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Tuesday, December 31, 2013

Year End Reminder: New LLC Law Takes Effect on January 1, 2014

Arlen Gunner
As a reminder to our clients, colleagues and friends, effective January 1, 2014, the existing Beverly-Killea Limited Liability Company Act (the "Old Law") will be repealed in its entirety.  It will be replaced on that date by a new statute known as the California Revised Uniform Limited Liability Company Act (the "New Law") which can be found in new Title 2.6 of the Corporations Code beginning with Section 17701.01.

If you have an interest in limited liability company that will remain in effect as of the end of 2013, it would be prudent for each member and/or manager (depending on how the limited liability company is managed) to review the terms of the existing operating agreements and to compare them with similar provisions in the New Law to ascertain whether or not an appropriate amendment is needed to the existing operating agreement.  The purpose of the amendment would be either to conform the operating agreement to the New Law without going through the necessity of having a default provision of the New Law apply to your operating agreement, or to redraft the operating agreement in specific terms so that you preserve the intended effect of the business deal that was originally negotiated under the Old Law.

It is possible that when comparing the New Law to the Old Law, the Old Law can easily be superseded by the limited liability company's operating agreement.  But a problem may arise since the new default rules were not in effect or applicable at the time the existing operating agreements were drafted.  Therefore, it would be prudent for a review of the existing operating agreements that clients have in place so that the appropriate default provisions of the New Law can be avoided if they would significantly alter the business deal that was originally agreed to and evidenced by the written operating agreement.  Obviously, if there is only an oral agreement in place or an implied agreement, those particular exposures would have to be addressed on an item by item basis.

One provision which should be reviewed relates to the powers of a manager in a manager managed limited liability company.  There are new default rules that can limit the ability of the manager to act if the default rules govern in light of the conflict with the original operating agreement.  Additionally, members can lose their voting rights or other membership rights (except their economic interests) upon the occurrence of certain events specified in the New Law.

As a result, there are more than enough reasons to compare your existing limited liability company operating agreements with the New Law to make sure that you do not cause a default to the new statute which materially alters your intended relationship among the members.

It is impossible in this message to give a complete analysis of all of the different changes in the New Law versus the Old Law.  As a result, we recommend that you contact your counsel if you have any concerns that the New Law will substantially modify the terms and conditions of your existing business arrangement under the Old Law.

Valensi Rose, PLC has a great deal of experience dealing with the operations of limited liability companies and we remain available for you to contact our office if you have any questions concerning any of your existing companies and their status under the New Law.
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Arlen Gunner is the managing partner of Valensi Rose, PLC and has been practicing for more than 40 years. His practice focuses on business, commercial and corporate law; mergers, acquisitions, and reorganizations; acquisitions and sales of assets and real and personal property; real estate development and finance; leases and leasehold financings of all types; and nonprofit law and board governance. He has acted and is available to act as an expert witness in matters involving non-profit entities and secured transactions.

Contact Arlen Gunner

Friday, December 13, 2013

Year-End Tax Planning Tips from Valensi Rose, PLC


 Year-end tax planning could be especially productive this year because timely action could nail down a host of tax breaks that won't be around next year unless Congress acts to extend them, which, at the present time, looks doubtful. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line deduction for qualified higher education expenses; and tax-free distributions by those age 70- 1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won't be around next year unless Congress acts include: 50% bonus first-year depreciation for most new machinery, equipment and software; an extraordinarily high $500,000 expensing limitation; the research tax credit; and the 15-year writeoff for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.
High-income-earners have other factors to keep in mind when mapping out year-end plans. For the first time, they have to take into account the 3.8% tax surtax on unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).
We have compiled a checklist of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We are happy to narrow down the specific actions that you can take to tailor a particular plan for yourself or your business. 
Year-End Tax Planning Moves for Individuals
  • Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  • You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • Purchase qualified small business stock (QSBS) before the end of this year. There is no tax on gain from the sale of such stock if it is (1) purchased after September 27, 2010 and before January 1, 2014, and (2) held for more than five years. In addition, such sales won't cause AMT preference problems. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less, and a number of other technical requirements must be met. Our office can fill you in on the details.
  • If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2013 to each of an unlimited number of individuals but you can't carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Year-End Tax-Planning Moves for 
Businesses & Business Owners
  • Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000, and expensing won't be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What's more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.
  • If you are self-employed and haven't done so yet, set up a self-employed retirement plan.
  • Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses.
  • If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.  Please contact a member of the Tax & Wealth Planning Group for more information.  

Monday, December 9, 2013

When is a Marriage Over?

The bright line necessary to be considered legally separated in the State of California, once again, has become less bright.  Dating back to 1931, to be considered legally separated, California law required spouses to be living physically separate and apart, having no present intention of resuming marital relations or taking up life together again under the same roof. In 1977, 46 years later, the appellate court held that the parties' conduct must evidence a complete and final break in the marital relationship.  17 years after that, in 1994, the California Court blended these holdings and required a court to examine these two components together to decide the legal date of separation.  Now, in October of this year, the California Court has held that a married couple can be considered legally separated, even when they continue to live with their children in the family home, as long as substantial evidence shows that, in every meaningful way, at least one spouse has abandoned the marital relationship. In Re Marriage of Davis (Cal. Ct. App. - Oct. 25, 2013)

In Davis, the couple married in 1993 and had two children.  Thereafter, sexual relations ceased and sometime after that, the wife moved  into a separate bedroom.  The husband assaulted the wife in 2005 and, when the school year ended in June 2006, the wife announced to her husband that the marriage was over.  She then disentangled their finances, prepared a spreadsheet of household and child expenses and instructed the husband to pay 50% of the total into a joint account.  Each spouse contributed the amount needed for community expenses, but retained any remaining income separately and was solely responsible for her/his personal expenses.  All the while, they continued to live under the same roof, though wife made every effort to keep their interactions to a minimum.  In her mind, they were roommates who continued to participate in family events together, traveled to Hawaii on a prepaid trip in 2006 together, and slept in the same hotel room (but not the same bed), all for the sake of their children.  After 2006, there were no more family vacations together, but birthdays and other special occasions were celebrated as a family.  Throughout this time, they maintained the appearance of an intact family.  The wife then filed for divorce in 2008, claiming a June 1, 2006 separation date.

According to the husband, nothing changed in their relationship until the wife physically moved out of the family home in 2011.  When she announced in 2006 that she wanted a divorce, he did not take her seriously because she had threatened divorce before.  While he conceded that she implemented her new ledger system in June 2006, he agreed to it merely as a way to enable bills to get paid.  According to him, the parties had an abnormal and dysfunctional marriage for most of their marriage, so, in his mind, neither had abandoned the marital relationship in every meaningful way, until she moved out of the house.  Despite his sentiments, the wife prevailed with a June 2006 separation date.

So which of the following factors in a marriage would be meaningful enough to satisfy a legal  separation?  Ceasing sexual relations and moving to separate bedrooms?   No longer going on family vacations together, but celebrating special days and exchanging holiday gifts?  Separating finances and paying for personal expenses separately?  Quite often, people share a life together under the same roof, without intimacy, in separate bedrooms with separate financial accounts, yet believe and would indeed claim to be meaningfully married.  And what if these same two people remained sleeping in the same bed, in the same house, sharing joint accounts, pooling their incomes and expenses with no expressed intent by either to part ways, but one spouse truly believed there was no marriage because there was no intimacy, no family vacation enjoyed in several years, and no meaningful connection between the spouses?

The courts will now have to consider all factors. But, the bright line necessary to determine date of separation – dependent upon a substantial showing, in every meaningful way,  of abandonment by at least one spouse of the marital relationship – is less clear now.

Contact Sharon Jill Sandler


Update:

In February, 2014 the California Supreme Court voted to grant review in this case. The Supremes have limited the issue to be reviewed to the following: May a couple who reside in the same residence qualify as living separate and apart for purposes of satisfying the statutory requirements of being legally separated and determining the couple's respective property rights, separate or community. In an now-vacated opinion, the Appellate Court held that a trial court had not erred by determining that divorcing parties' date of separation was approximately five years before wife moved out of the family home.