MICHIGAN NO LONGER REQUIRES BONDS TO CONTEST CIVIL FORFEITURES

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On January 3, 2017, Governor Snyder repealed the law that requires Claimants to post a bond to contest the civil forfeiture of property seized by a state agency. This is a dramatic change from the State’s previous law requiring Claimants to post a bond of 10% of the value of the property seized to contest its forfeiture. The repeal of the bond requirement comes after Shantrese Kinnon successfully challenged Michigan’s law in the Court of Appeals. The Court held that the requirement for a bond was unconstitutional and a violation of Ms. Kinnon’s due process rights because she could not afford to pay the full bond amount to challenge the forfeiture of all of the assets the police seized from her. (In Re: Forfeiture of 2000 GMC Denali, et. al., COA No. 328547 (August 2, 2016)).

The repeal of the bond requirement supplements the other civil forfeiture reform laws in Michigan passed in October 2015 that require local police departments to disclose annually the assets they seize and forfeit, the violations related to the assets forfeited, and, the ultimate disposition of the assets. The October laws also raised the prosecution’s burden of proof to forfeit assets from preponderance of the evidence to clear and convincing evidence. All of these reforms are good for Claimants in a civil forfeiture and a good start to 2017!

WHERE TO FIND HIDDEN ASSETS DURING A DIVORCE

Unfortunately, many spouses attempt to hide assets when they anticipate a divorce proceeding. Finding hidden assets can be a difficult process that requires comprehensive discovery. The cost of a forensic accountant is often well worth it to insure that you are not missing assets. Since most financial transactions are electronic and leave a trail, litigants often find creative methods to deceive his/her spousal. In my practice, I have found some common tricks set forth below.

1. Over-payments to the IRS. If a spouse anticipates that he/she will be divorcing before the end of the calendar year, paying extra tax to the IRS may increase the refund in April the year following the divorce, despite the fact that the funds were earned during the marriage. Another trick is to apply any refund during the divorce action year to the following year’s tax payment, again possibly increasing the tax refund in the year post-divorce.

2. Funds Deposited into Children’s Custodial Accounts. A parent can deposit funds into a child’s custodial account to avoid detection. If the account is held jointly with the child it can easily be depleted post-judgment.

3. Bonus Checks Redirected. Although a spouse direct deposits his/her regular paycheck into the parties’ joint account, when a yearly bonus is received in a separate check, it can be redirected to another account. However, this bonus could be discovered if year to date pay stubs are reviewed.

4. Prepayment of Individual Credit Cards. A spouse can prepay credit cards so that he/she will have a credit due post-judgment presuming he/she will be able to use the credit card. The credit card payment would look routine in the bank account but actually it will dissipate the marital estate.

5. Return of Purchased Items for Gift Cards. A spouse can purchase clothing or other items that appear to be in the normal course of business on a credit or debit card. These items are then returned to the store and the spouse receives a gift card or cash. Alternatively, a spouse may go on a spending spree and then return the items purchased.

6. Cash Withdrawals from Credit or Debit Cards. When making a purchase of groceries, it is easy to ask for extra cash withdrawal. The charge would appear normal on the credit card – as if it was from the grocery store – and the extra cash would not be apparent.

7. Putting Assets in Safety Deposit Box. Opening a safety deposit box and putting cash or other valuable items in the box is a straight forward method to hide marital assets.

8. Hidden Assets in Spouse’s Business. When the spouse owns his/her own business, the list of ways to hide money is endless. For example, one could create and pay fake expenses; one could pre-pay vendors that are friends holding the assets until after the divorce; one could delay invoicing clients for payments to reduce gross business receipts. Some businesses have specific asset hiding places. An attorney can leave income in his/her trust account and not take the income until after the divorce. A salesman can accrue commissions and delay receipt of them until after the divorce. An executive can delay receipt of a bonus or stock option. Of course, most employees can delay a promotion or raise until after the divorce is concluded.

Finding hidden marital assets is difficult and it is important to ask the right questions and look at the right financial documents during the discovery process to find them.

Third Party Fraud in a Divorce Action

Although most divorce cases involve only the married parties, a third party may be added if he/she commits fraud related to the couple’s assets. For instance, a spouse may sell a business interest to a family member so that it is no longer considered a marital asset or a spouse may claim that a family gift is really a loan that must be paid back from the marital assets only to receive the funds back from a family member after the divorce is final. When a party attempts to defraud his/her spouse with the assistance of a third party, it can have a significant impact on the property division in a judgment of divorce, the spouse’s income presented, and/or ability to pay spousal support. Often times, the fraud comes to light during the discovery process where parties disclose their assets. Despite the fact that these occasions are not common, it’s important to have an attorney who is experienced at finding hidden assets if a party believes their spouse is capable of such deceit.

It is important to learn about all of the marital assets and be assured that you receive all of the assets to which you are entitled. Sometimes it requires bringing a third party (usually a family member or close friend) into your divorce case to fully discover and allow for the division of the previously untouchable marital asset.

Computer Spyware Manufacturer May Be Responsible for Privacy Violations of Third Party

keyboardDivorce has sparked disagreements in many different areas, but most interesting are privacy issues and the use of spyware. In 2010, Catherine Zang used her computer to maintain a relationship with a man, Javier Luis, who was not her husband. Suspicious of his wife’s online activities, Mr. Zang installed a spyware product called WebWatcher to monitor his wife’s online relationship with Javier. Mr. Zang was then able to use the electronic communications obtained from the surveillance as evidence in the divorce action against his wife. Upon learning of the existence of the surveillance of his conversations with Mrs. Zang, Javier, filed a separate lawsuit against Mr. Zang, the manufacturer of the product, and others.

The manufacturer filed a motion to be dismissed from the lawsuit but last August, the Sixth Circuit Court of Appeals said that the manufacturer of the spyware WebWatcher may have violated the federal Wiretap Act and other Ohio laws if it was aware that its process of obtaining communications fell under the definition of “intercept” intended by the federal Wiretap Act. In addition to the process of obtaining communications itself, the Court relied on the company’s marketing claim that electronic communications could be reviewed by WebWatcher technology “in near real-time, even while the person is still using the computer.” Although this is not a final finding of damages against the company, the Court held that the manufacturer very well may be in violation of the law and giving spouses’ paramours a potential source for the recovery of damages.

IRS Changes in Forfeiture Policy

irsOn October 17, 2014, the IRS Criminal Investigation Division, the agency involved in investigating forfeiture structuring cases, changed its policy. Its new policy states that the IRS will no longer pursue the forfeiture of funds where structuring is the only alleged illegal activity, unless there are exceptional circumstances.

Structuring occurs when an individual makes bank account deposits in amounts just below $10,000, to avoid the government reporting requirements. Regulations were developed to deter cash transactions from criminal conduct, however the IRS has proven to be hypersensitive in administering this law, and countless innocent people’s bank accounts have been seized simply because of the amounts of their deposits.

Shockingly, several weeks ago, the IRS sent notices to people who had an interest in seized property due to structuring between October 1, 2009 and October 17, 2014 telling the individuals that they may be entitled to the return of property. In addition, people whose assets were seized before October, 2009 can also contact the IRS to see if they are eligible for return of their seized property. If you believe you may be entitled to a refund under these circumstances, please contact me at (248) 799-9100, or email me at JORINRUBIN@COMCAST.NET

Luis v. United States

moneyIn 2012, Sila Luis was charged with healthcare fraud. Before the trial even began, the government froze all of her assets, including $2 million of untainted funds to pay for future debt to the government related to the crime if she were to be convicted. Luis sought release of the untainted funds because they were necessary to pay for her attorney fees. She argued that by denying her access to these untainted funds, the government violated her Sixth Amendment right “to the assistance of counsel for his defense.”

The Supreme Court agreed with Luis. It stated that her fundamental right to hire a lawyer outweighed the government’s interest in guaranteeing that the defendant’s funds are available to pay restitution and fines to the government which may follow her criminal conviction. The Court said that allowing the government to seize innocent assets “would have no obvious stopping place” to allow defendants to hire counsel and therefore, was in violation of the Sixth Amendment.

Luis created an important “constitutional line” “between criminal defendant’s (1) tainted funds and (2) innocent funds needed to pay for counsel.” It prevented the government from freezing a defendant’s assets not linked to the crime and needed to retain legal counsel. Luis is a step in the direction for citizens’ rights. It limits the government’s overreaching pretrial seizure of assets and protects the defendant’s right to retain counsel.

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