Transfer of Husband's Separately Owned Stock Transformed It into Marital Property

In our previous post, we discussed some of the details involved in Orloff v. Orloff, a divorce case that recently came out of the Pinellas County, Florida, Court of Appeals. Louis Orloff, president, CEO, and sole stockholder of Matrix Group Ltd., Inc. (Matrix), appealed the trial court's order of the equitable division of Matrix as the couple's main marital asset. The appellate court traced the asset to pre-marital beginnings and determined that Matrix was a nonmarital asset belonging to Louis and not subject to division. At least, most of Matrix was Louis' separate property… The GRAT and Transfer of Shares to Spouse. After the marriage and years before the divorce, Matrix anticipated a "substantial recovery" from a lawsuit that it was a party to — that award was over $9 Million. Because Louis wanted to protect any such recovery from taxation as best he could, after seeking professional tax advice he created the L.S. Orloff Grantor Retained Annuity Trust (GRAT). Louis was a co-trustee of the GRAT along with his cousin. In a footnote to the case, the Court defined the GRAT: "A GRAT is a financial instrument that allows the grantor [Louis] to gift large financial amounts to family members without paying the gift tax. The grantor deposits the valuable assets into the GRAT which is set up as an annuity. The trustee(s) [Louis and his cousin] thereafter make annual payments to the grantor for a certain term as specified in the trust document. At the end of the specified term, the beneficiary, who must be a family member, receives the remaining value of the trust as a gift. If the grantor dies before the end of the specified term, the beneficiary receives the value of the trust then." Before creating the grantor trust, Louis was the sole stockholder of Matrix. He then funded the GRAT with 60% of his Matrix stock. At the same time, he transferred 20% of Matrix stock to his wife, Joyce. That left only 20% of Matrix stock in Louis' name. The trial court characterized 100% of the stock in Matrix — the GRAT's 60%, Joyce's 20%, and Louis' 20% — as marital property subject to equitable division in the divorce. The Court of Appeals reversed in part. Because the GRAT was created and funded with a nonmarital asset (the 60% Matrix stock), it remained a nonmarital asset. Transferring those shares during the marriage didn't change the character of the stock. Because Louis retained 20% of Matrix, that remained nonmarital property as well — he acquired it before the marriage. But the 20% that Louis conveyed to Joyce during the marriage, that was sufficient to transform that portion of Matrix stock into marital property. Joyce's 20% of Matrix stock received during the marriage would be split with Louis. Family Limited Partnership Interest Was NonMarital Property. There was one more asset that the trial court ordered divided as marital property: Louis' interest in the Orloff Family Limited Partnership (OFLP). The OFLP was his parents' creation, and Louis received a minority share before marrying Joyce. Joyce was never given a share of the OFLP. Consequently, the trial court's designation of Louis' share in the OFLP as marital property was also in error and reversed. As the appellate court said, once again, "[i]t is a nonmarital asset because it was acquired prior to the marriage." Because so much of what the trial court ordered to be equitably divided as marital property would not be divided at all, the trial court on remand was ordered to recalculate Joyce's alimony given there would be a significant reduction in marital assets. Needless to say, Joyce will probably seek more in spousal support from Louis. The Orloff case didn't involve hidden assets, it involved mischaracterized assets. At the Law Offices of Scott David Stewart, our family law attorneys understand that the division of property and debt settlement in a divorce can be quite complex. When you need astute representation, our attorneys possess the legal and financial tools necessary to ensure that your assets are protected. Resources: Orloff v. Orloff (Fla. Dist.Ct.App. 2011) http://caselaw.findlaw.com/fl-district-court-of-appeal/1561676.html

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