change in this example. That private address is transmitted and converted in secret. 3Uk receives 0.75 Bitcoin from Seller’s 1uS wallet, and it appears that Seller keeps the remaining 0.25 Bitcoin. However, that remaining 0.25 Bitcoin does not stay in Seller’s original, transmitting 1uS public address. Instead, it generates a new public address for Seller, called a remainder address, designated as 1Ru. Seller’s old public address (1uS) remains but has a zero balance. Seller can still receive funds and replenish the 1uS public address (wallet). Without access to exchange records, the remainder address, 1Ru, creates tracing issues, as a tracer would not know whether the remainder address (1Ru) is a second buyer (for example, if Seller put all 1.0 BTC up for sale, and the exchange sent 0.75 BTC to 3Uk and 0.25 BTC to a second buyer at 1Ru), or Seller’s remainder address (Seller only sold 0.75 BTC and kept 0.25 BTC in the newly created 1Ru remainder). It only appears as a new address in the blockchain, without clarification. A tracing party would know a transmission occurred, but they would not know to who, and unless it was a complete transfer, they would not know how much was retained.
Tracers need to pay attention when exchanges are used to sell cryptocurrency. In some cases the value of 1Ru could be a combination of multiple remainders and could appear to be a transfer larger than the original account balance, for example, 10 BTC. This could lead the tracer to believe that an error occurred, or the Seller had hidden funds. This 10 BTC scenario would occur when a second buyer puts in a buy order for 10 BTC, but no seller has 10 BTC to sell. The exchange then combines multiple remainder addresses to fill the order. Seller, unknowingly becomes part of this, and while Seller put 1.0 BTC up for sale, 0.25 BTC of that was combined with numerous other sell orders into one large 10 BTC sale order to the second buyer. Luckily for a tracer, if this were to occur, it would be clear that Seller sold both the entire share of 0.75 BTC from the 1uS public address, and the remaining 0.25 BTC (part of the large combination 1Ru public address). When no combination (i.e. combining multiple remainders to 10 BTC) occurs, the owner of the 0.25 Bitcoin in 1Ru is unknown. It could have been a second buyer who only wanted to purchase 0.25 BTC, or it could be Seller’s remainder address. To discover the holder of the 1Ru public address, Seller would need to subpoena the exchange. If no exchange was used, or the exchange is outside the reach of a subpoena (many are), the owner of 1Ru is truly anonymous. The best hope a tracer would have would be access exchange balance and transaction statements, but these may be impossible to obtain.
Exchanges are not the only time remainder addresses pose problems, and are not the only mechanism to sell cryptocurrency. Part three of this series will address cash-escrow services and privates sales, both of which compound the problems created for tracers by remainder addresses.
*Remainder addresses are also referred to as “change” addresses.