The Real Wedding Planning

Many business owners are unaware that their business, regardless of title, can be considered marital property. The law is all about definitions, and marital property in Maryland and DC is defined based on when the property was acquired. Furthermore, “acquired” has a specific definition, that CAN include growth of a pre-marital asset and assets that are paid off with marital funds. Even the income from your business can be marital property even if the business was pre-marital and not growing. Pre-nuptial agreements are a must for anyone having a second marriage, with significant premarital assets or with a business.

Before marriage, couples need to discuss their finances and be prepared to be honest about money. It should come as no surprise, money is one of the biggest stressors in a relationship. Some topics you may want to discuss include:  how much debt you have, what retirement assets you have, and whether you are more of a saver or a spender. It’s also important to talk about your goals, such as buying a house, paying off debt, starting a business, earning a degree or starting a new career. If you have assets or children from a prior marriage, you may want to consider having a pre-nuptial agreement. If you and the one you love don’t see eye to eye on these issues, don’t despair. You could agree to each have your own discretionary funds, keep assets solely titled, or find other compromises. The important thing is to not let financial issues take you by surprise!

-Heather L. Sunderman  ©

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC.

 

Is Everything Awesome at Your Business?

Watching “The Lego Movie” with my son, I was introduced to a world where “everything was awesome”; people were settled in their routines and were living happy, carefree lives.  In reality, however, behind the scenes, there was an evil plot afoot which, if successful, would destroy their entire world forever on “Taco Tuesday.”

Step Outside of Your Comfort Zone

It was only when Emmet, who seems to be an ordinary guy, steps outside of his comfort zone and meets master builder, Wyldstyle, that the evil plot was revealed and thwarted.  By stepping outside of his comfort zone and working collaboratively and creatively with the master builders, “ordinary guy” Emmet is able to accomplish extraordinary things and save his awesome world from destruction.

Some businesses are like the fictional Lego Movie world.  It seems like everything in awesome:  there is a nice profit, the owners and employees are happy, and no one imagines that anything possibly could go wrong.  Yet, without good legal infrastructures that include solid formation documents, strong contracts, and protection of intellectual property, those businesses can quickly find they are built on legal quicksand without anyone around to keep them from sinking.

Business Attorneys Help Ordinary Businesses Do Extraordinary Things

Some business owners avoid dealing with attorneys, because they view attorneys as the people who put restrictions on their businesses.   I would rather think of myself Wyldstyle, the creative attorney who helps business owners move out of their comfort zone to create a legal framework and infrastructure that frees the business and its owners to do extraordinary things.

A creative and detail-oriented business attorney can help business owners form a legal infrastructure that

-Includes the best business structure (corporation, limited liability company, or partnership) for your business’ current needs, while providing for flexibility as your business grows

-Proactively evaluates the tax consequences of business options and minimizes tax liability for you and your business

-Identifies and assures compliance with laws and regulations specific to your business

-Includes carefully negotiated strong contracts and leases that accomplish your business goals, while protecting your business from the unexpected

-Prevents lawsuits by employees, customers, and vendors and minimizes the damages if your business is sued

-Protects the business’ intellectual property and helps the business comply with intellectual property laws relating to websites, social media, and other business activities

-Plans for the unexpected so that the business can continue to operate in the case of partner disputes, death or disability of the owner, divorce, or simply a changes in the economy or the industry

An Outside General Counsel Has the Business’ and its Owner’s Backs

For nearly a decade, I was in-house general counsel for a national company. A general counsel develops an intimate knowledge of a company – not just of the company’s business but also of the company’s leaders and their personal and business goals, risk tolerance, and the business culture they want to create.

With this specialized knowledge about your particular business, a general counsel can

-Assure that your business is up-to-date on its “routine maintenance,” so that it remains in good standing and in compliance with legal requirements

-Provide highly customized service to your business

-Quickly identify and prevent potential legal problems before they become big legal problems

-Get up to speed much more quickly than an attorney who doesn’t know the company well when legal concerns do arise, saving money and frequently producing a faster and more suitable result for the company

-Although small businesses usually cannot afford a full-time inside general counsel, they can benefit by engaging an experienced outside general counsel who has their back and is there to pull them out of the legal quicksand as the business grows.

An Awesome Business

In “The Lego Movie,” Taco Tuesday did arrive on schedule.  However, thanks to the collaborative work of Emmet and Wyldstyle, with the evil plot thwarted, Taco Tuesday was a joyous day of celebration in a world which finally really was awesome.

Every business has a Taco Tuesday in its future.  For some businesses, Taco Tuesday will be the day the very existence of their businesses will be jeopardized due to unsecure business foundations.  Other businesses, which have built a firm legal infrastructure, are likely to weather the storm of their Taco Tuesdays and will be able to emerge to celebrate their awesomeness and future success.

-Elizabeth Whitman

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC.

Time for Employers to Amend their Confidentiality and Non-Compete Agreements

With the recent passage of the Defense of Trade Secrets Act (DTSA), all employers need to take another look at their confidentiality and non-compete agreements.  On the one hand, the DTSA now provides a federal cause of action for misappropriation of trade secret claims with more equitable relief along with compensatory damages, punitive damages, and attorney’s fees.  On the other hand, it grants immunity to employees (and contractors) who make a disclosure of a trade secret/confidential information to a government official or an attorney solely for the purpose of reporting or investigating suspected unlawful conduct.  In other words, and stated generally, an employee can take your company’s trade secrets/confidential information if their purpose in doing so is to report your company’s alleged misconduct.

In addition, the employer must provide notice of this immunity to its employees (and contractors) in their confidentiality and non-compete agreements or the agreement can cross-reference another policy document provided to the employee or contractor that addresses the notice requirements of the DTSA.  This notification requirement applies to agreements entered into or amended after the enactment of the DTSA.  The failure of the employer to include the required notice provision, will limit the legal remedies available to the employer if an employer determines that, in fact, an employee has misappropriated the employer’s trade secrets/ confidential information.

All businesses who use confidentiality and/or non-compete agreements should immediately consult with an employment attorney to discuss amending their current agreements.

-Scott Mirsky

 Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC.

Preventing a Painful Tax “Bite” from a TIC

During the 2000’s, many real estate investors diversified their Section 1031 exchange funds by investing in Tenant-in-Common (TIC) investments. Since the majority of TIC investments were financed using CMBS loans which had an eight- to ten-year term followed by a balloon payment. As those loans reach maturity, TIC investors must decide whether to refinance or sell their properties, sometimes within very tight time frames dictated by their existing mortgage loan documents.

The Challenge

IRS requirements under which TIC investments were structured require that the decision to refinance or to sell a TIC property must be made by unanimous consent of the TIC owners. Therefore, TIC investors whose mortgage loans come due face stresses and challenges not experienced by other real estate investors:

  • Most mortgage lenders, noting the cumbersome decision-making process, will no longer finance real estate owned by a TIC group, making it even more difficult to refinance the TIC property. As a result, TIC groups desiring to refinance will likely need to change their ownership structure.
  • After 2008, many TIC sponsors and broker-dealers who sold TIC investments experienced significant financial struggles and may not be able to assist the TIC group in setting up meetings or otherwise aid in bringing the TIC group to the unanimous consensus required to take action.
  • Even where the sponsor continues to be available, the sponsor may not be able or willing to continue to shepherd the TIC group after a refinance, particularly where the TIC group is unable or unwilling to compensate the sponsor for its continued involvement beyond the originally anticipated hold period.
  • Sales of TIC-held real estate provide unique challenges to both the title company and attorney representing the TIC group, because of the number of unaffiliated investors who must provide documentation and sign closing documents.

On top of these unique challenges, because most TIC investors have a low tax basis in their TIC investments, it is critical that the TIC group have an experienced and creative TIC attorney work with them to minimize the adverse tax consequences for the TIC investors.

Option 1: Refinance and Retain

Nevertheless, TIC investors who decide to retain and refinance their TIC investments may have some options, which can enable them to continue to defer their capital gains:

  • Move into a Delaware Statutory Trust (DST) ownership structure that meets the IRS requirements for a fixed investment trust holding real estate. Investors moving into this structure should not experience tax liability by reason of moving into the DST, and they should be able to defer capital gains tax upon sale of the property by the DST. However, due to DST requirements, this structure will require a sponsor who is willing and able to serve as DST manager and usually also as master tenant.
  • Move into a limited liability company (LLC) ownership structure, which will be accepted by mortgage lenders. TIC investors moving to an LLC should not experience capital gains tax liability at the time of the refinance (assuming they do not take cash out). However, they probably will incur capital gains tax liability upon selling the property.

Option 2: Sell or Exchange

TIC Investors who decide to sell the property also may have options that can enable them to continue to defer their capital gains.

  • TIC investors can do a Section 1031 exchange out of their TIC property. However, since a number of TIC investors selected TIC investments to diversify their real estate portfolios after sale of a larger asset, it may be difficult for them to identify suitable investment properties for a Section 1031 Exchange.
  • TIC investors selling their property to a REIT might be able to defer taxes via a mechanism called an UPREIT, whereby the TIC investors transfer the property to the REIT in exchange for REIT units. However, those investors property will incur capital gains tax liability upon sale of their REIT units.

Not all of these options will be available to every TIC group facing mortgage loan maturity, and TIC groups and individual TIC investors will vary in their liquidity needs, tax concerns, and risk tolerance. By seeking counsel from a creative attorney experienced with TICs, a TIC group evaluate which of these and other options best meet the needs and temperament of the members of the particular TIC group and the individual TIC investors in the group.

Elizabeth Whitman

© 2016

 

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC.