Nolo Podcast Transcripts

Tax Credits: The Easy Way to Save Money

2007-02-18T17:51:00.000-08:00

In this episode we’ll discuss tax credits and we’re going to speak with Stephen Fishman, author of Lower Taxes in Seven Easy Steps (Nolo) In a previous episode, we talked to Steve about tax deductions.
Many people are confused as to the difference between a credit and a deduction.
Here’s how it works. Let’s say you’re in the 28% tax category. If you had a $1,000 tax deduction, you would deduct that from your taxable income and then you determine your taxes. The result of deducting $1,000 is that you would save $280 in taxes. But if you had a $1,000 tax credit, you could deduct that directly from your taxes. So you would save $1,000 in taxes. So, a $1000 tax credit is always going to be more valuable –maybe three or four times as valuable – as a $1000 tax deduction. It all depends on your tax rate.

Nolo: Okay, we asked Steve Fishman what could a typical family do to maximize their tax credits? What’s available to your average tax paying family member?

Stephen Fishman: Well, if they had a baby, bought a hybrid car, added new insulation to their home, installed a solar water heater in their home, incurred child care expenses so that they could both work, and took night classes at a local college they could have reduced their taxes by approximately $6,000 to $7,000.

Nolo: It’s been reported that the average tax credit for a hybrid car is $2,000. We asked Steve if that was accurate

Stephen Fishman: Not necessarily $2,000. That depends on the type of car and its fuel consumption statistics., In addition, another factor complicates things. Congress didn’t want to allow too many tax credits for hybrids, so once a hybrid manufacturer sells 60,000 vehicles, the credit will be phased out over the following 15 months for all hybrids produced by that company. You can find the phase-out times and percentages in my book, and at the IRS website.

Nolo: That brings up another point, tax credits come and go. Some tax credits have been around for years and are more or less permanent—for example, the child care credit and low income housing credit, for example. Others have been created more recently and have scheduled phase-out dates. Congress can, and often does, extend credits that are scheduled to end. Some credits like the research and experimentation, work opportunity, and welfare to work credits have been extended one year at a time for several years. However, there is no guarantee that Congress will extend a tax credit so it’s always wise to act before the expiration date if you want to use a tax credit that is scheduled to expire.

As Steve pointed out there are various tax credits for homeowners and as he indicates in his book, fuel efficiency is the primary target, here. Among the credits, there are great breaks for homeowners who put in fuel efficient windows, roofing, insulation, and heating and cooling systems.
However, there are some rules you’ll have to follow: Homeowners must buy these energy efficient products during 2006 and 2007 and the total combined credit you can get for all tax years is $500, and no more than $200 of the credit can be for windows. The other thing to keep in mind is you get the credit only if the items you buy meet the energy efficiency specifications established by law and a lot of these specifications are quite stringent—for example, an electric heat pump water heater qualifies for the credit only if its energy efficiency is over twice as great as the current federal standard. Make sure the product you want to buy qualifies—don’t take a salesperson’s word for it. Also, more generous credits are available to homeowners who install solar water-heating or electric power systems in their homes.

Steve Fishman also mentioned that there is a tax credit for having a child. That child tax credit was created for low and middle income taxpayers. We asked Steve about the requirements.

Stephen Fishman: It is subject to an income threshold and the amount of credit you can take each year goes down as your income approaches that threshold amount. For example, a married couple filing jointly with one qualifying child gets no child tax credit if their adjusted gross income exceeds $130,000.

Nolo: We asked Steve Fishman what about tax credits for couples who adopt children?

Stephen Fishman: Yes, there is a tax credit for people who adopt children. The credit is equal to 100% of adoption expenses up to an annual ceiling. The ceiling was $10,960 per child in 2006.

Nolo: As Steve mentioned, there are educational tax credits, as well. Congress figures that well-educated taxpayers will make more money and be able to pay more taxes so it has created two tax credits for expenses related to higher education: the Hope tax credit, and the lifetime learning credit. There are a lot of rules and restrictions for both. As a general rule, if the total expenses involved are $7,500 or less, Steve suggests in his book that it’s usually better to use the Hope credit if you have a choice. If your expenses are above that amount, Steve suggests in his book that it’s better to use the lifetime learning credit because the lifetime learning credit is larger for expenses over the threshold amount. Also, keep in mind that a parent can only claim the Hope tax credit for their child during the first two years at college.

As for retirement tax credits, there is one designed to benefit people with modest incomes who save for their retirement. There are a lot of restrictions, but the main one to keep in mind is that your adjusted gross income is not more than $50,000 if your filing status is married filing jointly, or $25,000 if your filing status is single.

What about tax credits for businesses? We haven’t touched on those yet? We asked Steve Fishman what are some of the choices for a small business owner.

Stephen Fishman: Right, if you have a business there are few types of activities that Congress views favorably enough to warrant a tax credit. These categories include:
• helping the disadvantaged or disabled
• improving the environment
• helping your employees, or
• investing in research and development.

You may be able to qualify for several different credits at the same time. However, there is an overall limit on total business credits you can take in a year which is based on your tax liability. If you exceed the limit, you can take the credits in future years or apply them to previous years’ taxes—within limits.

Nolo: As Steve reports in his book, one credit most businesses may be able to use is the solar power credit. Businesses can get a credit up to 30% of the cost of buying and installing solar equipment to generate electricity to heat or cool a structure, or to provide solar process heat. Unlike the solar credit for homeowners, there is no dollar limit on this business credit. We asked Steve about some of the business credits a business can get by helping employees?
Steve Fishman: There are a couple of credits you can get if you do some nice things for your employees. One is the credit for employer-provided childcare. This credit is limited to $150,000 each year. The other is a credit for small employer pension startup costs. If you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension, you can receive a tax credit of 50% of the first $1,000 of qualified startup costs.

It’s probably hard for most listeners to remember all these details. Tax information is not the most riveting subject matter. So we recommend Steve’s book for more details, Lower Taxes in Seven Easy Steps. And on the the IRS is the best place to keep up on tax credits, that’s www.irs.gov.

Second Homes: What Should You Know

2007-01-31T20:28:00.000-08:00

This is our second interview with Craig Venezia, a nationally recognized mortgage expert and the author of Buying a Second Home: Income Getaway Retirement from Nolo. In our previous interview we discussed issues that arose when co-buying a second home. In this interview we’ll focus on several issues involving the financing and the location of a second home.

Nolo: Craig let's start with the location. When making a decision about buying a second home some people buy locally and some people buy in a vacation area while others buy in a location where the house prices may be lower than where they are currently living. Can you give us any suggestions for where to look for a second home?

Craig Venezia: A general rule of thumb for where to buy your second home is to keep it within a two hour's drive away. The benefit of this is that it doesn't take you all weekend to get to your weekend getaway. And you also have to think about not just enjoying your home but also property management and upkeep issues and that's true for investors who are renting out their place full-time, people who are buying a weekend getaway, or the person that's going to be using it as a retirement. One interesting trend that we've been seeing is that a lot of people are actually buying second homes locally, either in the same town or a neighboring town. And what’s interesting about this is a lot of people who are buying for future investment are doing that because they like the town where they live, they know the area, they’ve established family and friend connections. They don’t want to leave the area but they also know that when they retire they don't need this big home so what they're doing is buying in the general area, renting out their places, and then, when they retire, five, ten, fifteen years down the road they will move into their current second home and make it their primary residence.

Nolo: Let's say that you're considering buying a second home in an area that you are not really familiar with what's the best way to start that process?

Craig Venezia: First and foremost I always say pick up the Yellow Pages or go online, find a local real estate agent. They are the ones that knew the towns where you'll be looking. This is particularly true if you're coming to an area where you have less familiarity and that is true too, if you've been to the area but you just vacationed for a week or two and then leave. You want to know the ins and outs of an area. Your best resource is to go to a real estate agent and work with them and learn as much as you can about the area.

Nolo: Okay let's talk about financing. It's often hard for buyers to acquire a first home let alone a second home is there any way to bypass the typical bank loan?

Craig Venezia: There certainly is. I strongly recommend private home loans. This is where the purchaser borrows money from a family member or even a friend, usually at a reduced rate compared to what you would get from a traditional loan. Both parties benefit from this arrangement. The borrower enjoys the flexibility and usually a lower interest rate than that of the traditional bank loan while the lender receives a higher return than a comparable investment such as a stock or bond may yield. Just keep in mind that this financing option is still a business transaction and should be treated that way. You want to have a local real estate attorney draft the loan and mortgage documents while making sure that all parties understand their obligations—for example, your parents can't foreclose on your house just because you were late arriving to their 50th wedding anniversary.

Nolo: Still with so many people struggling to buy a first home it seems like only the wealthy can get into the second home game.

Craig Venezia: It’s a common misconception that only the wealthy can afford to buy second homes. Actually many everyday people with middle incomes are doing it. I've seen beauticians, contractors, middle managers, everyday people you pass in a street, who can afford to buy a second home. You just need to be smart about how you do it. First and foremost you need to create a realistic affordable budget to make sure that you buy within your means. Also consider renting out your place for part of the year to help offset your expenses. Another alternative is. as we mentioned earlier. to do a joint purchase with another buyer or buyers. This works especially well for investment properties or even vacation homes. By lowering your debt burden, you can purchase a home you might not otherwise have been able to afford. It also has the added benefit of saving time and money on property management.

Nolo: Craig in your book you mention that many people are overpaying on their home mortgages. Can you explain that?

Craig Venezia: Mortgages are very a complicated animal and a lot of people wind up taking out mortgages that they honestly don't know what the cost involved is. And one of the key things that I've seen in people that I've talked with is that they could've gotten a better deal on their mortgage, they could've gotten a lower interest rate. If you got an interest rate that's just a quarter percent or half a percent lower, that could be tens of thousands of dollars in savings over the life of your loan. So now the question becomes, well, great how do I get this lower interest rate? Well the first thing you want to do is work with a reputable mortgage broker who's going to be able to be shopping for mortgages on your behalf. They will compare all the mortgage products within the portfolio of the lenders that they work with and come up with the best rate for you. Now keep in mind that ‘lowest interest rate’ doesn't always mean you're paying the lowest amount on your mortgage. And that's what happened with a lot of people who went into ARMS. An ARM is simply an adjustable rate mortgage. They went win for a lower rate which is usually a teaser rate, it starts off at a low rate and then after certain fixed period, it starts to adjust and suddenly that interest rate is significantly higher than if they had been locked into a fixed-rate mortgage. So the point is when you're looking at interest rates, you don’t want to look at just the percent but you want to try to evaluate. Where is this loan going to go over the course of the time I have it? Am I going to be paying the same interest-rate I’m paying ten years from now? I will, if I have a fixed-rate mortgage but if I have an adjustable rate mortgage, I'm probably not going to be paying the same rate and it's probably going to be higher. So what you really want to do is spend some time with the mortgage broker, really look over the different options that are available to you, and don't sign anything unless you fully understand what you're getting into.

Nolo: Craig one thing that surprised me when reading your book is that the owners of some second homes must pay sales tax. Can you explain how that works?

Craig Venezia: Sales-tax really is an issue that comes up with somebody that's renting out their property and renting it out for a short period of time, usually a vacation rental. So you’re renting it out for a week or two weeks at a time. Basically what that means is that there are some cities and some counties that impose sales taxes. And these taxes go by other names. They call them lodging, accommodations, hotel bed, tourist, transient occupancy taxes, a whole slew of names. But the reality is it's a sales tax on the rental income that you are taking in. You'll need to check and possibly register with your state's department of revenue to see if this is an issue that will impact you know depending on where you buy your property.

Nolo: Craig, can the buyer of a second home deduct the interest on the mortgage for that second home as well as deducting it on the main home?

Craig Venezia: Absolutely. As with your primary residence, you can deduct the interest you pay on your mortgage on your second home. And that interest adds up. Over the life of the loan you can pay tens of thousands of dollars in interest on that loan. And all of that interest is tax deductible on your second home.

Nolo: But can you really deduct all of the interest I thought there was a million-dollar limitation?

Craig Venezia: As with the IRS and looking at taxes, it's never quite a black-and-white situation. The reality is most people will in fact be able to deduct the full amount of the interest. Basically what happens is if all the mortgages on your home exceed the fair market value of your home or one million dollars, you may not be able to deduct the full amount of mortgage interest. Also if the equity in your second home is more than $100,000 you may not be able to fully deduct your mortgage interest. Your best bet with any tax situation is to certainly review it with your tax advisor to see what you can and can't deduct. But by and large most of us are not going to have mortgages that are a million dollars on our second homes, so we will be able to deduct the full amount mortgage interest.

Nolo: Craig thanks so much for speaking with us today. You've been listening to Craig Venezia a nationally recognized mortgage expert and the author of Buying a Second Home: Income Getaway Retirement. from Nolo

Disciplining Employees: What are Some Common Mistakes?

2007-01-20T20:15:00.000-08:00

We’re speaking with attorney Lisa Guerin, an expert on employment law issues and co-author of the Progressive Discipline Handbook (Nolo).

NOLO: Lisa, Let’s say you “inherit” an employee—for example, from another department—and you discover a discipline problem. You start talking to the employee’s old manager, and find out that the employee’s had the same problem before, but the former manager didn’t do anything about it. If you do decide to discipline the employee, can you discipline for the older incidents, as well?

LISA GUERIN: It’s really not a good idea to discipline for those older incidents, but the reason isn’t really legal, it's more practical. The whole point of progressive discipline is to give employee an opportunity to improve, to tell them what the problem is, and then work out an improvement plan. And you haven't really given this employee the opportunity to know what the problem is, for example, to talk it over with the manager and to try and come up with some way to improve.

NOLO: Lisa, in the book, you talk about “overdocumenting” employee discipline. How is that possible? Shouldn’t you write down everything that happens?

LISA GUERIN: Well, you should write down enough that you'll be able to remember later what happened and that anyone else who's reading your documentation can figure out pretty easily what happened. What you don’t want to do is to nitpick and micromanage. You know, from a practical level, if your employee feels that you’re always looking over their shoulder and marking down everything that they do wrong, they’re going to feel anxious and it’s going to be difficult for them to really improve and feel supported. And on the legal side, if you ever have to use your documentation for example in a courtroom, a jury who sees that kind of your documentation is going to smell a setup. It’s going to look like you were trying to write down everything that the employee was doing wrong so that you would later have an excuse to fire that person. And that's why it's best to, of course, document, and document thoroughly, but just don't go overboard.

NOLO: Lots of employees have attendance problems. Let’s say you have an employee who’s always calling in to say she won’t be in. You tell her that she has to call within the first half hour of when her shift starts. If she doesn’t call you, but it turns out she’s allowed to have the day off because her leave is legally protected—let’s say she has jury duty that day—can you discipline her?

LISA GUERIN: That’s a really great question and the answer actually has two parts. You can’t discipline her for taking the time off. Employees are entitled to take time off for a variety of reasons and jury duty is one of them. An employee can take time off for family and medical leave, or, in a lot of states, an employee can take time off to vote, if they wouldn't otherwise have time. But you can require employees who are taking time off for these reasons that they know about in advance, to follow your regular policies about checking in with a supervisor, or in this example, giving notice. So you could discipline the employee for not following your rules particularly because she must have known that she was going to have to go to jury duty that day.

NOLO: When disciplining employees you advise people not to make promises about the future. What happens if you do? And if you already have made promises, what can you do to undo those promises?

LISA GUERIN: The reason why you shouldn't make promises about the future is that you might have to keep them and you’re really not in a position, right now, to know what's going to happen. For example, if you promise an employee, ‘You know, as long as you can get those numbers up, we’re going to promote you to be a manager,’ and then let's say your company has to have layoffs and the employee is targeted or you have a great candidate, come up that you want to hire for that manager's position. The employee is going to be left wondering why you didn't keep your promise. And in a worst-case scenario that promise could turn into a contract with the employee.
The way it works ordinarily in this country, is that most employees are employed at will. What that means is that they can quit at any time for any reason. And they can also be fired at any time for any reason as long as your reason is not illegal, for example you're not discriminating.
But when you make a promise to an employee, you might potentially undue that at-will right and that means, rather than being able to fire the employee for any reason, you now have to keep your promise that's become a contract. So the employee, in the example that I gave, might be entitled to that managerial position if he or she can get those numbers up and that might not be what your company wants to do when the time comes.

NOLO: If you’re in a situation where you’re about to discipline an employee, and the employee gives you information that makes you think he or she might have a disability, what are the legal implications of going ahead with the discipline?

LISA GUERIN: An employee who has a disability is entitled to a reasonable accommodation and what that means is that your company might have to make changes to the job or the way the job is performed or the equipment the employee uses in order to enable the employee to do the job.
Examples of a reasonable accommodation might be making the workplace wheelchair accessible, for example, or using voice recognition software for an employee who is unable to keystroke or is blind. So if an employee tells you that he or she has a disability, then you have an obligation to start a conversation with that employee about what reasonable accommodations might be possible.
You don’t have that responsibility before you know that the employee has a disability, however. If you’re going to discipline an employee and the employee then says that he or she has a disability, technically you might have the legal right to still discipline the employee and then start your reasonable accommodation conversation.
But, really the best practice is to try and accommodate and set the discipline aside. It's not really fair to discipline someone for something that they can't really help. You know if your employee, for example, has depression and the employee has had a tardiness problem, a problem coming in the morning. And you're going to sit down and discipline that employee and the employee says, “Boy, I’m really sorry that I've been late so much, but I'm taking some medication for my depression and it makes me really groggy first thing in the morning and I've had a lot of trouble getting going.”
Rather than disciplining that employee for coming in late you might want to instead start talking about reasonable accommodations, for example, can you change the employee’s schedule so that he or she comes in later and then works later in the evening and that way you’re really giving the employee a fair shot to perform the job's requirements.

NOLO: Sometimes you hear about situations where managers get sued by employees for things that happen at work. In what kinds of situations are managers going to be personally liable to employees?

LISA GUERIN: There are a couple of ways that that might come up. First of all certain employment laws make managers and supervisors liable if they break the law and probably the one that people have heard of the most is the Family Medical Leave Act and that defines the term employer so broadly that managers can actually be sued for violating that law. So, that's one way.
Another way is if the employee sues for personal-injury. And in the workplace for example the personal injury that might come up is defamation, where typically a former employee says, ‘My manager gave me a bad reference and I'm not getting any new jobs and the manager’s lying about me and bad mouthing me.’ Then the employee can go back and actually sue the manager personally for damages.

NOLO: Why might an employee sue a manager?

LISA GUERIN: There are a few reasons why that might happen. I think often why it happens is that the manager is the person who has been involved with the employee and who has disciplined the employee, who has that personal relationship. And so often the manager is the person that the employee is really angry at. They’re the face of the company when a negative job action happens, when an employee gets fired or disciplined for example.
Another reason why an employee’s lawyer might choose to sue a manager is to put some pressure on the company to settle. They know it's a very unpleasant thing to have the manager in the hot seat and that might add a little bit of leverage there.
And finally, suing a manager personally for technical, legal reasons allows the employee to keep a lawsuit in state court rather than having to go to federal court. And in many states the state court is considered much friendlier to employees so the employee would want to stay in state court if at all possible. And naming an individual manager as well as the company helps the employee do that.

NOLO: When an employee sues the manager, what does that mean in terms of what a manager has to do.?

LISA GUERIN: When an employee sues a manager personally, that means the manager is a defendant in a lawsuit. So from a practical standpoint the first thing the manager should do is get a lawyer. Often, the company will supply a lawyer for the manager, but it also means that the manager is going to have to participate in discovery, which means being deposed, having to testify under oath having to produce documents. They’re going to have to spend a lot of time working with their lawyer to help prepare a defense. Ultimately, they will have to appear in a courtroom and if the company loses the case and the manager loses the case, the employee will have a judgment for damages against the manager and those can really add up in employment lawsuits.

NOLO: Probably the worst part of any manager's job is firing someone one. What are the employer’s legal obligations?

LISA GUERIN: There are certainly a lot of legal issues that come up when you’re firing someone. For example, most importantly, you can't fire someone for an illegal reason, because you're discriminating against them for example, or retaliating against them for exercising their legal rights. And you may also have legal obligations to an employee who was fired, for example, to give them a final paycheck by a certain date, or to offer to continue their health insurance and things like that.
There aren’t any legal requirements in terms of what you have to say. You don't have to use magic words when you’re firing someone. But what you say certainly is important. Studies show that the way employees are treated, particularly when they're fired, is the main thing that determines whether they're going to sue. An employee who feels that the person who fired them was disrespectful or unkind is much more likely to land in a lawyer's office.
So you need to remember when you’re firing someone that even though it's quite unpleasant for you, it's of course much more unpleasant for the employee. That person is losing a job. They are losing their paycheck. They may be heading for financially tough times. They may be headed for emotional issues or family problems. It can really tear you up to lose a job. You need to keep that in mind when you’re firing someone.
So I think the most important thing to do when you're getting ready to fire someone is to make sure you're prepared, to make sure you have good reason to fire them and you know you have your facts straight. And you should think a little bit about what you’re going to say. You have to tell the employee, obviously, that you are firing them. We recommend that you say, ‘Your employment was terminated.’
I think when you are firing someone, the best rule of thumb is to keep it short. You want to tell the employee, what you are there for – in other words, that their employment is terminated—and then you want to move the conversation fairly quickly to what’s going to happen next, talking about practical issues like getting back company property continuing their health insurance benefits, and so forth.
You want to try and not get drawn into an argument about why the employee is being fired. Really there's no point going there at this point. If you've done your homework, you know you're going to fire the employee. So, it’s best is to cut off that kind of conversation and say, ‘I'm sorry you feel that way, but my decision is final,’ and then move fairly quickly into the practical issues.

NOLO: Lisa, thanks much for talking with us today.

What Do You Do If Your Business is in Financial Trouble?

2006-11-03T21:30:00.000-08:00

This week our topic is financially troubled businesses, and we’ll be speaking with attorney Fred Steingold, author of the best-selling title, “A Legal Guide for Starting and Running a Small Business.”

NOLO: Fred, your book, A Legal Guide for Starting and Running a Small Business, covers a lot of material. It’s easy to see why it’s one of the best-selling guides on the subject. But in this broadcast, we’re particularly interested in your chapter about the financially troubled business. One of the things you mentioned in that chapter is that a businessperson needs to think ahead to protect personal assets. How does a person develop an asset protection plan?

FRED STEINGOLD: Let’s say you own a home, car, you’ve got stocks and bonds, you’ve got a savings account… those are your personal assets. You’ve worked hard probably to acquire those things, and you want to protect those assets to the greatest extent possible in case your business fails. You don’t want to have some creditor seize those assets to pay for business debts, so your asset protection plan is all about protecting those assets, and it starts with your choice of entity. By that, I mean how you’re going to do business, and how your business is going to be structured. There are two basic ways. One is either having a sole proprietorship or a partnership, and in either of those cases, you’ve got complete exposure. If you’re a sole proprietor for example, all of your assets are at risk for whatever the business does. If you have a partnership, each partner is personally reliable for all the business debts, and so, you’re completely at risk. Now, the opposite of that is the corporation or the Limited Liability Company (we sometimes call that an LLC), and in that case, your exposure is limited, and the reason is this: the law treats a corporation or an LLC as an entity that’s separate from the owner. You’re a shareholder in a corporation, you’re a member of an LLC, and those are different from being the business itself, so for people who are concerned about asset protection, it’s a much better choice to have either a corporation or an LLC, and granted it costs a little more to set these up and there’s a little paperwork involved, but the tradeoff is that you have greater piece of mind. So, that’s one step if you’re going to have an asset protection plan. Another one is, if you can at all help it, don’t sign a personal guarantee for business loans or business credit. Sometimes you don’t have a choice; if you’ve got to borrow money from a bank in order to get started they’re going to want you to guarantee the note, but you try not to do that, or if you must sign a guarantee, see if you can limit its effects; see if you can limit the length of time that it’s going to be in effect, maybe one year or two years rather than indefinitely, and maybe put a cap on your liability. If you’re borrowing $20,000, maybe you’re only going to guarantee $10,000 of it. So, there are ways to try to keep that exposure to a minimum. If you’re going to sign business loans another technique is, don’t have your spouse co-sign the loan. The reason for this is that, in many states, if only one spouse signs the loan, then the creditor can’t go over jointly owned assets. One other thing: you probably shouldn’t pledge your home as collateral for a business debt, because if your business goes bad, you at least want to have a place to live. And probably something else is you of course want to maintain adequate insurance for your business; there are certain risks you can protect against through insurance, and that would also help protect your personal assets.

NOLO: Fred, you mentioned something about not having your spouse sign documents. Do you mean not having your spouse co-sign those documents?

FRED STEINGOLD: Co-sign a loan, particularly. If you’re going to borrow money for your business, it would be better if you sign it in your own name by yourself, and not have your wife as a co-signer, because as I said, in some states, if both spouses sign, then their joint-assets are at risk, their joint-bank account, a jointly-owned home for example, whereas if just one signs, then a creditor can’t go over jointly-owned assets.

NOLO: Fred, in your book you warn against penniless partners. What’s the danger there?

FRED STEINGOLD: Well, if you’re going to go into partnership with somebody or a couple other people and they don’t have any money, and there’s a claim against the partnership and someone gets a judgment, the person who gets a judgment is going to go after whoever they can, and if you’re the one with the deep pockets and the only one with any money, then it’s all going to fall on your shoulders, and if you have a partner who really messes up and really causes the partnership to have big debts, you’re going to be responsible for those debts, and it won’t do you any good to try to turn to the partner to collect from him or her, because we said that they’re without assets; they’re penniless. So, you want to have people in business with you who are on equal financial footing with you.

NOLO: Fred, some people believe that by forming an LLC or a corporation, it creates an automatic shield for their assets. But that’s not always true, correct? There are things like personal guarantees.

FRED STEINGOLD: Right; that’s a very good point. Some people say, “Look, I’ve got a corporation,” or, “I’ve got a Limited Liability Company, so I don’t have to worry; I’m free, I’ve got this great protection.” Well, these are good things to have, because you do get protection, but it’s limited liability; it’s not a complete freedom from liability. For example, you are protected if there’s some debt of the business that you haven’t personally signed, or if one of your employees commits what we call a torte – injures somebody or does something else, you’re protected. As we’ve noted, there are some exceptions: if you sign a debt yourself or personally guarantee one, even though you may have a corporation or an LLC, you still are personally liable for that debt. And then there are your own actions in running the business. Let’s say you send a defamatory letter about a former employee. You can be sued for defamation whether or not you have a corporation. Or, if you engage in sexual harassment, you can be personally liable to the employee who was harassed. So, there are a couple of examples of situations where the corporation can’t protect you, or having a corporation won’t protect you. And, there’s another area, and that is unpaid employment taxes. If you withhold taxes from employees’ paychecks and then don’t pay them and the company goes bankrupt, you’re going to be personally liable for those. And one general point, too, is that you need to follow all the legal formalities for having a corporation or an LLC; you’ve got to maintain the distance between you and the entity, and treat the entity as being separate. If you slip up, then a creditor’s going to say that the entity was just a sham, and in some cases, they can then go after you personally, so you always want to use the correct name of the entity, and you want to sign contracts as an agent of the entity; for example, as a corporate president, or as an LLC member, and that way it’s clear that you’re not personally undertaking liability but only acting as an agent for your entity.

NOLO: As an attorney, how do you deal with a company whose attitude is, “Gee, I should pay my employees first, then I’ll deal with the tax penalties later”?

FRED STEINGOLD: Well, I think if they’re going to do that, they have to be aware that it’s a risky course of action, and if their company stays insolvent, can’t pay its debts and ultimately has to go into bankruptcy, while the other debts may be discharged in bankruptcy, the liability for the employment tax will not, and that burden will fall on the owners; in a small company, particularly, that probably means all the owners, because they’re going to be involved in the day-to-day operations of the business. So, I guess if they’re going to try to cut some corners, they’re going to have to economize in some other way, maybe lay off an employment if necessary, but economize so they can still pay the taxes.

NOLO: Fred, one of the tips we provided earlier was that when a business is in trouble, it should not give preferential treatment to some of its creditors. What’s wrong with that?

FRED STEINGOLD: There’s a legal problem with it; the technical term is “preference among creditors,” and here’s how this works: if your business files for bankruptcy, the bankruptcy judge will scrutinize all the payments you made in the year before you filed for bankruptcy, and if you favor some creditors over others, the judge can order the favored creditors to pay back the money, so that it can then be more equitably spread among all the creditors, and this is especially an area where you have to careful if you’re going to be making any payments to family members or insiders, or transferring business property to them. These payments or transfers are likely going to be undone by a bankruptcy judge, so that’s an area where you should be cautious if your business is getting into financial trouble.

NOLO: Another tip we mentioned earlier – and you also mentioned it in your book – is that when a business is in trouble, it should try to get insurance that extends, and in your book you recommend for at least twelve months. Why is that?

FRED STEINGOLD: For businesses in financial trouble there’s a possibility that you may have to go into bankruptcy, and if that happens, you’re going to have a hard time finding an insurance company that will renew your insurance or issue a new policy. So, you want to try to get some insurance that lasts as long as possible into the future, and as long as you keep making the payments on the premiums, your insurance can’t be cancelled, and this means that your business assets are protected, and that you’ll sleep better at night knowing that.

NOLO: Fred, does it pay for a financially troubled business to get an appraisal?

FRED STEINGOLD: It can help in two situations. One is if you’re thinking of selling the business it could be helpful to be able to know what your assets are worth, but it could also be helpful if you’re trying to negotiate a workout plan with creditors. Then you could show them exactly what the assets are worth, and that will help them make a judgment about whether they want to cooperate with you in trying to keep the business going as long as possible.

NOLO: Last question, what’s a workout, and how do you develop a plan for one?

FRED STEINGOLD: Well, the basic principle is that you’re trying to get all or at least most of the creditors to agree to take a little less of what’s owed, and to give you more time to pay up. But to make this work, you’ve got to be able to convince them that they’ll do better by working with your business and trying to keep it alive than by suing your business or pushing it into bankruptcy, and of course, you’ll need to open your books to the creditors so they know the exact financial condition of the business, and you may have to get help from an experienced accountant to put together a plan that would be palatable to the creditors.

If you’d like to review tips for troubled businesses, check out the Article, “Ten Tips for Financially Troubled Businesses,” at the Nolo website.

Blogs, Websites & Podcasts: When Do You Need Permission?

2006-10-28T16:50:00.000-07:00

In this episode we’re going to examine what happens if you use other people’s material in your business – for example, you use someone’s artwork on your blog, using someone’s music on your podcast, or using another company’s trademark at your website.
We’re speaking with Rich Stim, the author of the book Getting Permission from Nolo and an expert on copyright and fair use.

NOLO: First question, Rich do I need to get your permission to interview you for this podcast?

Rich Stim: Well, in my case, no and it’s similar to the case of most interview subjects for podcasts or newspapers or magazines. I see that you’re taking notes. You’ve told me it’s for an interview. And in this case I see the microphone, so I’m impliedly consenting to have my words broadcast or recorded or used for whatever purpose you’ve told me it’s going to be used for.
There are times when you should get a signed interview release. And I want you to keep in mind one thing which is we’re only talking, right now, about the right to use the statements that are made by an interview subject. I’m not talking about the rules for getting permission to use copyrighted music or photos or artwork or anything else. We’ll talk about that later.
But as a general rule, as you move from editorial uses to commercial uses for interview subjects, if you follow that meter from one side to the other as it gets closer to commercial and further away from an editorial use, you should get a signed release.
What’s the difference between editorial and commercial? Well, if you’re interviewing a lawyer, like me, for an article or information style podcast, that’s probably an editorial use. But if you were creating a book of interviews with lawyers, or if you were using this interview as means of advertising some other legal service like a lawyer directory, I think at that point you definitely would want to have permission from the person, something signed and in writing indicating consent for those commercial purposes.
Another situation you need permission from an interview subject is if you’re working on a project and it’s a project in which other companies or distributors are involved. For example, if you’re making a documentary film that involves distributors, production companies, and everyone up higher in the food chain is going to ask you for evidence of permissions – whether or not they’re following the rules I’m talking about. So even if the use seems purely editorial, the distributor, or the book publisher may want the release. So, it’s best to get those at the time of the interview; it’s hard to go back and get that release later.
Another thing that arises with interviews is that an interview subject may ask to read or edit the interview or to have some comments removed or kept “off the record.” Any agreement that is made with the interview subject, including an agreement for anonymity, should be documented. Failure to honor the arrangement may give rise to a lawsuit for monetary damages.
By the way, I’ve posted a downloadable sample interview release, along with a transcript of this podcast at nolopodcast.blogspot.com.

NOLO: What’s the best way to get someone’s permission without making it seem really legal and scaring the person away?

Rich Stim: Okay … now we’re moving beyond interviews and talking about all kinds of permissions … for example, permission to use someone’s music or photography or to use a model’s image in an ad. These cases are often different and it always it depends on what you’re using and what you’re using it for. But let’s just assume you’re going to need permission for what you’re doing.
When you want to get that permission it’s always best to keep it short and sweet – if you can – for example, I’ve met photographers for example who have reduced their model release forms to the size of a business card because it seems less imposing.
And the other thing you want to keep in mind is that you want your release to reflect the potential uses you might have for the material, uses that you may anticipate in the future. And of course, as I talk about in the book, Getting Permission, there are times when you don’t need permission at all.

NOLO: What happens if someone is creating work for you like doing photography or creating a website? Do you need to get permission to use that?

Rich Stim: Right, don’t assume just because you’re paying someone to do something that you own all rights. That’s a big mistake. A lot of people make it with photographers and graphic artists. Here’s the deal -- if someone is your employee and they – you withhold taxes, etc., and that employee creates something for you under your direction or in the course of your employment – then you’re probably never need to get permission to use that material. You’re going to own it. Now, you or your company can bolster that situation with some paperwork that assures or guarantees your rights. But generally even without the paperwork, a company is going to own what the employee creates.
But that’s not always the case if the person is a contractor. In that case, you’re going to have to make sure you’re getting the rights from a contractor and you can do that a few ways. You can ask the person to assign all copyright to you, or to acquire all rights under a work made for hire agreement – though not everything qualifies as a work made for hire. Or you can have the contractor sign an agreement that gives you the exclusive rights you want. But the important thing to remember is that there’s a difference between whether some3one’s creating something for you as an employee or a contractor. So if you’re paying someone as a contractor to take your photo or build a website, it’s best to get written permission.

NOLO: Your book, Getting Permission, explains the importance of getting permission before you sell or publish something … but don’t some people do better by not asking for permission? Isn’t it possible to get more attention by taking the unauthorized route?

Rich Stim: Yes that’s true but I’d qualify one thing you said. I don’t think doing something that’s unauthorized is what gets you attention. I think what gets you attention is that you do something unauthorized and you’re doing it really well. That’s been the case with a lot of artists. They become famous using unauthorized material without permission. That’s how Andy Warhol started his career. But to really pull it off, you’ve got to be good, and you’ve got to have some amount of artistic courage because you’re going to have to face down copyright or trademark owners who will come after you and you’ve got to have some original talent because eventually, the copyright owner will stop you from doing what you’re doing. And at that point you’ll need to come up with a way to make your talent work in an authorized way.
And I’ll make another point that’s also important. It’s all great for courageous artists to take that stance but you can’t take that “forget about permission” attitude if you’re working for a client or you’re working at a company. Some companies may take risks and nothing happens. And others - like Google, will take informed risks that they’re willing to support in court.
But generally, the business world is an “authorized” world and when you’re working work with or for these are people, you’re going to need to get permission. Because if you use an image for an ad campaign or a website or you use somebody else’s trademark and you don’t have permission that’s going to hurt your livelihood. So in these cases you need to follow the straight and narrow and get permission.

NOLO: You hear about people getting letters from attorneys accusing them of ripping off somebody’s music or artwork? What’s the best way to respond when this happens?

Rich Stim: The smartest thing to do is to investigate and respond as quickly as possible, and ideally, during the period when you’re investigating, take down whatever it is that’s offending the copyright or trademark owner. That doesn’t mean you’re caving in, but it’s an important risk-aversion approach because it demonstrates you are acting in good faith and if the person decides to sue you later that initial gesture of good faith will go a long way to saving you money on financial damages in the lawsuit, if there are any.
By investigating, I mean you’re going to have to look into the issue. Maybe you can do it by checking out some common resources that I’ve provided. But you may need to speak with an attorney who is knowledgeable in copyrights, trademarks
Once you’ve done your investigating then you need to decide if you’re going to take a stand on the issue. Is it going to be worth the hassle to you? It’s really a business decision and try to avoid deciding it solely on principle. Remember that lawyers love clients who are fighting on principle means that the fees will keep coming and keep coming.

NOLO: But aren’t these letters often just somebody trying to bully somebody else

Rich Stim: Yes, there are two types of bullying. Each is annoying in its own way. One type of bullying is when a company would probably prevail in a lawsuit against you – the company has a legitimate right to stop you -- but they’re pushing much harder than they need to get the job done or asking for much more than they really might be entitled to. You’ll have to deal with that type of aggressive behavior as best as you can … perhaps attempting to negotiate the best deal you can for yourself. A lawyer may be able to help. That’s part of the price for using unauthorized material.
The second type of bullying is the really awful type where a company doesn’t really have a legal claim or they have a borderline claim. They may or may not prevail in a lawsuit. But they have the legal muscle and financing to take you to court and you probably don’t. You see this a lot in trademark cases, where companies may try to stop another company from using a similar name. And you see it in copyright cases where you may have a right under fair use rules to reproduce something but you can’t afford to prove it in court.
Again, it’s a business decision. But I would add one thing if it makes a difference. I don’t know if it does. Try not to take the bullying personally. In most cases it’s strictly business. It’s just an aggressive or greedy company is just trying to squeeze somebody.

NOLO: So we’re doing podcast, can you give us some legal tips regarding permission and podcasts?

Rich Stim: Well, podcasts are like everything in the world of permissions. You’re more likely to run into a problem if you’re doing something without permission and it’s making the owner of that you’ve taken property mad. And of course, remember the other side of it … the tree falling in the forest thing. If nobody hears or sees what you’re doing, except a few friends, well, you can rip off as much as you want but once you land on the copyright owner’s radar screen, that’s when you’re going to may run into problem.
In a way, you’re really asking what makes the owners of a trademark and copyright mad… or at least so mad that they’re going to go after you. Well, one thing is if they feel like they’re losing money; another is if they feel they’re being publicly disparaged. So, for example, if you’re a commercial podcaster and you’re working with a corporate client, you’re always best off getting signed permissions from the talent, getting a written license to use music ( or better yet use license-free music), and you’re going to want to avoid using a title that’s confusingly similar to another company or another podcast that’s engaged in the same sort of information or services. For example, I’d advise against calling a financial podcast, “Don’t Leave Home Without It” because you’re likely to get a cease and desist letter form American Express. And they will be concerned that you’re confusing consumers that your podcast is somehow associated with theirs.

NOLO: What about linking to another website, are those ever illegal?

Rich Stim: As a general rule I’d say that linking is a non-issue except for one thing and again, that is what makes a copyright owner mad. If you’re linking to something unauthorized, yes, you’re going to run into a problem. For example, at Nolo we’ve had to go after to people who are linking to illegal downloads of our software. And those are links that are doing more than connecting you with another website. Those kinds of links do what I discussed before, they duplicate illegally and they make a copyright owner mad in the process because the copyright owner is losing money.

NOLO: You hear copyright is illegal. Is it ever possible to go to jail for copying things?

Rich Stim: Very very rarely does anyone do time for copyright or trademark infringement. Usually it’s only in large cases of counterfeit goods will you find law enforcement getting involved and charging someone with a crime.

NOLO: When don’t you need to get permission?

Rich Stim: You don’t need to get permission if something is in the public domain or if you are using something and it’s a fair use. Fair use is a great concept but it takes courage or money or to really face somebody down and claim a fair use. The principal is that the copyright law says that you can use something without permission if you’re using a small portion for purposes of commentary. That’s roughly the idea. And there are four factors judges consider but the factor that matters the most is whether you’re transforming the work. That is, it’s a transformative use. For example a parody or critical commentary are transformative, But the problem with fair use is that there are no real guidelines so you can never be sure of what it is --- unless you’re matching a court case that matches your facts exactly -- until you get to court. It’s only in court that a judge will decide whether it is a fair use. So, again it comes back to whether you want to deal with the hassle and expense of that kind of battle.

NOLO: If fair use is supposed to be about transforming the work then why did the lawyers shut down that fan fiction book at Amazon.

Rich Stim: Maybe you should explain what fan fiction is.

NOLO: Fan fiction or fanfic is when fans of a movie or television show create their own fiction using the characters from the movie or show. The case I was referring to is when a fan of Star Wars wrote a book called Another Hope using Star Wars characters and Lucasfilm complained and had it pulled form online websites.

Rich Stim: For the most part, it seems as if copyright owners are taking a laissez faire attitude to fan fiction on websites. I think they realize these people are fans and they should just let it be. That’s why you see so much of it on the web. There’s not much commerce involved, it’s being done out love for the characters and the work
But – and again we get back to this same point – once you start to make the copyright owner angry – usually by diverting commerce from their business – then somebody is likely to come after you. I think this author crossed that line by moving from a website publication to printing the material in a book and selling it. I think the same result would happen if somebody tried to make a movie out of Another Hope.

Thanks so much for speaking with us today, Rich.

Rich Stim: Thanks. I have a feeling some listeners will feel like we haven’t hit all the issues that are on people’s minds when it comes to blogs and podcasts and that’s true … so I’ve posted a few links at the nolopodcast.blogspot.com and I hope to set up another podcast in the future to talk about issues like the creative commons, and more specific copyright and trademark related issues.

Interview Release Form & Explanation

Nolo Copyright Center
U.S. Patent and Trademark Office
U.S. Copyright Office
Stanford Library Copyright and Fair Use Website
Example of a Sample Interview Permission
INTERVIEW RELEASES
EXCERPT FROM GETTING PERMISSION
Most reporters and writers do not obtain signed interview releases because they presume that by giving the interview, the subject has consented to the interview and, therefore, there can be no claim for invasion of privacy. In addition, many interview subjects don't have the ability or inclination to execute a written release--for example, a person interviewed by telephone for a deadline newspaper story.
Nevertheless, a written interview release is helpful. It can help avoid lawsuits for libel, invasion of privacy or even copyright infringement (since the speaker’s words may be copyrightable). It’s wise to obtain a signed release if the interview is lengthy, will be reprinted verbatim (for example, in a question and answer format) or if the subject matter of the interview is controversial.
It is common for an interview subject to ask to read or edit the interview or to have some comments removed or kept “off the record.” Any agreement that is made with the interview subject (including an agreement for anonymity) should be documented. Failure to honor the arrangement may give rise to a lawsuit for monetary damages.
If the interview subject is willing to proceed with the interview, but does not want to sign a release, ask if he or she will make an oral consent into a tape or video recorder or video. Although not as reliable as a written release, a statement such as “I consent to the use of my statements for use in the Musician’s Gazette” will provide some assurance of your right to use the statement.
An interview release is a hybrid agreement, part release and part license. The release, below is suitable if permission is sought to use an existing interview or to conduct a new interview.

Interview Release
Grant. For consideration which I acknowledge, I consent to the recording of my statements and grant to _________________ (“Company”) and Company’s assigns, licensees and successors the right to copy, reproduce, and use all or a portion of the statements (the “Interview”) for incorporation in the following work _________________________________________ (the “Work”).
I permit the use of all or a portion of the Interview in the Work in all forms and media including advertising and related promotion throughout the world and in perpetuity. I grant the right to use my image and name in connection with all uses of the Interview and waive the right to inspect or approve use of my Interview as incorporated in the Work.
Release. I release Company and Company’s assigns, licensees and successors from any claims that may arise regarding the use of the Interview including any claims of defamation, invasion of privacy, or infringement of moral rights, rights of publicity or copyright. I acknowledge that I have no ownership rights in the Work.
Company is not obligated to utilize the rights granted in this Agreement.
I have read and understood this agreement and I am over the age of 18. This Agreement expresses the complete understanding of the parties.
___________________________________________
Interview Subject Signature
___________________________________________
Interview Subject Name
___________________________________________
___________________________________________
Interview Subject Address
Date _____________
Parent/Guardian Consent. I am the parent or guardian of the minor named above. I have the legal right to consent to and do consent to the terms and conditions of this release.
___________________________________________
Parent/Guardian Signature
___________________________________________
Parent/Guardian Name
___________________________________________
___________________________________________
Parent/Guardian Address
Date _____________

Explanation for Interview Release Agreement
It’s possible that the Interview may already have been recorded, in which case the language “consent to the recording of my statements and” can be stricken from the Grant section. If the Interview will be included in more than one work, list all works and change the term “Work” to “Works” throughout the agreement. Unlimited or blanket releases for interviews are not common, partly because subjects usually are not prepared to relinquish unlimited rights.
If seeking unlimited rights (the interview can be used for any purpose) substitute the following Grant section.

Grant. For consideration which I acknowledge, I consent to the recording of my statements and grant to _________________ (“Company”) and Company’s assigns, licensees and successors the right to copy, reproduce, and use all or a portion of the statements (the “Interview”) for all purposes, including advertising, trade or any commercial purpose throughout the world and in perpetuity.
I grant the right to use my image and name in connection with all uses of the Interview and waive the right to inspect or approve any use of my Interview.

If the interview subject does not wish to waive the right to inspect the final work, strike that sentence and arrange for the interview subject to provide approval.
If the release is executed after the interview has been transcribed, it is helpful to attach a transcription of the interview to the release agreement. This provides an assurance that the interview subject has notice of what was said in the interview. Add a sentence to the grant section such as “A complete transcription of the interview is attached and incorporated in this Agreement.”
The release section provides protection against subsequent legal claims.
If the interview subject is under 18, a parent or guardian’s consent is required

What's the Best Way to Discipline An Employee?

2006-10-21T16:49:00.000-07:00

We’re speaking with Margie Mader-Clark, an expert on human resources issues, and the author of, “The Job Description Handbook,” from Nolo. Margie is currently working on a book on progressive discipline.

QUESTION: Margie, to the layperson, the term “progressive discipline” sounds like a very unpleasant experience, sort of like corporal punishment. What does the term mean, and why has this term gained in popularity among human resources experts?

MARGIE MADER-CLARK: Well, it’s funny; I’m not sure that it is popular. In fact, it seems to be fading in popularity in human resources. I myself don’t like the term, because of all the connotations that you described. We’re using terms now more like, “Get-well plans,” or “Performance improvement plans” that are really designed more towards keeping people on board. “Progressive discipline” sounds very negative and very “you’re on your way out.” Keep in mind, the spectrum of reasons that you would employ discipline is huge; it’s broad ranging. It ca be from simple performance issues from absenteeism or tardiness, all the way up to horrible things, like sexual harassment, and violence in the workplace. So, to try to capture a term that gets all of those I think is a difficult thing, and it’s one of the reasons why we went with “progressive discipline.” Most of the time what you’re really trying to do is correct performance issues. So, things like corrective action plans, things like performance improvement plans, are a better sounding terminology for that function of this. But it is what it is; it’s sort of, this is a process, it’s a step-by-step process that’s intended to change the direction of performance or behavior of an individual, so, that’s discipline, so if you think about it in those terms, it is a progressive discipline process.

QUESTION: Some people describe progressive discipline as a ladder. Why is that?

MARGIE MADER-CLARK: Yeah, if you think about the steps of progressive discipline, or one of these other types or names for the same thing, certainly the way that this book is set up, the goal is to correct behavior. So, these would get ever more intense as that behavior doesn’t correct, I guess is the way to think about that. So, some of the different steps, you would start with basic coaching – here’s what’s going wrong, here’s what impact it’s having, here’s why we need it to get better, let’s talk about how we might do that. From there, if it’s not improving, you would go to another step called a verbal warning, which is, “You need to do this and this and this, by this particular time.” This book advocates a collaborative process to make that happen, where you actually are involving the employee in coming up with the solution for the issues, and that goes through all the steps of this. From a verbal warning you’d go to a written warning that says, “Okay, now we’re getting serious. If this doesn’t happen by this particular time, with these particular measures of success, we may move on to the next step, which would be suspension or termination.” Suspension is used pretty rarely, and it’s used primarily when you need someone off the premises while you either do an investigation, or you need a situation to cool down, so the most logical next step after written warning is typically termination. Basically, you can think of it sort of almost like a “three strikes, you’re out” type of process. For most of the behavioral issues, you would cover most of the steps; for some issues, you’ll jump right to the top.

QUESTION: Not every company appreciates progressive discipline; some prefer to avoid the counseling and strategizing. Instead, they reprimand, suspend, or terminate. This seems pretty efficient – what are the disadvantages of good old-fashioned punishment of bad employees?

MARGIE MADER-CLARK: For some, again, for some issues there are no disadvantages, and that’s absolutely the action that you should take. For what I’ve seen in my career, the bulk of the issues that you would employ a plan like this for are performance-related. So, the disadvantage of jumping straight to a quick-trigger firing is that you have this enormous replacement cost and process that would then need to occur. You would have lost time of the person that you’ve just let go, you’d have lower productivity of the team on the whole, you’d have the cost per hire that would be involved in hiring a replacement, their orientation and assimilation time, and their time to productivity… when you think about that whole thing, some work has been done in the Silicon valley to try to net out what those costs are, and for the average-knowledge worker, those costs can total up almost $250,000, which is a pretty significant impact to the bottom line. So, when you think about it from a business standpoint, being able to turn around the performance of an existing employee negates all those costs, and gets your employee more productive in a much shorter time frame than it would take to actually replace them.

QUESTION: In progressive discipline, an employee reads a reprimand, and then must sign it. Why have the employee sign it, and what happens legally if the employee refuses to sign it?

MARGIE MADER-CLARK: Typically on a reprimand, the signature is just acknowledgment of receipt, or acknowledgment of understanding what the document says, so they don’t actually have to sign it. If they refuse to sign it, all you have to do, it’s no less valid, you just have to note the date and the time that the employee saw it and that you presented it to the employee and that you can verify that they actually read it. Once you’ve done that, you’ve taken care of that step of notification, and you’ve started them down the road of the discipline process, and you have your documentation in place as well.

QUESTION: Okay, an employee has done something bad, and the company wants to suspend the employee. Let’s say the employee has threatened someone, or arrived at work drunk, or harassed another employee. How long should a suspension be for, and how do you implement that? Is it suspension with pay? Does a manager have to consult human resources before suspending an employee?

MARGIE MADER-CLARK: I wish there were some hard and fast rules about this, because it would be much easier to apply suspension consistently if there were, but suspension is basically, and I think I mentioned this earlier, it basically happens in two different times: number one, there is clear and present threat of danger to your existing workforce, or to the employee themselves, and you just need to get them off the premises. The second time it happens is if you need to do an investigation into an issue, and you don’t necessarily know if that employee is actually guilty of whatever that issue is or not, and it buys you some time when that employee is not present that you can do that investigation. Those are the two basic times you would actually use a suspension. So, the question about, “Is it paid or not?” kind of goes with those answers. If it’s an investigation and you don’t have proof of guilt, you probably want to pay them for that time. Again, it’s not hard and fast; you don’t have to, there’s no law that says you have to pay them, but a good practice is to pay them with sort of the theory of being innocent until proven guilty. If it’s the other case, where you’re getting them off the premises because you’re worried or there’s been violence, or a threat of violence, or anything like that, you don’t have to pay them; you can suspend them without pay, and that’s just basically buying you time to get your paperwork together, and get it documented, and so forth, to move ahead with the termination. Typically, if you’re suspending them without pay, the next step is termination.

QUESTION: What happens if the company acts inconsistently? For example, the company suspends one person for a week for being drunk, but another person who’s drunk simply is given notice, or sent home for the day. What kinds of issues arise if progressive discipline is not provided with consistency?

MARGIE MADER-CLARK: This is sort of the bane of progressive discipline’s existence. This is the way you can get into the most trouble; if you’re not being blatantly discriminatory and so forth, that inconsistent application will cause you the most trouble, and the reason is, someone will come up with a purpose or a reason why you treated somebody differently than you treated someone else for the same sort of instance. That can be easily interpreted as discriminatory, or showing favoritism, or nepotism, or a variety of different reasons. All those reasons can open you, and your company, you personally and your company, up to potential legal exposure, and costs associated with that. So, a written progressive discipline process that’s not followed to the extent that it’s written down, in the order that it’s written down, would be considered inconsistent application of that process, and would allow legal exposure. So, you definitely want to, especially when situations are similar, treat them as much the same as possible. Now obviously, there’s some things that you’ll do differently based on the personalities of the people that you’re working with, but for the most part, the basic steps need to happen in the same order, and at about the same point in the cycle, from person to person, as these different issues occur.

QUESTION: Is there a way for the company to implement the discipline without the employee taking it personally?

MARGIE MADER-CLARK: I think it’s always tied together; I think the most successful progressive discipline is done when you’re taking into account how it will be received, and what actions you want the employee to take, and how you want them to participate and be involved, because I’ve always seen the higher the level of employee involvement in a get-well program, the more likely they are to actually get well. So, if you’re approaching a personality that you think is going to be shocked and surprised that you’re actually taking a disciplinary step with them, then you need to walk them very slowly through the step. Don’t eliminate the step at all, because that puts you in the same trouble as the last question, but walk slowly through the step, have your reasons together, have specific examples together, and get them to a point of understanding, if not accepting; don’t worry too much about accepting in the first step of the disciplinary process, but at least get them to understanding the issue. Then you can start to bring them into actually collaborating with you on how to fix the issue. So, I think it’s very important to adapt your delivery to the person’s personality, and not try to do that very quickly, or without thought, ahead of time.

QUESTION: A big component of progressive discipline is documentation; that is, getting information into the employee’s personnel file. Where can a manager get help as to the proper wording for the types of statements that should be included in a personnel file?

MARGIE MADER-CLARK: I think the main thing to remember here is, documentation of these things, you want to basically keep wrapped around the facts and event details, just enough to trigger your memory. So, dates and times, who was present, where did this meeting or incident take place, what was said and how was it received, and if you note kind of those what, where, when, how type of statements, that’s all the documentation that you need for the most part. As you move to written warnings and so forth, obviously you’ll have that piece of paper that says what that warning is, but documenting these coaching sessions, or the verbal warnings and so forth, it’s really a who, what, where, when, and how it was received type of documentation. There’s lots more detail on that in this book, and in Nolo’s other titles.

QUESTION: What other types of things should trigger a media termination, not progressive discipline? And, do you have to notify employees that these types of things are exempt from the progressive discipline procedures?

MARGIE MADER-CLARK: There’s certain things that are just considered zero-tolerance, and most policies will list those out in sort of a comma format, and they would include all the things that you would think were very obvious. So, any violence towards another employee, harassment, blatant discrimination, any felonious actions, anything that breaks the law… these sort of jump right to the top of the ladder, and are, you know, certainly possibilities for immediate termination.

Is it Harder to Sell a Retail or a Service Business?

2006-10-14T16:46:00.000-07:00

We’re speaking with attorney Fred Steingold, an expert on small business law. We’re going to talk to him about the issues that arise when you’re buying or selling a business. Fred is the author of “The Complete Guide to Selling a Business,” from Nolo.

NOLO: Fred, is it harder to sell a retail business versus a service business? What are the concerns when you’re selling these types of businesses?

FRED STEINGOLD: I think that those concerns are probably greater on the part of the buyer. The buyer’s going to be interested in what kind of inventory you have, for example, in a retail business, and the location will be very important. In a service business, the location may not be quite as important; if you have an electrical contracting business you could be out someplace off the main drag and still be doing business, but the buyer in that situation is going to want to know about your contracts; do you have long-term contracts and can they be assigned to the new owner? So, the buyer’s going to have different concerns and different focuses depending on whether it’s a retail or a service business.

QUESTION: Here’s a tough question for a lot of people: what makes a business saleable?

FRED STEINGOLD: In order for a business to be saleable, you have to put yourself in the shoes of a buyer, and look at what kinds of things a buyer will want. Probably the most important thing is that the business has a good profit history. The buyer wants to see that the business has made money for the last couple years at least. Also, not only that it’s made money, but if the buyer is going to work in the business, which is very common for a small business, the buyer will want to see that there’s enough money coming in to pay a decent wage for the time that the buyer puts in, in operating the business. The buyer wants to know that there’s a lease in place, and that he or she will be able to continue on in that location after the purchase. The buyer’s going to want to see that the place of business is in good repair and is neat and attractive-looking, and, if it’s a retail business, that the inventory of goods is up to date. Those are the main things I would say that a buyer is going to be looking at. If the business has an exclusive distributorship, the buyer’s going to want to be able to take that over as well.

QUESTION: So, what you’re really saying is that it’s all about timing, right?

FRED STEINGOLD: Yeah, that’s right, in terms of business itself. Sometimes there are external factors, though; sometimes there are business cycles, and of course you’d like to be in an upswing kind of a situation where business is perking, but even in a bad business cycle, there might be opportunities. For example, sometimes corporations are laying off managers, and they’re sometimes offering a buy-out package, and so those managers, who are tired of being wage-slaves, may have a pocket full of money, and may be looking for an opportunity to go into business, and sometimes even when things are bad in the big business world, there may be opportunities for someone to sell a business.

QUESTION: What if you want to sell your business, but your partners or the other owners don’t want to sell, or what if you can’t seem to agree on the selling price? How do you sort these things out?

FRED STEINGOLD: One way would be to see if they’ll buy you out. Give them a price for your interest in the business, talk to them about some installment terms, and maybe they would buy you out, and you’ll be free to go elsewhere, and they’ll wind up owning the business and they can continue it as they wish. If that doesn’t work, you might want to call in a mediator to figure out how to resolve it, or some neutral third party to help create a win-win situation. In some situations, you may be able to force a sale; for example, if you have a partnership, if any of the partners wants to dissolve it and there’s nothing to the contrary in the partnership agreement, you’d be able to, on your own, just say, “Well, we’re going to dissolve the partnership,” and that would mean the assets or the business would have to be liquidated, and you would get out that way. Probably it’s a good idea, when you go into business with people, at the very beginning, have a plan of action, so you don’t have to worry about this later; you might have an agreement upfront about what you would do if one of you wanted to sell and the others didn’t.

QUESTION: Sometimes you read about a business that sold, but the owners stay on to run it after it’s sold. How hard is it to negotiate something like that? And what’s your experience with these situations? Is it hard for former owners to work for someone else?

FRED STEINGOLD: It’s hard sometimes, but the former owner would have to put aside his or her ego. It’s not difficult to make these arrangements however. In fact, most buyers like the seller to stay on for awhile as sort of a transition. Buyers like to do it; for one thing, they get some extra money during that period, they’re going to be either an employee or a consultant, and whether it’s months or even a couple years, they’re going to get some cash for their work, and it lets them stay tied to the business. I suppose there are buyers out there who want to start with a clean slate and don’t want to have anything to do with the seller, but that’d be fairly rare, and if the seller is willing to stay on and watch as his or her baby changes hands, that is very workable. It’s important to have the ground rules set out in advance, though; it probably is part of the sales agreement for the business. Is it going to be an employment relationship? If so, how many hours is the seller expected to work? How long will the relationship last? If it’s an independent contractor relationship, what are the terms of it? Those things should be spelled out so that there’s no misunderstanding, and I would think as a seller if you have any questions at all about it, you’d want to have the option after a certain number of minimal months to just walk away from it, if you find you can’t work for the buyer.

QUESTION: You read sometimes, for example Ben & Jerry’s, where you hear that the owners say that despite the sale, the company won’t change the product, or won’t change the company’s method for dealing with employees. Is it unrealistic for a small business to seek these types of conditions as part of the sale?

FRED STEINGOLD: You know, in an ideal world, you could leave your imprint on the business, and have it run your way forever, but most buyers are gong to be as entrepreneurial as you are; they’re going to want to put their own mark on the business, they’re going to want to do it their way, they’re going to want to take advantage of the good things that you’ve done, but they may see things differently, they may see things that they think they can do better, and so it’s best to find someone as a buyer if you can who has the same philosophy as you do, but if you try to reign them in too much, you may lose the sale of the business, so I don’t think it’s realistic to expect that the business will go on exactly as you’ve always run it.

QUESTION: In your book, you talk a lot about the preparation needed to sell a business. Can you tell us some of the things a business owner needs to think about when they’re selling?

FRED STEINGOLD: First of all, if you have a business that has had a shaky profit record, you might want to put off selling. If you wait and build up the profits, and that may mean you have to cut back on expenses, or you have to increase sales, but you have to do what you can to show a good profit picture for two or three years. If you have some outstanding legal problems, suits by an unhappy customer or a disgruntled employee, you want to get those cleaned up so that those aren’t inherited by the buyer, or you don’t get any bad press over them. You want to be sure that you’re able to explain the finances clearly; some businesspeople understand the finances of the business but they don’t keep their books in a form that someone else coming in from the outside could understand, so you might have to get a CPA to get your books organized so that the cash flow and the month-to-month profits can be understood by someone who is a prospective buyer. If you can, have a business plan that will show that the business is capable of growing over the next several years. The buyer may have a business plan as well, but if you’ve got something to kind of lead the way, that’s helpful. You want to try to make sure you’re your relationships with your suppliers and your customers are going to stay in place; you want to have contracts if possible. This won’t be true in a typical retail business, but if you have long-term relationships with suppliers or major customers, if you have contracts that will keep those relationships ongoing, that would be a positive thing. You want to see if you can get a long-term lease so that you have something of value to offer to the buyer. Probably equally important, if your business premises are kind of run down, fix ‘em up, put on a fresh coat of paint, put in better lighting, do some things to make it look more attractive. Those are some things that a business could do to get ready to sell.

QUESTION: Your book has an excellent agreement for the sale of a business. But is it really possible to do the sale without the aid of an attorney?

FRED STEINGOLD: You could do the agreement; theoretically it’s possible to avoid any help from an attorney, but that’s not really a good idea. If you’re selling a business you’re going to be dealing with tens of thousands of dollars, maybe even, hopefully, hundreds of thousands of dollars, and I think it’s a good idea to run the final product by a lawyer. The more you can do the better; it’s going to save you lots of money. Where it might take a lawyer five or six or even ten hours to handle a transaction, you might be able to just use one hour of a lawyer’s time, so you’ll be saving a great deal of money doing it that way, but you’ll also have the piece of mind of knowing that some professional has looked over your handiwork.

Do Dads Get a Fair Shake in Divorce?

2006-10-07T16:45:00.000-07:00

We’re speaking with Paul Mandelstein, the author of Always Dad: Being a Great Father During and After Divorce from Nolo.

NOLO: Many Dads don’t think the legal system is capable of giving them a fair shake in the divorce process. What do you think and what, if anything, can be done to balance the arrangement?

MANDELSTEIN: The arrangement might be unbalanced, but in the last ten years or so things have been shifting and more fathers are wanting to spend more time, and being more present and accountable. And basically, what you really need to do from Day One is to stay in your kid’s life, which might be hard, because everything’s emotional, but you’ve got to make sure that you create a legacy that you’ve been there from Day One, that you pick up the kids from school, doesn’t have to be full-time, any of that, but you need to show that from Day One that you’re in their life, that you’re not abandoning them. So that creates a clear pathway. Because often, you’ll move out of your house, and it’ll appear like you’re not taking care of them, and that you’re going to be the “weekend dad.” But if you just create a clear path that you are being there on a daily basis, and you’re very involved, and try to document that in some way, an email or whatever, that will help a lot.

NOLO: When you say Day One and you refer to the history … What point are you referring to exactly … the date of the divorce filing.

MANDELSTEIN: The history of when you split up, because when you’re an intact family, it’s hard to know who did what, and who’s taking care of who, but when you split up, you need to stay in the kid’s life. And if you want custody, if that’s your plan, then you should, from Day One, cut that amount of time for them, and ask for that amount of time. If you can only see them two days a week, then see them two days a week. But you need to set that precedent, because otherwise courts will look at this thing six months down the line and make a determination, and they’ll say “Well, you know, you haven’t been around, and you know, we’ll just keep it the way it is.” So it’s important to be pro-active in this way and step up.

NOLO: Paul, one point you make in discussing the initial breakup between a husband and wife with kids is that spouses should not jump right into the legal proceedings. Take it slow. Analyze the situation a little bit before you rush off to the lawyer’s office.

MANDELSTEIN: Exactly. One thing that’s going to happen is, as soon as someone goes to the lawyer’s office, that raises the ante quite a bit. And it makes things more emotional, more volatile, because even if you’re the one filing for divorce, things are going to change, right then. If the hot buttons are still hot, and no one’s in a big rush, your kids are okay, the money’s in place, and you can agree on things like that, it’s fine to wait until things settle down. Filing the papers is almost the point of no return.

NOLO: Your book is a very helpful manual for divorcing Dads. It even includes some advice on cooking. One tip you give is about using “right speech” Can you elaborate a little on what that is?

MANDELSTEIN: Right speech comes from a Buddhist term. And the Buddhists teach that right speech is essential for a satisfying life. And it means telling the truth, refraining from unjust criticism of others, using language constructively rather than harshly, and refraining from gossip. If you follow these principles, it can go a long way towards creating and maintaining a collaborative divorce. But because avoiding the truth, criticizing others and using harsh language and gossiping are all ways we vent our pain when our relationship breaks up, it’s far easier said than done.

NOLO: I liked your ten rules for communicating with an ex-spouse. One of the rules – listen to your ex-spouse without defending yourself – seemed a little unrealistic. Wouldn’t you have to be almost Zen-like to not want to defend yourself against accusations – especially unfair ones?

MANDELSTEIN: And right speech is also about staying focused on the future. You know, part of establishing a daily routine is figuring out how to communicate with your ex, and what this means. The first thing that you really need to consider is that this is about the kids. And it’s not about you right now. You’re not feeling good, you’re angry, you’re confused, you’re upset, so’s your ex, it’s a constant war. But what you’ve got to do is, you’ve got to end this war. Because the kids are unwilling hostages in an uncivil war.

NOLO: Let’s talk about custody issues. When it comes to resolving legal custody issues, you start with a quote from Virginia Burden Tower, basically ---nobody can get there unless everybody gets there. How can a divorcing Mom or Dad maintain that spirit of cooperation when dealing with divorce attorneys?

MANDELSTEIN: As I mentioned, in Virginia Towers’ book, she points out that a relationship of cooperation rather than combat begins with the thorough conviction that no one gets out of here unless everybody gets out of here. And it’s not that much different from the Buddhist philosophy where there’s no final and perfect enlightenment until everyone’s enlightened. So unless you create a collaborative path that works for everybody---so it’s not like your wife is out of the family---this is the extended family now. It’s not the broken family. Broken family is an old paradigm that doesn’t really work. This is the extended family. Which means there’s not just you and the kids, it’s you, the kids, your ex-wife, perhaps your mom and dad, the kids’ grandparents on either side, and different cousins and uncles, and everybody’s concerned. And also, if you’re going to be involved in another relationship, maybe you want to get married again, or maybe your ex gets married again, then you have perhaps her husband or your new wife and the kids. This is a large group of people and you have to take care of everyone. No one is expendable here.

NOLO: For some of our listeners who don’t know the basics, could you explain the difference between legal, physical and split custody?

MANDELSTEIN: Legal custody means that a parent has the legal authority to care for and make decisions concerning the child’s health, education and welfare. Legal custody is either joint or sole custody. Unless there’s a compelling reason to keep one parent from the involvement of decision making, the courts usually grant joint custody.

Physical custody refers to living with the children and seeing to their day-to-day physical needs, like feeding them and making sure they’re clothed. So you might have joint custody, you might have joint legal custody, which is you’re both responsible for their health, education and welfare, but one parent might be more responsible for the physical. Which means that, if you have the kids just on the weekends, well, on those days, you have physical custody. On the other days of the week, if your ex has them five days a week, then she has physical custody. Split custody---you know, in most families, siblings stay together. And that’s what split custody is about, it’s often giving others crucial stability and support---for example, if one parent tends to move to another city and there’s a great school system that would benefit their younger child, but the oldest sibling is in their last year of high school, and is involved in lots of activities and wants to stay, the parents might decide to have her live with the one parent who is remaining in that original city. But this doesn’t happen very often. In most cases, kids want to stay together. And it makes the most sense to do that.

NOLO: Tell me a little about your story? What prompted you to write this book?

MANDELSTEIN: When I split up---we split up in October--- and then a couple of weeks later it was Thanksgiving, and I have three kids, and they went over to mom’s. Where I would have been also, because mom’s a good cook, and throws a good party. But I was home, and I was feeling sad. I was sitting on my bed, and took out my yellow pad. My background is in publishing; I’ve foundered two publishing companies, I’ve been in the business for thirty years, so I kind of thought in terms of books. So I scribbled on a yellow pad, and then I went to bookstores to see what was around ,and I noticed that there were walls of information for women. And if you went to look for fathers, for men, there were about three books. And the books that there were about fathers, involving divorce, were all about men’s rights, and all about adversarial and trying to, for lack of a better word, conquer the ex-wife. I thought this was all wrong. And after talking to hundreds of people about all this, I felt that a new process should be created, and by doing that, I did my own healing by going through this and trying to help out.
NOLO: You’ve created the resource, www.father.com. First of all, I’m seriously impressed that you landed that domain name

MANDELSTEIN: You know, I bought it! I bought it! But I only paid $600 for it. It was in 1997, or 1996. Back then, I was going to do this great for profit portal. I found it very difficult and it was very hard to raise money because you couldn’t’ quantify your bottom line. And one day I woke up, and I said “You know, this is all wrong. I’m not doing this for money. I’m doing this to try to help.” And I turned it into a non-profit. And as soon as I did that, immediately I felt successful. Because in a non-profit, how you quantify your success is: Are you helping people. And I was helping people.

NOLO: And I’m also impressed that you launched this resource. It’s not just about divorcing dads, though is it?

MANDELSTEIN: No, it’s not. It’s about fathers and families in transition. We did a poll on the site and we asked “Do you have one, two, three, or four kids?” And almost half of them said “No kids” but that they were expecting. So it’s for new dads, and it’s certainly for divorced dads, and it’s for people dealing with end of life issues for their own parents, and maybe their own family. It’s basically for fathers and men for the tough transitions in life. And I believe that the father is a very vital and initiating force for the younger child. It’s very well-documented, the difficulties kids have in fatherless households. For example, 90% of the men in San Quentin are from fatherless households.

NOLO: Father.com has some great links. Can you tell us about any other online resources you recommend?

MANDELSTEIN: Of course, Nolo is a wonderful resource. Their specialty is self-help legal books. There’s also a site I really like called Dads and Daughters.com. As the title suggests, this is about relationships for fathers and daughters. And we have a ton of links on Father.com.

Can a Nonprofit Make a Profit?

2006-09-30T16:42:00.000-07:00

We’re speaking with Anthony Mancuso, an expert on corporations, business forms, and nonprofits, and the author of, “How to Form a Nonprofit Corporation.” We’re going to speak with Tony today about the ability of a nonprofit corporation to earn income.

NOLO: Tony, most people understand that nonprofits get special tax breaks, but one thing that’s not clear about nonprofits is whether they can actually make a profit. Perhaps you can start out by defining the word “profit,” and then explaining whether a nonprofit corporation can actually make a profit.

TONY MACUSO: Well, it’s interesting, because the common meaning of profit is basically, you take in more than you spend, and you end up having a margin or a profit related to your activities that isn’t really what it is meant under the nonprofit statues. Basically, they don’t want you to be a commercial profit-making business; they don’t want the end that you’re trying to achieve to be the making of money. So, it’s not really in an accounting sense, it’s more of a common sense definition that has to do with your motives, your reasons for operating a nonprofit. They don’t want a substantial purpose to be simply to make money. It’s okay to make money, but they don’t want that to be your overriding interest, so it’s rather fuzzy and vague, the standard, but that’s really why they look very closely at your operations when you apply for tax exemption; they want to see your overall purposes of your program. If they feel, for instance, that you’re going into a publishing business simply to sell books to make money and not for any other reason, they’ll say, “Well, you’re a profit-making business; you really don’t qualify as a 501 (c) 3 educational nonprofit.” On the other hand, if you’re selling books that do the public good, that are clearly focused on benefiting the public and educating them in a certain way, then you can qualify, and you can make money from your sales.

NOLO: If a nonprofit can make a profit, then what can’t it do with this profit?

TONY MANCUSO: The big thing you can’t do, the major prohibition, is against self-inurement; you can’t help out anyone individually in their individual capacity associated with your nonprofit. So, you couldn’t take the money you made and simply pay it out as some kind of benefit to your CEO, and say, “Thanks a lot; we’re so happy you’re with us, here’s the extra profits.” In other words, give someone a participating profit interest in your nonprofit. Now, obviously, people try and get around that sometimes, but the whole point is, you’re not supposed to be their to benefit anyone in their individual capacity; you’re supposed to be benefiting the public at large, or a segment of the community. So, you can spend your money in any way you want to help that purpose, to help your nonprofit purposes, but once you start paying people simply to pay them, to kind of thank them, to incentivize them… basically, the nonprofits statutes and regulations say that’s not a valid nonprofit way to spend your money.

NOLO: You used the term “self-inurement?”

TONY MANCUSO: It’s an old-fashioned term, inurement, and it basically means a self-benefit. So, we’ve heard in the news over the last several years, there’ve been some scandals regarding some fairly well-known nonprofits where that’s exactly what they did; they bought yachts for their executive officers or had them available for them. So, spending money in that way, to benefit someone personally, is self-inurement, and it’s prohibited.

NOLO: You provided an example in your book, where Friends of the Library Nonprofit gets a lot of donations for its book sale, but after its sale, there are a lot of books left over, so the nonprofit sets up a way to re-sell these books using outside dealers. You write in your book that this can lead to problem, because it’s “unrelated income.” What’s the difference between related and unrelated income, and how can a nonprofit know when it has crossed that line from one to the other?

TONY MANCUSO: Well, again, as in many areas of nonprofit law and practice, it’s a fuzzy line, and it takes a bit of analysis, and it’s hard to predict all the time how the IRS or a court will decide the issue, but, basically, common sense is your best guide. So, if a group is clearly just getting rid of surplus books as a very, very small part of their overall operations, then perhaps it’s not a problem. But if you start looking more and more like a commercial bookseller, making more and more money from purposes that are not strictly related to your tax-exempt purposes, in other words, you’re no longer trying to educate people through the sale of books but rather you’re trying to make money in any way you can, then the IRS can quite justifiably say, “You’re engaging in purposes unrelated to your stated nonprofit tax-exempt purposes.” So, again, there’s no bright-line test for that type of income or activities, but common sense can be a helpful guide. I can give an example: I believe at one point I had heard of – and I don’t know how accurate this is, but it serves as a good example – a builder’s center who had the purpose of helping people produce environmentally sound and environmentally friendly homes, and they did quite well at selling the kits, and it served a valid nonprofit purpose, but they branched out and more and more became a more commercial operation, and I believe the IRS questioned them about it, and said, “You know, you’re really starting to look like a homebuilder,” and so they split off that part of their operations from their nonprofit to satisfy the IRS; so, it’s not always going to be the worst thing; it’s not always going to be the demise of the nonprofit all the time. As you get more and more successful with sidelines and certain commercial activities, you can spend them off perhaps, if you’re doing well at them, but you’ll need to separate them sometimes from your nonprofit activities.

NOLO: So the IRS is always the final arbiter of that line between related and unrelated income?

TONY MANCUSO: Generally that’s true.

NOLO: Some nonprofits earn income from royalty-generating sources. For example, the author of Winnie the Pooh donated all royalties to a nonprofit. How is this royalty income characterized?

TONY MANCUSO: Royalty income is basically unrelated income, in many ways, so if you’re getting that type of income, it gets a little bit technical, depending on the type of nonprofit that receives it. Nolo’s nonprofit books, the ones I’ve written for Nolo, deal with 501 (c) 3 public charities. They don’t have to worry about the strict rules about passive income usually; it’s more the 501 (c) 3 private foundations, which are a very special type of nonprofit that we don’t deal with. Rich families and well-to-do companies often set up foundations to receive passive income, and they have a lot of stringent rules about dealing with the income – recording it, spending it, how you spend it, and they have some fairly strict taxes and penalties that apply if you don’t do it the right way. So, passive income can present problems, but generally, if you get contributions and you’re a 501 (c) 3 engaging in your tax-exempt purposes, you generally don’t have to worry about it. I think the more important point for nonprofits, the kind we talk about, has to do with, if you’re going into a book-related field as a nonprofit, the IRS sometimes wants your authors to assign the copyrights to the publisher. I’ve had that happen when I’ve applied for nonprofit status on behalf of some clients that were in the book business or publishing books that they thought would help people, or educational materials. They wanted the nonprofit to own the copyright. They didn’t want the nonprofit to essentially be a conduit, to be helping out an author who had a proprietary interest in the material. That was the issue for them, so the one you cited is a little bit different; it’s on the other side of things, where they’re receiving income from a successful author. Oftentimes, the IRS, generally, it arises in a different context; they want the nonprofit to own the book; they don’t want the nonprofit basically to be a selling agent on behalf of an individual.

NOLO: You used the term “passive income.” Just so we’re clear, passive income is…?

TONY MANCUSO: As opposed to actively doing something to get it, they consider receiving rents or royalty income, and other types of investment income as passive income, and so there are some technical rules about it, but usually a small or medium-sized nonprofit engaging in an active nonprofit program doesn’t have to worry too much about it.

NOLO: So, that’s three types of income for nonprofits: related income, unrelated income, and passive income?

TONY MANCUSO: Passive income can be unrelated income; in many cases, it is.

NOLO: Let’s review the rules you’ve talked about for a second. Let’s say I want to create a nonprofit that furthers environmental awareness. Tell me how the following activities will affect the nonprofit status: the nonprofit starts a book store that sells only environmental books.

TONY MANCUSO: If you clearly have an environmentally-friendly mission, and you couch it that way in your tax-exemption application, you have a good chance of being classified as a 501 (c) 3 educational group.

NOLO: Okay, now the environmental book store decides to sell not just environmental books, but other types of books as well.

TONY MANCUSO: You have less of a chance.

NOLO: Okay, now the environmental book store offers a lecture series on environmental topics.

TONY MANCUSO: Lectures of any kind that are educational in nature, you can charge admission; just think of all the nonprofit schools and universities; they can teach almost anything they want. The requirement having to do with educational involving 501 (c) 3 is that you have a balanced perspective. So, you can’t limit, in a way, you can’t limit the type of educational materials, you can’t strictly say, “We’re only going to teach this,” I mean, we’ll present a balanced view of things; they can object on that basis. But, generally, charging tuition or charging admission for a lecture series is completely above board, and a very standard educational activity under 501 (c) 3.

NOLO: Okay, so, back to that environmental company, the book store that sells environmental books. It also out rates a web-based book store that sells environmental book.

TONY MANCUSO: The environmental site, if they limited themselves to that and made it clear that that’s really their mission, that’s probably okay. Again, though, the more it starts looking something like a commercial bookseller, the less of a chance it has of that activity being subsumed in its 501 (c) 3 nonprofit. So, the IRS, for instance, if you disclosed that on your exemption application and said, “We want to sell all types of books on our website,” they may say, “Well, you have a valid 501 (c) 3, but we feel that your website does not qualify, so that’ll have to be a separate activity.”

NOLO: Okay, now the environmental nonprofit is doing so well, they decide to become a publisher of environmental books. That is, the bookstore begins publishing its own books.

TONY MANCUSO: I don’t think becoming a publisher as opposed to simply a retailer is critical; I think that’s fine, being a publisher. Again, the despositive issue might be, what are you publishing, and how does it benefit the public?

NOLO: Back to the bookstore now for one more question. If you’re operating a bookstore in furtherance of your nonprofit goals, can everyone who shops there claim a tax deduction when they buy something? In other words, is making a purchase similar to making a donation?

TONY MANCUSO: Well, generally, charitable contributions are only to the extent that you don’t get value for what you pay; so, if you buy a $30 book, and pay $100, maybe you’re entitled to a $70 deduction, but if you’re paying market value for your book, there’s no amount that qualifies as a contribution.

NOLO: Let’s shift gears a little bit and talk about director liability. One purpose in forming a nonprofit corporation is to shield the members and directors from personal liability. As an example, if the nonprofit bookstore violates rules regarding earning money, will the corporate shield for liability disappear?

TONY MANCUSO: No, the tax statute is separate from the state corporate law statutes, so, you may lose your tax exemption, but your corporate entity is intact. It’s kind of a distinction without a difference, because a nonprofit corporation that isn’t tax-exempt is not a very helpful entity; essentially, if you lose your tax exemption, it probably makes sense to dissolve your corporate entity; nonprofits really only make sense if they have a tax exemption. There are some types that can operate fine without a tax exemption, but really, in the real world of 501 (c) 3-type nonprofits, you need both. Technically, it doesn’t destroy your Limited Liability status; that can happen if you don’t operate your corporation properly and keep minutes, and if you kind of play fast and loose with corporate formalities, but the tax statutes are separate, really.

NOLO: How much of a salary can a nonprofit member or owner receive? Are there limits established under the tax law?

TONY MANCUSO: Well, that’s a really good question, and it’s a very timely one, because there have been a number of scandals in the nonprofit world; some very well-known, reputable nonprofits have had trouble recently because of the amount of compensation they’ve paid their directors and executive officers, and the kind of lavish benefits they’ve given them, so the IRS has become very concerned about this and issued very complex and lengthy excess benefit regulations that they want nonprofits to comply with; it’s not required, but they’re strongly suggesting you do that. In fact, to help implement them, they’ve changed their tax-exemption application to lead you to disclose how you might comply with these excess benefit rules, and you don’t have to, but really what they’re saying is, if you don’t, you’re going to have a harder time obtaining your 501 (c) 3 tax exemption. So, the Nolo books have incorporated these new regulations into our corporate bylaws, and into our tax-exemption application responses to help people comply and understand the significance. It’s very important these days to try and satisfy the IRS from the start, so you don’t plan to excessively benefit anyone. Now, what does that mean? Again, there’s no bright-line test for this; it’s a fact-based determination the IRS makes, but think about how difficult it is to determine what excess compensation is. Symphony orchestras now are paying their conductors, nonprofits, at least 2 million dollars a year or more, so how can you say that a highly-paid executive officer of another nonprofit is getting too much money when the IRS kind of believes that a symphony conductor should get a lot? Well, the truth is that in certain fields you can get away with it, you can pay a lot of money, and in others you can’t, and it depends on the market rate; that really is what drives it. So, if you’re compensating your people in a way that is fair generally, given the kind of work they do, and the kind of organization you have, then you’re probably fine. But if you’ve gone out of your way to overpay somebody, if they’re really getting a golden deal that they could only get at your organization, then you probably are paying them excessively. Now, there’s a lot of safe-harbor rules you can get into, and the book talks about them, and how you can help satisfy yourself ahead of time, that you’re paying people fairly, and basically it has to do with taking a look at the data in your field, and getting some sample data and recording it in your minutes to show that the amount that you’re paying your people, your directors and executive officers, is comparable to what they would get in other organizations; that’s really the test.

NOLO: So, it’s really a matter of comparability.

TONY MANCUSO: It really is, and now they really want you to go out and look before you decide how much to pay somebody.

Should You Co-Buy a Second Home?

2006-09-24T16:40:00.000-07:00

We’re speaking with Craig Venezia, a nationally-recognized expert on home mortgages, and the author of the soon-to-be released, “Buying a Second Home: Income, Getaway, or Retirement.” Today, we’re in the midst of a second-home ownership boom, fueled by such factors as the shrinking American family, older and wealthier households, and new technologies for working from home. One out of every three homes purchased in the United States today is a second home. A 2006 survey by the National Association of Realtors revealed that most second-home owners are married couples - 83% of vacation-home owners, and 75% of investment homeowners. Also, that minorities are playing an increasing role in the second-home market, accounting for 11% of vacation-home purchases, and 17% of investment-home purchases, and that buyers must be enjoying the second-home experiences. 21% of vacation-home buyers go on to buy one or more additional vacation homes, and 34% of investment-home owners go on to buy additional investment properties. Perhaps you’re thinking about taking the plunge, maybe as an alternative to other investments. For example, to rent or resell the property. Or, maybe you’re thinking of buying a cabin by your favorite lake or your favorite ski area. Or, perhaps you’re thinking ahead towards retirement; you may want to find a manageable, well-located home now. Whatever the reason, investment, vacation, or future retirement, the purchase of a second home can still be a burden. One solution is to share ownership of a second home. That can significantly reduce your debt burden. Co-ownership might also, depending on the background of your co-buyer, enhance your collective knowledge of home improvement, financing, property management, and other relevant matters. But, co-ownership of a second home may also have downsides. We talked about it with Craig Venezia.

NOLO: Craig, over the past five years, median home prices have skyrocketed 37% nationally, while household incomes have grown by only 4%. So, someone who is maintaining one household and home may be stretched to purchase a second home. One solution you discuss in your book is to partner financially with someone else interested in owning a second home. Why don’t you start out by listing the pros and cons of shared ownership?

CRAIG VENEZIA: Shared ownership, also called co-ownership, is effectively buying a home with another person, and what that means is that both of you are putting your money in, both of you are appearing on the mortgage documents, both of you have legal ownership of the property. Depending on how you structure the deal, it may be a fifty-fifty split, or it may be some proportionate amount based on who puts in what money, who is doing property upkeep and management, etc. But, overall, the things to think about with co-ownership are that it’s a way to have somebody else share the debt burden of owning a second home. For many people that can mean the difference between whether they even own a second home or not. Now, obviously, there are a couple of other benefits, as well, that you’d want to look at; depending on your co-buyer’s background, you may be able to round out experience where you’re lacking. So, for example, if you are sharing the purchase of a home with someone who is handy with a hammer and you’re not, that person can bring those skills to the table. Maybe you’re pretty good on the financial end and managing the books, you add that to the table, so everybody wins. It also saves a lot of time in the management and upkeep in a second home; you can share the responsibilities, which a lot of people find very advantageous. Now, you’re right, where there are pros, there are also cons, and the cons are something that you really need to look at, and then balance the two, and decide which makes sense for you. So, let’s talk about a few of the cons. Well, sometimes you could have a situation that becomes strained, and broken relationships can even occur. It depends on what expectations are laid out upfront, and that’s the key, doing it upfront. Who is going to take care of what? By not knowing what you’re going to do ahead of time, you can have a lot of miscommunication occur, and that can lead to problems. You’re not going to figure out everything right off the bat; things are going to come up that you’re going to say, “Jeez, we never even knew this existed,” or, “We never knew this problem was going to happen.” That’s okay; the key is to communicate with the co-owner, and make sure there’s a give-and-take. Silent treatment is the worst thing co-owners can do. Another con to think about is you really have to have the foresight to think about all the issues that are involved and, more importantly, nobody likes to do this, but what happens if a disagreement comes up? How are you going to handle it? Or, worse, what happens if somebody wants out of the deal, you know, two, three, or four years down the road? Does the person who’s going to stay in the deal have first right to buy the property? What happens if they can’t? So, these are all issues that you need to discuss and think about, and even pull in some professional such as a real estate attorney, who ultimately would draw up a contract between you and your co-owner. And, yes, I did say draw up a contract, and that’s an important thing. Sure, you’re going to have the legal documents in terms of being listed on the mortgage and listed in the promissory note, but you don’t have a legal document that is required that says who does what, what happens if someone wants out of the deal, what happens if somebody wants to bring another co-owner into the equation. These are the types of things that working with a real estate attorney who has experience in co-ownership agreements, you can work out these scenarios. Truth be told, you could do a contract on a napkin; that’s okay. It really depends on the relationship you have with your co-owner. I think the bottom line of co-ownership is that, for the right individuals, it makes sense; you just need to think about the issues that will come up, and make sure you map it all down, you put it in writing, and you have a contract between the parties. If you take care of it from that perspective, you should minimize the amount of problems that you’ll have down the road.

NOLO: Craig, co-ownership seems like it just makes the whole thing a lot more complicated, more of a hassle, and if you’re sharing it with a friend or a relative, it seems like a recipe for disaster. So, how do you know whether someone is right for you for co-ownership?

CRAIG VENEZIA: It’s interesting you should ask that, because I have a chapter entitled, “You don’t have to go it alone: Buying with others.” That chapter focuses on co-ownership, and within that chapter, I have developed the co-buyer compatibility questionnaire, and basically what it is is a half a dozen questions that you should ask your potential co-buyer, and they should ask you, and you should do it alone. Each answer them, and then compare your answers, and it’s going to be very telling whether you are compatible with that person or not. For example, the very first question is, “What is your primary reason for buying a second home?” Well, that sounds like a pretty simple question that everybody shouldn’t even have to ask the second person. But, imagine if you said “for future retirement,” and your potential co-buyer said, “for vacation.” Well, you may have a problem – what happens if, five years from now, when you want to retire into that house, all of a sudden your co-buyer keeps showing up at now your primary residence and saying, “Hey, we’re here to spend our two weeks this summer; move on over.” You got a problem. So, co-buying may not be the best with that person.

NOLO: Another question about co-ownership of a second home… although it’s probably not a common issue, I’m sure many owners are wondering, what happens if their co-owner dies?

CRAIG VENEZIA: It all depends on how you’re holding title on a property. There are two ways to hold title on a property: tenancy in common, and joint-tenants with rights of survivorship. With tenancy in common, what that means is that each of you can sell or transfer your ownership interest in the property without getting the consent from the other. That’s by far the most common way for unrelated co-buyers to take title, and if one co-owner dies, his or her share is transferred to the beneficiaries of the estate. So, in my book, I have an example about this. Let’s suppose that Thelma and Louise are best friends who buy an investment home together for $200,000. Thelma covers 65% of the purchase price, with Louise making up the rest. They agree that Thelma will take 65% ownership interest in the property, and Louise 35% interest. Suddenly, Thelma dies when her car goes over a cliff. According to Thelma’s will, her young beau Brad is her beneficiary. That means Brad gains a 65% ownership interest in the property. If you’re holding title as joint-tenants with rights of survivorship, it usually means your co-buyer is somebody that’s related to you, maybe your spouse, significant other, or even somebody that’s really close to you. With this form of ownership, you and your co-buyer have no choice but to have equal interest in the property, fifty-fifty, right down the middle. Unlike a tenancy in common, upon the death of one of the joint tenants, the remaining owners gain the deceased owners’ interest in the property, and this happens automatically. So, using the same example, under joint-tenant with rights of survivorship, if Thelma and Louise had taken title that way, each would have had a 50% ownership interest in the property, regardless of the amount each had contributed towards the purchase of the property. After Thelma’s death, her half would automatically be transferred to Louise, who now has 100% ownership in the property, while Thelma’s young beau Brad, well, he would just be out of luck.

NOLO: Craig, one last question about co-buying a second home… some co-buyers form a separate business entity, like an LLC, to co-own the second home. Will forming a separate entity to own the second home shield you and the co-buyer from a default on the mortgage?

CRAIG VENEZIA: Probably not. Your bank’s not going to let you off the hook that easily. Many mortgage-lenders will have you and your co-buyer co-sign your second-home loan. And they do that because they want your personal guarantee that you’re going to make good on the money that they’re lending to you. Think about it from their perspective – if somebody comes to you and says, “Can I borrow a few hundred thousand dollars? Oh, and by the way, if I default on this loan, you’re not going to come after me personally, because you can’t,” well, you may have a little problem lending the money. That’s how the banks think, so they’ll usually ask for your personal guarantee on the loan, in spite of the fact that you set up a separate business entity.

NOLO: Thanks very much to Craig Venezia. Following the release of his book, Buying a Second Home: Income, Getaway, or Retirement, we’ll be back with a second interview with Craig Venezia. You can pre-order Craig’s book at amazon.com.

Is Divorce Bad for Your Health?

2006-09-17T16:37:00.000-07:00

In this episode we’re going to talk about divorce and health issues and we’re going to speak with attorney Emily Doskow, author of Nolo’s Essential Guide to Divorce. There’s little dispute that divorce has a negative impact on health.

For example, a study published in the August 2006 Journal of Marriage and Family indicates that women who had been divorced, widowed or remarried were more likely to develop heart disease than those who were married continuously. Other studies have shown that divorced males have higher rates of some types of cancer than their married counterparts. Premature death rates -- defined as occurring between the ages of 15 and 64, -- are significantly higher among divorced men and women compared to married persons of the same sex and age. There is considerable evidence that divorce can cause short-term and long-term emotional problems for children. And the National Institute of Mental Health has stated that "the single most powerful predictor of stress-related physical as well as emotional illness, is marital disruption."

Since divorce appears inevitable for many couples -- approximately forty percent of the marriages in this country end in divorce -- what can be done to alleviate the stress in the legal process and what can be done to preserve the health of everyone involved in a divorce?
We asked attorney Emily Doskow some questions that relate to divorce and health.

NOLO: Emily, in your book, you make the point that there’s not just one way to divorce. Perhaps you can summarize the various ways couples divorce and then explain – at least in terms of stress and emotional turmoil, which methods might get the highest ratings for preserving your health.

EMILY DOSKOW: There’s definitely a continuum that goes from “do-it-yourself” uncontested divorce where there are no lawyers involved and you just do the paperwork and figure it all out yourselves, to the opposite end, which is the sort of knock-down drag-out divorce trial that’s ugly and expensive and horrible for everybody. And then in between, there are a lot of other options, like a mediated divorce, a collaborative divorce, arbitration, or even a divorce that you settle by having lawyers negotiate for you.

From my perspective, a mediated divorce is the most conducive to people’s mental and physical health, because mediation is a process that supports everybody having their say, everybody getting heard, creating solutions that work for both people and for the kids, and promoting good communication that will support the ongoing relationship, especially between parents.

NOLO: Let’s talk about something that has a direct impact on people’s health -- health insurance. Many people are insured through their spouse’s health insurance. Can a divorcing nonemployed spouse ask that as part of the settlement, the health insurance will continue under the other employed spouse’s policy?

EMILY DOSKOW: The nonemployed spouse actually doesn’t need to take any approach…it’s not really a negotiation. That spouse has a legal right under a federal law called COBRA to continue their insurance coverage for three years after the divorce is final. All they have to do is make sure that they comply with some very strict time limits for notifying the employer and the insurer that they want the COBRA coverage, and then paying the premiums in time. They continue it at their own expense, but they have the right to keep it for up to three years.

NOLO: Can the nonemployed spouse request those COBRA payments be included as part of the spousal support payments?

EMILY DOSKOW: Sure, the employed spouse can continue covering the nonemployed spouse, and that could be considered spousal support, or in lieu of spousal support.

NOLO: What about health insurance for children? Can continuing health insurance be part of the child support package?

EMILY DOSKOW: If the employed spouse has coverage for the children, they’ll just continue to be covered, because there is no change in the parent-child relationship after the divorce, so again, it’s just a matter of making sure that you get a special order that notifies the employer that the employed spouse, especially if the employed spouse isn’t the custodial parent, if they’re the non-custodial parent. Occasionally, an employer or an insurer will balk at continuing to cover the children, but they have to by law, so you just have to get a special order.

NOLO: Let’s consider an example: A couple with a child divorces. The divorced husband is ordered to provide the child’s health insurance. The woman remarries, and her new husband adopts the child. I know that terminates certain child support obligations, but does it also terminate the obligation to continue health insurance payments for the child?

EMILY DOSKOW: Yes, if there is a step-parent adoption by the mother’s new spouse. The only way that that could happen would be if the biological father relinquished all his rights and that would also relieve him of all obligations toward those children. He wouldn’t be a parent anymore, so he wouldn’t be responsible for support or health insurance.

NOLO: Another important health issue in divorce and custody is substance abuse. Often in television dramas, this issue is portrayed as the basis for an ugly custody fight. Is this true in real life? What effect does one spouse’s substance abuse problems have on the divorce and on custody issues?

EMILY DOSKOW: Right, and what you see on TV is if somebody has a substance abuse problem of any kind, the other spouse is probably going to use it to try to get whatever advantage they can. I think most judges, if you were in front of a judge, and there was evidence that you have a substance abuse problem, the judge will order that your visitation with your kids be supervised and probably will order you to get treatment and be in recovery and be able to show that you’re in recovery, and that you’ve been sober a certain amount of time before they’ll take the supervision requirement off.

NOLO: Everyone agrees that divorce has an effect on a child’s short-term and long-term health. Any suggestions for parents?

EMILY DOSKOW: I think it’s universally agreed among experts on this issue that the single most important thing that parents need to do for their kids is to insulate the kids from the conflict between the parents, to make sure that the kids understand that the divorce isn’t their fault, to make sure that the kids understand that they aren’t losing either of their parents. So that means, for the parents, not to fight in front of the kids, for neither parent to bad-mouth the other parent in front of the kids. If it’s possible for the parents to be in the same space together, to continue doing things as a family, those are the kind of things that help children understand that they’re not losing either of their parents, they’re just having a restructuring of their family, and they can continue to feel secure in their relationship with both of their parents.

In terms of taking care of your kids on a day-to-day basis, you need to make sure that you’re listening to what they say to you, pay attention to what they DON’T say to you, making sure that there’s room for them to express their feelings and ask their questions so that you can do what you need to do, which is repeat, over and over, “it’s not your fault, you’re not losing your parents, both of us still love you”, all of those things that kids sometimes need to hear more than once.

NOLO: One factor contributing to health issues for women after divorce is economic. Studies indicate a woman’s standard of living drops an average of 27 percent after divorce while a man’s rises 10 percent. And it’s also been shown that these economic factors have an effect on health. One thing that may contribute to the disparity here is when a spouse hides assets. What are some red flags that a spouse is hiding assets and what are some things you can do to locate those assets?

EMILY DOSKOW: I would say the first thing that should clue you in that your spouse is hiding assets is if they don’t want to share information with you. So if you’re in a situation where you’re trying for an uncontested divorce, for example, but your spouse doesn’t want to give you financial information, you might want to reconsider the uncontested thing, and at least get a mediator, or somebody who’s going to require that information is turned over.

NOLO: What’s a common place where a spouse might hide assets?

EMILY DOSKOW: Spouses hide assets in businesses. If your spouse owns a business, there are a lot of ways in a business to hide assets. For example, paying fake salaries to relatives who aren’t actually working, and then the relative turns the money back over, or deferring a big sale until after the divorce is final, so those assets aren’t included in the marital property, or taking a big loss earlier, so that the loss is included in the marital property. Those kinds of things are what people do to try and hide money.

NOLO: So, if you suspect your spouse is hiding assets, you’re probably going to want a lawyer’s help.

EMILY DOSKOW: You probably want a lawyer. The other professional you might want is called a forensic accountant, somebody who is trained to look for hidden assets.

NOLO: Again, focusing on the women’s economic issues: What effect does a spouse’s bankruptcy have on spousal or child support?

EMILY DOSKOW: Spousal and child support are non-dischargeable in bankruptcy so if your spouse owes you past-due child or spousal support, they can’t get rid of that obligation in bankruptcy, they still owe you that money. So if you’re doing a Chapter 7 bankruptcy, where all your debts are just wiped out, the child and spousal support debts are excluded from that. They’re not wiped out. You still owe them.

If you’re doing a Chapter 13, where you’re reorganizing your assets, the Chapter 13 repayment plan has to call for repayment of 100% of those debts.

NOLO: One person who studied the health of divorced people remarked that divorce is deceptive because legally it’s one event, but psychologically it is a chain of events. One element in that chain of events may be a sense that the divorcing spouse has made the wrong decisions about divorce. Is it common for there to be some equivalent of “buyer’s remorse” after a divorce or custody settlement has been reached?

EMILY DOSKOW: It’s true and it’s part of why, for many people, anytime there is significant assets, anytime there’s a retirement plan, anytime there’s a good amount of money changing hands, even people who are doing an uncontested divorce, are wise to get an hour or two of a lawyer’s time to just look over their deal, and have somebody say to them “this is a fine deal”, or, “this is a deal you may regret later.” And people make a lot of different decisions. Oftentimes, people do things that don’t look like they are in their interest. But they do it for reasons. For really valid reasons, in terms of what they think is best for their kids, or why they feel like it’s fair for their partner to get more, or various reasons that they have for making a deal that doesn’t look like their best deal. And that’s fine, to make a decision like that. You just need to be sure you’re totally educated.

NOLO: And part of that education can be accomplished by reading Emily Doskow’s new book, Nolo’s Essential Guide to Divorce. Nolo has other books on the subject of divorce, and you can find an excellent selection of divorce books at GoodDivorceBooks.com

When Can You Stand Your Ground?

2006-09-10T16:12:00.000-07:00

Hello. In this episode we’ll discuss several questions regarding criminal law and thanks to listeners who have posed some of the questions. We’ll talk again with Criminal Law expert Paul Bergman, a Professor of Law at the UCLA School of Law, and the co-author of The Criminal Law Handbook: Know Your Rights Survive the System from Nolo.

We’ll start with a question about ‘Stand Your Ground’ laws. Every state has always had some form of ‘Stand Your Ground’ law. These laws are based on what’s known as the “Castle doctrine,” that is, “a man’s home is his castle,” and that if an intruder broke into a home, the resident of that home could use deadly force against the intruder provided the citizen had a reasonable suspicion that the intruder would inflict serious physical injury. As a general principle in most states, outside the home you could only use deadly force if you were threatened with physical injury and were unable to retreat from the criminal. This was known as the “Duty to Retreat.”.

In October 2005, Florida enacted new a type of Stand Your Ground law. Now, Florida residents can use deadly force in their homes even if they don’t fear physical injury. They can fire on anyone who unlawfully, forcibly enters their home. And the definition of ‘home’ now includes vehicles, so a Florida resident can use deadly force against anyone who forcibly unlawfully intrudes in their car or on their boat.

The Florida law also extended ‘Stand Your Ground’ rights beyond the home and car. A Florida resident outside their home can now use deadly force if they have a reasonable fear that someone is about to use deadly force against them. In other words, in Florida, outside your home, there is no longer a duty to retreat when faced with deadly harm.

When we say that resident can use this law, we mean that the resident can invoke it as a defense from prosecution. And if law officers disagree, the person can be charged with a crime and will have to prove their ‘Stand Your Ground’ defense in court. For example, the owner of a Florida towing company invoked the law to justify shooting a man whose car was impounded. Police disagreed and charged him with murder. At trial, the owner will have to prove that he feared being hit by the driver, who drove off without paying the impoundment fee.

In addition, to shielding Florida citizens from criminal charges, the law also shields citizens from civil lawsuits for money damages brought by the person who was shot.

South Dakota and Indiana have also passed Stand Your Ground laws similar to the Florida law and fifteen other states are reportedly considering similar Stand Your Ground laws.

Opponents argue that these laws – which they refer to as “Shoot First” laws or “Make My Day” laws -- encourage vigilantism, and that they encourage a shooting range mentality, allowing you to shoot people who cut through your backyard if you feel threatened.

Proponents of the law argue that it reflects today’s crime realities, that criminals are intent on causing physical harm and that the days of the gentleman thief are over.

Legal experts like Anthony Sebok at Findlaw, argue that the laws send a “very confusing message” because they often are not really clear when you can use lethal force without being prosecuted. For example, in Kentucky’s first case under that state’s new home intruder/Stand Your Ground law, the judge hearing the case, said that the law was “confusing, vague, poorly written.” One of the drafters of Kentucky’s penal code called it “the worst legislation I have ever seen.”

Stand Your Ground laws will stand their ground legally unless successfully challenged on grounds that they violate the constitution. And that’s one of the questions that we’re posing today. We asked criminal law expert Paul Bergman whether he felt that Stand Your Ground laws would be held to be unconstitutional.

PAUL BERGMAN: It’s unlikely that I think that they’re going to be held to be unconstitutional. There might be some claim that somebody’s life was taken away without due process of law, but it would have been taken away by an individual, not by the state, in most cases. So it’s not going to amount a constitutional problem. The real issue is whether or not it’s good policy, does it make sense, how far will people push this and how will prosecutors and juries react. Are people really using deadly force in situations that the law wasn‘t meant to apply to. I would say we’re going to have to see how the interpretation of the rule plays out before we make any judgments. If there are problems with the rules, they won’t amount to violations of the Constitution, I don’t think.

NOLO: We’ve had a few other questions about criminal law and one of them is about what to do when questioned by a police officer. Should you respond to all questions in order to show your willingness to cooperate? Should you stay quiet until you know whether this has anything to do with a criminal charge against you? Does refusing to answer questions make you more suspicious in the eyes of the police officer? We asked Paul Bergman what’s a recommend course of action for someone who’s stopped and questioned by police?

PAUL BERGMAN: That’s a pretty individual judgment. I’d say that if the person is at all uncomfortable, they should first, ask whether they’re under arrest, or whether they are free to leave. And if they are free to leave, they should say something like “Look, I’m willing to talk to you”, if you are, “but this really isn’t a good time.” And make an appointment for another time. Even if you don’t have a lawyer present, you will at least have an opportunity to think about it, be in a more comfortable setting where you’ll be more relaxed and able to provide accurate information.

If the officer says you’re not free to leave, more or less, you ARE under arrest. Then I think people out to not talk until they have access to a lawyer.

NOLO: What about your home? If your home is your castle, do you have to answer questions posed by a police officer who comes to the door? Should you let the officer in your house?

PAUL BERGMAN: Well, people should understand that they have a right not to allow a police officer in their house unless the officer has a warrant. You should always ask to see the warrant first. If the officer says, “I don’t have one, but I’d like to come in. If you’re not guilty you have nothing to be afraid about”, you DO have the right to say no and if you do allow the police officer in, then it’s voluntary and anything the police officer sees may be properly seized and used as evidence. All of these are individual judgments, but as a general rule, people at least ought to know that they have a right to say no to a police officer coming in the house unless that officer has a search or arrest warrant.

NOLO: Another question that we have for Paul Bergman is a basic one -- but it’s still an interesting one. What exactly does it mean to be ‘under arrest’? We asked Paul Bergman for an explanation.

PAUL BERGMAN: Well, what it means to be under arrest is that you can’t go wherever you’d like to go. It’s kind of a physical control, where you can go is determined by the police officer. Your freedom is restricted, that’s basically what it means to be under arrest.

NOLO: Can you be charged with a crime without being arrested?

PAUL BERGMAN: Well, you CAN leave. . You can be given a citation---people who get traffic tickets, for example, are given a citation, and then they leave. The police may also be unable to arrest you, they may have a probable cause to believe that you committed a crime, and you may be charged with a crime, but before you’re arrested. Usually the charge doesn’t come until the arrest takes place, but it’s theoretically possible for a charge to be made assuming they have probable cause without having the person in custody.

NOLO: A listener asked the question ‘What is circumstantial evidence and why do attorneys for defendants always criticize evidence when it is circumstantial? Isn’t it as good as other evidence? We asked Paul Bergman.

PAUL BERGMAN: Circumstantial evidence is often derided. We hear that all the time in movies…”that’s just a bunch of circumstantial evidence.” But in fact, most evidence offered at trial IS circumstantial and legally, there’s no problem with it

Its counterpart is direct evidence, and the only difference is, in direct evidence, you do not need an inference to connect the evidence to a crime. With circumstantial evidence, you do need to infer. That’s kind of a common thing we do all the time. If you see somebody smiling, you might infer that they’re happy. Well, that’s the same as we do in court. But circumstantial evidence can be quite powerful. There’s this legal saying that there is nobody who wouldn’t accept dog tracks in the snow as evidence that a dog had passed by, against the sworn affidavits of ten people that it had not. So circumstantial evidence, in that case, the dog tracks, can be quite powerful.

Actually, DNA test results and most scientific evidence, is simply a form of circumstantial evidence. The fact that the blood, let’s say, appears to have the same DNA characteristics as the blood left at a crime scene, is simply circumstantial evidence that the person whose blood was at the crime scene is the person whose blood was taken for the purpose of the DNA test. So scientific evidence is really just another form of circumstantial evidence. Circumstantial evidence has pretty much gotten a bad rap.

NOLO: The Fourth Amendment of the U.S. Constitution guarantees that “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures …” The Fourth Amendment is basically about privacy – that is, which details of your life shall be revealed to the public and the Fourth Amendment protects against “unreasonable” searches and seizures by state or federal law enforcement.

However, the Fourth Amendment does not protect against searches initiated by nongovernmental people, such as employers, landlords, and private security personnel, unless the search is made at the request of a law enforcement authority.

As a general rule, however, the police may override your privacy concerns and conduct a search of your home, or car, or office, or personal or business documents, bank records, even your trash if:

• the police have probable cause to believe they can find evidence that you committed a crime, and a judge issues a search warrant, or

• The police search is proper without a warrant because of a variety of circumstances.

In 1961, the U.S. Supreme Court established the exclusionary rule. That states that evidence seized in violation of the Fourth Amendment cannot be used as evidence against defendants in a criminal prosecution. Many commentators still criticize this rule on the grounds that it unfairly “lets the criminal go free because the constable has erred.”

We asked Paul Bergman one final question. Knowing what we know now, would the drafters of the Constitution have written the Fourth Amendment in the same way today?

PAUL BERGMAN: Well, from a civil liberties point of view I’d like to believe that it would be written the same way. I think there’s still a consensus in the country that it’s a good idea for police not to have a right to arrest people on a whim, a hunch, that it’s a good idea for police officers not to simply enter somebody’s house or apartment, or property, on a whim or a hunch. That right, at the base of the Fourth Amendment, states a value that everybody believes in. That’s why I believe the Fourth Amendment WOULD be enacted. Now there are times when it may hamper the police, but the courts have been quite creative in creating exceptions to the warrant requirement, or for example, police can pursue a suspect into a house when they’re in hot pursuit. They’ve created opportunities for police officers to get warrants at all times of the day, there’s

NOLO: Thanks to Paul Bergman for his assistance. Much of the information for this episode came from Paul’s book, The Criminal Law Handbook.

FINDLAW http://writ.news.findlaw.com/sebok/20050502.html

FLORIDA LAW: http://news.bbc.co.uk/2/hi/americas/4415135.stm

TAMPA TOWING CASE http://www.usatoday.com/news/nation/2006-03-20-states-self-defense_x.htm

OPPONENTS http://www.licensetomurder.com/main.php

Kentucky Case http://www.kentucky.com/mld/kentucky/15132235.htm

Wiki Self Defense http://en.wikipedia.org/wiki/Self-defense_(theory)

Wiki Stand Your Ground http://en.wikipedia.org/wiki/Stand_your_ground_law

Is it a Crime to make a False Confession?

2006-09-03T16:30:00.000-07:00

Hello. This week we’re going to explore criminal law and we’ll address some questions relating to a high profile case recently in the news. We’re speaking with Paul Bergman, a Professor of Law at the UCLA School of Law, and the co-author of The Criminal Law Handbook: Know Your Rights Survive the System form Nolo, a highly-recommended guide to criminal law.

In a recent criminal case, a man, John Mark Karr, confessed to trhe murder of Jon Bent Ramsay, committed over a decade ago. Karr was extradited to the United States where a handwriting analyst stated Karr’s handwriting matched a ransom note in the case. Then, twelve days after his confession, a DNA test revealed that Karr’s DNA did not match DNA found at the crime scene and he was released. We asked Paul Bergman a question that a lot of people are wondering ---Is it a crime to confess to a crime that you did not commit? That is, to make a fraudulent confession.

PAUL BERGMAN: There are statutes certainly in the federal government and in some states which make it a crime to lie to a police officer. And so if an individual makes a false confession to a police officer, then in theory, they might be prosecuted for that crime.

NOLO: If a suspect is lying when they make their confession, why not just give the suspect a lie detector test.

PAUL BERGMAN: Well the police sometimes do use lie detector tests to clear suspects. Generally, the lie detector test results are not admissible as evidence because the courts think the results are too subjective, they depend too much on the subjective judgement of the person running the lie detector test, and some people might be able to affect the results by practicing. So the general rule is that lie detector tests are not admissible in evidence whether the prosecution or defense wants to offer them.

In a number of states, assuming the prosecution and the defense agree before the test is given that the results will be admissible no matter which way they come out, the court in those states will admit the test. Apart from admissibility, police often do administer lie detector tests, just for their own purposes; they tend to have faith in their outcomes. And they may, for example, decide not to pursue further evidence against a potential suspect who passes the lie detector test. And so they might use it as way of clearing particular individuals, for their own purposes, apart from any courtroom use.

NOLO: As most people who watch police shows on TV are aware a police officer arrests someone and often says something like: you have the right to remain silent. If you give up that right, anything you say can and will be used against you in a court of law. You have the right to an attorney and to have an attorney present during questioning. If you cannot afford an attorney, one will be provided to you at no cost. During any questioning, you may decide at any time to exercise these rights, not answer any questions or make any statements. We asked Paul Bergman whether a confession made without these warnings is still admissible in trial.

PAUL BERGMAN: Generally, yes. What people say voluntarily either before or after they’re in custody, is admissible in evidence. The Miranda warnings are required only when the police conduct an interrogation or question a suspect, and if they begin the interrogation without giving the warning, then the confession will probably not be admissible in evidence. But if somebody just starts talking to the police with no interrogation, then no need for Miranda warnings.

NOLO: In the case that’s recently in news, a suspect confessed via email, to someone other than a police officer. We asked Paul Bergman about the admissibility of confession that’s made to someone other than a police officer. Can that be used in court?

PAUL BERGMAN: Sure … the police or state office of some kind is the only person who has to give Miranda warnings. What people say to friends, strangers, in bars, et cetera, is admissible without any kind of restriction at all.

NOLO: Most of us are familiar with the concept of DNA testing from high profile trials and from television shows. We asked Paul Bergman whether a suspect in a criminal case has to agree to DNA testing.

NOLO: Yes if the police have the need for a sample from which they can extract DNA, they have a right to demand it and you have no constitutional privilege to refuse. Now of course if they take the DNA sample in some horrible or inappropriate way -- let’s say given a person’ religious beliefs or something like that -- then the person could demand that the DNA sample be obtained in some more neutral manner. But you have no basic right to refuse to permit a DNA sample to be taken.

There’s a constitutional right that a lot of people are aware of having to do with – you don’t have to incriminate yourself -- but the Supreme Court at least 50 years ago, interpreted that to mean that you don’t have to provide testimony. But that doesn’t mean that you don’t have to provide certain physical evidence coming from your body -- like I think in those days, it was a blood test.

QUESTION: Can you go into a bar and let’s say, after someone used a glass, can you take that glass and get the DNA and use that as DNA evidence?

NOLO: I believe so If you’re talking about whether the police can do it, then you’ve left that in public, they’re not conducting a search for which they would need permission, so yes, they could look at the glass and take it to a lab, and if they could get some usable DNA, then that would be acceptable.

NOLO: Many people are unclear about how DNA is obtained and about how it is used in court. DNA can be obtained from just about any human tissue and its commonly obtained from hair, fingernails, bones, teeth and bodily fluids. There is a well-known DNA database maintained by the FBI commonly used by law enforcement called CODIS, which stands for Combined DNA Index System. CODIS. For example, CODIS contains DNA samples from convicted sex offenders and from many felons. By the way, DNA has one interesting quirk. Identical twins are the only people with identical DNA – that’s because identical twins are created when a fertilized egg splits. That’s not the case for fraternal twins. Identical twins do not have identical fingerprints however. We asked Paul Bergman if DNA is always admissible in court.

PAUL BERGMAN: DNA evidence is generally admissible. I’m not an expert on DNA but I know that DNA sampling has been done on kind of a group- by-group basis. And I could be that, a judge might say that a particular DNA result is not admissible because of the defendant, or the person whose DNA was tested, is from one group, let’s say Caucasian and the DNA results were obtained by looking at a different group, let’s say Hispanics, or African American.

And there may be some novel way of testing for DNA that a court may not yet approve. But as a matter of science, the courts have accepted the science underlying DNA testing, and the results that are generally admissible.

NOLO: Scientific evidence has always been important in criminal cases but during the past 25 years, it has increased, particularly with the use of DNA evidence. Along with that has come considerable media attention, particularly a series of television shows, most prominent of which is CSI, which stands for Crime Scene Investigation. Surprisingly, these shows may have made it harder for prosecutors to obtain convictions., We asked Paul Bergman about the CSI effect.

NOLO: What these television shows tend to do now is to glorify and probably exaggerate the role of forensic scientists in detecting and proving crimes in court. And these shows are quite dramatic and these performers playing scientists have access, apparently, to all sorts of nifty gadgets to catch all sorts of things and come up with evidence that no one could have known about. The problem is that, at least many prosecutors believe, that it’s making it harder to obtain convictions, when they don’t have any of this nifty forensic testimony. And in most cases, it’s not appropriate to have forensic testimony, there’s no need for it. But the jurors, having seen all these CSI shows, are perhaps less likely to convict, because they say, “Well, this guy must not be guilty…we haven’t seen anyone in white coats, with machines, to prove guilt.” So, that’s the CSI effect. It kind of ramps up the pressure on prosecutors to produce the latest scientific gadgets in court, or else a defendant might go free.

NOLO: In movies and TV -- we often see stories like the Fugitive – where a person resists a police office to maintain their innoncence. We asked Paul Bergman whether it’s a crime to resist arrest even if you’re innocent.

PAUL BERGMAN: Sometimes it seems unfair, but somebody who is factually innocent could still be prosecuted for resisting arrest or escaping --- I mean, everyone understand the unfairness of it.

I guess the policy is that these matters ought to be fought out in the courts, where people are less likely to get hurt. If we allow people to take justice into their own hands, that’s vigilante justice…a vigilante may be pursuing somebody who has committed a crime, but we don’t want vigilantes taking the law into their own hands; we want the arrest to be made and for guilt to be determined in court. In the same way, you could say that someone who has been arrested, though innocent --- it may be unfair to charge them with a crime because if they try to escape, the police officer may pull out a gun and shoot him, or the police officer may get hurt, so it’s a better overall policy to have those matters play out in court, not out on the street.

How Can You Best Advocate for a Special Education Child?

2006-08-27T16:34:00.000-07:00

How Can You Best Advocate For a Special Education Child?
As schools prepare to open, many parents wrestle with a federal law called The Individuals with Disabilities Education Act, or IDEA, passed in 1975. The goal of this law is to help children with disabilities succeed in school. Before it was enacted, public schools frequently ignored children with disabilities, or shunted them off to inferior or distant programs. The IDEA created the concept of special education: special services and programs for students with disabilities. Since its enactment, millions of students have had access to improved educational opportunities in public institutions. But much of the language in the act, for example, terms such as “disability,” “appropriate education,” and “unique needs” stir up emotional, medical, legal, and financial issues. Lawsuits between school districts and the disabled and their advocates are not uncommon. So what should a parent do when their child has a disability, and how can a parent maneuver through the maze of special education rules?

And what about school districts squeezed for funds? How can they best provide for the needs of all students? We start with the principle that a child qualifies as being disabled by meeting two standards. First, the child must have a listed disability. There are a list of disabilities in the IDEA such as physical disabilities, hearing, speech, and vision impairments, emotional and mental conditions including autism, retardation, and attention deficit disorders, and many other conditions. For example, in October 2006, Tourette’s Syndrome was added to the list. Second – and both of these conditions must be met – the child’s disability has to adversely affect the child’s education. A child who qualifies under the IDEA must then consider special education options with the school district. The key for accomplishing these goals is the Individualized Education Program, or IEP, and it is here, with the IEP, that parents face the greatest challenges. We spoke with Lawrence Siegel, an attorney who has represented many parents of disabled children in the IEP process, and is the author of “The Complete IEP Guide: How to Advocate for your Special Ed Child,” and “Nolo’s IEP Guide: Learning Disabilities.” We asked him to explain the basics of the IEP.

LAWRENCE SIEGEL: Well, under IDEA, the special ed law, the Individualized Education Program, the IEP, is actually several things, and it is the blueprint for the child’s program, and it describes what the child is going to get. The IEP is a meeting that usually takes place once a year, in which the family and the school district meet to discuss all elements of the child’s program, and that’s written down on a form called an IEP, and that IEP will create with a good deal of detail what the child’s program is going to look like, and that’s what both the family and the child and the school and the teacher will follow to provide the child with the individually-tailored program that meets his or her needs.

NOLO: It’s estimated that there are over five million school-age children with disabilities, or one out of twelve children or teenagers. As we noted, to qualify under the law, it’s not enough that a child has a disability; the disability must adversely affect the child’s educational performance. So, how does a parent prove that a disability affects learning?

LAWRENCE SIEGEL: Well, there are a number of ways that a family can prove that, and they should, whether their child is in or out of special ed, qualified or not, they obviously should keep track of how the child is doing in school. First of all, through grades, of course. Second of all, is there a discrepancy between the child’s general ability, wherever that may be, and how the child is performing? If there’s a discrepancy, that’s fairly important. Thirdly, are there physical things that impact on the child’s ability to be educated? A vision loss, hearing loss, or physical restriction. Other ways in which you can determine whether the child’s education is adversely affected would be, how’s the child doing in developing various skills that a child ought to have at a certain age? Cognitive skills, is the child becoming literate, is the child developing the ability to write… if it appears the child is not doing that, that suggests that something is going on, and would be proof that the disability is affecting education.

NOLO: The IDEA states that a child with a disability is entitled to an appropriate education at no cost to the parents. That term, “appropriate education,” is one of the terms that has been subject to a great deal of debate since the law was enacted thirty years ago. We asked Lawrence Siegel his interpretation of the meaning, “appropriate education.”

LAWRENCE SIEGEL: It means, ultimately, that the child can progress from year to year, and make academic progress. It does not mean, if I can use a cliché, it doesn’t mean a Cadillac program, it means a Chevrolet program. So, you’ve got to look to the fact that the child with that program is going to advance academically and make progress.

NOLO: Another controversial aspect of the IDEA, and IEPs, is the concept of mainstreaming. Some courts have concluded that mainstreaming is a requirement of the IDEA. We asked Lawrence Siegel what mainstreaming means.

LAWRENCE SIEGEL: Mainstreaming is really the same as placement with non-disabled children in a regular class. It’s one option on what’s called the continuum of placement options under IDEA. IDEA doesn’t really use the term “mainstreaming,” what it says is, the legal term – and this is very important – is that every child with a disability is entitled to be educated in the least-restrictive environment, as determined by the IEP team. Furthermore, the law says that a child is entitled to be educated in a regular classroom and cannot be removed from that regular classroom unless there’s evidence that the child cannot achieve satisfactorily in the classroom, even with supplementary aides and services. So, at least theoretically, it means that all children should start in a regular class, and only be removed to a non-regular placement when there’s evidence that they can’t succeed there.

NOLO: Because the IDEA and the IEP rules are so complex, we asked Lawrence Siegel where parents whose children may qualify under the IDEA can look for assistance on these topics.

LAWRENCE SIEGEL: Your school district has an absolute legal duty to provide you with information about the whole special ed process, that’s the first place. Secondly, your state Department of Education usually will have a whole bunch of information about IDEA – how it works, what the rules are. So, you can start in those two places. If your child’s not in special ed yet, but you think your child belongs there, you certainly should start to talk to his or her teacher, talk to your doctor about the child, is the child not meeting developmental milestones, is the child having trouble with certain courses, is the child having trouble with handwriting, or a learning disability, or whatever it might be. So, talk to your teacher, talk to your doctor; there are a whole number of both generic support groups in your area and in the country, as well as specific support groups for specific disabilities who can give you some direction on what you should be looking for if you suspect your child is autistic or learning-disabled. Then, you may want to think about getting an assessment done, which the school has a duty to do, or even go outside of the school and get an assessment done.

NOLO: The IEP hearing can be quite expensive for a parent, especially if they have to pay for expert witnesses. We asked Lawrence Siegel for any suggestions about keeping fees down.

LAWRENCE SIEGEL: In terms of expert witnesses and other costs, this recent decision in the Arlington v. Murphy case, the court did say that, when there’s an expert witness who testifies in a hearing, you better be prepared that, if you have such a person and you win the case, you’re not going to get reimbursed for those costs. So, some alternatives would be, first of all, again, contact those organizations, and they’re fairly easy to find on the web and in my book. Those organizations that provide support for individuals and families with the specific disability your child has, they may in fact know a nonprofit or other folks who can provide you the expertise at no or low cost, that’s certainly one option. The second option is, if your expert has also done an evaluation on your child, I’d suggest you talk to the expert about the possibility of her testifying in a hearing, and whether she would do that or he would do that, as part of the total cost, and that total cost, for the assessment, is reimbursable. That’s one way to do it. And then, one other way, although I don’t particularly like it, is when you go to hearing, the expert may in fact provide written information as well as testifying. An alternative to cut your costs down would be to have the expert do a very thorough written report, which you would submit to the hearing officer, and not have that person testify. Now, I prefer that both happen, because it’s important that you have live testimony, but that would be a way to cut down your costs, too.

NOLO: The IEP hearing can also be a tense situation. Lawrence Siegel has participated in many of these hearings, and we asked him to describe what it’s like.

LAWRENCE SIEGEL: Well, you know, obviously the tension level will depend a good deal on the personalities involved… some administrators, even though they disagree with you, are really fairly decent people, and then others can be very difficult. It also depends on what the nature of the dispute is, and if it’s been acrimonious in the past then you can anticipate that it will be that way in the hearing. As a general rule, these hearings will take place certainly not in courts; they often will take place in the school district. They’ll be in rather informal settings, like a conference room. The hearing officer will generally try to put people at ease. It does have the trappings of going to trial in a way, but it’s much more informal so that there’s certainly going to be an anxiety level; everyone feels that, including the most jaded and experienced lawyer, but it’s informal enough that if you’re in it and you’re doing it yourself, you can always say to the hearing officer, “Can we stop? I’m really confused here,” or “I’m nervous,” or “I don’t know,” and it’s the kind of setting where you can ask questions like that.

NOLO: Should a family bring a lawyer to these hearings?

LAWRENCE SIEGEL: Certainly if you think the district’s going to have an attorney, you better seriously think about it. If the district’s not going to have an attorney, I think – and you can go to my book and other places to get some recommendations how you do the hearing yourself, but it’s certainly something that if you can do it, you should have an attorney. You’re probably going to do better with an attorney, and remember, if you win, you’re going to get reimbursed. In the alternative, one way to do it is to do it yourself – then you don’t have to put money out for an attorney – but possibly hire a special ed attorney. Remember, not every attorney is going to know special ed law, so make sure the attorney knows special ed law. Perhaps you can hire the attorney for a couple three-hours to review your case, and he or she can give you some pointers. That’s a heck of a lot less expensive than having the attorney go to the hearing, which can often involve anywhere from twenty to fifty hours of time for the lawyer.

Can You Prepare Your Own Will?

2006-08-20T14:13:00.000-07:00

This week our topic deals with what it takes to do your own will and we’re talking with Nolo editor and author Mary Randolph.

QUESTION: Mary, wills deal with two things people often dread – death, and the law. For that reason, many people are wary of preparing a will without an attorney. What’s your response to someone who is fearful of doing it on their own?

MARY RANDOLPH: Well, I certainly understand that people want to do it right, it’s an important document, but the good news about wills is that they’re fairly simple, straightforward documents, and you can do one without a lawyer. They really haven’t changed much in several hundred years; they’re standard documents, and if you have some good materials to help you, you can fill in the blanks and make a perfectly valid will.

QUESTION: Maybe another way that we can understand how wills work would be if you explain what happens if you die without one.

MARY RANDOLPH: That’s right, things get more complicated if you don’t leave a will, because you’re not leaving any instructions for what you want to happen to your property. Or, more importantly, if you have young children, who you want to raise them, and those are two of the key things that you do in a will. Every state has a law under which it will distribute your property if you die without leaving any instructions, and it will go to your closest relatives, and that may be what you want, it may not be what you want. It also has provisions for appointing a guardian for children, if you have young children and you die before they’re adults. And that’s what people really want to take care of; if they have young children they want to name a person who would raise the children themselves if they couldn’t.

QUESTION: Let’s say that a person is sitting down to prepare a will. What type of information should they have gathered before they start writing?

MARY RANDOLPH: Well, it’s pretty basic; you want to think about your big assets – what kind of property you own (make sure you know what you own and what you co-own with someone else, because of course you can only leave what you own). You want to think about who you want to leave property to – do you want to leave it to children, or would you rather leave it to an adult to manage it for the children, for example. So it’s very basic, personal things, just to think about your assets; you may overlook some things that might be valuable, or that might be contentious after your death. Sometimes people can argue about things that aren’t particularly valuable financially but have a lot of emotional significance. So, that’s something you want to think about before you sit down to write down your wishes.

QUESTION: Is it a good idea or a bad idea to speak with family members or friends before preparing a will?

MARY RANDOLPH: Well, it’s never a good idea to surprise people with your estate plan, so whether you talk to people before you make your will, and solicit some opinions, or after you make your plan, and you tell them what your plan is, it’s a good idea to let people know what’s coming, and that’s for a couple of reasons. One is because if people are speculating about what you wished, or why you did something, it can really lead to family disagreements. Sometimes these situations don’t always bring out the best in surviving family members, and if they just don’t understand, for example, why you left a certain heirloom, or more property, to one child than another, which you might have perfectly good reasons for doing, if they don’t understand that, then they might feel bitter or resentful; it might lead to arguments and bad feelings. So, you want to explain to people while you can why you’re doing what you’re doing.

QUESTION: Let’s say I wanted to do this on my own. There are so many websites, software programs, and books available to help you write these documents. I know Nolo has many such products, but how could a person verify that the product they choose is reliable? For example, if I use a program like Quicken Willmaker Plus, how do I know it addresses my state’s laws?

MARY RANDOLPH: That’s a good question; there are a lot of things out there. You want to take a look and make sure that there’s good materials along with whatever forms you’re given to fill out, whether it’s online, or just in a form packet. Make sure there’s help that lets you know what decisions you’re making, that covers all the issues that you care about, and that you don’t have questions. Make sure something does address your state law; Willmaker, for example, one of the first questions it will ask you is what state you’re in, because that has a very big effect on what you own, how you can leave things, your spouse’s rights… it’s a very important thing to know. And if a software package or form that you’re using doesn’t get that information, you’re not going to get results that are really tailored to the law in your state.

QUESTION: Mary, how often do wills need to be updated?

MARY RANDOLPH: Well, there’s no cut-and-dried rule; it’s basically that you need to take a look at your documents when there’s a big change in your life. If your family situation changes, you get married or get divorced, there’s a new grandchild in the family, you sell your house… anything that’s going to make your will out-of-date, then it’s time to take a look. But it isn’t something that most people need to do even on an annual basis. Every few years, it’s a good idea to take it out, take a look at it, and see if you need to change anything. It’s not particularly hard to update a will. The easiest way, because everyone these days does them on computers, is just to make a new will, tear up the old one, and you’re done.

QUESTION: Is it possible that a law could change so that my will becomes invalid? If so, how would I learn about that kind of change?

MARY RANDOLPH: Very unlikely that any law would make your will invalid. It’s possible that laws could change in a way that you would want to change something in your will. For example, if you move to a different state that has different property laws affecting spouses, for example, community property state versus other states. It’s possible that you might want to reassess your will then, but nothing is going to come along and just make it invalid.

QUESTION: I read that Warren Burger, the former Chief Justice of the Supreme Court, wrote his own will, but he didn’t give any power to his executors, and didn’t provide for estate taxes, and these errors cost the estate thousands of dollars. How does a person preparing their own will know whether they’ve made the right financial decisions?

MARY RANDOLPH: Well, it’s true that Warren Burger scribbled out a will on a piece of paper, and didn’t really take into account some things he should have taken into account. Most people don’t owe estate taxes; 99% of the estates don’t pay estate taxes, so that’s not anything most people have to worry about, but you do need to make sure you have some standard provisions in your will. And I’m sure Warren Burger knew lots of lawyers that could have helped him. You don’t even have to know a lawyer these days, you can use something like Willmaker, it’s got all the standard provisions, so it lets you know that you’re not leaving out anything crucial; it will prompt you, and ask you questions. So by the time you get done you should feel that you’ve addressed all the issues that you need to.

QUESTION: I have a few questions about the Quicken Willmaker Plus product. If it’s made by Nolo, why is it called Quicken Willmaker Plus?

MARY RANDOLPH: Well, Quicken, as you probably know, has provided financial software, personal finance software, to people for many years now, and they approached Nolo and asked us to provide the legal content. We’ve been publishing books and software on legal matters for more than thirty-five years, and they asked us to provide the content for our will-making program, so that’s why we teamed up with Quicken.

QUESTION: From what I understand, the program has a web update feature, which automatically goes to the Nolo website, and downloads any changes in the laws into the program. How do you keep the software current each year?

MARY RANDOLPH: Well, our in-house lawyers are looking at Willmaker every year; we put out a new version every year that addresses any legal changes in the fifty states, so we are on top of it. Luckily, the law on wills doesn’t change usually each year, but if there’s something people should know about, or if there are some tips that we’d like to give them, we publish a new version every year. In the mean time, if there’s anything that changes that we think people should know about, we put it on our website, and the Willmaker software has a feature where you can go directly from the software to the web update page on Nolo.com, so you can find out about anything that you might need to know

How Can Job Descriptions Trigger Lawsuits?

2006-08-13T15:59:00.000-07:00

We're speaking with Margie Mader-Clark, an expert on human resources issues and rules, and the author of "The Job Description Handbook," from Nolo.

NOLO: Margie, let's start with a basic question. Why does someone who manages employees need a book about writing job descriptions? Why can't someone just write out the tasks that the employee has to do?

MARGIE MADER-CLARK: You have to think of a job description as a management tool that will actually cover a lot more than just hiring someone or laying out the job. You can use it in most every part of the life-cycle of the employment process -- you can use it to set up interview questions, you can use it to orient your new employee and tell them what the functions of their job are, you can use it to measure their performance on those given functions... so a well-written job description can actually take you a lot further in any of the employment processes than just the hiring process itself.

NOLO: You write in your book that the most common and costly mistake managers make is to write a job description that can be interpreted as discriminatory. Could you give us an example of how a discriminatory job description can backfire?

MARGIE MADER-CLARK: A job description, like any other part of the employment process, is governed by a couple of different laws to do with overall discrimination, Americans with disabilities is another distinct law... a job description needs to be specific enough about what you actually need someone to do or be able to do to do the job. So, if you were to write a job description that had, for instance, a lifting requirement of fifty or sixty pounds, you would automatically be cutting out some portion of the potential workforce. So you have to be certain that the job actually does require that, or can that weight be broken down into smaller chunks, to potentially be picked up by more of the workforce. So the mistakes become costly when the job description can actually become a basis for an employment lawsuit. If it can be proven that you're discriminating in your hiring practices or your promotional practices, and the job description is the basis of that, you can be liable for significant amounts.

NOLO: There are some cases where a job description calls for specific characteristics, that relate to sex, religion, or other protected characteristics, for example if you're hiring a female matron at a women's prison. So how do you know when a protected characteristic is essential to the job description?

MARGIE MADER-CLARK: Well, a little background on the concept of protected characteristics. They actually have a name in the employment law world, they're called Bona Fide Occupational Qualifications, or BFOQs. So you have to be able to prove that nobody else can reasonably do the job without having that particular Bona Fide Occupational Qualification. In these particular examples, they're sort of obvious, which makes them all the more defensible. You wouldn't have a woman as a Catholic priest, and you probably wouldn't have a man as a warden at a female prison. If they're not obvious and defensible, they probably are not Bona Fide Occupational Qualifications. For example, the weight-lifting requirement that I gave earlier, that could be done by a man or a woman of any race or religion. That wouldn't be considered a BFOQ.

NOLO: In your book, you warn against job descriptions that include a statement like, "This position is a stepping-stone for promotion," or, "If you can meet these challenges, you'll have a bright future." What's wrong with providing some encouragement to a potential employee, and how else can a company attract ambitious people?

MARGIE MADER-CLARK: Well, first of all, I think you're exactly right, and the job description is a marketing tool for the job itself, so being able to make the job sound interesting and make it sound like there's advancement opportunities and so forth is critical. However, if you're making a promise about future advancement, that creates what's called an implied contract, and if for any reason you don't advance that person, you're in breach of that contract. So careful wording in your job description can still provide encouragement, without the contractual obligation. For instance: "This position is reviewed and considered for advancement on a regular basis," or, "The position is eligible for regular salary increases." Those kinds of statements would give the candidate the knowledge that there's more to the job, or that a career could be made out of the job without making a promise that would be an implied contract.

NOLO: In your book, you discussed a case where a woman sued, claiming that the job description requirements caused an invasion of her privacy, because she had to disrobe. How does one deal with situations such as artist models, where the job description seems to require an invasion of privacy?

MARGIE MADER-CLARK: Well, first of all, applying for a specific job is not mandatory, so people are sort of opting in. So if your job description is using these Bona Fide Occupational Qualifiers, and it is an artist model, and the artists are working on nudes, that would be a specific thing that you'd be either opting to do, or opting not to do. As a part of the job itself, it's a requirement, so if you didn't want to do that, you wouldn't apply for that particular job. That's the best way to get around something like that.

NOLO: When preparing a job description, how does a manager know how to classify those employees that qualify for overtime, and those that don't?

MARGIE MADER-CLARK: Overtime classifications can be very complicated; I think there could probably be a whole separate book on that particular topic. In actual fact, the law takes the position that all positions are eligible for overtime until they're classified as exempt from that eligibility. Exemption comes in a couple of different forms, but the basic rule of thumb: the more independence the position has, the less likely it is to qualify for overtime. So if your position is something that has high direction, you're being told what to do most of the time, you have specified work hours, you have specific deliverables that don't change that much, for instance an assembly line job or something like that, most likely that kind of job is eligible for overtime. You swing to the other end of the scale, if you basically operate independently, you have sort of wide-ranging goals, but no direction on necessarily how to accomplish them, that puts you more towards the exempt-from-overtime status. It's a lot more complicated than that, there's a couple of specific categories, but that's the basic rule of thumb regarding over-time.

NOLO: Some businesses try to get away with describing the same job in different ways so that the company can avoid equal pay considerations. For example, a female position is classified as a "maid," and a similar male position is entitled "housekeeping technician." What's the problem with this approach?

MARGIE MADER-CLARK: It's pure and simple discrimination based on gender, unless those positions are paid precisely the same. If each bullet under a maid and under a housekeeping technician, each bullet about what they do, is largely the same, and then classifying those jobs or paying them differently, is the basis for a discrimination lawsuit. You don't see that happen as much anymore, I think it's starting to blend together, especially in areas that have been traditionally female, like airline stewardesses, now flight attendants, and so forth. It's much more focused on what the job is and who can do the job, rather than what gender is specific to that job.

NOLO: Your job description book includes a series of tests at the end of each chapter. Just curious, what's the purpose of testing the reader?

MARGIE MADER-CLARK: The book was intended to be a learning manual, and broken up into parts where you could just sort of read one part and then read the next if you needed it. The tests are simply a way to test your learning. It's also a great way to recap the chapter, so if you go through a test, you can see what the basic bullet points of the chapter were, the most important points... it's a little clue that you might not have to read the whole chapter if you're passing the tests, so it's kind of two-fold: you can use it as a way to short-cut the reading process, and you can also use it as a way to test your knowledge.

NOLO: What happens if a manager writes a job description in an attempt to side-step the Americans With Disabilities act? For example, the job description includes a requirement that the employee be able to climb ladders in a warehouse, when it's really not essential.

MARGIE MADER-CLARK: I think the main thing to remember here is to be flexible in your requirements. If you're writing down that an employee needs to be able to climb ladders in a warehouse, you have to think more in terms of what do you really need them to do? Do you need them to be able to access materials on a, top shelf? If so, are there other ways to access those materials; can someone else climb a ladder for them? Or is it truly a job where they would be up on a ladder all day long? If you can't prove that it's truly a job where they would be up on a ladder all day long, then you need to provide a reasonable accommodation to anybody who would apply for that job. So a reasonable accommodation in this particular example would be someone who could lift things off the top shelf for you.

NOLO: You recommend including a disclaimer in a job description. What should it say, and what's the advantage of doing that?

MARGIE MADER-CLARK: A job description by its nature is a little bit of a living document. It needs to have the ability to change with the changing business needs. So, the most important point that you want to get across in a disclaimer is that the job description is flexible and subject to change; different functions can be added at management discretion and so forth. There's a couple good examples in the book of what a disclaimer could look like, but those are the basic points that you want to get across. The advantage of doing that of course is that it leaves you wiggle room if, when the person comes onboard they have a skill set that you weren't even 100% sure about, and you want to employ that skill set, you can add it into the job description, because those can change throughout the life-cycle of employment. And, likewise, if someone is not doing something as well, you can put that function onto someone else and you can take functions away from a job description. So what you don't want is you don't want a job description to look like, again, any sort of written contract about what that job is about, and be locked down and unable to change. A disclaimer gives you that wiggle room.

Do You Have to Consent to Roadside Sobriety Tests?

2006-08-06T15:50:00.000-07:00

This week we’re going to discuss DUIs – the laws and procedures that are triggered when someone is arrested for driving under the influence of alcohol or drugs. We’re going to speak with Aaron Bortel, a San Francisco attorney and expert on DUI law. Aaron is also a member of Nolo’s Lawyer Directory. Most people call it “drunk driving” and in some states it’s referred to as “Driving While Intoxicated” or “DWI,” but you don’t have to be intoxicated or “drunk” to be convicted of this crime. For that reason, the offense we’re discussing is commonly known as “Driving Under the Influence” or ‘DUI.’

In most states, a first time DUI offense will usually result in some jail time, a large fine – usually more than $1,000 -- and a driver’s license suspension. The maximum sentence for a first offense is usually six months or a year in jail and that varies from state to state. Second and third offenses often result in jail sentences of several months to a year. In California, A DUI conviction counts as a second offense or third offense if the prior convictions occurred within ten years. This is what is known within the world of DUIs as priorability – whether an offense counts as prior offense.

In addition to the penalties I mentioned, insurance companies often cancel (or drastically raise rates) for drivers convicted of a DUI. And a DUI charge stays on a driving record for many years.

The procedure for enforcing DUI laws usually begins when a police officer observes someone driving improperly, perhaps weaving in out of lanes of traffic, or speeding. After stopping the car, the officer observes the driver, for indications of alcohol or drug impairment, for example, slurred speech, red eyes, dilated pupils, flushed face, a strong alcoholic beverage odor on the driver’s breath, or unsteadiness after the driver gets out of the car. The officer may request a roadside coordination test – also known as a field sobriety test which may involve the driver balancing or walking.

If the officer reasonably suspects that driver is under the influence, the driver will be arrested. And after the arrest, comes a crucial test -- either a breath or a blood test.

We asked DUI attorney Aaron Bortel whether it’s ever in a driver’s best interest to refuse to take this test.

AARON BORTEL: It‘s a tough one to defend, let’s put it that way. You’re better off not refusing the test in most cases.

NOLO: What’s the legal basis for requiring this test?

AARON BORTEL: When we sign up to get our license, we sign something where we impliedly consent to take a chemical test after being arrested for a DUI. The test that you’re required to do is the evidential test that’s either a blood test or a breath test which is usually at the station. The officer is required to tell you if you refuse to do the blood test or evidential breath test that you will lose your license for a year.

After the arrest, the driver’s license is taken away and usually, the driver’s car is impounded. The police officer will also be required to send a form to the DMV notifying them of the arrest.

A decision must be made as to what charges will be brought against the driver. In California, for example, driving under the influence can lead to two misdemeanor charges -- Driving Under the Influence or Driving While Blood Alcohol is 0.08% or higher. But the driver can also be charged with Felony DUI, a very serious charge that can send the driver to prison for over a year and possibly up to five years.

NOLO: We asked Aaron Bortel for an explanation of Felony DUI.

AARON BORTEL: If you add on an injury to another you’ve got a felony. It’s that injury. Now the degree of injury is usually what determines whether or not they will charge it as a felony or a misdemeanor. It can be to someone in another vehicle, or a pedestrian or someone in your own vehicle. There you’ve got felony DUI.

NOLO: Occasionally, famous people are arrested for DUIs and it makes the news. This week, actor Mel Gibson was arrested after driving over 85 miles per hour, almost twice the legal speed limit. The idea of an intoxicated person doing double the speed limit seems frightening to the average driver. Does the speeding affect the DUI charge?

AARON BORTEL: I feel the same way that you do that yeah, it is a lot scarier when someone is going that much faster and I think that is treated much more severely by the prosecutors. Prosecutors do not like speeding cases. I’m not talking ten or twenty miles an hour over the speed limit but when they start seeing double the speed limit, doing ninety, one hundred on the highways and freeways, they get a little more upset and what happens there is that they are less likely to reduce charges.

What they did not do here, was that they did not add on an enhancement where if he were convicted for doing 20 miles an hour or greater [over the speed limit] on a highway which also includes surface streets and were convicted he would be looking at a minimum 60 days in jail.

NOLO: Under California law, a driver under the influence whose speed on surface streets exceeds the posted limit by 20 mph is eligible for an additional factor or enhancement and, if convicted, would lead to a minimum of 60 days in jail for the driver. So, why wasn’t Mel Gibson charged with an enhancement?

AARON BORTEL: That’s a big question in the DUI community right now. Most prosecutor offices that I’ve dealt with would not hesitate, y’know more than thirty, more than forty miles an hour over the speed limit, they will do it.

NOLO: There were many other elements reported in the Mel Gibson DUI case including belligerency, threatening of an officer, and the fact that an open bottle of tequila was found in the car. Although to a layperson, the presence of an open bottle of tequila may seem like damning evidence, it can also be used as part of the defense which may argue that the effects of the drinking from the open bottle – since they were so close to when the driver was stopped -- may not have affected the driver … but it may have affected the evidential test given later, when the driver’s blood alcohol level has risen. In other words, defense attorneys sometimes argue that an open bottle raises doubt as to whether the driver was over a .08 at the time the driver was stopped. That aside, however, the conventional thinking for most DUI cases is that a properly administered test that results in a reading substantially higher than .08 -- and in Mel Gibson’s case, .12 – will most likely result in a conviction. So what would a first time offender like Mel Gibson face in a California court? How much is the fine? And is there jail time?

AARON BORTEL: It depends on the county, but I’d say usually it’s between $1400 to $1700. That’s a typical fine. Sometimes they have to do a little community service. But your standard first offense DUI will give you in most counties -- they’ll usually give you two days in jail which can be done picking up trash on the Sheriff’s work program so you don’t actually spend the night in jail. You show up in the morning, [they] give you an orange vest, [you] pick up trash on the road. Some counties are more harsh than others. It’s my understanding that L.A. county is not one of those.

NOLO: Aaron Bortel also explained that in addition to a minimum of 2 days in jail, and license suspension by the DMV, a first time offender would also face three years probation.

Depending on the county, drivers accused of DUIs can in some cases can plea bargain. Bortel explained that some counties, for example, Marin County, north of San Francisco have a reputation for not entering into plea bargains in DUI cases. In other California counties, drivers may plea bargain in appropriate cases to lower counts known as wet reckless, for example, – a lesser offense than a DUI but it still counts for determining priorability. Or a driver may plea bargain to what is known as a dry reckless which is not a priorable offense.

As public opinion has gathered against drunk driving over the past few decades, drivers have found it harder and harder to plea bargain? Aaron Bortel concurs.

AARON BORTEL: I think everything in DUI law has gotten tougher since I started practicing in the early nineties. Mothers Against Drunk Driving has had a big push for many years to make the laws tougher. The law’s gotten a lot tougher not just in fines going up, but the sentencing has gotten much tougher, priorability – number of years – has increased. It used to be that it was seven years – if you got a second DUI within seven years [in California] it would count as a second offense. Now it’s ten years.

Aaron Bortel, like many DUI attorneys, often attempts to help clients get into alcohol programs and begin a recovery. But does an arrest and conviction affect drivers so much that they really change their behavior?

AARON BORTEL: They learn a lesson. Because they are often having to go to a DUI school their insurance rates go way up. Their licenses are suspended or restricted. Those kind of things happen. And those are what make most people learn their lesson and not put themselves in that situation again.

NOLO: That’s all we have time for this week. Thanks so much for listening. Much of the background information I used is derived from two books, Fight Your Ticket and Beat Your Ticket, both by attorney David Wayne Brown.

What's the Best Way to Screen Tenants?

2006-07-30T15:47:00.000-07:00

We’re speaking with attorney Janet Portman, an expert on landlord tenant law and the author of, “Every Landlord’s Guide to Finding Great Tenants.”

NOLO: Janet, your book is geared to finding and screening great tenants. But what about a landlord who has just purchased your book, and already has tenants in the building? Can a landlord go back now and run a screening effort on existing tenants?

JANET PORTMAN: Great question, and the answer is no. Here’s why: in order to request a credit report, a first level screening tool, you have to have a valid business reason. But if you’ve already rented to someone, especially someone with a lease, you don’t have that reason anymore. If you want to check criminal background, a second level screening tool, you need your tenant’s permission, but existing tenants aren’t likely to play along. The most you can hope for with your building full of tenants is that the prior owner did some minimal screening, and that the bad apples are either near the end of their lease, or are renting on a month-to-month basis. You can terminate their rental agreements with requisite notice – usually thirty days. If you have a really bad tenant, regardless of the length of his lease, you can always terminate for cause.

NOLO: You mentioned criminal background checks. If you were to explain the rules to someone from another country, they might be mystified. For example, the California Apartment Association advices their members not to do a Megan’s Law search, and not only that, but refusing to rent to an ex-con might result in a lawsuit. How did it come to be that landlords have to take a “don’t ask, don’t tell” approach when it comes to ex-convicts?

JANET PORTMAN: This is one of the most interesting issues in the landlord tenant world today. Here’s the deal: California and New Jersey and Madison, Wisconsin, passed laws that prohibit employers and landlords from using Megan’s Law databases to deny housing or employment, and there’s hefty penalties if landlords break the law. Maybe these legislators realize that if ex-cons could be denied a job or a place to live once an employer or landlord saw their name on the list, they would become outcasts, and eventually go underground, defeating the whole purpose of the registration process. But landlords in these states, knowing that they are charged with maintaining a safe place for residents to live, feel that they should be able to use the database to weed out applicants who might commit crimes. So, there’s the problem. Fortunately, there’s a way to find out about a person’s unsavory past by using other tools besides the Megan’s Law lists.

NOLO: Janet, just so we’re clear, is it okay to turn down tenants who are pet owners solely on the breed of their dog? And can you do other things, like ask for special deposits because of the pet?

JANET PORTMAN: Landlords can prohibit all pets, or some pets, and they can also say, “No dogs over a certain weight, no un-spayed or non-neutered dogs,” and yes, “No pit bulls, Dobermans, or any other breed.” The only caveat here is when the tenant says, “I am disabled, and this is my service or companion dog or animal.” But let’s not get hung up on this exception. It’s not that easy to satisfy the legal definition of being disabled, so landlords aren’t likely to find hoards of tenants successfully circumventing their no-pit bulls policy by using this exception. Now, as to charging more if a tenant wants to bring a pet, most of the time, the pet deposit that a landlord wants to set should be included within the security deposit, and if your state sets limits on the amount of security deposit you can charge, you must fold whatever you consider a pet deposit into the overall deposit you charge the tenant.

NOLO: I want to be sure I have another rule correct: you can rent to a person who is in the U.S. illegally, that’s not a violation of the law, but you can’t employ that person as your property manager?

JANET PORTMAN: Yes, that is right. Our legislators, and really, our society, for we elect them, have decided that it’s against the law to hire someone who is here illegally, but it is not illegal to rent to that person.

NOLO: What happens if a married couple wants to rent, and one spouse is ideal from a screening perspective but the other spouse is a dud, and a potential liability? Can you turn them down because of one spouse’s screening results?

JANET PORTMAN: That depends on what the problem is: is it behavioral, or financial? Suppose this couple’s former landlord describes one spouse as a dream tenant, and the other as a wild party animal who caused endless neighbor complaints. You can turn them down for this reason. But suppose one spouse has a great job, and satisfies your minimum income requirement, but the other doesn’t work. Here, you must treat them as one, and disregard the fact that the unemployed spouse couldn’t handle the rent on his or her own. That’s because married people are responsible for their spouse’s basic living expenses. So, in a sense, you’re dealing with one renter, when it comes to income.

NOLO: In chapter nine of Every Landlord’s Guide to Finding Great Tenants, you say it’s okay to participate in a bidding war; you just can’t initiate one because of bait-and-switch laws. Can you elaborate on that?

JANET PORTMAN: It’s against the law to advertise one thing, then change the terms of the deal when the customer shows up. So, if you’re on a hot market and have several qualified applicants vying for your place, it’s risky to say, “Well, I’ll rent to anyone who will pay me $100 more in rent,” and so on. Instead, lucky landlords in this situation should wait and see what develops. If an applicant offers a deal-sweetener, then fine, but understand that you’re still taking a risk. A disappointed applicant may claim later that you initiated the war. It’s smarter to figure out the temperature of the market before you set the rent, and choose your tenant on the basis of who’s the best applicant, not who can offer the best goodies.

NOLO: Janet, is it really true, or is it just an urban myth, that a landlord can deny an apartment to someone simply because they’re an attorney?

JANET PORTMAN: If you live in California, then you may have a problem, since a judge might view being a lawyer as a personal characteristic or trait, and in California, you can’t discriminate on the basis of a personal characteristic. I’m not aware of any legal decisions that have followed that line, but I do recall a similar situation out of San Diego several years ago, where a condo association had a rule that an owner couldn’t sell to a lawyer. A selling owner challenged the rule, and I believe they settled it. Other states don’t forbid personal characteristic discrimination, so a “no lawyers need apply” rule might work outside of California. But there’s one thing to keep in mind: a person may be a lawyer, but could also be old, of a certain ethnicity, national origin, race, religion, be disabled, have a family… all of these characteristics are protected by fair housing laws. If the lawyer you reject happens to be a member of one of these groups – and these are big groups – you’ll get challenged for discriminating on one of these bases.

NOLO: Janet, it seems like we’ve come a long way since the landlord was actually the “lord of the land.” In viewing your book, so much of what a landlord says and does is regulated by the government. I doubt this was the case when Benjamin Franklin and Thomas Jefferson were renting property. So how did it come to be that the government could have so much control over how you screen and choose tenants?

JANET PORTMAN: The answer to your question is in how the term “landlord” has morphed into “residential rental owner,” which is what landlords like to call themselves these days. Back before Ben’s day, there were no city-dwelling tenants; all tenants were tenant farmers, who rented land from the local lord, who owned it, hence “landlord.” The lord didn’t warrant that anything worked, or was up to code, and certainly didn’t promise to fix anything; his tenant farmer was far handier. With the industrial revolution, people began moving to the cities, and gradually began renting homes without land. Fast-forward to 1971 in Washington, DC, where a group of tenants refused to pay rent because nothing worked, it wasn’t up to code, and the landlord wouldn’t fix it. Same complaint, but they won, having turned the tables 180 degrees. Courts and legislators had begun to realize that the handy tenant farmer was now the hapless office worker, who didn’t know a screwdriver from a chisel, and that the owner was in a better position to take care of the structure. Once the courts acknowledged that decent housing was a basic necessity, it was a short hop to requiring landlords to offer it, and another short hop to forbidding them from denying housing for any reason other than a solid business reason. In other words, they couldn’t discriminate based on racial and other stereotypes.

Do You Need a Lawyer?

2006-07-23T15:45:00.000-07:00

Thirty-five years ago, Jake Warner and Ed Sherman kick-started the legal self-help movement by publishing Nolo’s first do-it-yourself legal guides. This week, we’re speaking with Jake Warner, one of the founders of Nolo, and the author of several books, including “Everybody’s Guide to Small Claims Court.” Today, we’re going to talk about a question that’s directly related to Nolo’s mission: when do you need a lawyer, and when can you handle something yourself?

NOLO: Jake, last year Americans paid their lawyers over fifty billion dollars for personal legal services. Are we paying too much for legal services?

JAKE WARNER: Absolutely. We’re paying $300 an hour on average, for a lot of services that are probably worth $50 or $100 per hour, and one of the reasons is that lawyers have a cartel, which basically says that lawyers own the law. They don’t just own some of the law, or a little bit of the law, they own all the law, so even if you have the simplest kind of procedure, something that is way simpler than doing your own income tax, not much harder than filling out a driver’s license application, for example, doing a name change. 99.5% of the name changes are approved; it’s filling out a few pieces of paper, taking it to a court clerk, and in a few states you have to go before the judge… that is going to be charged at $300 an hour, the same as if you are handling a complicated business transaction, or doing a criminal defense matter, or all sorts of other things where maybe lawyers are worth more. The truth is, by simplification, by making forms available at clerks’ offices, by providing some reasonable help, by a lot more electronics, we ought to be able to do a lot of these things on a versa teller-like approach, or a bank ATM-like approach, I guess I should say. Yeah, we’re paying way too much.

NOLO: Nolo is definitely not anti-lawyer.

JAKE WARNER: Well, Nolo was never anti-lawyer; lawyers were anti-Nolo.

NOLO: When we talk about non-lawyers representing themselves, there’s the viewpoint of the public, and the viewpoint of the legal profession. You were around when the legal self-help movement started in the early seventies; have the viewpoints of the public and the legal profession changed?

JAKE WARNER: Yeah, no question, and we’ve made a lot of progress. When we started Nolo in 1971, the attitude really was, lawyers own the law, they own every bit of the law, and no one else can do it, so there were absolutely no forms available for the simplest kind of procedure. Court rooms were very hostile; if you went into a court clerk’s office and asked the simplest question, “How do I fill out line one on this form?” they’d say, “That’s practicing law without a license; I’m sorry, you have to go get a lawyer.” So, we have come a long way in the sense of the legal profession, the consumer movement, a whole lot of forces in society have opened up the system to quite an extent, so it’s a lot easier now for a non-lawyer to do simple legal procedures. Does that mean it’s as easy as it should be? No, we’ve maybe gone halfway in the more progressive states, and not that far in the others, but I think we’re on the right track, and so, Nolo is now much more working with people to solve problems. Sometimes that involves lawyers, sometimes it doesn’t, you can do an all-self-help approach in one area, you need a little legal advice in others, and hey, if you’re charged with murder-one, you probably ought to turn the whole thing over to a lawyer; it’s a continuum.

NOLO: One issue that’s addressed in Everybody’s Guide to Small Claims Court is, “how do I know if my case is any good?” The book makes the point that unfair is not necessarily illegal, and because that’s the case, regardless of whether you’re in small claims court or superior court, isn’t a lawyer always going to be better-suited to decide whether you should proceed with the legal claim?

JAKE WARNER: Not necessarily; you’ve got to think about what a lawyer’s motivation is, and the main motivation is to pay the rent, to pay the secretary, to support his or her nice house in the suburbs and whatnot, so a lawyer’s going to look at your claim as primarily as, “Is there some money in it for me, as the lawyer?” But so many claims, where you feel like something was unfair or wrong, might involve twenty or thirty thousand bucks, say you are doing a kitchen repair or kitchen remodel and the contractor screws up – you’re out $20,000; it’s a real deal. You go to the average lawyer in America, and they’re going to say, “Wait a minute, this guy’s going to fight back, we have to go to court, this is going to involve depositions, this is going to involve a trial… there’s no way this is economic.” You might say, “Hey, if I pursue this on my own, I’m not paying a third or half of the money to a lawyer; I can handle this.” So, there are definitely times where checking your conclusions with somebody that knows more than you do and is experienced in the legal system makes sense, but it’s a false dichotomy to say, “Okay, we have all self-help over here, I just have to make up my own mind without any legal advice, or I’m going to turn the whole thing over to a lawyer.” There’s nothing to stop you from, say, calling up a lawyer in the phonebook and saying, “Hey, I want a consultation, half an hour; I’ll pay you $150, and just tell me what you think.”

NOLO: What about the conventional wisdom, that a demand letter on an attorney’s letterhead is more likely to get results than a demand letter from a non-lawyer?

JAKE WARNER: Right, okay, so you’ve got a conflict with somebody else; the question is, should you go get a lawyer and try to do the nuclear option, or should you choose some other option, and the answer, of course, is that it depends on the circumstances, and in many, many circumstances, what the lawyer will do, the lawyer’s letter, the lawyer’s phone call, will escalate the dispute. You get two people who have separated, they’re in a divorce thing, they’ve got a little kid, they’re on their way to working it out, they’ve had a couple of conversations, one person gets mad and runs to a lawyer… what’s the other person going to do? They’re going to run to another lawyer, and the lawyers will now spend two years and $50,000 or $100,000 arguing over something that the people are going to end up settling themselves, and the same kind of thing is true with a neighbor, with a small business in your community and whatnot; there are many other approaches. For example, community mediation is available in many, many areas of the United States, where you sit down, and you talk about it; it’s almost free – in some cases it is free – and you don’t pull the nuclear option, but hey, you’re a small businessperson, you’re on one side of the country, you’ve established your trademark, you’ve got your little business going, and some bigger company on the other side of the country suddenly grabs your name and isn’t going to let go of it, well, yeah, probably writing a letter on your own stationary isn’t going to be as effective as going out and hiring a lawyer with a good reputation in the intellectual property law area. So, again, it’s all over the place in terms of what the best way to approach stuff is, but running off to a lawyer every time you get mad at somebody is rarely the best option.

NOLO: One thing that’s often overlooked by non-lawyers who pursue legal claims is that winning a court case doesn’t guarantee you can collect; all you get when you win is a piece of paper that says you’re the winner. So, can laypeople collect judgments with the same efficiency as an attorney?

JAKE WARNER: Yeah, you know, I think it’s the wrong way to think about it; like, if you have a small claims case for example, and you’re considering whether to go ahead with it, you really have to ask that question before you file the lawsuit in the first place, whether it’s a lawyer, or it’s you, because most judgments are pretty easy to collect; if you sue a business, hey, the business is there – if they won’t pay, you can go take the money out of the cash register, send the sheriff over, he’ll take it out of the cash register, and he’ll charge the business. If you’re suing an individual, you can garnishee their wages. So, most people have assets, and collecting is no big deal, whether you’re an attorney or you’re not an attorney. The kind of people, especially, say, in a small claims venue, where you’ve got an unlicensed contractor who does his whole bank account out of his back pocket in twenty-dollar bills; that kind of person is going to prove almost impossible for anyone to collect from, and the lawyer is not going to be one bit easier; in fact, the lawyer, who values his time at $300 an hour, is going to say, “Turn it over to the collection agency,” and the collection agency, if they don’t find it easy to collect, will just give up, so no, I think in most circumstances, you’re really using your intelligence in advance.

NOLO: Don’t non-lawyers, because it’s their case, lack that non-emotional perspective that’s necessary to convince a judge or jury?

JAKE WARNER: Go down to a small claims court almost any day, in any place in America, and you will see people standing on their own two feet presenting their cases so unbelievably more convincingly than any lawyer would ever present it, because they know they’re right, and they believe in it. Now, does that mean you have to be confident to succeed if you just get up there and blabber on and on and call the other guy a dirty rat and whatnot, are you going to win? No. So, yes, you need a little knowledge of how to proceed, that’s part of it, but you can learn that. In some cases, getting a little coaching from a lawyer may help, and yes, it’s true that in some situations where you are so seeing red that you can’t think straight, getting someone to help you might make sense, but this whole, you know, lawyers invented this Madison avenue advertising campaign about eighty or 100 years ago, that somebody who represents themselves has a fool for a client, and they’ve sold that to America. Well, why have the sold that to America? Because they’re selling their services at $300 an hour, just like accountants aren’t real happy with you going and buying turbo-tax and doing it yourself.

NOLO: Is choosing a lawyer always going to be an either-or situation, or are there new paradigms for working with lawyers?

JAKE WARNER: You know, when I started all of this, getting involved with law and self-help and whatnot thirty-five years ago, almost every state had a ruling that if a lawyer represented you any kind of way involving a certain kind of legal case or dispute, they had to represent you in the whole dispute, otherwise, ethically, they couldn’t take the case. Well, part of that, we’ll leave aside whether that was part of the lawyer cartel’s political paradigm, but that’s the situation you face. Lawyers have come to realize that the average consumer just can’t afford $300 an hour, especially to do a lot of ministerial things, like fill out forms and drive to the courthouse and whatnot, so what we’ve got is a new movement called “unbundling,” lawyers call it unbundling, which is just great; they can never come up with plain English, even for something as simple as saying that the lawyer can help you with part of the case, and you can do part of the case yourself, which is what unbundling means. So now, in most states, in most jurisdictions, there are lawyers, and some of them will advertise because now we have lawyer advertising, “Hey, we’ll help you help yourself,” and if you’re in a situation where, say, your mom dies, you’ve got to push an estate through probate, it’s filling out a lot of forms, it’s not contested, it’s not going to go to court, it’s just a lot of work, and this thing has to go before this thing has to go before this thing, you can get a lot help from the court clerk these days where you didn’t used to, but you may want to, at some point, go to a lawyer, review what’s going on, maybe even have them handle a tricky part of it, but do 80% of it yourself. Hey, that way, maybe you spend $500, instead of $5,000, so yes, you can do that these days.

What is Collaborative Divorce?

2006-07-16T15:43:00.000-07:00

We’re speaking with attorney Katherine E. Stoner, whose legal practice focuses primarily on family law and mediation. We’re talking to her about her new book, “Divorce without Court: A Guide to Mediation and Collaborative Divorce.”

NOLO: Let’s start with the basics: what is collaborative divorce, and what’s the difference between it and divorce mediation?

KATHERINE E. STONER: Well, both are ways for divorcing couples to settle without a courtroom fight. In mediation, the spouses work with a neutral person who helps them make decisions together; they may or may not have lawyers actively participating or consulting with them. In collaboration, the divorcing spouses hire lawyers to work with them and meet with them in what’s called “four-way meetings,” and everyone works together towards a settlement. They may also hire other professionals – therapists, financial experts – to help them, but they do everything collaboratively and cooperatively, and they sign an agreement that the lawyers and the other professionals have to withdraw if they don’t reach an agreement.

NOLO: Okay, the idea of divorce and collaboration seems almost like an oxymoron, so how can a couple that’s fallen out of romance, that commonly are very angry or bitter with each other, be expected to collaborate on a divorce?

KATHERINE E. STONER: Yeah, that’s a good question. Actually there are lots of reasons why they might mediate or collaborate. One, and one that’s sort of a primary concern to people when they come in, is that it will save them quite a bit of money. There are statistics that show that the average contested courtroom divorce will cost $50,000 or more, if you’re in a major urban area, and collaborative divorce, even with two attorneys involved every step of the way, is going to be considerably less than that, and mediation where the lawyers may interface even less will be of course even less expensive than that.

NOLO: There’s another element to this of course, and that’s the attorneys, and if you’ve seen the film Intolerable Cruelty, the tag line there was, “engage the enemy,” which is really the common view of divorce lawyers, sort of ruthless adversarial individuals who place their clients’ interests above everything else, so what’s the response been from the family bar to this sort of idea? Have they been open to it, or…?

KATHERINE E. STONER: Yeah, in fact, I think the ruthless litigator is really the exception rather than the rule. In my experience, most lawyers who do family law all the time see the damage that’s done to people financially and emotionally, and to their children, and really want to do something different, and so the response of the bar has actually been pretty tremendous, and I think that’s one reason why mediation and collaborative is kind of taking off these days.

NOLO: You said something interesting in the book that I liked; you said that couples who are divorcing don’t need alternative dispute resolution, because they don’t have a dispute, and I think most of us think, “Well, gee, is that correct? A divorcing couple seems to have so many disputes,” so could you just explain and give us a background on how you came to that conclusion?

KATHERINE E. STONER: Yeah, some people are able to make all the decisions that have to be made themselves. Maybe they do it at the kitchen table, maybe they do it over a period of time, but they don’t really need help in making decisions. They may need help in the paperwork of getting divorced, because they’re not going to be experts. Other people need some help with not only the paperwork but with making the decisions, and that’s where a mediator or collaborative lawyers would come in.

NOLO: Okay, and you also maintain in your book that there are four divorces, not one, which I thought was really, really interesting. Would you just explain a little for the people who are listening what the four divorces are?

KATHERINE E. STONER: Yeah, when you think about divorce, of course the first thing people think of is the legal divorce. Turns out that the legal divorce is potentially the simplest part of the whole thing – if people reach an agreement, and sign an agreement, and all they have to do is a certain amount of paperwork, it’s a very simple and not very expensive process. The real complication comes from the other things that are going on with the people who are divorcing. What I call the emotional divorce is really a grieving for the marriage, for the relationship, and all the experts say that everybody has to go through it. Usually the spouses go through this at different timing, so you might have one person who’s much further along than the other person, so there can be fights and problems just presented by the fact that one person’s all the way through their grief process; they’ve accepted the decision and they’re ready to move on, and sort of like, “What’s the matter with you?” and the other person’s back at square one. So, that can complicate things, because it actually ends up feeling that somebody’s getting dragged along, and they’re going to be resistant. That’s one divorce. In addition to the emotional divorce, there’s the financial divorce. There are lots of hard decisions that have to be made by people when they divorce. They’re taking one economic unit, they’re dividing it into two; chances are, they’re going to have to spread the same income over a much bigger overhead, and there’s the question of just how much paying are they going to share, and how are they going to do that. So, that’s the financial divorce, and those decisions have to be made, too, and people can end up fighting about those whether or not they’re in the legal arena. The final divorce is what I call the social divorce, which is just the realignment of all the relationships that people have. When you’re in a family together, you have family friends, you have extended family on both sides often, you have community acquaintances and networks, kids have friends, and all of that gets ruptured and has to be kind of realigned and recreated, and that times some time, so if people can get all those, the emotional divorce, the financial divorce, and the social divorce kind of lined up, the legal divorce is simple. What usually happens when there’s a big, hard-fought litigation, those other things have not been taken care of, and people are going into court with all that other stuff still to be resolved.

NOLO: So, does collaborative divorce work towards resolving all four, or…?

KATHERINE E. STONER: I think that collaborative divorce and mediation allows for more room to consider all those other things; I mean, the law is the law, so if you’re in a courtroom, a lot of things about what’s going on with people emotionally – not so much financially but emotionally and socially – are really irrelevant from a legal perspective, so in a collaborative divorce, the lawyers are trained to actually be looking for these other things. Similarly, a mediator is going to be trained to be helping people look at those other things and attend to them, and do so in a timing that works for both people and not just for one of them.

NOLO: The person who’s in the situation where they need to find a collaborative divorce attorney… how do they go about doing it? It might be a difficult task for someone to find one in let’s say a rural area.

KATHERINE E. STONER: Right. Well, actually, there’s some rural areas where there’s been a lot of interest in collaborative. There’s a place called Medicine Hat I think, up in British Columbia where just about all the lawyers signed onto this collaborative idea, and so it’s really well-established there. It’s coming in a lot of places; it’s not everywhere yet, and one of the first things I would recommend to people to do is to go online if they can, and do a search for “collaborative law,” or “collaborative divorce,” or something like that. They’ll find collaborative groups of lawyers and professionals who have actually gotten together and sort of made sure that everybody’s conforming to some standards and that sort of thing. With mediators, it’s the same thing; if you look online, that helps, and you can also ask for referrals. Chances are there’s somebody around who’s had a good experience with one or the other who can point you in the right direction and say, “This person would be good,” or at least a person to talk to and get some names or referrals.

NOLO: Now, you also say that collaborative divorce isn’t for every divorcing couple, and one way you try to help people determine whether they’re right for it is you created a survey. Where’d you get those questions, and how did you come up with that idea?

KATHERINE E. STONER: This was really something that came from my own practice, from my research, and from talking to other mediators and family lawyers, just looking at the people who seemed to succeed in the hallmarks, or the cases that seemed to do well in mediation or in collaboration, versus the ones that it’s really pretty obvious that it’s not for them, and so the idea is really to help people kind of take an honest look at their own situation and assess how ready they are for something like that, and if they want to try it, and maybe they’ve got some areas where they’d scored low on this little test; it’s not scientific or anything, but it might give them a chance to get more ready. Now, there’s some obvious times when people shouldn’t be mediating or collaborating. One is if there’s domestic violence, if it hasn’t been resolved, and nobody’s getting any help for it and it’s not sort of in the past, those people shouldn’t be in a face-to-face situation, even with collaborative lawyers. I think that’s a situation where there needs to be a little more protection. Another situation that can be hard is if there’s drug or alcohol abuse on the part of one or both spouses and that hasn’t been dealt with and people aren’t in recovery, and dealing with that. So, there’s sometimes when it’s just not the right thing, but generally, people will know for themselves.

NOLO: Well, you say it’s not the right thing sometimes if it’s not mutual; is that correct?

KATHERINE E. STONER: There is one question I think about whether the decision to divorce was mutual, and, you know, usually there’s one person who decides; there’s one person who sort of initiates the whole thing. Sometimes people both come to the same conclusion at the same time, but a lot of times they don’t. But you could still mediate or collaborate as long as both people have accepted the reality that they’re going to get divorced. But occasionally you have someone who just doesn’t accept it and doesn’t want it, and even if they think they can mediate, the truth is, they’re going to undermine it, because the whole point of the mediation or collaboration is to reach an agreement that will be the operating guidelines for your post-marriage life, and if you can’t get to that point emotionally, then you’re not ready to collaborate or mediate.

NOLO: The last question I have for you is, what happens if you’re in that collaborative situation, and one of the participants falls back on the legal side of things, like, “Well, gee, under the law, I would be entitled to such-and-such.” How do you deal with that, because you’re really trying to step away from that in a way?

KATHERINE E. STONER: Well, it’s perfectly fine to look at what the law provides; in fact, I think it’s important that people know that, and that you have conversations about, “This is what might happen in court, if you weren’t here,” because that is the alternative that people have to reaching an agreement, and you can’t have a yes if you don’t have a no, so people need to know what the alternative looks like, including the cost of getting there. But if people want to reach an agreement and have the case be uncontested, they’re going to have to consider more than the law. So, it’s all very well to say, “I’m entitled to X,” or “I’m entitled to Y or Z,” it’s still going to mean that you’re going to have to convince the other person that they should agree that you get that, and that you give them something in exchange in order for it to work.

Can You Patent Your Invention? Part Two

2006-07-09T15:42:00.000-07:00

We’re speaking with patent attorney David Pressman, the author of the world’s best-selling guide, “Patent it Yourself,” as well as the co-author of other Nolo books, including, “Patent Pending in 24 Hours,” “The Inventor’s Notebook,” “How to Make Patent Drawings,” and “Nolo’s Patent’s for Beginners.” This is the second installment of a two-part interview with David.

NOLO: David, since you can never get a patent just by filing a provisional patent application, what good is a provisional patent application?

DAVID PRESSMAN: Well, you’re exactly right; a provisional patent application doesn’t give you a right to get anything. It’s actually a misnomer, because it’s not an application for anything; it’s really just a way of recording your invention, so that later you can go back to this date when you filed the provisional application, and use that date to antedate references that the patent office cites against you, or you can win an interference if someone invents the same invention and there’s a proceeding in the patent office to determine who was first. Another advantage of the provisional is that you can call your application “patent pending,” but remember – it’s very important to remember – that within a year, after you file the provisional, you have to file a regular patent application, or else the provisional will be lost and discarded forever.

NOLO: A U.S. patent can only be used to stop infringements within the United States, so when is it worthwhile to file for foreign patents?

DAVID PRESSMAN: Foreign patent filing is extremely expensive, because the value of the dollar has gone down, and the foreign patent agents charge quite a bit of money. So, if you have a very valuable invention, and you can afford to pay for it, if someone else is willing to pay for it such as a licensee or someone else who buys a part of your invention, then you can foreign file if your invention has a market overseas – in other words, if your invention has a market in Europe, then you can file in the European patent office, but it costs about six or seven thousand dollars to file there, or in Japan it costs about the same. You can file in Canada for a couple thousand dollars, but in any of these countries there are ongoing substantial expenses, so you have to be prepared for that, and you have to be sure that your invention has enough potential there to make it worthwhile, and you’ll get much more back then you paid in.

NOLO: You hear a lot about business method patents, perhaps the most famous of which is the Amazon one-click patent. What are business method patents, and are they here to stay?

DAVID PRESSMAN: Well, I’ll give you a little bit of history first. The business method was always never patentable in the patent office. Whenever we got a patent application that was even remotely connected to a business method, as an examiner we’ve always rejected as non-statutory because it was always the rule in the patent office that business methods were non-statutory subject matter, but this was challenged by an innovative person, and they got patents on business methods, and now it’s very, very common, and they seem to be hear to stay. Recently I had an application pending on a pure business method that was a way of financing, and the patent office rejected it because it didn’t use technology, it didn’t use a computer, and I had to appeal, and while I was waiting for the appeal to be decided, they changed their mind and there was another decision, and they decided that it doesn’t need to use technology, so any method that is used in business that is novel and unobvious – that’s the key, it has to be novel and unobvious, such as a new way of financing, a new way of advertising, a new way of doing something on the internet can be patentable now, but it has to be novel and unobvious.

NOLO: David, in the U.S., we use a first-to-invent system, but the rest of the world uses a first-to-file patent system. Can you explain the difference, and do you think the U.S. will ever change?

DAVID PRESSMAN: I don’t know whether they’ll change or not; it all depends on the politicians and how much they’re willing to conform the U.S. patent system to the rest of the world. The rest of the world, except the Philippines, all has the first-to-file system, which means that the first person to file a patent application gets the patent, even if the other one invented it first and documented it first. In the U.S., it’s not the first to file; it’s the first to invent, so if someone invented first, and that means they conceived of it first and were diligent in building and testing or filing, or built and tested it first, then they can get the patent even if the other one filed after them, provided that they can prove this. There are many advantages and disadvantages on both sides, and it’s too much to go into now, but I feel that it’s much better for the layperson to have a first-to-file system, because if you do get into an interference at present, you have to hire a trial attorney, and that’s very, very expensive, so it’s better to rely on the first-to-file.

NOLO: Besides your books, are there any sites on the internet that are especially helpful for novice inventors?

DAVID PRESSMAN: Yes, the patent system is changing so much that it’s essential if you use Patent it Yourself to go to my update site, where you can just go to www.patentityourself.com/ and there’s a link to my blog site, which has all the updates, and I apologize because there’s so many, but it’s necessary to keep up-to-date with the law. For general information on patent law, there’s a good site run by a friend of mine, Victor Lavrov, that’s called inventnet.org. Then there’s another site run by another friend of mine, Ron Riley, and it’s called inventored.org. There’s also an Inventor’s Digest site – Inventor’s Digest is the magazine for inventors – that’s called inventorsdigest.com, and lastly there’s another good site run by a guy named Andy Gibbs out of Sacramento, called patentcafe.com, and all of these sites will give you a lot of good general information about patents.

NOLO: What advice would you give to an inventor who’s starting out today?

DAVID PRESSMAN: Okay, the first bit of advice I would give is to evaluate your invention very carefully before spending any money and time on it, and that means to search it and evaluate the commercial potential of it. In chapter four I tell you how to evaluate the commercial potential, all the positives and negatives you should be aware of, and in chapters five and six I tell you how to search it, and don’t proceed with it unless you feel that your invention is commercially viable and patentable, and if it is and you still feel it’s a great idea, then you have to spend a lot of time and effort on it, and preparing a patent application, and promoting it.

NOLO: David, you have many helpful inventor commandments in Patent it Yourself. Do you have one or two favorites you could share with our listeners?

DAVID PRESSMAN: Yes, I think that the heart of the book is how to prepare a patent application, and the most important thing you can do when you do a patent application is to make a full, clear, concise, and complete explanation of the invention and how to make and use it in your patent application, and that’s covered in inventors’ commandment number ten in chapter eight. Also, when you write a patent application, you have to have these little sentence fragments called “claims” in there, and you want the broadest possible claims for your main claims, and that’s covered in inventors’ commandment number twelve, where you make your claims with as few elements as possible, and each element should be recited as broadly as possible.

NOLO: As a patent attorney, you examine and help prepare a lot of applications for inventors. Are there one or two mistakes that are commonly made by inventors when they prepare their patent applications?

DAVID PRESSMAN: Yes, the one mistake that I find most often is that the inventor doesn’t tell clearly how to make and use the invention. You have to sweat the details like a professional does, and don’t be ashamed to detail all the parts of your invention, how they’re connected together, and how they work. They don’t penalize you; take as many pages and use as many drawings as necessary. Another thing that I find is the writing is not clear and communicative, so it’s best when you write it to have someone else review it and make sure they can understand what you’ve written and it’s clear and readable and understandable.

Can You Patent Your Invention? Part One

2006-07-02T15:36:00.000-07:00

We’re speaking with patent attorney David Pressman, the author of the world’s best-selling guide, “Patent it Yourself,” as well as the co-author of other Nolo books, including, “Patent Pending in 24 Hours,” “The Inventor’s Notebook,” “How to Make Patent Drawings,” and “Nolo’s Patent’s for Beginners.” This is the first installment of a two-part interview with David.

NOLO: David, we’re all familiar with stories about great inventors from the past who came up with great ideas, patented them, and made millions of dollars. But nowadays it seems like large corporations and universities dominate the world of patents. Is it still possible for an independent inventor to come up with something innovative and make money off of it?

DAVID PRESSMAN: Definitely. I think that about 30% of all patents are now still issued to inventors who have no assignee; that means they haven’t assigned their invention to a corporation and therefore they’re small inventors. Most small businesses are still individually-owned, and even one of Nolo’s authors, Jack Low, started a very big business where he’s very successful now, on his vertical mouse, by himself. I have several clients, one which makes insulating cups, another which makes shower mirrors, and they’re both individual inventors who have started businesses on their own.

NOLO: Another change since Thomas Alva Edison’s day has been that the patent system has become more complicated and more complex, yet you still maintain that a diligent inventor can prepare his or her own patent application. Tell us why you believe that inventors can prepare their own applications.

DAVID PRESSMAN: Yes, because the inventing process is still the same, and it’s actually much harder than the patent application filing and preparation process when you look at all the work involved. To get a patent you actually have to do some new things which inventors are not familiar with, but basically a patent application is just a detailed explanation of how to make and use the invention in conjunction with drawings, and then there’s a few forms and rules you have to follow, but I lay them all out in a checklist, and I think anybody who is smart enough to invent, to create something new, should be easily able to follow the instructions. You do have to be able to write a detailed description of your invention in conjunction with drawings, and frankly, not everybody can do that, but if you can do that, I think the rest is duck soup.

NOLO: David, you’re familiar with the stories behind many famous inventors. Who are your favorites?

DAVID PRESSMAN: Well, my favorite inventor happens to be a person who had his lab and made his great inventions on the same street that I live on in San Francisco, Green Street, and his name is Philo T. Farnsworth, and if anybody is not familiar with him, he invented television. He was a genius, a farm boy from Iowa, and he just really understood how the electrons work, and how the cathode ray tube works, and made television work. Of course, it was a little before its time, but his widow did collect a lot of money from his royalties. Two other famous inventors that I like are Edwin Howard Armstrong, he was another electronic genius, they called him the man of high fidelity. He invented the automatic game control, a very important circuit in electronics, and continuous wave transmission, and also FM. Finally, my third favorite inventor is Dr. Wallace Caruthers of DuPont, who after working and striving and using his brilliant knowledge of chemistry for eleven years, he came up with what we now call nylon.

NOLO: There are many things that an inventor needs to do when preparing a patent application, and you discuss them in detail in Patent it Yourself. But if you had to discuss one indispensable thing to do before filing a patent application, what would it be?

DAVID PRESSMAN: Well, there’s not any one individual thing that I can think of, because there’s several things that are really important, and really one is no more important than the others. There’s two things you have to do to avoid a lot of needless work with your invention, and that is to make a search before you file, and to evaluate it for commercial potential before you file, because if it’s old, and there is a reference showing the same thing, all your work will be wasted, and also if it has one or more serious drawbacks and you didn’t think about these, then your work will also be wasted. And then another very, very important thing you can do is to prepare for challenges and other difficulties that you may get involved with after you file, is to make a written record of your conception of the invention, and build in testing if possible, and make a written record of that. If you do that, you can go back to the date of conception, or the date of building and testing, and you can win an interference if someone invents the same thing, or you can swear behind references if the patent office cites a reference that has a date earlier than your filing date, but after the date you conceived of the invention. So, those three things I would say are essential: search, commercial evaluation, and record conception and building and testing.

NOLO: After many stops and starts, it seems as if the US Patent & Trademark Office has finally created a useable system for electronic filing of patent applications. Does the system really work?

DAVID PRESSMAN: Yes, it does, and I’m very pleased with it, but I do not recommend that an inventor who’s filing a one-time patent application use it, because it will take the inventor much more time to use the electronic system than it does to prepare and send in an application on paper. That is because the patent office’s instructions are not clear. I’ve attempted to write out clear instructions, but even with those, you’re always going to find a lot of issues and difficulties when you do anything new with the computer. So, if you really want to go in for the electronic experience, and you’re ready to spend a little extra time, it’s a good way to go because you don’t need to express-mail your patent application; you get an instant acknowledgement and a serial number, and there’s no need to make file copies of any papers, because the papers that you do are the papers that you keep, and you send in a PDF copy of them. But it’s not for everyone.

NOLO: When you started as a patent attorney, all patent searching was done through paper patents at the US Patent & Trademark Office, or at a special patent library. But in the past ten years, there’s been a change in how patents are searched, with more and more emphasis in online searching. Is searching through paper patents at the US PTO a thing of the past?

DAVID PRESSMAN: Not completely; I haven’t done any searching deeply for many, many years, and I hire a searcher, but he still goes into the patent office and searches the paper patents. The reason for that is, is that the patent office’s online system only goes back to 1976, and the European patent office’s search system goes back to the 20’s, but it doesn’t search the full text; it only searches the abstracts of patents. The patent office has a system for searching way back for the full text, and that’s called the EAST system, for examiner-aided search tool, but it’s very expensive to use at a patent depository library, several of them have that, and it’s free if you use it in the patent office, but if you look in the paper files, it’s a lot easier to search generally, and you have some foreign patents there. So, they still use paper searching, but it’s gradually being replaced, and most examiners have two computer terminals on their desk: one to display the patent application, and one to do the searching with, but they still use the paper to a certain extent.

NOLO: There’s often one person who stands between an inventor and a patent, and that’s a patent examiner at the US PTO. You once worked as a patent examiner… what are patent examiners looking for when they examine a patent application?

DAVID PRESSMAN: Yes, I was a patent examiner for two years, and I can tell you the first thing an examiner needs to do is to understand the invention, and make sure that the application tells how to make and use the invention, and if the application passes that hurdle, the examiner needs to be sure that the claims are clearly written and directed to the invention that’s described in the patent specification, and lastly, when those formalities are over with, the examiner has to get into the meat of the matter, and make sure that the invention claimed is novel and unobvious, and to do that, the inventor makes a search of all the prior art, and pulls out everything that is close, and then compares the claims with this prior art to make sure or to determine if the claims recite something novel and unobvious over the prior art.

NOLO: In your book, Patent it Yourself, you refer to a patent as a hunting license. Can you explain what you mean?

DAVID PRESSMAN: Yes; it’s not actually a general hunting license, where you can go out and go after everybody; it’s only a hunting license to go after people who make the invention covered by the claims of your patent. If you don’t have a patent and you have an invention out there and someone infringes it, you have no rights at all against that person unless they copy a trademark of yours, or they copy some feature of your invention that has a secondary meaning, then you can accuse them of palming off, but generally you have no rights at all if someone copies your invention. So what do you need? You need a license to go after them, and to be able to sue them and stop them, or just send them your patent and show them, and that’s what a patent provides; it provides a license to go after and nab the infringer, and if you do win your suit, you can get an injunction against them to order them to stop making, using, selling, importing, and offering your invention for sale, and also to get damages for what they’ve done in the past, and often this is used to extract royalties from them, and to get a license from them, for past and future activity.

What Are Your Legal Rights as a Shopper?

2006-06-25T15:32:00.000-07:00

In this episode we’ll discuss legal remedies for unhappy shoppers. A lot of our material is derived from, “Nolo’s Encyclopedia of Everyday Law,” written by Shae Irving, and the Nolo editors. Okay, let’s start with a typical consumer question:

QUESTION: I don’t like a lamp that I purchased. There’s nothing wrong with it; I just don’t like it. Do I have the right to a cash refund?”

ANSWER: Many merchants will refund your money or reverse your credit card charges, but they’re doing it because it’s their policy, not the law. Nolo, for example, the sponsor of this podcast, has a “no questions asked” return policy – if you don’t like a book, you can return it for a cash refund. But a seller is not legally required to make a cash refund. A seller may be required to make an exchange for merchandise that is defective or does not perform as advertised. These are requirements that occur because of laws about warranties – implied and expressed warranties. We’ll talk about those in a few minutes. But it’s important to remember that a merchant doesn’t have to make a cash refund to a consumer. There are rules in four states however:

In California, sellers who do not allow a full cash or credit refund within seven days of purchase have to post the store’s refund credit policy. If the seller fails to post the policy, you can return the goods for a full refund within thirty days of your purchase.
In Florida, if the seller has a no-refund policy, such a statement must be posted in a store. If a no-refund policy isn’t posted, you may return unused goods in the original packaging within seven days for a full refund.
In New York, sellers with a no-refund policy have to post it. If a seller does not post the policy, you’re entitled to a choice of cash or credit refund within twenty days if goods are not used or damaged.
In Virginia, sellers must post the refund or exchange policies, unless they give a full cash refund or a full credit within twenty days after purchase.

QUESTION: What does a warranty mean? Does every new product come with a warranty?”

ANSWER: The main thing to remember about warranties is that they’re based on common sense. A contract for a sale is based on a principle that merchandise will perform either as commonly expected – for example, that a lamp will work, or that a product will be sold as advertised. For example, if it says that batteries are included, then you expect that batteries will be included. These guarantees are part of the sale. So, a warranty is just an assurance about the quality or performance of the product or service. The most common warranty is the implied warranty of merchant’s ability. It’s a part of every consumer transaction that you will make. What that means is that a product or service will perform as expected for its basic purpose. So, if you buy a juicer that can’t perform it’s basic purpose, that is, it can’t make juice, then the seller broke the implied warranty, and the seller owes you a replacement juicer that will make juice. For used items, there’s also a warranty of merchant ability, and that’s a promise that the product will work as expected given its age and condition. So, for example, a ten-year-old used juicer may not look or work as well as a new one considering its condition and age. There’s a second implied warranty, and that’s the implied warranty of fitness. That means that if you and the seller communicated a specific or an unusual purpose when you purchased the item, then it’s expected that the item can perform for that unusual or specific purpose. So, for example, if you purchased a juicer and indicated to the seller that you wanted a juicer that could both do citrus fruits and carrots and apples, and the juicer could only do carrots and apples, then there’s a breach of the warranty of fitness for a particular purpose. Those are the two implied warranties that exist in all states for purchases of new and used items. There’s also an expressed warranty, and that’s a warranty that’s specifically stated, usually in writing. So, for example, the juicer may come with a warranty that says, “This juicer is warranted against defects and materials or workmanship for ninety days.” So, if there was a breakdown in parts, the manufacturer would have to replace those parts, to honor the expressed warranty. An expressed warranty can also be an advertisement, or even a sign in the store -- for example, a statement that all dresses are 100% silk. An expressed warranty lasts for the period of time stated in the warranty, for example, three years after the date of purchase, and in most states, an implied warranty lasts as long as the product can be used for its intended purpose. In a few states, however, if there’s an expressed warranty, the implied warranty lasts only as long as the expressed warranty that comes with the product. In some states, if there is no expressed or written warranty, a seller can sometimes avoid an implied warranty by selling the item “as is.” There are other states that prohibit all as-is sales, but in all states, the buyer must know that the item is sold as-is in order for the seller to avoid any implied warranty.

QUESTION: What good does a warranty do me if I purchase a defective item?”

ANSWER: Since most of the time a defect is going to show up immediately, you can ask the seller or the manufacturer to fix or replace the item. If the seller won’t, or tries only once and the fixed or replaced item is still defective, you can withhold payment or inform a credit card company that the charge is disputed. If you’re uncomfortable doing this, or have already paid for the item, call the seller and try to work out an arrangement. If the seller refuses, you can try to mediate the dispute through a community or better business bureau mediation program, or else you’re going to have to sue, usually in small claims court. Nolo has an excellent book on dealing with small claims court, Everybody’s Guide to Small Claims Court, but it’s best if you can sort out your dispute without resorting to small claims court, since the process can be time-consuming, and sometimes requires chasing the merchant further, even if you win. If the seller or manufacturer won’t make good under a warranty, you must sue within one to four years of when you discovered the defect, depending on your state’s laws.

QUESTION: What happens if my juicer works fine for the one-year written warranty period, but then breaks the day after the warranty period ends?

ANSWER: If there’s an expressed warranty and it’s expired, you usually don’t have any recourse. However, in some states, if the item gave you some trouble while it was under warranty, and you had it repaired by someone authorized by the manufacturer, the manufacturer must extend your original warranty for the amount of time the item sat in the shop. If you think you’re entitled to this type of extension, call the manufacturer, and ask to speak to the department that handles warranties. Also, keep in mind that you have some other options – if your item was trouble-free during the warranty period, the manufacturer may offer a free repair for a problem that arose after the warranty expired, if the problem is widespread. Many manufacturers have secret “fix-it” lists – items with defects that don’t affect safety, and therefore don’t require a recall, but that the manufacturer will still repair for free. It can’t hurt to call and ask.

QUESTION: What about an extended warranty? Should I buy one?

ANSWER: Probably not. Merchants encourage you to buy extended warranties, also called service contracts, because they are a source of big profits for stores, which usually pocket up to 50% of the amount that you pay. It’s rare that you have the chance to exercise your rights under an extended warranty. Name-band electronic equipment and appliances usually don’t break down during the first few years, and if they do, they’re usually covered by the original warranty.

QUESTION: I received some unordered merchandise in the mail, and now I’m getting billed. Do I have to pay?

ANSWER: No, you don’t. You don’t owe any money if you receive an item you never ordered; it’s considered a gift. If you get bills or collection letters from a seller who sent you something you never ordered, write to the seller stating your intention to treat the item as a gift. If the bills continue, insist that the seller send you proof of your order. If this doesn’t stop the bills, notify the state Consumer Protection Agency in the state where the merchant is located. If you sent for something in response to an advertisement claiming a free gift or trial period but are now being billed, be sure to read the fine print of the ad. It may say something about charging shipping and handling, or worse, you may have inadvertently joined a club or subscribed to a magazine. Write the seller, cancel your membership or subscription, offer to return the merchandise, and state that you believe the ad was misleading.

QUESTION: I just signed a contract to have carpet installed in my house, but I’ve changed my mind. Can I cancel?

ANSWER: Under the federal trade commission’s cooling off rule, you have until midnight of the third day – not including Sundays and federal holidays – after a contract was signed to cancel either of the following: one, door-to-door sales contracts for more than $25, or two, a contract for more than $25 made anywhere other than the seller’s normal place of business. For example, a sales presentation at a hotel or restaurant, an outdoor exhibit, a computer or trades show, with two exceptions: public auctions and craft fairs are excluded. This cooling off period also does not apply to contracts to buy a car, truck, van, or camper. If your dealer says otherwise, that is, if the dealer is promising you a cooling off period, be sure to get it in writing.

QUESTION: What other types of contracts can I cancel?

ANSWER: The Federal Truth and Lending Act lets you cancel some loans up until midnight of the third day – not including Sundays or federal holidays – after you sign the loan contract. It applies only to loans for which you pledged your home as security, as long as the loan is not a first mortgage. In addition, many states have laws that allow you to cancel written contracts covering the purchase of certain goods or services within a few days of signing. These usually include contracts for dance, or martial arts lessons, credit repair services, health club memberships, dating services, weight loss programs, time-share properties, and hearing aides. In a few states, you can also cancel a contract if you negotiated the transaction in a language other than English, but the seller did not give you a copy of the contract in that language. Call your state Consumer Protection Agency to find out what contracts, if any, are covered in your state.

QUESTION: I ordered some clothing online, and there’s a delay in the shipping. Can I cancel my order?

ANSWER: With the exception of photo development services, magazine subscriptions, and the ordering of seeds or plants, if you order something online, or by mail, phone, or fax, the Federal Trade Commission’s mail or telephone order rule requires that the seller ship to you within the time promised or, if no time was stated, within thirty days. If the seller cannot ship within that time period, the seller must send you a notice with a new shipping date, and offer you the option of canceling the order and getting a refund or accepting the new date. After you receive this first notice, you have to contact the seller to cancel. If you don’t, you’ll be considered to have consented to the delay.

QUESTION: I purchased a defective item using my credit card. Can I request that the credit card company reverse the charges?”

ANSWER: Under federal law, you must first attempt in good faith to resolve the dispute with the merchant. If that doesn’t work, the credit card company is required under the law to begin a dispute resolution process, during which time the charges are temporarily reversed, pending the outcome. Now, your ability to use this law depends on several variables, including whether the merchant is within your state, or within 100 miles of your home, or whether you are using a seller’s card, for example a JC Penny’s card to buy at JC Penny’s, and the extent of the proof that you can furnish to demonstrate that the product or service is defective. Check with your credit card company, because many companies provide better dispute resolutions procedures than guaranteed by this law, and in general, it’s much more satisfying than dealing with small claims court, because if you win, the charge is permanently reversed; you don’t have to chase the merchant to enforce the judgment. But, like small claims court, it still requires time and preparation, and for small consumer disputes, say, for example, for matters between $50 and $100, you may spend more time preparing your case for the credit card dispute resolution procedure than you’ll be getting back. That said, it’s still one of the better forms of consumer protection when making purchases.

What Does a Dog Owner Need to Know About the Law?

2006-06-18T15:30:00.000-07:00

We’re speaking with Mary Randolph, the author of “Every Dog’s Legal Guide: A Must-Have Book for Your Owner.”

NOLO: Mary, considering that dogs have been around for thousands of years, why is it necessary to license them, and what’s going to happen to a dog owner who doesn’t license a dog?

MARY RANDOLPH: Well, the theory behind licensing is that cities want to keep track of dogs; they want to know how many dogs they have, they want to get a little money from the dog owners to go towards the cost that a city incurs when it’s taking care of the dog population… they have to have animal control officers, they have noise ordinances… so, that’s the idea behind it; it’s just that having a dog is a bit of a privilege, it’s not just a right, and you have to pay a little fee for it. But no one comes around, obviously, knocking on doors, checking to see if your dog has a tag… you can get into trouble if your dog gets picked up, if your dog is running loose and the animal control people pick it up, you’re much more likely to get the dog back quickly and safely if you’ve got a license for the dog, because they can trace you right away, and they can contact you. If the dog doesn’t have an identifying tag, you might not get the dog back. In some places, they have rules that they keep licensed dogs longer on the theory that they are not strays; they have an owner out there looking for them. They also use licenses to keep track of rabies vaccinations, because you’re required to have a rabies vaccination, and in some places, some other vaccinations as well, so that usually goes along with the licensing requirement.

NOLO: In your book, you provided the interesting story of Toby, a dog who ran wild and whose owner was fined $500 for that, and later appealed the case to the California Court of Appeal. Two questions: in most places, dogs can’t run free, but how zealous can animal control enforcement people be when chasing dogs and what can they do once they’ve gotten hold of a dog? And, I guess, another question might be, what could motivate a dog owner to pay thousands of dollars in lawyer fees to appeal a $500 fine?

MARY RANDOLPH: Well, in dog cases, there’s always something going on more than money; people are very emotional attached to their dogs. This must have been a big issue; I don’t know the particulars of this case, but Toby had a rap sheet – Toby had been caught fifteen times I think, by the animal control people, so this was a dog who was obviously let free all the time, and the owners were flouting the law, but how this case came about is because the animal control folks were chasing this dog, the dog ran home, ran in through an empty door, jumped on the bed presumably, went right in the bedroom, and the police came because the door was open, and they thought perhaps there had been a burglary. The animal control people followed the dog into the house and impounded it, so the owners were understandably upset that the people had gone into their house and taken the dog who was not running loose at that moment, and carted it off and locked it up. So, that is beyond the pale – animal control folks are not supposed to come into your house and take the dog. Otherwise, they can, if the dog is running at large, they’re pretty free to track it down and lock it up. It’s a public safety issue.

NOLO: Mary, if there’s a no-pet clause in a lease, what if the landlord permits a dog in the beginning, and then later wants to enforce the no-pets provision?

MARY RANDOLPH: Landlords are free to discriminate against people with pets. They can’t discriminate against people with families or people with disabilities, but pets are okay for landlords to decide that they just don’t want to deal with pets, that’s alright. But a landlord who tells you that you can have a pet, and then later changes his mind, might be in trouble. For example, if you move in, and you have a pet that doesn’t cause any problems for several years, and it’s okay with the landlord and they know about it, but in the lease there’s that little fine print, no-pets clause, the landlord can’t suddenly say, “Oh, I’m going to enforce that clause now, and you have to leave or get rid of the pet,” because it’s often a pretext for getting rid of someone for another reason; perhaps the landlord wants to raise the rent or get a different tenant. Courts understand that landlords use a no-pets clause sometimes to get rid of someone for another reason, so you’re not allowed to essentially waive that clause for several years and then enforce it.

NOLO: You told the story of a man who shipped nine racing greyhounds by air from Portland to Boston. The airlines left the cages on a baggage cart in ninety-seven degree heat, and seven of the dogs died. But the court awarded the owner a total of $750. How can that be?

MARY RANDOLPH: That’s right, it’s obviously far below the market value even, of those dogs, much less anyone’s emotional value of a dog. The reason they could do that is because federal law limits airlines’ liability, and dogs are treated just like baggage for purposes of that limit, so the limit now is $2,800, which still, of course, is not very much, and in no way replaces the value of a pet. Airlines have also, since that time, become more restrictive and selective about transporting animals. They’re really not set up to do a very good job of it, and it’s best to avoid it if you can. Some airlines no longer take animals, some won’t take them during the summer months, some don’t take certain breeds that tend to have breathing problems… so, you have to be smart about it, and pay real close attention to the conditions of the flight, and non-stop flights of course are best, avoiding hot weather or very cold weather is best, but you’re certainly not going to get very much financial compensation if something goes wrong.

NOLO: The barking dog issue… in an episode of Seinfeld, Elaine, unhappy about a barking dog, enlists Kramer and her friends to kidnap the dog. Now, most of us have faced similar noise problems, so what can a person do in this type of situation?

MARY RANDOLPH: This is probably the most common problem that people have with dogs, because owners, unfortunately, are often blissfully unaware that their dog is causing problems, because dogs typically bark when they’re left alone; dogs hate to be left alone – that’s kind of the worst thing you can do to a dog, so they bark and howl because they’re sad and lonely. So, the owners, when they come home, think they have a perfectly quiet dog. What you need to do is be solicitous of your neighbors, if you have the dog. If you get a new dog, tell people that you want to know about the problem; people don’t like to bring up those problems, so let them know that you’d like to know about things so you can take care of it. There are lots of things that behaviorists also recommend that owners can do to keep their dogs happy while they’re gone. If you’re on the other side of the fence, and you’re being disturbed by a dog, the best thing to do is approach the owner first. Again, you have to assume good will, assume that the person doesn’t know that they’re causing a problem, and if you’re being bothered, probably other neighbors are as well, so you can enlist their help. Approach the owner in a cordial way, at least to start. You may have to ramp up your efforts later; it doesn’t always work to be cordial, but it’s the best way to start – these are your neighbors, you don’t want to poison relationships if you can possibly avoid it. But you can call the animal control folks. Different towns have different systems for responding; some can be very helpful, but with others you’ll have to be more persistent to try to get someone to come out and try to speak to the owner. The police are the last resort, but you can call them if it’s a continuing problem that you can’t seem to solve, and sometimes that has the desired effect.

NOLO: What should a person do if they witness unnecessary cruelty to a dog?

MARY RANDOLPH: The best thing you can do is to call the animal control authorities for your town; sometimes that duty is contracted out to a local humane organization or an SPCA, but every town has someone who’s in charge of that, and animal cruelty or neglect is a crime – it’s punishable by fines, and, if it’s really horrendous, by jail, so you can do something; you don’t have to stand by and watch. People have certain basic duties to care for their animals, so if an animal is neglected continuously, or if it’s chained out without proper food or shelter, for example, or if it’s actually abused, you should definitely try to take action. You don’t have to rescue it yourself, but you can enlist help.

NOLO: Providing for your dog after you’re gone – it’s surprising how often that question seems to come up. What’s the answer for a dog owner?

MARY RANDOLPH: Well, you’re right that it is a big question; a lot of people, especially older people, are concerned about what would happen if their pets outlive them, and it’s a reasonable question, because you have to have some kind of plan in place for just the care of an animal, and the animal can’t wait; it needs a home right away. So, the most important thing you can do is to find a home for the animal ahead of time. Talk to somebody, make sure that they’re willing to take the animal – don’t let it be a surprise, make arrangements. And the financial part is the next part. If you’re leaving your dog to someone, which is really what you’re doing by making these arrangements, it’s good to leave some money with the dog. Dogs take care, they take veterinary care, especially as they get older, and simple upkeep, and it’s going to take some money, so it’s a thoughtful thing to leave some money along with the dog. Now, you can make fancier arrangements, and most states now have a legal arrangement under which you can make a trust for a dog; you appoint a trustee, you leave money… it’s like leaving money in trusts for a child. I don’t think most people need to go that route, to have to set up a trust. If you have someone that you’re entrusting the dog with, hopefully you would entrust them with some money for the dog’s care, and that’s really the most important thing; you’re not going to be around. A trust is a legal mechanism to make sure that your wishes are carried out, but how many people really need that? How many people really need the thought of a lawsuit to enforce their wishes? So, really, it’s just best to find someone trustworthy and leave them your pet and some money.

NOLO: Mary, speaking of dogs, Nolo recently unveiled its branding initiative that features a dog on the cover of many Nolo books. Can you tell us a little bit about this initiative, and the dog that was chosen for the cover?

MARY RANDOLPH: That’s right, we have a whole new look for Nolo books, and it goes along with our new theme, which is called “your legal companion.” We’re trying to make the book covers reflect how people think about Nolo; we are peoples’ companion through legal manners – we’re not like a professor, and we’re not like a lawyer, we’re a friend, and someone who helps you through these issues and explains them in plain English, and we were really looking for something that cuts across all the different kinds of books that Nolo does that would convey that, and we came up with the idea of a dog and your legal companion; it seems to resonate with people. Our cover dog has her own story; her name is Astrid, and she’s a yellow lab who was in the guide dog training class at Guide Dogs for the Blind in San Raphael, California. She was at the top of her class, and she was pulled out to become a breeder dog, so she’s a working mom, and she’s going to Japan to start the breeding program there for a guide dog program there, so she’s quite a star in her own rite, and we just thought that she conveyed that image of Nolo as your companion in a very good way.

What are Current Gay and Lesbian Legal Issues?

2006-06-11T15:28:00.000-07:00

Hello. We’re speaking with Attorney Emily Doskow, an expert on Lesbian and Gay legal rights, and the editor of, “A Legal Guide for Lesbian and Gay Couples,” from Nolo.

NOLO: Emily, there’s a great movie called “Normal,” about a rural couple that’s been married for twenty-five years. Then, one day, the husband announces he plans to change his sex. Legally, what happens in situations like this, when a married couple becomes a same-sex couple? Is the marriage over?

EMILY DOSKOW: The marriage isn’t legally over if they were opposite sex when they got married; their marriage will still be valid after one partner transitions. It’s different if the partners are same-sex, and then one partner transitions so they become opposite sex, and the courts are split on that about whether a marriage would be valid that was done after a transition. Some courts say that the sex that the person was at birth is the sex that they stay, and so they’re still the same-sex couple that can’t have a valid marriage, and some states say that if they become opposite sex then their marriage is valid.

NOLO: In your book, there’s a discussion about a debate among gay activists as to whether the pursuit of marriage rights is a proper goal for same-sex couples. Considering all the rights that are denied same-sex couples, that is, compared to married couples, what’s the thinking behind opposing marriage rights for same-sex couples?

EMILY DOSKOW: I think it comes from a bunch of different places. One is a political stance that says, “Nobody should get married; marriage is an institution of the state that’s oppressive, and everybody should be able to define their legal and financial relationships however they want to.” Another is that it’s just too much too soon, and people aren’t ready for it, and it causes a backlash, and a lot of negative, you know, all of these anti-same-sex marriage laws that we’re seeing everywhere. Another is that it sort of closes doors to alternative types of relationships by mainstream, I mean the LGBT community. So, for example, in situations where a Lesbian couple asks a man to be a sperm donor, they want all three of them to be parents, and that’s something that has happened in the past, so that a child can have two female parents, one male parent, and courts have actually granted adoptions where it ends up that a child has three legal parents… that’s getting more and more uncommon because the structure of domestic partnerships, marriage, civil unions, all of that, is so much like marriage that courts are sort of becoming more reluctant to do things that are sort of outside of that mainstream, so that’s another argument against it.

NOLO: Five states have domestic partner programs: Maine, New Jersey, Vermont, Hawaii, and California. Which offers the best legal rights?

EMILY DOSKOW: Well, Connecticut also is on that list; there are six now. And, of course, Massachusetts offers same-sex marriage, which is the best among them. I would say of the others, California, Connecticut, Vermont, and Maine all offer benefits that are equivalent to marriage on the state level; none of them are recognized by federal government.

NOLO: Let’s talk about living together contracts; there’s one on the CD in the Nolo book. What are the minimum requirements for making a living together contract, and are there times when a couple should get a lawyer to do one, rather than use the Nolo agreement?

EMILY DOSKOW: Well, I think people can do living together contracts for a lot of different reasons; the main reason for making sort of the most basic, simple kind, is that you’re acquiring property together, and you want to decide who owns it. I think the minimum things you need to have in it in that case are to identify the property, identify its value (or at least how much you spent to buy it, its purchase price), and then say what would happen to it if you split up; that’s the main purpose of having it, is to avoid a fight over who owns it if you break up. So, those are sort of the minimum things that should be in it other than, you know, the date, and your names, and all that basic stuff. In terms of when you would get a lawyer involved, I think that when you have a lot of property, or extremely valuable property, it might be good to have a lawyer review the agreement, where there’s really expensive real estate, if there are third parties involved besides the couple, that’s a good idea to have a lawyer look it over, or when people are doing contracts in anticipation of registering as domestic partners, or in a civil union. Oftentimes those types of pre-registration agreements are very much like a prenuptial agreement, which require both parties to have a lawyer in most states.

NOLO: In communities where landlords can discriminate based on sexual preference, is there a best strategy as to whether to tell the landlord about the sexual orientation? Can you think of a situation, for example, where a same-sex couple would have to disclose their sexual orientation?

EMILY DOSKOW: From a legal standpoint, I don’t think there are situations where you have to; my own personal view is that it’s not really that pleasant to live in a situation where you are worried about your landlord or anybody else finding out that you’re Gay or Lesbian, so I personally think it’s better not to stress yourself out by getting into a situation like that. Legally, though, I don’t think there’s any place where you would have to disclose.

NOLO: Same-sex couples cannot marry, except for Massachusetts. They also cannot divorce. So, how does a court sort out the ownership of the property when the same-sex couple splits?

EMILY DOSKOW: Well, in Massachusetts and in California, Connecticut, New Jersey, and Vermont, same-sex couples who split up who have registered legally, or entered into a civil union, or married, all of those same-sex couples can use the courts, and are required to use the courts, to get a divorce, or to dissolve their relationship just as heterosexual married couples would. In other states, basically, same-sex couples are treated as though they’re legal strangers who own property together; they don’t have any legal relationship other than their property ownership. They would go to civil court, rather than family court, and the judge would look at it as though they were business partners owning property together. It’s different, though, with children. If same-sex couples, even if they’re not registered or married, if they have children and they’re both legal parents, then they’ll go to family court as if they were married, just like heterosexual unmarried couples who have kids go to family court.

NOLO: Name changes. When name changes create the appearance of marriage, will courts permit it?EMILY DOSKOW: Sure. Courts will permit any name change as long as it’s not for a fraudulent purpose, or as long as it doesn’t contain fighting words, that sort of thing. So, people, very often same-sex couples, change their names so that they have the same last name, and having the appearance of marriage doesn’t really matter as long as they’re not intending to defraud anybody by doing it.

NOLO: Can you refer people to some places on the web to keep up with these Gay and Lesbian legal rights issues?

EMILY DOSKOW: Sure. There are a number of legal organizations that have tons of information on their websites; the National Center for Lesbian Rights at nclrights.org is one, lambdelegal.org is another, the Human Rights Campaign at hrc.org is another, and then for more sort of newsy, social connection type of things, planetout.com and gay.com are both big websites with lots of information.

Reel Justice: How Accurate are Courtroom Movies?

2006-05-28T15:21:00.000-07:00

We're speaking with attorney and professor Paul Bergman, who is, with Michael Asimow, the co-author of "Reel Justice: The Courtroom Goes to the Movies" (from Andrews McMeel Publishing). "Reel Justice" is a fascinating analysis of hundreds of courtroom movies. It sheds a lot of light on the legal system, the accuracy of courtroom films, and it tells us a lot about how we perceive the law.

NOLO: Paul, let's start with a basic question. Can a film be inaccurate in terms of how the legal system is portrayed, but accurate as to the spirit of justice? That is, the facts are wrong, but the result is correct.

PAUL BERGMAN: Yeah, very definitely, and I'd say that, you know, it probably happens more often than not in films. The best example of that is a film called The Verdict made in the early eighties, with Paul Newman as a kind of boozed-out lawyer named Frank Galvin. He's representing a woman who went into a hospital to give birth, and she ends up comatose, allegedly as the result of being given the wrong anesthetics. The film is a medical malpractice case, on behalf of this woman against the two doctors, the anesthesiologists at the hospital, and Newman hasn't done any work on the case, you know, he's been drunk most of the time, but he finally manages to get the case to go to trial. But his witnesses disappear, the judge excludes most of his other evidence, so there's no way the case should go to the jury. In fact, the name of the film should be, not The Verdict, but The Directed Verdict for the Defense. But nevertheless, the case does go to the jury, and the jury somehow manages to do justice. They realize somehow that the defendants were, you know, did use the wrong anesthetic. And their verdict punishes them, not so much for doing that, but for a reason that really resounds in everyday life. I mean, what happened is, the anesthesiologists tried to cover it up -- they changed documents, they fired a witness, so it was the cover-up rather than the original negligence, that really allows the jurors to want to punish the defendants with their verdict. So they achieve justice, even though there's no real evidence on which to base it, and for a reason that we see happen all the time in ordinary life.

NOLO: Okay, let's try and imagine our legal actor dream team -- Richard Gere, Gene Hackman, Spencer Tracey, Paul Newman... they're all known for their portrayal of lawyers. But what actor really gets it right?

PAUL BERGMAN: I guess I could watch Spencer Tracey as Clarence Daryl in Inherit the Wind probably every week and get inspired; he just does such a great job. But, you know, there's others that are right up there. In an older film called Compulsion, kind of a dramatized version of the Leopold and Logue trial, Clarence Daryl represented Leopold and Logue in that case, and in the film Compulsion, he's played by Orson Wells, and Orson Wells is just magnificent. Another one you'd have to put up there is Gregory Peck as Atticus Finch in To Kill a Mockingbird. He's ultimately not successful, but if you wanted a lawyer to represent you, you couldn't think of one better than him. So I would hire Spencer Tracey, Orson Wells, and Gregory Peck as co-council to represent me, I guess.

NOLO: And if you were an Enron-type corporation looking to hire an evil lawyer, who would you pick?

PAUL BERGMAN: Jon Voight in The Rainmaker or James Mason in The Verdict.
NOLO: One thing you point out in Reel Justice is that women lawyers in movies tend to be portrayed as aggressive, over-emotional, and they make bad romantic decisions. Why is that portrayal so common?

PAUL BERGMAN: You know, I guess it's a great way to create drama, by not only having kind of a who-done-it, and is-the-client-guilty-or-innocent, but to play on stereotypes about women getting emotionally invested in people, and not being just interested in legal analysis, so it's a way to create a triangle... the legal problem, the lawyer, and now some romantic problem that the lawyer has to confront. We see this a lot, actually. In Suspect, Cher plays a public defender who falls in love with one of the jurors on her case. In Jagged Edge, Glen Close plays a supposedly hard-bitten, tough-as-nails lawyer, very experienced, but nevertheless she immediately believes that her client (played by Jeff Bridges) is innocent of the murder that he's charged with, she falls in love with him, and virtually has a hissy fit right in the middle of the trial when some prosecution witness testifies to how he regularly cheated on his wife. So it's kind of just taking advantage, maybe say blending the courtroom drama with the women's weepy drama, that has traditionally been a staple in Hollywood. Actually one of the worst portrayals of female lawyers, not a romantic one, but if you remember Demi Moore's character in A Few Good Men, she is a co-council with Tom Cruise, who plays Lieutenant K now, Demi Moore's character has tons of trial experience, she's straight-military, Tom Cruise has no trial experience... nevertheless by halfway through the film, the Demi Moore character is pretty much reduced to bringing Tom Cruise a cup of coffee; she just totally fades into the background, a pretty demeaning portrait of a female lawyer.

NOLO: You also point out in Reel Justice that in the movies, it's the lawyer who is more charismatic, tricky, or lucky who prevails. You mean that's not the case in real life?

PAUL BERGMAN: I guess more lawyers wish it were. But the great movie that sends that message, by the way, is the recent one Chicago, which kind of has this great scene, in which a courtroom alternates with a circus, to suggest that everything is just another form of entertainment, and the one who's the best entertainer is the one who's going to succeed. Most lawyers prepare hard, they're drowned in paperwork, they're in court on pre-trial notions, there's not a whole lot of trickery or charisma that counts. You kind of have to have "the goods" as they say, and I think more lawyers wish they could just go in and weave a spell-binding tale, and not have to worry about all the hours, weeks, and months of work that precedes what happens in court.

NOLO: In Reel Justice, you explain that movie lawyers often get away with attacking the character of witnesses, when it would not be permitted in real life. Maybe you can give us a couple of examples of that.

PAUL BERGMAN: Yeah, kind of a classic example is Suspect -- you have the defendant who's charged with murder, who has a few missteps on his record, minor transgressions for various kinds of acts involving a little bit of violence, and the prosecutor starts out by cross-examining him by bringing out all of these little acts of violence he's committed in the past, just suggesting that this is a violent guy, just the kind of guy who would commit a murder. Basically sort of a principle of our system of justice, that probably people have heard of, is we say we judge the act and not the actor. So, we try to make judges and jurors focus on, what's the evidence about what happened in this case, let's not turn every trial into a morality trial where we're judging how you've lived your life. So the films are very misleading in that, and Suspect is one of them, Anatomy of a Murder even has a scene where the defense lawyer attacks a prosecution witness by showing a string of misdemeanors and kind of just showing he's a bad guy, so the idea is if you could just disgrace a witness in the eyes of the jury, that they won't believe him. And that kind of thing happens all the time in movies, and in tabloid newspapers or magazines, but it doesn't happen in real cases.

NOLO: One thing you reported in Reel Justice is that in the courtroom genre, in older films, lawyers are portrayed as fine human beings and competent professionals. But in newer movies, from 1980 onwards, they're usually portrayed as greedy, unethical, or incompetent. Can we attribute this to John Grisham, or did Grisham just mine the trend?

PAUL BERGMAN: Yeah, I guess we shouldn't attribute that much power to Grisham. Yeah, I think there's a variety of reasons. I'd go back to Watergate, or "don't trust people in authority," the power elite... I think we also had an era in which people were very much concerned about rising crime rates, and lawyers were often in the media representing drug lords and killers, and people often tend to associate the lawyers with the sometimes nasty people they represent.

NOLO: Let's talk about Legally Blonde for a moment. You're a law professor, so how accurate is the portrayal of law schools and law professors in films?

PAUL BERGMAN: Well, I guess we all wish there were more law students like Reese Witherspoon in law school than we teach. Yeah, I think it's fair to say that it's probably no more accurate about law school than they portray trials. In the films, and there aren't that many that feature law professors, there's the classic Kingsfield and the Paper Chase, and they're always stern, autocratic, cold, all they care about is rational legal analysis, they don't care about their students, and it probably never was true, but it certainly isn't true these days, when professors' advancement depends in part on how their students evaluate them, so even if they didn't want to be, professors have to be at least somewhat caring and interested in their students these days.

NOLO: The new addition of Reel Justice has a feature that's very interesting, it's called "Picturing Justice." Tell us why you added that section, and maybe give us an example.

PAUL BERGMAN: I think the idea at least that I had in mind was to.... well, the book primarily focuses on legal strategies, and we thought it'd be fun to focus on the filmmakers' strategies when making the films, like, what are the ways that they use a visual medium to get their messages across, and by focusing on little film techniques, I think we can help give readers a feel of what film is really all about. There's an old Hitchcock film from the fifties starring Henry Fonda, called The Wrong Man, it's a great film, about a very contemporary problem: eye-witnesses misidentify the person who rob them; Henry Fonda is arrested and thrown in jail, and the film is basically about what a horrible experience it is to be wrongly accused, and it focuses on every little aspect of the process, so it's not a fast-moving film, but by moving so slowly it kind of brings each horror individually to the viewers, and in one little scene where Henry Fonda's character is thrown in jail, we see one of the bars of the cell, and it's filmed in such a way that it goes right across his neck, the shadow falls right across his neck, and it looks like a noose -- very clever, and the suggestion is that he's experienced a kind of death just because he's been thrown in jail for something he had nothing to do with, so it's an example of a film technique kind of helping to promote the message of the film.

NOLO: Paul, we accept the fact that movies are entertainment, and we also accept the fact that the legal system is for real, so is there any danger to the public in creating an inaccurate presentation of the legal system?

PAUL BERGMAN: Yeah, there's a danger that viewers might leave a film mistaken about what a rule of law is, what actually goes on in a trial, I suppose they might be somewhat misleading yeah, but overall, I think the films are a giant plus for our system of justice.
NOLO: Paul, thanks so much for speaking with us today.

PAUL BERGMAN: It was a pleasure, I really enjoyed it and I hope people enjoy the interview, and maybe the book, and certainly the films.

NOLO: Well, I know they'll enjoy the book. It's a fantastic book; it's fun for cinema people, and for people interested in the legal system, and I hope we'll be back soon to interview you for some of your Nolo books, I know there's a new addition of The Criminal Law Handbook that will be coming out soon.

PAUL BERGMAN: Thanks! I look forward to that.

Should You Use a Prenuptial Agreement?

2006-05-21T15:17:00.000-07:00

This week we're speaking with Attorney Katherine E. Stoner, a certified family law specialist, and the co-author, with Shea Irving, of "Prenuptial Agreements: How to Write a Fair and Lasting Contract," from Nolo.

NOLO: Katherine, there are a lot of popular misconceptions about prenuptial agreements, so perhaps we can start out with two basic questions. What is a prenuptial agreement, and how does a couple know when they need one?

KATHERINE STONER: A prenuptial agreement can also be called a premarital agreement; sometimes the archaic Latin term "antenuptial agreement" is used, which means "before the nuptials," or before the wedding. A "prenup" as I will call it, is a contract between two people who are about to marry, that sets out their agreements about finances and property. How do they know if they need it? Well, if they don't want the laws of their state, or a state that they might live in later, to determine what's happening to their property and finances, then they might need a prenup.

NOLO: Okay. According to the tabloids, I read that the reason for the delay in Tom Cruise's marriage to Katie Holmes was that Katie's dad, who is an attorney, has been rangling over the details of the prenup. And one of the rumors that circulated is that her dad secured a $15 million trust fund for her and the baby, regardless of whether the couple marries. And I was under the impression that prenuptial only apply if you marry. So how could that be that there's an arrangement where you would get payment even if you don't marry?

KATHERINE STONER: Good question. Technically, prenups only go into effect if you marry, according to most state laws that I know of. People who don't marry can sign an agreement, a cohabitation agreement, or a property agreement of some sort, even if they're not living together. You could have a combination agreement that was a co-habitation agreement and also qualified as a premarital agreement, or a prenuptial agreement. That may be what they're doing; I don't know the specifics of that particular one. So, it's possible to sign a cohabitation agreement. Technically, the laws that apply to prenuptial or premarital agreements usually provide that it only takes effect when the people marry, and if they don't marry, it doesn't have any effect.

NOLO: Prenuptial agreements... Since same-sex couples are prohibited from marriage, except in Massachusetts, is that correct?

KATHERINE STONER: Right.

NOLO: Is there any place for the prenuptial agreement for a same-sex couple?

KATHERINE STONER: There is. In Massachusetts, of course, couples are presumably entering premarital agreements, or prenuptial agreements, if that's what they want. In other states that recognize some sort of civil union or domestic partnership, most of those states also permit something like a prenuptial or premarital agreement, and have sort of imported the rules of law that apply to prenups to those agreements. Then there are other states that don't recognize the relationship at all where the same-sex couple would really be entering into what would be called a cohabitation agreement. I think that in just about very state those are now legal, although that's something that has evolved over time. It used to be illegal to even enter into such an agreement.

NOLO: Okay. At Nolo, we're not anti-lawyer, but we try to get people to do things as much as possible on their own. Yet in your book for the prenuptial agreements, you recommend that each party get their own attorney. Tell me a little bit about why a person would need an attorney in a prenuptial negotiation.

KATHERINE STONER: Well, our research shows that there isn't any state that actually requires people to have attorneys. So, theoretically, people could sign a prenup and not have attorneys, and, in fact, I'm sure they do that. We advise it, and it's generally advisable because it really does minimize the risk that if things go sour, or if one of them dies and there's a dispute with the heirs, that somebody's going to attack the agreement as not having been thoughtfully entered into. So, having lawyers on both sides really is kind of an insurance policy for the agreement. So it's very common to attack them and try to say that they won't be enforced if there hasn't been an attorney representing one side or the other or both.

NOLO: Another thing I noticed in looking through the prenuptial book is that you talk about it as an estate-planning tool, almost. So could you just talk a little bit about how a prenuptial agreement can function as an estate-planning tool?

KATHERINE STONER: It's really a compliment to the estate plan. If one spouse, or if either spouse, has separate property, and if they want to have some portion of the estate go to someone other than the surviving spouse, it's a good idea to have a prenup that deals with the statutory rights the surviving spouse would have, just to make sure that you don't end up with an unintended consequence of the estate plan saying one thing, and the surviving spouse having rights that are contradictory to that. Conversely, if both spouses want to protect each other, or if one wants to protect the other, from hostile family members, or even just to prevent misunderstandings when one of them dies, it's a really good idea to have the agreements spelled out in the prenup, so that everybody knows that it's there, that it was something the person who died thought about, and that that's what they wanted.

NOLO: You also recommend including a provision that confirms each person isn't responsible for premarital debts. I understand that principle, but how do you apply that when someone comes after you for your spouse's premarital debt? I mean, you can't just show them the prenuptial and say, "Hey, I'm not responsible," can you?

KATHERINE STONER: Well, actually, you can. In fact most states, I think all states, provide that premarital debts are the responsibility of the person that incurred them. Now, it's true that community property or marital property can sometimes be used to pay off a premarital debt, but if there isn't any community property or marital property, the other spouse can't be sued for the premarital debts of the debtor.

NOLO: You also used a term which was great, I love it, called "Negotiate Lovingly." Since prenups are usually considered as romance killers, can you tell me a little bit about how two people can negotiate lovingly?

KATHERINE STONER: Well, at some points the lovebirds are going to have to talk about money. And psychotherapists actually say that the things that married people argue about most are money, kids, and sex, in that order. So, our view is, why not start early having some constructive conversations about money, about your attitudes towards credit and debt, and people have kind of different ways of viewing money; they might as well find out what the differences are, and find some ways to accommodate those differences at the beginning when they are in love, and when they can talk to each other well, so that's where that term comes from.

NOLO: For prenups, does it matter if you're in a community property state, is there a difference in terms of how you have to structure the agreement? Do you have to think differently?

KATHERINE STONER: Yes, you do. In fact, in every community state you'd have to think differently, and in practically every state, you'd have to think differently. That's why we have kind of an extensive summary of state laws on the CD that goes with the book, because it's a state-by-state thing, and every state has different requirements for what you have to do in order to make the prenup be effective. You know, do you have to have notarization, do you have to have witnesses, and of course, community property is one way of dealing with marital property rights, and other states have other ways if they're not community property states. So you have to know what law applies to your marriage, and kind of write the agreement with that in mind.

NOLO: I read recently that some businesses talked to people who were getting married, some of their employees, and encouraged prenuptial agreements. So, I wanted to talk a little bit about business and prenuptial. How do you manage to keep your business interests so that the business remains with one spouse? How do you prevent the other spouse from peering into your business affairs later? How is that part of the agreement structure?

KATHERINE STONER: The first question is whether you want to do that. For example, you might have one couple where they really do want to be share-and-share-alike. They may be in a community property state where both spouses have a right to know a certain amount about the finances of the marriage, and that might include the right to know some things about the business dealings of one partner. If people don't want that, the prenup is an excellent vehicle for carving out an area of exclusion from that kind of sharing, if that's what they want to do. But it's really an opportunity for the spouses to decide, what is their attitude, what do they want to do? And of course, it's up to them; the business isn't going to be apparted to the contract.

NOLO: You also mention that you can set milestones; prenups sometimes have milestones. If the spouses stay married for five years, for example, a prenup might reward one of the spouses. So, I guess my question might seem naive, but is there any concept that that violates public policy, because you're basically paying one spouse to stay married to the other?

KATHERINE STONER: Well, what the courts say about public policy is that you need to avoid provision in a premarital agreement that gives somebody an obvious incentive to divorce, rather than to stay married. So, a milestone doesn't necessarily do that. For example, what we call a "sunset clause," where you say, the agreement's going to last for five years, and then we're not going to have it anymore, most of the time what that means is that there's going to be more favorable provisions for surviving spouses after the five-year period. Now, you could argue that that might encourage one spouse who stands to benefit from the prenup staying in existence to get divorced, but that doesn't seem to be what really happens, and I haven't ever seen a court set aside a sunset clause like that. The other kind of milestone you're talking about usually is, you get more and more money the longer you're married. Well, that's obviously an incentive to stay married, rather than to get divorced. The public policy example, the one that comes sort of to mind that's really kind of the classic case is one where, if the parties got divorced, the wife was going to end up with more than fifty percent of her husband's separate property. So, what did she do? She got married, and shortly thereafter, she filed for divorce, because she didn't own any of that property as a married person, and it was her husband's separate property to start with, but when she got divorced, she was going to get more than half of it. And the courts said, they struck that down and said, no, that's not a fair agreement. The reason that they entered into that agreement, of course, was because, in the culture that they came from, the husband could divorce his wife, but the wife couldn't divorce her husband. So, you move that whole cultural set to a state that's got no fault with the state, where the wife is free to divorce, and all of a sudden, it doesn't work anymore, and it violates public property.

NOLO: One last thing I want to make sure we mention... Your book is great; it has an agreement on the CD-Rom, and since you recommend or suggest that people talk with an attorney, is the plan for a person using that book to sort of try and work out the agreement themselves and then take it to an attorney?

KATHERINE STONER: Ideally they would talk with each other. Now, they might talk with each other with the help of their lawyers, in like a four-way meeting. In fact, one of the things that's starting to happen more and more is, people are using their lawyers collaboratively, having four-way meetings with the lawyers and both spouses, to really work from the ground up. What we don't recommend is that one person goes to an attorney who drafts an entire agreement without any consultation of the other side. Because then you're just asking for kind of an adversarial sort of reaction to the whole thing, when it comes across.

What Can You Do About Retail Theft?

2006-05-07T15:09:00.000-07:00

Hello. This week, Nolo presents an excerpt from an audio program entitled, "The Book Sellers Little Legal Companion." Although the episode is targeted at bookstore owners, you'll see that the rules we discuss regarding employee theft, shoplifting, armed robbery, and counterfeit currency, apply to the owners of any store or retail establishment.

Shoplifting

Although studies of shoplifting show that it is most often a spontaneous decision, some bookstore shoplifting is organized and premeditated. A fictional example of this occurs in "The Adventures of Augie March," by Saul Bellow, in which the main character steals books to sell to students.

But organized shoplifting also happens in real life.
In the late 1990s, the owner of a second-hand bookstore in Northern California ran a shoplifting ring, and gave his associates "pick-lists" -- lists of books that the ringleader could resell at high prices. According to William Patrick Shelly, owner of Book Passages in Corta Madera, California, this guy's pick-list was better than the New York Times' best-seller list. The ring unraveled after one of the members was caught, and agreed to wear a wire, resulting in the bust of the ringleader at his storage facility.

There are an estimated twenty-three million shoplifters, or one in eleven people in the United States. More than ten million people have been caught shoplifting in the last five years. Here are ten things to keep in mind about shoplifting:

1. Never assume that someone making a purchase isn't also stealing. Many shoplifters buy and steal in the same visit.

2. WalMart discovered that having greeters, those friendly employees who meet you at the entrance, reduced shoplifting by as much as 35%. So not only is greeting and making eye contact with people who come in good business, it also deters shoplifting.

3. The typical bookstore shoplifter follows a predictable pattern, commonly wandering from section to section, watching mirrors and the sales staff, stacking books along the way. The most sought-after items by bookstore shoplifters are expensive art and coffee table books.

4. To cut down on shoplifting, keep open sight lines within your store, especially in the areas of expensive or popular books.

5. Don't detain anyone unless a store employee personally observed the theft. That means the employee saw the suspect take the books, conceal them, and then try to leave without paying for them.

6. Laws vary as to the extent of reasonable force you can use to detain a shoplifter, but as a general common sense rule, avoid physical contact, unless required to defend yourself. Physical contact, especially if instigated by bookstore employees, may lead to lawsuits against the bookstore.

7. Avoid detaining a shoplifter by yourself. Always try to do it in pairs, and, if possible, preferably with one bookstore employee who is the same gender as the shoplifter, to avoid an accusation of sexual misconduct.

8. If it's your policy to prosecute shoplifters, be consistent, and post your policy where shoppers can see it. Prosecuting some thieves and letting others go, no matter what your reasons, could get you sued.

9. In many states or counties, a juvenile suspect may be entitled to have a parent or guardian present when being questioned by store personnel. Check with your attorney, local merchants, or the police, to find out the rules in your area.

10. It's not uncommon for thieves to steal from one bookstore and sell to another. If you notice that certain books have disappeared from your store, you may want to alert other bookstores to be on the lookout, and to ask used bookstores if those items have been coming in. It may be a good idea to create a group e-mailing of local bookstores, to keep them informed of disappearing inventory.

Counterfeit Money and Armed Robbery

What about other types of theft? As for counterfeit currency, you can learn how to identify counterfeit bills at the website for advanced counterfeit deterrence, a division of the U.S. Department of the Treasury.

Two tips about counterfeit currency: Keep a magnifying glass by the cash register to better examine bills, and don't play hot potato -- it's a felony to knowingly pass counterfeit currency.
As for the most frightening of all bookstore thefts, armed robbery, most experts agree that the best way to keep yourself and your employees out of harms way is preparation. According to "The Retail Managers Guide to Crime and Loss Prevention," by Liz Martinez (Loose Leaf Law Publishing), the best advice for employees dealing with an armed robbery is to: give the thief what is demanded, don't volunteer any information, and, to the extent that it's possible, try to memorize any distinguishing characteristics of the robber, and note anything the robber touches. Avoid making sudden movements, and if possible, announce any movements before making them. Lock the doors after the thief leaves the store, call the police, and before discussing the robbery with other employees, write down any details of what happened.

Employee Theft

In 2003, the University of Utah bookstore performed a routine internal audit, and determined that $142,000 had disappeared. It had been embezzled by an accounting supervisor at the bookstore, who changed daily receipts, and took the cash. The employee had been stealing from the bookstore for over a year before she was caught, which isn't that unusual. According to the American Society of Employers, typically it takes about eighteen months to catch on to a fraud scheme.

Since over 40% of workers admit to stealing from their employers, we wondered what could be done to prevent and deal with employee theft. We asked Attorney Lisa Guerin, an expert on employment law, and author of "Work Place Investigations," from Nolo. Before becoming an attorney, Lisa worked at book stores in the bay area and New York City.

LISA GUERIN: The best way to deal with book store theft is to prevent it from happening in the first place, of course, and the best place to start is in hiring employees. One mistake a lot of employers make is that they don't check the references that applicants for a job give them.
Beyond hiring, there are also some steps you can take in the way you deal with your books to prevent employee theft, and the most important thing to do is something that financial experts call segregating. And what that means essentially, is not giving any one person too much control over the money or over the books or receipts of your store.
So, for example, a lot of bookstores have one person count out the drawer, they have a second person count the drawer, or they have maybe the manager count the money again and make a deposit, and they have the receipts checked perhaps by a third person.
Another thing you can do to prevent theft is to require authorizations. And, this is essentially just adding more paperwork to the things you require from your employees. So, for example, if you have a petty cash account, you should never let employees just take money out of that account and tell you what they spent it on; you should always require a receipt for money taken out of their. In the same way, if you allow your cashiers to void sales, or to give refunds, some bookstores require a customer signature on those, or they require a manager signature, to make sure that the employee isn't just doing a false void or a false refund and pocketing the money.

Your first step, if you think you have an employee theft problem depends on whether you know who's causing the problem. A lot of times you'll notice just that the deposits have been short, drawers have been short, inventory's disappearing at a faster rate than usual, but you're not sure why. In that situation, your first step is to isolate the problem, and it's very basic process of elimination. You have to determine who has access to the money or to the things that are disappearing, and again, segregation is a great way to figure this out. If you can tell exactly who worked on a particular cash register drawer that was short, or who made the deposit that turned out to be much less than it was supposed to be, then you know who you need to go to first to talk about that problem.

If you already have a sense of who the problem is, then your job is easier. In that case what you want to do is try and get your evidence together. For example, if you're dealing with cash register theft, you'll probably have records. So one thing you can do is compare the sales for that day that were rung up on the register to the money in that drawer, and see if there's a discrepancy there. You should also look at whether your receipts match out to the type of sales that were made. In other words, do you have as much cash as you were supposed to take in in cash, do you have as much in credit card receipts as was logged on the register as a credit card sale. You'll also want to look at any invoices, any paperwork that you require, any authorizations to see if you can find anything there that looks fishy.

When it comes time to actually confront the employee that you believe has been stealing, there's a few things you can do ahead of time. One of them is, experts suggest that if you're dealing with a theft situation, you talk to other employees, and you talk to other people who might have an idea what's going on. In other words, you interview witnesses. You talk to the person who works the cash register next to the person that you think might be stealing. And this will help you sort of gather the information you need to confront this person most effectively, and have the best chance of convincing them to come clean with you.

When it comes to what you say when you're actually sitting across the table from this person, it's a very interpersonal, individual thing. You just sort of have to play it like Colombo and decide what's going to work with this person; is a tougher approaching going to work, is a softer approaching going to work? One thing you definitely want to avoid doing, however, is coming flat out and saying, "You're stealing from my store; I want you out on the street." You don't want to make a flat accusation; certainly not to begin with. But certainly there are a lot of ways to say that between the lines. For example, "Your cash register drawer has been short," "I've noticed that since you've been responsible for making the night deposits, we've had a lot of discrepancies. What can you tell me about that?"

During the interview, you might want to bring out any evidence that you have, or anything that other witnesses told you, like, "Such and such a person said that you don't make the bank deposits some nights, what's up with that?" And if the person feels that you've got them dead to right, then they certainly may confess just to end the discomfort of the situation, you know, if they know that they're already caught.

If the person that you believe has committed theft actually confesses to it during the interview, then your job is pretty simple. Well, your job as an employer is pretty simple; you certainly want to get that person out of your company. You also probably want to get your money back, and that's something that can be a little trickier.

If the person doesn't confess, but you're comfortable that you have the right suspect and this person is in fact the person that's stealing from your company, what you do next will depend a little bit on what your employment policies are. Most employers are at-will employers, which means that they can fire employees at will. They can fire them anytime, without notice; they don't have to have good cause to do it... the only restraints on their ability to fire is that they can't do it for an illegal reason. For example, they can't do it for a discriminatory reason, or they can't do it because the employee has exercised a legal right that's protected. So, if you're an at-will employer, you can certainly just let that employee go, fire them, and that can be the end of it.

If you're not an at-will employer, and the employee has a contract with you, it's a little trickier. You may need to prove, if the employee files a lawsuit claiming wrongful termination, that you had good cause to fire that employee. Most courts, to consider the issue, have held that a reasonable good faith belief that an employee is committing serious misconduct, is good cause to fire, even if it turns out that you later were wrong. As long as you can show that you investigated, you looked into it with good faith, and that you had what appeared to be enough evidence on your side, ultimately you should win that battle in court. Of course, you don't want to end up in court.

When you're actually interviewing the person that you think is stealing from your company, you may want to have another person in the room with you. A good choice if you're the owner of the book store might be your bookkeeper or accountant, who can lay out the objective evidence that you have that point to this person as being the thief. It also might be a good idea to have another person there just to act as a witness, so that you'll have another person who can say what happened, who said what... your extra person can also watch the reactions of the person that you're interviewing, to see how he or she is responding to your questions.

One thing you should do before you start looking into an employee theft problem is, look at your insurance policy, your business insurance policy. Some insurance policies protect against employee theft; in fact some give you the right to be repaid for the amounts that you lose to employee theft. However, these policies also give the insurance company the right to subrogation, and what that means is that the insurance company has the right to go after the person who stole from you, in order to get their money back. If your policy covers theft and it has a right of subrogation clause, you should definitely talk to a lawyer before you investigate, and certainly before you accuse the employee or fire the employee. The reason for that is, if you do anything that gets in the way of the insurance company's right to go after that person, the insurance company might not make good on the policy.

What Are Some Secrets of Profitable Licensing Deals?

2006-04-30T15:06:00.000-07:00

Hi. I’m Richard Stim, author of Profit From Your idea: How to Maker Smart Licensing Decisions from Nolo, and this episode is entitled Secrets of Profitable Licensing Deals. I am sure you’re wondering … Secrets …how could I be telling you secrets if it’s being published on the Internet. It might be more accurate to say that what I’ll be talking about here are things that are sometimes overlooked when entering into a licensing deal. And by licensing deals we’re talking about the general terms that comprise a license of a product, invention, artwork, music, trademark or image.

Let’s start with some basic principles. The business makes and sells the product is the licensee. The company that created or invented the product is the licensor.

A license – just so we’re clear -- lets someone commercialize an invention, duplicate artwork, reproduce music or place an image on a t-shirt. In return for granting the license, the licensor receives money—either a one-time payment or continuing payments called royalties. Think of a license like renting out ideas. At the end of the rental period, the rights are returned to the owner.

The ability to make this kind of agreement is based on the premise that the licensor has exclusive rights to something—that is, something is protected under copyright, patent, trade secret, or trademark laws (collectively known as intellectual property or IP laws). These laws give the owners “suing rights” – they can go after anyone who makes copies of the property without permission. So, a licensor must have something protectible to get a deal.

For example, many clothing, jewelry and furniture designs are not protectible under intellectual property laws and so chain stores are not violating the law when they knock-off these creations without paying the creators.

Determining whether you are protected is beyond the scope of this podcast, but you can find plenty of helpful resources at the Patents, Copyright and Art section of the Nolo website. If you’re in doubt, check with an attorney. In some big cities, you can get low-cost advice from arts attorney organizations such as Volunteer Lawyers for Arts. There’s a national directory at the www.VLANY.Org website .

Know the Other

The worst thing to overlook in a license deal the other party. What I mean by that is that sometimes the parties are swept up in the excitement of the licensed product and fail to properly investigate each other. For example, the licensee fails to investigate the licensor and learns too late that there is a dispute as to the ownership of the product rights. More commonly, the licensor, excited by the potential deal, fails to investigate the licensee.

Always keep in mind that as they say – when it comes down to it, it’s the people not the paper, that matters the most in a licensing deal. Do the research. There are plenty of ways to research companies on the web. Consider obtaining a Dun & Bradstreet report if necessary to determine a licensee’s history of repayment. If possible talk to other companies or individuals who have signed with the licensee.

The worst thing for a licensor is to be trapped in a bad licensing deal, chasing royalties, and trying to get your rights back.

Deductions

Many licensees, particularly first-time licensees, will focus a great deal of attention on the amount of the royalty and the advance and focus very little attention on deductions against royalties. That’s a mistake.

Deductions are amounts that the licensee can subtract from net revenue before calculating the royalty.

Last week musicians from Cheap Trick and the Allman Brothers sued an international record company over music licensing deals. The musicians wanted to know why deductions such as packaging costs and breakage expenses – deductions associated with vinyl recordings – were being made on royalty payments for digital downloads. The musicians claimed that millions of dollars were being diverted by these deductions. The record company claimed that the agreements permitted these nonsensical deductions.

Whether licensing inventions, music, or artwork, always pay attention to deductions. They often have a bigger impact on royalty checks than any other factor. Some deductions – such as shipping, credits for returns and local taxes are normal but some companies also attempt to deduct what should be costs of business from your calculation of net sales. Be wary of deductions for marketing, bad debts and sales commission deductions, for example. If you reach an impasse on deduction negotiation, at least try to put a cap of say 10% of gross sales on the amount of all deductions.

Audit Provisions

If there is a dispute over royalties, the licensor will want to audit the books of the licensee. So both parties should carefully review the audit provision to make sure they’re comfortable. Usually, a typical audit provision permits audits once a year under certain conditions. Many audit provisions require that the licensor hire a certified public accountant to perform an audit. Licensors should try to avoid this as a CPA may be a very expensive proposition and the licensor may prefer to send a non-certified accountant or lawyer to the audit, instead. Also, a licensor should seek a statement that if an underpayment of say 5% is discovered, the licensee will pay the cost of the audit and any interest on the past due amount.

The Prosecute Infringement Provision

When you license your work, the licensee generally assumes the obligation of chasing infringers. That’s a good thing for licensors and one of the major advantage of signing a license agreement versus manufacturing a product. Plus, just having a big name licensor such as Black & Decker, Mattel or Time-Warner on your side, often deters someone from infringing in the first place. Review this provision and examine how the recovery from these lawsuits will pay out. The most equitable approach is to split the recovery after the licensee’s legal fees and costs are deducted. The least equitable is to pay the licensor the same royalty on recoveries as on licensed products.

Know the Industry

Just as some licensors fail to investigate the licensees, they also fail to properly investigate the industry in which they are licensing. After my book, Profit from Your Idea had been out for a few years., I heard from an inventor, David Silva, whose company Localoc had successfully used the book to license two of his patented hair accessory products invention. When I asked David if he had any tips when making a product pitch this what he told me.

Pitching something you believe in and worked hard to create is always nerve racking. My advice is to not only prepare exactly how you will present the invention, making sure it can be understood in a short period of time (a few minutes or forget it), but to also learn the history of the company you are pitching to, including the names of the people who run it, and the industry itself.

The company you're pitching to really needs to sense that you know what you're talking about. You would think a company that sells a particular type of product would be aware of all their industry’s latest trends, but nine times out of ten they are experts in advertising, marketing, and distributing, not experts in the latest trends relating to their industry.

For example, when I asked Helen of Troy how many hairstylists they had working in their 500-employee hair-product company, their answer was “None.” Believe me, convincing a company that you know a lot about their industry and its trends makes all the difference. Also, the old saying “don't take no for an answer” is true. If they do say no, continue to come up with reasons why they are wrong.

What happens when one party says “That’s the best we can do.”

Let’s say you believe your product will be very successful. However, the licensee is offering you what seems to be the royalty rate of say 5 to 10% and a relatively small advance. Having worked for years to perfect your product, you feel that the proposed royalty and advance is too small. After all, the licensee is a successful company, so it should be able to pay more money.

Before assuming that the company is bluffing examine the two most important numbers in the licensing negotiation. Cost of goods – what it costs to manufacture your product – and retail price. What you expect the consumer to pay (often a multiplier of five of the cost of goods). That’s how the licensee is looking at it. If your price is, for example, higher than competing products, you may have an explanation right there why the licensee is cautious about offering a higher royalty.

If you believe that the company is simply bluffing, you may have to -- as my office mate Lisa Guerin says -- play it like Columbo.”

Weigh the alternatives, consider the people involved and consult with someone in the industry, before rejecting any offer. One possible solution may be to accept an offer but limit the time period for the agreement for as short as possible. That way, if the product is successful, you can renegotiate for a better arrangement. Another possible solution is to suggest a fluctuating or sliding royalty that increases as sales increase. That’s what David Silva did, for example, in one of his licensing arrangements.

Tip #5 Keep it Short

One successful licensor I’ve worked with is a cartoonist who has followed two basic principles. Always make sure that all rights revert after the license is over and always keep the deal as short as possible. Why keep it short? If it’s successful, the licensor will want to renew and you’ll have an opportunity renegotiate. If it’s unsuccessful you’ll probably want out as soon as possible anyway … in order to try somewhere else. Using this approach he has entered into three separate videogame licenses as well as a license for Saturday morning TV shows, all the while retaining all rights in his characters.

I’m afraid that’s all the time we have for right now and if there’s enough of a demand maybe we can follow up with another set of tips in the future.

Finally, I’m proud to say that Nolo has the best collection of licensing materials available to help you. Even if you get an attorney, our materials will help you save on attorney fees. If you’re an inventor, check out my book, Profit from your Great Idea, and if you’re a musician or artist, check out my book, Getting Permission.

Should You Pursue a Personal Injury Claim?

2006-04-16T15:03:00.000-07:00

We’re speaking with Attorney Joseph Matthews, an expert on personal injury lawsuits, and the author of, “How to Win Your Personal Injury Claim,” published by Nolo.

NOLO: Joseph, all of us suffer injuries from time to time as a result of the actions of others. But how does a person determine that they deserve to be compensated for that injury? In other words, are there any simple ways to determine whether or not a person should pursue a personal injury claim?

JOSEPH MATTHEWS: When you’re deciding whether to pursue an insurance claim for a personal injury - and I want to make very clear here that we’re not necessarily talking about a legal action or a lawsuit, but simply a claim against an insurance company for the injuries that you’ve suffered - you have to determine whether or not the injury is worth your time pursuing. That is, unless you have received some treatment for the injury, or have lost time at work or school, then, in general, you’re going to have to say, “This is not something that’s worth my time and energy to pursue.” However, if you have received any kind of medical treatment for your injury, or if you’ve lost any time at work or school, then you move into the category of a valid claim. The question of whether or not you can collect on that claim depends then on who was at fault for the accident. But this is not any kind of scientific calculation; the sense of who was at fault is a combination of common sense – who’s done something careless and who’s been careful – on the one hand, and the insurance system as it’s set up, which is, that people pay into insurance companies precisely to compensate people who are injured, so that insurance companies are there, ready to make payments to people if they present a logical and sensible claim that they have been injured as the result of somebody else’s carelessness.

NOLO: Joseph, how do insurance adjusters view people who bring personal injury claims?

JOSEPH MATTHEWS: Insurance adjusters are professionals in the business of settling insurance claims. However, they don’t know nearly as much about your accident, how it happened, what your injuries were, and what’s happened since your injuries, as you do. So that, although some insurance adjusters may bluster and try to intimidate you not to pursue your claim, once you get yourself organized with the help of the personal injury claims book, you can present a claim to the insurance adjuster that makes the adjuster understand that you know how much your claim is worth. That figure is the kind of mystery that the book solves, and it’s the thing that, once an adjuster knows that you understand, will quickly move towards settling your case. Your claim is based on the seriousness of your injury, the amount of your medical bills, the kinds of residual problems you suffer because of your injuries, and the amount of time you’ve lost from work, school, or other events. Once you know how to put numbers on those elements of the claim, the insurance adjuster will quickly understand that you know how much the claim is worth, and will come to a settlement with you. It’s only getting over that initial process of making the adjuster understand that you know how the claims process works that’s the difficult hurdle. Once you’re past that, it’s only a matter of arriving at a final figure, and most people, except for very serious injury cases, are capable of doing that work themselves, without having to hire a lawyer, which may get you an extra 10, 15, or 20% above what you could get yourself from insurance, but you lose all of that and much more, because you have to pay a lawyer one third to 40% for the lawyer’s work.

NOLO: You often hear about cases where two people are injured, and both had degrees of fault. For example, a driver runs a red light, and hits a pedestrian who’s jaywalking. How does the law go about determining which of the two has to pay for the injury?

JOSEPH MATTHEWS: In most situations in life when there’s an accident, some fault can be attributed to both parties, or three parties, if there are three involved. Nobody, usually, is completely blameless in an accident. However, in order to collect on an insurance claim, you do not have to be 100% blameless to in order to collect. The law has a concept known as comparative fault, or comparative negligence, which says, if you, for example, were injured but were 10% at fault for the accident, the amount that you collect in the insurance claim or in court will be reduced by that 10% that you were at fault. Now, there’s no way, of course, to put an exact number on the amount that you and the other side were at fault; this is part of the negotiating process that we explain in the personal injury book, so that you put it into a hopper along with the amount that your pain and suffering is worth, and you begin a negotiating process with the insurance adjuster. But you always have to bear in mind that under this notion of comparative fault, even if you too contributed to the accident, you are still entitled to compensation for your pain and suffering, and your injuries, and your medical bills, and your lost work, or your lost school or other events, and the insurance adjuster knows this as well, and you will be able to pursue your claim to a successful conclusion, even though it’s clear that you might have done something to avoid the accident, or even if you contributed to the accident yourself in some way.

NOLO: Here’s a question I’m sure a lot of people wonder about. Is using a cell phone in an automobile enough to demonstrate that you’re at fault if an accident occurs?

JOSEPH MATTHEWS: One of the most increasingly common phenomena in life on our roads today is the person driving and talking on the cell phone at the same time. Studies are now coming out, and it’s a slow process, because the phone industries of course are keeping their own research private, and not disclosing what their own research finds, but slowly research is coming out that essentially establishes that talking on a cell phone while driving is the equivalent of drunk driving. That is, the amount of distraction it causes while you are driving to talk on a telephone slows your reaction time down to the same amount that being drunk does. It’s an extremely dangerous and increasingly frequent occurrence in our phone culture, and it now is something that’s part of accidents more and more frequently. If you can prove, and this is, of course, the difficult part, but if you can prove that someone was talking on the telephone when they got in an accident with you, you have a very powerful tool for showing that that person, in and of itself, was liable for the accident, no matter what else they did in their driving. The problem is proving it. Now, if you have a witness or two, passengers in your car, or people standing on the street, who all can say, “Yes, I saw this person talking on the telephone while they were driving at the moment the accident happened,” you have a very powerful tool for winning your claim. Or, you may be able to get a hold of the telephone records for the person who was doing the driving in the other car, which also may show exactly when they were using their telephone. In either event, if you can show that they were on the phone at the time of the accident, you have a very powerful tool for winning your claim, in addition to whatever else they may have done in the actual operation of the vehicle.

NOLO: When I was in law school, I was led to believe that it was very difficult to win a slip-and-fall lawsuit. Is that true or not?

JOSEPH MATTHEWS: Slip-and-fall lawsuits, or slip-and-fall insurance claims, which is what we’re really talking about here, not going and doing a lawsuit by yourself… slip-and-fall lawsuits are more difficult to win than automobile accidents, just because slip-and-falls don’t have their own set of rules-of-the-road the way that automobile accidents do. Because there are no absolute rules on how somebody should build, maintain, and clean their stars, and how exactly you should walk up and down those stairs, it’s sometimes more difficult to prove that somebody was at fault for a slip-and-fall accident. On the other hand, there’s no particular reason why a slip-and-fall accident – as opposed to any other kind – can’t be won in an insurance claim, if there is good evidence showing how the accident happened. So, if you fell in a wet spot on the floor, and it’s obvious to several people - including yourself, and the managers or employees of the place that you fell, or the residents of the place that you fell - that that floor was wet, you don’t necessarily have any more complicated thing to prove than you would in a car accident case. On the other hand, when you’re talking about a staircase, or a slip-and-fall on a floor, where it’s not obvious what the cause was, then you have a more difficult claim, because you have to show that there was something wrong with that floor, or those stairs, that caused you to fall, rather than simply your own carelessness in not walking properly

NOLO: Joseph, how does a person determine whether or not they can handle their own personal injury claim, or whether they should pass it along to a lawyer?

JOSEPH MATTHEWS: Of course, there are certain kinds of cases that people should not handle themselves, even at the insurance claim stage. If you receive a very serious and permanent injury where you’re going to have a loss of the use of a limb or bodily function for the rest of your life, or even for a long period of time, that case is simply too serious for you to handle on your own, and a lawyer’s expertise will be worth the amount of money you have to pay the lawyer to handle your claim. However, most cases which involve injuries, and even serious injuries, people can handle themselves, at least in the insurance claim stage, if they have the information that we provide in the book, and they get themselves organized in order to present a claim that an insurance adjuster can see explains the injuries, and the pain and suffering, and the lost income, sufficiently to make a settlement offer. In most cases, people can handle that themselves. But we do want to reiterate that, with certain kinds of cases where there are serious injuries, or very technical legal questions, such as medical malpractice, toxic injuries, or the like, you will need the assistance of an experienced personal injury lawyer. However, for most run-of-the-mill kinds of accidents, where there is no serious permanent damage done to your body, bodily functions, and ability to function in the world, you can handle at least the insurance claim portion of your claim by yourself, and save yourself considerable money in attorneys fees by doing so.

NOLO: In your book, you indicate there are deadlines for filing lawsuits, often as short as one year. But what if the insurance company drags out its settlement discussions past the deadline for filing the lawsuit?

JOSEPH MATTHEWS: There are deadlines in every state about when you must file a lawsuit against the person you believe is responsible for your accidental injury without losing all of your rights to pursue a claim against that person. Those deadlines, in most jurisdictions - that is, in most states - are two or three years; however, there are some as short as one year. When that jurisdiction deadline comes up in your case, you must file a lawsuit, in order to protect yourself, in order to pursue your claim beyond that deadline. That doesn’t mean you necessarily have to pursue that lawsuit, but you do have to get it on file in the court in order to protect yourself. You can do that yourself in many cases, with the assistance of this book, and with the assistance of the courts, who try to help pro-per – that means people doing things without a lawyer – litigants, or you can hire a lawyer on a very short-term, by-the-hour basis, to simply file that paper for you to protect your rights, and then continue to pursue your claim on your own until you reach some point that you believe that the insurance company is simply not going to provide you with a decent offer or settlement, in which case you then might have to turn to a lawyer to help you finalize the case.

NOLO: Joseph, thanks so much for speaking with us today.

JOSEPH MATTHEWS: Yeah, it’s been a pleasure, and I just want to emphasize for people that there is an entire insurance industry out there collecting payments from everybody, every day, specifically to provide for compensation for injuries to people who are injured in accidents; so, one of the things to remember is that if you’re injured in an accident, don’t feel like you’re trying to take advantage of the system by filing an insurance claim. The insurance industry collects billions of dollars every year from people precisely to provide for this compensation, and if and when you are injured and have a legitimate claim, it’s absolutely the right thing to do to pursue your claim in order to collect a portion of that billions of dollars that the insurance company has collected for just this purpose. Thank you very much for having me.

We’ve been speaking with Attorney Joseph Matthews, author of “How to Win Your Personal Injury Claim,” published by Nolo.

What's the Difference Between a Green Card and Citizenship?

2006-04-09T15:00:00.000-07:00

We’re speaking with Attorney Ilona Bray, author of “Becoming a U.S. Citizen: A Guide to the Law, Exam, and Interview.”

NOLO: Ilona, immigration has become a hot button topic these days. You practiced immigration law with several nonprofit immigration agencies, and you’ve written book about marriage visas, and student and tourist visas. So maybe you can start out by explaining the difference between a visa and a green card.

ILONA BRAY: A green card just means that you have U.S. permanent residence, that being the right to live and work in the U.S. for an unlimited amount of time. The only condition there is that you have to not commit any crimes or do other things that would make you removable from the U.S. But as long as you sort of stay out of trouble, you can stay here pretty much forever. The reason they call it a green card is because the ID card that you carry used to be green; it’s actually now pink. A visa is a right to enter the United States; it’s really a physical thing. Your passport gets stamped with a visa by a U.S. consulate, and then you can come to the U.S., say as a student, a visitor, or on some other temporary status. The reason some confusion comes into this is that a visa is also used by some immigrants who come to the U.S. for permanent residence, for example the spouse of a U.S. citizen. So, going back to the temporary visitors, they might use the visa more than once, because they’re traveling in and out of the U.S. before their status or their visa expires. But for the permanent resident folks, it’s a one-time-use visa, so they would basically trade it in for a green card the second they enter the United States.

NOLO: I’m fascinated by the color change of the green card. Why did they change it to pink?

ILONA BRAY: I would love to know the answer to that; can’t tell you.

NOLO: I think some people are under the impression that if you marry a U.S. citizen, you automatically become a U.S. citizen, without a green card. Is there any way you can become a U.S. citizen without going through the green card process?

ILONA BRAY: Pretty much not, you’re right, that’s a common misconception. But in almost every case, you need a green card first, and then after you’ve had the green card for a certain number of years, you can apply to become a U.S. citizen, through the process that I describe in my book. And the actual process is called naturalization. The false information about that does lead to some really sad cases. I’ve heard of people showing up at the U.S. border or airport with their new husband or wife, and being told, “Nope, sorry, you’ve got to go home again and do a couple years worth of paperwork.” In fact, at that point, they probably wouldn’t even let the spouse in as a tourist, because they’d say, “No, you’re not a tourist; you want to live in the U.S. permanently, so get back on your own soil and go through the paperwork.” It’s an awful situation. Now, there are a couple of exceptions to whether you can skip over the green card and go right to citizenship, just small ones. One is, that if you’ve served with the U.S. military during certain wars, and that includes the current war in Iraq, and you signed up for the military while you were on U.S. territory, you can apply directly for citizenship or naturalization. The other exception is for children of U.S. citizens who were born overseas, and they can in many cases become citizens automatically, without even applying for it. And that actually applies to newly adopted children, too. So, even though they would come to the U.S. on a green card, the minute they get to the U.S., they just automatically become citizens; they don’t have to worry about the application or anything.

NOLO: Ilona, does everyone who has a green card qualify for U.S. citizenship?

ILONA BRAY: No, unfortunately. That’s a very personal sort of thing, depending on how you’ve acted basically since getting your green card. In theory, everyone should be able to go through the right number of years and then apply, but you’ve got to figure out whether you’re truly eligible before turning in that application.

NOLO: Okay, what about someone who’s in the country illegally now? Is it possible for that person to go from illegal status to green card or to citizenship?

ILONA BRAY: Pretty much not; only in the two situations that I described above, where if you’re in the military -- and you can actually serve in the U.S. military as an undocumented alien -- you can get a green card on that basis. And then the other one that I described were children who can become citizens through their parents. And they actually wouldn’t have been illegal in the first place, but they might have thought they were illegal, and that does sometimes happen. If someone thinks that they’re undocumented, they may get hauled into immigration court, and when the attorney starts researching their chain of descent, and discovers, “Oh, your parents were actually in the U.S. with citizenship at the right time.”

NOLO: One of the requirements for citizenship is that the person be of good moral character. You say in the book that someone lacks good moral character if they’ve abused drugs, avoided the military during wartime, or if they’ve had a drinking problem. Apparently those haven’t been impediments to political office in the U.S., so why are they so important to the USCIS?

ILONA BRAY: This is just one of the many areas where it seems like foreign-born people are held to higher standards than U.S. Citizens. Another area that comes up a lot is in the commission of really minor crimes. Stuff that would get you a slap on the wrist in a U.S. court, like, first time drug peddling between friends or, say, shooting a gun on the fourth of July, which I understand is sometimes a tradition in some communities… those would get an immigrant deported, believe it or not. Now, we can guess at the justification pretty easily, it’s that U.S. citizenship is the highest benefit that anyone can be granted under the U.S. immigration laws, so you want to set some limits on who it can be granted to. At the same time, I certainly would not object to raising the limits on who can gain political office in the United States.

NOLO: Let’s talk about the written test for a second. What’s the thinking behind that test? Why do new citizens need to know the name of the boat that brought the pilgrims to the U.S.? Is this the same sort of thing we were talking about before where we have to establish a higher standard?

ILONA BRAY: There’s some of that, and I think also it’s that, before we give someone the right to vote and to fully participate in U.S. society, it’s going to be helpful for that person to understand what philosophy this country operates by and some of its history. I think one of the questions is even what month our election’s held in, so, “What month do you go and vote in?” So that’s a good thing for people to know, to get them involved in U.S. civic life. But, you’re right, a lot of the exam seems really out-of-date, and a weird part of it is that, to make it standard, they’ve boiled it down to one hundred questions, which are published, and everybody knows what the questions are, and you can practically memorize them without knowing what the true meaning of the answers is, which is sort of awkward. And, some of the questions are just obscure. Like, I like to make a game sometimes out of asking my U.S. citizen friends to answer some of the weirder questions, like, there’s one, “Who said ‘Give me liberty or give me death’?” Or, one of the hardest ones on the exam is, “Can you name the thirteen original states in the U.S.?” And many of my friends failed these. I think I might fail the thirteen original states if you asked me right now, which I hope you won’t.

NOLO: Of the three requirements: the exam, the interview, and the swearing-in, the interview seems the most intimidating, especially for someone who may not have excellent English language skills. So, how hard is the interview, and should you bring an immigration attorney with you?

ILONA BRAY: The interview doesn’t have to be hard, just to give people some comforting thoughts first. It doesn’t last very long, it lasts about twenty minutes usually, and it contains almost no material that you don’t know to expect in advance if you’ve done a little preparation. Basically what they do is sit you down, swear you in, they go over your application, they’ll ask you a few of the one hundred questions to see if you can pass that, they’ll ask you to write a sentence in English, and all along the way you’re actually being tested on your English but you don’t really know it, because you’re interacting with the examiner. And that’s it. If you speak English pretty well, you should really do fine. Now, as you mentioned, it’s a lot harder for people who don’t speak English so well, and it can be a double-whammy if you get a USCIS officer who’s rude, or who’s having a bad day. I’ve been in citizenship interviews where I’m overhearing an interview being held with someone who doesn’t have an attorney, say, in the cubicle next to me, and sometimes just go from bad to worse because of a language barrier. Like, the interviewer may say, “Stand up,” the interviewee doesn’t understand, they don’t stand up, the interviewer gets frustrated, and it just goes from bad to worse. If something like that happens, actually, the person should ask to see a supervisor and just find a way to stop the interview for that day, because they can always reschedule for another day, hopefully with another person. Whether you need a lawyer is an interesting question. For some things, it actually would be helpful just to have a third person there, and a lawyer is your best bet. Like, in the situation I described when there’s a big misunderstanding over some simple language concerns, a lawyer can at least make everybody feel better and potentially understand what’s going wrong and fix it. They are not using their legal knowledge, but they’re awfully handy to have there. Not everyone needs a lawyer, and if their English is good, and their legal eligibility is solid, it can easily be done without. Some people, however, definitely need a lawyer. In fact, some people should be consulting with a lawyer far beyond the interview, when they’re putting their application together. But if they didn’t, it’s never too late to call up a lawyer and say, “Can you look over my application and come with me?” The people that would fall under that category are the ones who have legal issues in their case such as crimes, or the biggest concern would be if they weren’t eligible for their green card in the first place. For example, some people have managed to get a green card, say, as the unmarried child of a U.S. citizen, when in fact they were married and they just didn’t tell anybody coming in. Citizenship is a chance for them to open up the file again, look at all your personal history, figure out that problem, and then say, “Ah, I guess you don’t really have a green card, so you’re not only not going to get citizenship, you’re going to be put into immigration court proceedings and be removed from the country.” So, an immigration attorney can help figure out whether there are problems like that in the case. And they will in some cases say, “Don’t even apply. You’ve got a green card, you can sit happily in the U.S. infinitely, because you probably won’t come into contact with the immigration authorities on any other basis, but don’t put yourself in front of them by submitting this citizenship application.”

NOLO: Ilona, you’re an immigration attorney. Are you one of the attorneys who can get an applicant to the head of the line?

ILONA BRAY: I would never claim to be able to get anyone to the head of the line, and anyone who does claim that is probably not someone you want to be associate with, because it’s basically not possible. The immigration service, USCIS, is a frustrating bureaucracy, and I’m sure there are times when many attorneys have wished that someone would take a bribe or do something underhanded, but really, they don’t. For the most part, they operate according to law, except for a few weird things you hear occasionally in the news, where someone gets caught for taking a bribe or something. But they’re on the lookout for that; that’s not the way the agency operates, thank goodness. But I would say that it’s good to have an attorney who is professionally well connected, just because given that it’s such a bizarre bureaucracy, belonging to a professional association, like one called AILA, which is the American Immigration Lawyer’s Association, gets you in touch with other attorneys who can share tips, can share inside phone numbers, just something as simple as, “Who’s the latest supervisor for the adjustment of status unit that I call if my application gets lost?” That’s important information; it’s not underhanded, it’s just keeping up with what’s going on. And, AILA also actually holds something called liaison meetings, where the USCIC people consent to meet with attorneys and answer questions more or less once a month, and that’s a great chance for the attorneys to find out what’s really going on behind the scenes and to bring up concerns. So, someone who’s not connected in that sense, they could still do a good job legally in many ways, but they won’t have some of the secret tips on sort of the latest issues and ways to get around them.

NOLO: How many shots does an immigrant get at U.S. citizenship? Is it three tries and you’re out?

ILONA BRAY: Well, that depends. If the interview doesn’t go well, and you don’t get approved that day, it’s not necessarily the end of the line. And if the reason was that you failed the English or the U.S. History and Government exam, they’ll pretty much automatically bring you back; you’ll get a new appointment notice to come back within ninety days, and you can retry the exam, which is great. Sometimes it won’t be so systematic; they may say, “Well, you didn’t pass because we’re not sure you actually paid your taxes; provide us with a tax return.” Or, “We’re not sure that that marriage of yours that lasted one year and got you a green card was the real thing; you’ve got this divorce here. Bring us proof that it was a bona fide marriage.” So, in that case, you’ll have to supply the documents, and you’ll have to convince them, and it can drag on for a while, but there’s hope of eventually getting an approvable. If there’s a more serous problem, like I described earlier, with someone who wasn’t eligible for the green card in the first place, in that case, the denial of the citizenship application is pretty much an outright denial, and you would have to go to immigration court just to fight for your right to the green card.

NOLO: You wrote your book before 9/11. Based on what you know now, do you think the hurdles are higher for those seeking U.S. citizenship?

ILONA BRAY: The hurdles are higher for everybody, but it’s the least difficult for people applying for citizenship. They’ve had their green cards for a few years by now; they’re sort of presumed to have been settled in U.S. society, and there isn’t the big question of, “Who are you? You’re coming from outside the borders; we have to run five million security checks on you.” Now, they do still take your fingerprints, and they will still check them carefully, and more carefully then they would have before 9/11 and other terrorist events. But, it’s less of a problem for the citizenship applicants than for others. Now, there is one thing I should mention though, that can be a problem, which is, there is a problem on the citizenship application form, which is form N400, that asks you, “Are you associated with any groups?” And that’s a question that we attorneys like to encourage people to answer pretty fully, in the sense that civic involvement is a good sign; it shows that you have good moral character, which is one of the requirements for citizenship. But if you mention a group that is on the U.S.’s list of terrorist organizations, and that’s a pretty broad category these days, any group that provides funding in any way for anything considered violent or terrorist can be dubbed a “terrorist organization.” Then you’re going to have real trouble. So I would say, if you’re from a country that has any groups that might possibly be suspected, it’s worth checking with an attorney before putting that on your application. Or even if you don’t put it on your application, before going to your interview, just in case there’s some question about, “What group are you involved in, and what’s really the nature of that group?”

Do You Need a Will or a Trust?

2006-04-02T14:57:00.000-07:00

We’re here with Attorney Denis Clifford, an expert on estate planning, the author of several books on wills, estates, and trusts, including the best-selling “Estate Planning Basics.”

QUESTION: Let’s start out. A lot of estate planning books recommend that a person planning their estate assemble a team of experts, including a lawyer, accountant, and a life insurance expert. This seems like an expensive proposition, so, tell me what your take is on that.

DENIS CLIFFORD: My take is, it’s a totally wasteful proposition for the average person; there’s no need for a “team of experts” at all. What you need is, first some good advice and understanding of what estate planning involves and how that applies to your situation. Many people don’t need anyone at all; with the help of a Nolo book, they can do all their estate planning themselves.

QUESTION: Two common ways to transfer property to people after your death: living trusts and wills. Just for those who don’t know the difference, perhaps you could give us a brief explanation of each.

DENIS CLIFFORD: Well, they’re both documents that transfer property when you die. The difference is a will is the traditional document that’s been used for many centuries, and you name the property or identify it some way, and name beneficiaries who receive the property. Almost all wills have to go through a process called probate, which is a court approval process, which is time consuming and expensive, and in almost all cases, provides no benefit except to the lawyers involved. A living trust is the alternative transfer method that does not require probate, by which you transfer all or at least most of your property to the same beneficiaries without the expensive courts and lawyers after you die.

QUESTION: Next is joint tenancy and tenancy by the entirety. Could you give us a brief explanation of what those mean?

DENIS CLIFFORD: Joint tenancy is a type of shared ownership between two or more people. And, in almost all states, each person has to own an equal share of the joint tenancy property. It’s most common between couples, whether married or not, owning real estate. The unique characteristic of joint tenancy is when one of the owners dies, the other owner receives the property “automatically,” outside of probate. Again, it’s a probate avoidance device. There are some complexities if you want to enter into joint tenancy just to avoid probate, which are discussed in my books. But for people who are buying property and want to own it in common, joint tenancy is often a very useful way to avoid probate of that, and, in fact, I own my house in joint tenancy with my wife. Tenancy by the entirety is a type of joint tenancy, and it applies in a number of states, particularly to married couples. It’s basically indistinguishable from joint tenancy, expect that you use different terms in the deed defining the ownership, and you use the terms as tenants by the entirety rather than as joint tenants.
QUESTION: Okay, I guess this next thing is sort of what I would call the Joan Crawford question, which is, if for some reason a person does not want to give any money to their children or spouse, do you have to specifically disinherit that person?
DENIS CLIFFORD: Well, first let me refer to “spouse,” and there’s two different situations here, depending on whether you live in what’s called a “common law state,” which is a vast majority of states in the United States, which derive their law from the English legal system, or the community property states, such as California, which derive their marital property law from a Spanish system. In community property states, each spouse owns half of the property acquired during marriage, no matter who “earned” it. In community property states, a spouse does not have any obligation to leave his or her half of the community property to the other spouse. In common law states, there are laws protecting a spouse from being disinherited from the other spouse, since one spouse may own all the property, it may be in his or her name, and the other spouse may get nothing in a will. So, there are laws that protect a spouse, and our Nolo rule is that, if you are going to leave your spouse at least half your property in a common law state, see a lawyer. As far as disinheriting children, you can disinherit any child you want to. You should do it specifically by saying, “I intentionally leave no property to my son, daughter, whatever,” because there’s a rule that says if you forgot to mention a child in your will, that child may be entitled to a certain percentage of your estate.

QUESTION: Can you tell me about the problem that might occur if you die and your children are still minors?

DENIS CLIFFORD: Well, in all states, children, meaning children under the age of eighteen, are not legally entitled to own outright a significant amount of property, the idea being that they are not old enough to responsibly manage it; they’re not adults, same as they can’t vote until they’re eighteen. So, some adult has to be responsible for having legal control and supervising any property or money you leave to a child. There are a number of ways you can do this. You can set up what’s called a gift in your will or living trust under what’s called the Uniform Transfers to Minors Act, in which you appoint a custodian. Often people will name their spouse or their mate, or if they don’t have one of those they name a close friend or relative or sister or brother to be the custodian, and that custodian manages the property until the child turns between eighteen and twenty-five, depending on the specific state, and when that state law says that the property has to be turned over to the child. There’s also a device called the Children’s Trust, which basically works the same as the Uniform Transfers to Minors Act, except you can extend the age at least up to thirty-five before the child gets the property. There are other devices as well, but those are the best two.

QUESTION: This term “pour-over will.” We can visualize the concept, but maybe you could explain that a little better.

DENIS CLIFFORD: Yeah, pour-over will is actually often used with a living trust. What it means is that the will directs that all the property subject to the will be poured over into the living trust. In other words, you leave most of your property by trust, but you say, “I have a pour-over will, and that says any property subject to my will after it goes through probate shall go to my living trust.” I think pour-over wills are rarely a good idea; that’s one of those things that has a fancy name, and some people like a fancy name, and lawyers like to push it because it makes more probate work for them. But there’s no reason to direct property to go first through probate and then into a living will. If you’re leaving some property by will it will have to go through probate more than likely, and then it might as well be distributed when probate’s done. To let it go through the will will hold up the whole process of transferring all the property through the living trust if it’s poured over. So, I’ve mentioned in my books a couple of instances where I think it might be useful, but in general, it’s not a good idea.

QUESTION: This is definitely going to be a basic question for you, but probably for a lot of people that are still not clear on the form that a will has to be in… in today’s world, can you have an electronic will? Is an oral will ever going to be valid, or a video format? Can you just tell us a little bit about the format that a will should be in?

DENIS CLIFFORD: Yeah, the answer to all those options is no, they are not legal in any states. Nevada has a statute that if they ever get sufficient identification mechanisms and procedures, so that we can identify who is speaking orally or on a video, then that could be a valid device, but there’s no recognition system that’s infallible or close to infallible right now. So the answer is, a will has to be a printed document and is subject to certain rules. In a minority of states you can have a hand-written will, but I discourage them strongly. They’re suspect by courts, they’re more strictly construed than other wills, there can’t be any erases or cross-outs, and it’s not hard, certainly with a Nolo book and a computer, to prepare a valid will following the requirements of state law. Then you print it out, sign it, have it witnessed, and it’s done.

QUESTION: Estate tax, a huge issue… is there a way to just give us a summary of the kinds of things that are commonly exempt from estate taxes?

DENIS CLIFFORD: Well, first of all, I don’t really think estate tax is a huge issue, except for millionaires; by definition, it’s only for millionaires, at least federal estate taxes, which are the ones that take the biggest bites. Each person has a two million dollar exemption from federal estate taxes when they die, so if your net estate is worth less than two million dollars, your estate cannot be subject to estate taxes. It’s a very small percentage, roughly one percent or less of the estates in the United States are now subject to estate taxes. It’s the kind of thing that people who are interested in protecting only the rich scream about, but in fact it concerns very few people. There are some state estate taxes, but they are much less significant, and there isn’t much you can do about them except move to another state, and it’s almost never worth bothering with that. If you live in two states and one has estate taxes, you might want to see a lawyer to see how you can transfer your residence to the other state if that state doesn’t. In terms of other exemptions, the major other exemption from federal tax is any property, no matter worth how much, that you leave to your spouse, is exempt from tax. Also, of course any property that you leave for legitimate charitable purpose is exempt from tax.

QUESTION: Okay, I was duped as many people were in 2001 into believing that estate taxes were repealed. But that’s not true?

DENIS CLIFFORD: No, for various technical and other reasons, the estate tax was not repealed. The Republicans put through a particularly wacky law that raises the amount of exemptions; it’s now at two million per person, in 2009 it’ll go to 3.5 million per person free of federal estate tax. In 2010 the estate tax is repealed for one and only one year. In 2011 the estate tax comes back and currently the exemption will be lowered to one million dollars. There has been a considerable and extensive political fight in Congress over whether they are going to permanently repeal the estate tax or not. Personally, I think repealing the estate tax is a disastrous idea, leading to creating, even more than we are now, a class of inherited wealth, sort of like the Bourbons in pre-Revolutionary France. And, the cost to the treasury, although only one percent pay estate tax, the amount they pay is many billion dollars a year because of the class of wealthy people we’ve created in this country. And to enable them to pass their wealth on forever without any tax seems to me an abomination.

QUESTION: Let me just get one thing clear on that. You mean if you die on December 31, 2010, there is no estate tax, but if you die the next day, there’s a one million dollar exemption and that’s it? Is there a way to tell when it’s time to seek an attorney’s advice? Are there any simple guidelines?

DENIS CLIFFORD: Well, I was thinking about this, and the answer is yes and no. One simple guideline is, if you feel insecure, or just don’t want to do the work or are, you know, the kind of person that always wants a paternal figure or a maternal figure to say you’re okay, so, one way to look at it is a subjective thing. I say you should start with some solid information about what your situation is and what your estate planning option is, and personally, obviously I believe the best way to get that information is through Nolo Press resources. In our Nolo resources, we often have little sites saying, “If you’re in this situation, see a lawyer,” because there are a number of situations, many in estate planning, where I think, “We can’t explain this well enough; it’s such a relatively unique thing, and it’s fairly complicated; go see a lawyer if you’re in this situation.” So, another approach to it is to read through the Nolo resources applicable to you, and see if you fall under these categories where there are little red flags saying, “Consider seeing a lawyer.” But let’s take a couple of average situations. Whether you’re single or not, and you have some children and maybe a grandchild, and basically you want your property to go to them, or maybe your spouse and then to them, unless there are some complicated tax problems or other problems, you can state what you want in a sentence or two. There’s no reason to have to run to a lawyer and say, “I want to leave my property to my kids; can I do that?” Of course you can do it, and with the proper legal forms, which Nolo provides, you can do it without seeing a lawyer. So I think you should start with the confidence that “I can figure this out.” And if you can’t, then go see a lawyer.

What Are Some Tips for Financing a Small Business?

2006-03-26T14:55:00.000-08:00

We’re speaking with Asheesh Advani, one of the founders of CircleLending.com, and the author of “Investors in Your Backyard: How to Raise Business Capital from the People You Know.”

NOLO: Asheesh, perhaps you can start out by explaining what CircleLending is, and what it does.

ASHEESH ADVANI: CircleLending was founded five years ago. We formalize and facilitate loans between family, friends, and business associates. The normal way people do these loans independently of CircleLending is, “Here’s $25,000 for your business; pay me back in five years.” And five years later, even if the business has gone very well, and the family is still living in the home, it’s very difficult to make a lump sum payment of $25,000 dollars; it actually takes a lot of financial discipline to save that kind of money. So, the default rate on these loans is very high. What happens after five years is, the borrower thinks, “Okay, now I’m going to have to start thinking about repaying the loan,” and the lender thinks, “This is when I start getting the full $25,000 back.” And that wasn’t ever communicated clearly at the onset. So, one person hears one thing, and one person says another thing. So the original insight behind CircleLending was to create repayment plans to make these loans work. Because when you look at the default rate on loans administered through a third party plan through a repayment plan, the default rate is much lower. If you want the numbers, the default rate on loans between family and friends that don’t involve CircleLending is around 14%, and the default rate on loans involving CircleLending is under 5%. Actually, for mortgages, it’s under 1%. So, people don’t tend to default on home loans. They tend to default a little bit more often on business loans, and on emergency personal loans.

NOLO: Why do you think the CircleLending default rate is so much lower than bank loans?

ASHEESH ADVANI: Well, I think we administer all the payments using direct debit and direct deposit, and I think that if the money’s in the bank account, we take it, which kind of forces financial discipline on you, and if the payments are late, or if you default, then it can impact your credit rating as well, which tends to really trigger certain types of behavior.

NOLO: Asheesh, let’s talk about your book. It’s a great idea, and an interesting book. But let’s just imagine that you’re a small business owner starting out, and you need maybe ten or fifteen thousand dollars, but you don’t really have any idea on how to focus on getting that money. What are the kinds of questions that you should be asking?

ASHEESH ADVANI: There are two things you need to think about. One is, who’s going to be able to supply the money, and the second is what form it should come in, and I think those questions are very related. There are certain types of people who will only invest money in the form of a loan, not as a gift or equity, and there are certain types of people who would much prefer to invest it as a gift or equity versus a loan. And, be clear about those two questions, as, you know, the first thing to think about that will help frame the conversation.

NOLO: In your book, you talk about the five C’s of lending. Practically, I wonder, when you go into a bank, is the person behind the desk really thinking of these five C’s, and which of the C’s are they focusing on?

ASHEESH ADVANI: That’s an excellent question, and it really gets at the heart of why people borrow money from family and friends. Banks used to make decisions based on the five C’s; that was what the vast majority of banks, say, twenty years ago, would look at. And they looked at all the C’s, but collateral was probably the most important one. Character, capacity, conditions of the business, and your credit history are the other ones. Now what’s happened is that there’s really only one C of credit, and that’s your credit history. Everything else is much less important than the credit score that you bring to the table in your bank application. And that’s true for a couple of reasons. One reason is, banks merged. And when banks merge, they tend to automate. A second reason is the power of your credit score as a predictor of the success of loan has really increased. So as credit reporting agencies have collected data on individuals, they’ve become very, very good at having a high degree of predictability. So banks now have a need to automate, and they’ve got this tool by which they can automate decisions. So now most decisions are made very quickly on small business loans, based on your credit score.

NOLO: So there’s a software component to it now.

ASHEESH ADVANI: Oh, absolutely, it’s completely automated, so that’s why you can apply for business loans online now. So, in fact, if you notice, when you apply for a business credit card, they don’t even ask you what kind of business you have. They don’t ask you the name of the business, they don’t ask you how long you’ve been in business, they don’t ask you your experience with it… they have no interest in your character, because it’s all reflected in your credit score, or so they believe. So, what’s happened in America is, you could have a great business idea and be an honest person with god character, but if for whatever reason you’ve got mediocre credit, you will not be able to get business financing through banks.

NOLO: Does a person who’s taking a loan from a bank always have to sign a personal guarantee?

ASHEESH ADVANI: Banks will definitely ask you for a personal guarantee, for all small business loans. That’s par for the course. Only at the highest end of commercial debt would you ever not involve a personal guarantee. For loans within family and friends, it’s totally optional. It really depends on your relationship, and what your lender is willing to bear in terms of risk. And there are some advantages to a personal guarantee; it tends to make the relationship actually more stable, because then the person feels you’re not hiding income or assets.

NOLO: Is there a particular business form that’s ideal if you’re seeking funding?

ASHEESH ADVANI: The question of which business form to use is a very broad question. Financing is one of ten factors you need to think about. I’ll give you one rule of thumb: if you are raising money for the kind of business that you think will incur a lot of losses in the early years, there’s an advantage to forming it as an S corporation. If you choose to do that, then there are financing implications as well, of the kinds of investors you should get, who may or may not want to pass that through to their personal income as a loss.

NOLO: Often you read that a person starting up a business needs a business plan, but then you also hear that investors or people who want to loan money really don’t want a business plan, they just want to know how likely it is that you’re going to make money, and when that will happen. Is a business plan really important?

ASHEESH ADVANI: A business plan is important for all entrepreneurs who are starting a business. But, if you are raising money from relatives, friends, and business associates, I would in fact not recommend bringing the business plan to the meeting. What they really want to know is, “Will you pay me back?” and “Can I trust you as an individual to find a way to pay me back?” And the way to address that is by looking them in the eye and being really honest and saying, “Here’s what my business’s chances of success are, and here’s what I’m going to do, even if it fails, to pay you back.” Having said that, if you don’t have a business plan to bring to the meeting, you should bring something else. And I recommend in the book that you should bring something tangible to show that brings the business to life: a brochure, a sample product, some piece of press about your or your business, something that helps people go, “Ah, that’s what I’m investing in.”

NOLO: When you’re borrowing from family and friends, there’s an emotional issue, especially if there’s a danger that you’re not going to pay back the loan. How do you deal with the emotional side of borrowing from people that you know?
ASHEESH ADVANI: Yes, I think it’s a very real concern when you’re borrowing money from friends and relatives. One, it could jeopardize the relationship, but it could also be a financial problem if you can’t pay back the loan for your lender or your investor. And both of those, I think, should be factored in, in terms of deciding who to borrow money from. So, don’t go to a person, like a grandmother, who’s on fixed income, to borrow money – bad idea. But having said that, at CircleLending, we’ve seen thousands of people borrow money from friends and relatives, and typically what happens when there’s a default is, the lender understands. The lender says, “Jeez, if I hadn’t created a repayment plan, then I wouldn’t have even got the first half of the loan paid back. So, I’m thrilled I got the first half paid back. Now, I understand this person’s going through difficult times.” Two things to think about: one is, the lender can deduct the loss against their capital gains, if they formalize the loan and show they tried to pay. So, that’s one element or value you can derive just by virtual formalizing. And the second thing to think about is you can restructure the loan so that it works for both parties. It doesn’t have to follow the payment schedule you outlined on day one; you can say, “Okay, I’m only going to pay you back fifty bucks a month for the next twenty months until I’m back on my feet.” So at least after twenty months, you’ve paid back a thousand dollars!

NOLO: It’s true that we can do a lot of this borrowing without lawyers. But are there times that a person needs to bring in an attorney?

ASHEESH ADVANI: Yeah, particularly if you’re raising money in the form of equity, I would consider a lawyer to help create the documentation for that. But for loans, I would say the vast majority of documentation is found either at CircleLending or in the book.

NOLO: Asheesh, thanks so much for talking to us today.

ASHEESH ADVANI: Thank you!

This Podcast provides legal information. Consult a lawyer if you want professional assurance that the information is appropriate to your particular situation.

For over thirty-five years, Nolo has produced reliable self-help legal and business books, software, and forms. Check us out on the web at www.nolo.com.

What's in the Public Domain?

2006-03-20T14:54:00.000-08:00

We’re speaking with Attorney Stephen Fishman, an expert on copyright law, and the author of “The Public Domain: How to Find and Use Copyright-Free Writings, Music, Art, and More.”

NOLO: Steve, there’s been a lot of interest in the public domain these days. Can you give us some famous examples of things that are in the public domain?

STEPHEN FISHMAN: Well, there’s a huge amount of material available. For example, the works of William Shakespeare are in the public domain, many, many famous songs, “The Star-Spangled Banner,” “Jeanie with the Light Brown Hair” by Stephen Foster, the King James version of the Bible…

NOLO: So, the fact that these works are in the public domain… does that mean that anyone can copy them? What exactly does it mean if something is in the public domain?

STEPHEN FISHMAN: Yeah, when something is in the public domain, it means that anybody can copy it or use it any other way without paying a permission fee to any copyright owner, because there is none; the work belongs to the public as a whole, and any member of the public can use it any way he or she desires.

NOLO: If a person has an idea, can that be in the public domain? Because, for example, the lawyer for Dan Brown, author of The Da Vinci Code, says, “Dan Brown is free to copy certain ideas, as long as he doesn’t copy the expression.”

STEPHEN FISHMAN: Well, his lawyer is quite right; he’s paying him probably 200 bucks an hour, 200 pounds an hour, I’m sure he’s worth every penny. What he means is that ideas, concepts, thoughts… they’re always in the public domain; no one can own an idea. It’s only when you express an idea, when you put it down on paper, you write it, or if you have a musical idea, you play it, and you record it or write it down as sheet music… only what you express in a concrete form is protected, not the intangible idea itself. Thus, Dan Brown can take the idea of Jesus Christ having a child with Mary Magdalene, and write a novel based on it, as long as he doesn’t copy the actual words from the books of these people who are suing him.

NOLO: Okay, well you were saying earlier that “Jeanie with the Light Brown Hair” is in the public domain. Does that mean that anyone can use a recording of that song and copy it and sell it?

STEPHEN FISHMAN: No, I’m afraid not. Sound recordings and the music have two separate copyright regimes. There’s the sheet music, and then there’s the recording; they’re both separately copyrighted. Most recordings are not in the public domain, whereas all the sheet music published before 1923 -- which includes “Jeanie with the Light Brown Hair” -- is in the public domain, and thus, you can get a copy of the sheet music, and make your own recording. If you want to use an existing recording, you’ll probably have to get permission or pay a license fee.

NOLO: So, the message would be, if you wanted to use a public domain song in your film, the best advice would be to do a new recording of it, because then you wouldn’t have to pay any…?

STEPHEN FISHMAN: Depending on the cost, that probably would be the cheapest thing, although you might be able to get a cheap, cheap permission fee for some music, but certainly, it would be pretty inexpensive to hire a pianist or someone to play any public domain song.

NOLO: Is there a simple way for people to determine if something is in the public domain? For example, in your book, “The Public Domain,” I know you have a chart that’s pretty easy to use. Can you just give us a couple of quick tips on how you can determine if something’s in the public domain?

STEPHEN FISHMAN: Well, one tip is that anything published in the United States before 1923 is in the public domain in the United States. Many works published in the United States between 1923 and 1963 are also in the public domain, because they never had their copyrights renewed. However, you’ll have to research copyright records to determine whether they’ve been renewed or not. Government works, US government works by the federal government, everything they publish and create is in the public domain; the speeches of George Bush, everything published by the US printing office, NASA photographs and films, decisions by federal judges… they’re all in the public domain.

NOLO: Steve, is open source software the same thing as public domain software?

STEPHEN FISHMAN: Open source software is not in the public domain, but it is made available, subject to its very, very liberal license, and this license permits users to modify, distribute, or otherwise use the software, without getting permission.

NOLO: Okay, so, it’s not public domain software; it’s software that’s subject to license conditions. So, you really need to read the license on it.

STEPHEN FISHMAN: It’s software that somebody owns, but they let other people use, free of charge, for many uses.

NOLO: One thing you mentioned earlier was a derivative work; could you just give a brief explanation of what a derivative is, and maybe give us an example of how public domain work can be transformed into a derivative?

STEPHEN FISHMAN: Well, derivative work is any work that is based on or adapted from pre-existing work. For example, if you make a movie based on a novel, the movie is a derivative work. Recently, we’ve had, for example, the movie “Oliver Twist,” based on the novel by Charles Dickens, which is in the public domain. The movie is a derivative work based on a public domain novel.

NOLO: And you can have a derivative where you alter the public domain work, like “West Side Story”?

STEPHEN FISHMAN: Good example, “West Side Story,” loosely based on “Romeo & Juliet.”

NOLO: When you create a derivative, though, you can protect that and stop others from using what’s in the derivative?

STEPHEN FISHMAN: That’s correct. When you create a derivative, the original material you add is protected. The material you’ve copied from the original public domain source remains in the public domain, but anything you add is protected.

NOLO: In your book, you refer to the public domain presently being frozen. What do you mean by that?

STEPHEN FISHMAN: Back in 1998, Congress passed a law called “The Sonny Bono Copyright Extension Act” that extended the copyright terms for all existing copyrighted works by twenty years. As a result of that law, no new works will enter the public domain until the year 2019.

NOLO: Is creative commons the same thing as public domain?

STEPHEN FISHMAN: It can be, but is not always. Creative Commons is a nonprofit group that is trying to foster the public domain, and fare use, and they’ve created several types of licenses that people can use, somewhat similar to open source licenses.

NOLO: And where can you find out more about the creative commons?

STEPHEN FISHMAN: They have an extensive website at creativecommons.org where you can find out about all of their licenses.

NOLO: Steve, your book is very helpful in terms of determining whether something is in the public domain or not, but one of the things you do suggest is looking things up on the copyright website. Some people may not be able to do that for one reason or another; is there some way you can pay someone to find out that kind of information?

STEPHEN FISHMAN: Yes, you can pay the Copyright Office; they charge $75 an hour to do copyright research, and there are also private firms that will do it; the best known is called Thompson & Thompson, located in Washington DC.

How Can You Deal with Medicare, Medicaid and Prescription Drug Programs?

2006-03-05T14:52:00.000-08:00

We’re speaking with Attorney Joseph Matthews, an expert on issues relating to elder care, and the author of “Social Security, Medicare, and Government Pensions,” published by Nolo.

NOLO: Joseph, let’s say you’re a person who’s just become eligible for Medicare. If you can give them only one or two tips, what would they be?

JOSEPH MATTHEWS: If you’re becoming eligible for Medicare for the first time, there are several things to consider. The first is to find out what Medigap plans are available, private insurance plans, where you live. These are the plans that supplement Medicare, because you’ll find out as soon as you are enrolled that, in fact, Medicare covers only 50-60% of your overall medical bills. You also have to determine what Medicare-managed care plans are available in your area. It’s difficult to compare the apples and oranges of Medigap and Medicare managed-care plans, but that’s your job when you’re enrolling in Medicare, is to find out which path of coverage is best for you. So, you’ve got to sit down and find out what the coverages are for the different plans that are available where you live, how much those will cost, and, also, how much they will leave uncovered, so you can begin to calculate which ones create the higher risk for you of unpaid medical bills, versus the amount that you would have to pay to enroll in the managed-care plan, or in a Medigap private insurance policy. In order to do that, you’ve got to get firmly grounded on what Medicare does and does not cover, and what Medicare does and does not pay for within its coverage, and that, of course, is what social security Medicare and government pensions does for you; it lays out for you exactly what the coverages are, what the gaps are, and therefore what you have to consider when making your choice.

NOLO: In your book, you note that more than half of the people over 65 buy supplemental insurance. Can you share one or two tips about buying supplemental insurance?

JOSEPH MATTHEWS: One way to address the question is to investigate managed-care, coveraged by managed-care companies, HMOs, PPOS, or the like, which offer comprehensive medical care far beyond what Medicare itself offers, but which require you to go through a number of steps before you can get the care you may want, and, so, is not always attractive for a lot of people. The other alternative for many people is what are called Medigap private insurance plans, and these plans supplement Medicare coverage; they fill in the gaps, portions of your doctors bills that are not paid by Medicare, your hospital in-patient deductibles, things that can run up a considerable amount of money during the course of a year if you have many doctor visits or serious illness. These Medigap plans are controlled by the federal government, in the sense that they only can offer filling of certain kinds of gaps, and, so, there are only ten or twelve plans that you ever have to figure out the rules of. Whether or not you want to get a Medigap plan depends number one, on what your overall medical costs are, and, number two, what plans are available where you live, and how much they cost. The plans are not inexpensive, but, for many people, they provide the kind of security against high medical bills that might wipe out savings that make their cost worthwhile to people.

NOLO: In your book you say that, in return for coverage beyond basic Medicare, managed-care plans restrict the patients’ choices, and they pressure doctors to limit treatments, and the length of hospital stays. If that’s the case, then why deal with managed-care plans?

JOSEPH MATTHEWS: Managed-care, for Medicare patients, and for the population at large, is a mixed bag. Managed-care, under Medicare, presents lower-cost coverage, and coverage that, generally, is broader than what you could obtain through Medicare and Medigap supplements alone. However, there are things that you give up when you enter managed-care, and that is complete freedom of choice of doctors and treatments. The coverage by managed-care is very broad, and the premiums tend to be considerably less than if you buy Medicare or MediGap insurance. However, you are restricted in the doctors that you see, because you must see doctors only who will belong to the managed-care plan that you have enrolled in. Similarly, you cannot see specialists or receive other medical care outside of your primary care doctor, unless that primary care doctor approves of it, and sends you to those other specialists or other care, and those two must be within the “network,” as it’s called, of managed-care doctors and services that your managed-care plan sponsors. So, there are a couple of ways in which your freedom of choice for doctors and other medical care is restricted by managed-care plans. Whether that’s a good choice for you or not depends on several things. If the doctor that you normally see, and like to see, is a member of the managed-care plan that you’re considering enrolling in, then, in general, it’s not a bad choice. However, if you’re going to be forced to switch doctors in order to join the plan, then the choice of joining a managed-care plan becomes a lot riskier. Similarly, if the managed-care plan’s network of doctors and other providers is a relatively small one, and this is true usually in smaller towns, rural areas, and smaller cities, then you have to consider whether or not you are limiting yourself in your choice of doctors and other medical providers in such a way that you may not be able to get to the doctors that you want if and when you have a serious illness or injury.

NOLO: Let’s talk about what happens if your income and your assets are a little too high to qualify for Medicaid. Are there other state options that a person can consider?

JOSEPH MATTHEWS: Medicaid is a program funded by the federal government and operated by the individual states which helps people with low income to pay for the medical bills that are not covered by Medicare; I’m now talking about the Medicare-eligible population. So, if you have low income, and low assets, you may qualify for Medicaid coverage -- that’s called Medical in California -- which pays basically all of your medical bills that Medicare does not cover. However, there are an awful lot of people who cannot afford private insurance, whether Medigap or otherwise, who have no other way to fill the gaps in Medicare coverage, because they don’t quite qualify for Medicaid, or Medical. There are some programs that can help make the extra cost of medical bills go a little easier, even if you don’t quite qualify for Medicaid. There are programs that help to pay for Medicare deductibles and co-payments, very important gaps to be filled, and these programs are operated by the states; they’re called Qualified Medicare Beneficiary, Specified Low Income Medicare Beneficiary, and Qualified Individual. Each one, the qualifications are a little bit different, and what they cover is a little bit different. What’s important to know is that, if you are low-income, and have few assets other than your own home, even if you don’t qualify for Medicaid, you should consider applying with your county’s Department of Social Services, or Social Welfare Department, for these assistance programs, which can help pay for Medicare costs that are not covered by the program, but which these separate programs can help you pay for. The same thing is true for Medicare prescription drug coverage. Medicare prescription drug coverage, if you are on Medicaid, is almost free, and the co-payments are extremely low. However, there is also an in-between category of people who get low-income subsidies, even if they don’t qualify for Medicaid. Again, if you apply, if you have low income and low assets, you can apply for this low-income subsidy at your local Department of Social Services or Social Welfare Department, and it may drastically reduce the amount of money you have to pay for prescription drugs under the Medicare prescription drug program.

NOLO: The new edition of your book devotes considerable detail to the new Medicare program entitled “Medicare Part D.” This new law seems quite confusing, so, for those of us who don’t know how it works, perhaps you can start with just a basic idea of what it’s supposed to do?

JOSEPH MATTHEWS: The new Medicare Part D prescription drug coverage is a massive new program sponsored by the federal government, but run through private insurance companies, to cover some of the cost for prescription drugs for people who are enrolled in Medicare. Now, on the surface, it sounds like it’s a wonderful thing, because Medicare has never covered prescription drugs that people take home, before this new program went into effect. But the fact is, it’s a tremendously complicated system that only pays a portion of the prescription drugs, at a tremendous cost to the federal government, and to beneficiaries, in part because there are no controls on prescription drug costs, and because it’s run by insurance companies who have very high administrative costs, and profits, of course. In many ways, this is simply a massive giveaway to the insurance companies. The insurance companies have an administrative load -- that is, administrative costs that they run up in running their programs -- of around 15%, whereas Medicare itself is run under 5% administrative costs. So, it’s essentially giving away a huge amount of money, simply to permit the insurance companies to make a huge profit. Nonetheless, for anyone who is eligible for Medicare, prescription drug coverage is probably a good thing, if you take any substantial amount of prescription drugs that run up hundreds of dollars a year in costs, as they do with even a minor prescription or two for most people. What the federal government has done is made anyone who is eligible for Medicare entitled to enroll in a specific, private insurance plan that provides this Medicare prescription drug coverage, available geographically, that is, where you live determines which particular plans are available to you. Anyone is eligible; you may have to pay a monthly premium of anywhere between $20 and $35. Some plans offer low or no premiums, but, of course, they may have other costs that balance that out. There’s also, for most people, a deductible, a yearly deductible you must pay, and then there are co-payments for different drugs, depending on what the drug is, whether it’s available as a generic or not… there’s also the famous gap in coverage that people have been talking about - the donut hole - where, after you reach a certain amount of payments by the program, and out-of-pocket yourself, the plans stop paying your drug coverage for a certain amount of time, and then pick up again when you have very high drug costs. So, all in all, it’s an extremely complicated program; it will provide benefits for lots of people, but the program is not without many problems and many faults, and people have to be very careful in signing up for a plan that really fits their needs, and not simply picking a plan that has the most bells and whistles, or has the lowest premium -- something like that.

NOLO: Coverage under the new Medicare Part D prescription drug program isn’t handled by Medicare itself, but it’s managed by private companies who offer different plans in different geographic areas. This seems like it’s going to make things a lot more complicated for people who are trying to choose the right plan. In the new edition of your book, you offer a lot of helpful tips. Can you share a few of those with us?
JOSEPH MATTHEWS: The first thing that anyone who is considering enrolling in a Medicare Part D insurance plan should do is determine which specific plans are available in the geographic area where they live. They should then make a list of all the drugs they take, whether generic or brand-name, how much they pay for them now, and then determine whether or not the specific plans that are available in their area offer those drugs as covered drugs within their plan. Then, they have to determine how those drugs are covered, meaning, are they offered as generics or brand names, what are the co-payments for those drugs, and are there any other restrictions on availability of those drugs. Only by going through the several-step process of determining which plans in your area cover your drugs, and how they cover them, and at what cost, can you then start to make a very rational decision about which drug plan is best for you, if any.

NOLO: What does a person do if they’re part of a managed-care plan that doesn’t offer this Part D prescription drug plan?

JOSEPH MATTHEWS: Many people who have Medicare coverage get that coverage through a managed care plan, an HMO, or a PPO, or other kind of managed-care plan. These are available across the country, and many people use these to get their entire medical coverage, including those things that Medicare does not cover. Now that there’s a new drug coverage, often through Medicare, the question is, can you get that coverage through your managed-care plan, or do you have to go elsewhere? If your managed-care plan, that is, the plan that you’re now enrolled in, does not offer a Medicare prescription drug plan within the overall managed-care plan, you have a couple of options. One, you can buy a stand-alone prescription drug plan, just like anyone else can with or without managed-care. That is, you can investigate what insurance plans are available in your area, and enroll in them. This, of course, will add to your premiums and costs, in addition to what you’re paying now for your managed-care plan. You can also investigate whether there are other managed- care plans available in your geographic area that offer general medical coverage that’s comparable to the managed-care plan that you have now, and also offer prescription drug coverage. If so, you may want to switch to the other available managed-care plan in your area. The question of whether to switch managed-care plans is a difficult one, though, because you have to compare not only your Medicare prescription drug coverage, but also your overall coverage under the two managed-care plans.

NOLO: Joseph, thanks so much for being with us today.

JOSEPH MATTHEWS: Thanks so much for having me.

We’ve been speaking with Attorney Joseph Matthews, author of “Social Security, Medicare, and Government Pensions,” published by Nolo.

Should You Buy a Franchise?

2006-02-22T14:50:00.000-08:00

This episode features an excerpt from the Nolo book “How to Run a Thriving Business: Strategies for Success and Satisfaction,” by Attorney Ralph Warner.

Should You Buy a Franchise?

Almost every franchise presentation emphasizes that nation-wide franchise businesses take in about 50% of the retail sales dollar. What isn’t said is that the great majority of these dollars come from just a few categories: automobiles, gasoline, lodging, and fast food. Beyond these mega-buck fields, only a small percent of the money retailers take in goes to franchised operations.

Some Exceptions to the Rule:

Although I’ve become convinced that sinking money in a franchise is generally a bad investment, and no way to get your start in business, let me start with a couple of exceptions to my own rule. The first exception involves franchises built around continent-spanning communications networks, such as national hotel and motel groups, which maintain 800 phone numbers, and web sites allowing travelers to easily book reservations. This is not to say, of course, that any particular hotel, motel, or auto rental franchise is a good deal, only that, unlike many other franchises, they do sell something of real value. Second, franchises with brands that really are famous and highly regarded can sometimes be worth the high cost. Franchisees, especially those who bought in years ago at good locations, have made big profits in McDonald’s, Pizza Hut, Motel 6, and other world-famous franchises. But it’s been decades since an ordinary person could afford to purchase and build out one of the relatively few guilt-edged franchises.

The High Cost of Franchising

The biggest problem with many, if not most, franchises is depressingly simple: they charge too much for a business that doesn’t have enough value to justify the high upfront and ongoing costs. To help understand why this is true, answer these three simple questions: how hard is it to make a sandwich? How hard is it to clean a house? How hard is it to put grout in tile? If your answer is “not very,” then I have another question for you: why pay a franchise operator a large sum to teach you how to do one of these or other simple tasks, when you could learn to do it on your own for far less?

How Much Will You Have to Pay?

First, you’ll pay an upfront franchise fee, which might be $30,000 to $70,000 or more, for a little known housecleaning service. Typically, you’ll also be required to pay the franchise 3-6% of your monthly gross revenue. Big name fast food operators such as Wendy’s, McDonald’s, Burger King, and Subway, typically charge between 8% and 11%, plus a few cents on the dollar for a franchiser’s marketing effort. Put these fees together and it means that in addition to paying the upfront fee for the franchise, you’ll usually have to pay the franchiser six to ten cents or more of every dollar of revenue, and if the franchiser requires that you buy goods or services either directly from it, or from an approved supplier, your costs will probably be higher, because franchisers commonly charge substantially more than do suppliers on the open market. Let’s assume that the extra cost would amount to two cents out of every dollar of revenue. Add it all up, and you’ll likely pay the franchiser ten cents of every dollar you take in. This is a huge burden to your long-term profitability.

But Won’t a High Volume of Sales Compensate for These Costs?

Consider that the entire profit margin of many small businesses is less than ten cents on the dollar, and few businesses do much better. And, of course, your franchise fees don’t get your business open. If you want to open a business that has a high startup cost, such as a restaurant, you’ll need to build or remodel a physical space, purchase equipment, and train employees, things that are usually more expensive when you must conform to a franchiser’s many specifications. But if you don’t get a leg up from a franchiser, how will you get the knowledge and skills you need to open a successful business? Chances are, you can learn on your own for free. For example, if you’re interested in opening a lock shop, nail salon, or coffee shop, get a job in one for a few months, instead of buying a franchise. Not only will you learn much about how the business works, but you’ll be paid to do it.

But What About All the Benefits of the Franchiser’s Marketing Efforts?

National franchise outfits rarely do a good job of promoting their local franchises, in part because they typically rely on broadcast and print media campaigns, which for small businesses are usually an inefficient way to use precious marketing resources. Even worse, because franchisers are usually headquartered outside a franchisee’s area, they’re not equipped to implement the many types of low-cost local marketing that can be extremely effective.

But Won’t the Franchiser teach me How to Run My Business?

Of course, to many prospective purchasers, the big appeal of buying a franchise is that someone else has figured out how to run the business. Just pay your money, and the franchiser will explain in great detail exactly how to make a donut, or wash a car, or sell sneakers. Often overlooked is the fact that operating a business by following an instruction manual can also be a big negative. Instead of having a chance to exercise your creativity and imagination to improve and change your products and services, you’ll be sentenced to endlessly repeating someone else’s recipe. Some people think they won’t mind running a boring, uncreative business, as long as it’s solidly profitable. Well, maybe. But the truth is that you are limited from actively using your intelligence and creativity to adjust the business to fit local circumstances, or take advantage of what you learn, which is almost sure to make the business less likely to succeed.

Watch Out for Franchise Contracts

Another reason to avoid a franchise is that franchise contracts are stacked against you. These contracts, which typically run fifty pages or more, are written and rewritten by skilled lawyers, to be sure the franchiser remains firmly in control of the relationship. Like buying a car or an insurance policy, you have no chance to negotiate a change to even one word of these agreements, which by itself should tell you all you need to know about the one-sided nature of your future relationship. Here are just a few of the ways the fine print of these contracts benefit the franchiser:

You Can’t Compete.

Should you wish to close a franchise and open a similar independent business, you’re typically prohibited from doing so for at least three to five years.

You’ll Need Approval to Sell the Franchise

To sell your franchise sometime in the future, you’ll probably have to get the franchiser’s approval. Not only can this make the sales process more difficult -- the franchiser might reject a purchaser you consider well-qualified -- but it means the prospective purchaser will have to agree to the terms in the then-current franchise contract.

You’ll Have to Travel to the Franchiser’s Home State for Legal Disputes

If you get into a legal dispute with a franchiser, the franchiser may require that you file your lawsuit on the opposite side of the country, and be subject to the law of the state whose courts are most favorable to the franchiser.

You Must Buy Goods and Services From the Franchiser

And, of course, the contract may require that you buy supplies, goods, and even services, such as marketing and advertising services, from the franchiser. Although this sometimes make sense – all chicken sold at Big Ben’s Bird House should look and taste the same – often it’s just another way that franchisers take money away from franchisees.

How do you evaluate a Franchise?

Well, despite my anti-franchise arguments, you may remain convinced that a particular franchise really does have such a valuable name and reputation that buying in might be a good deal. If that’s so, I recommend you go through the following steps:

Step 1: Get the Franchise Circular

Before you do anything else, ask the franchiser for a copy of its Uniform Franchise Offering Circular (UFOC), a federally mandated document that contains loads of information about the franchise company’s history, operations, franchise network, rules, and costs.

Step 2: Talk to Franchisees

If you talk to a number of people who already own a franchise in the outfit you’re attracted to, I can virtually guarantee you’ll learn many interesting things the salespeople somehow never told you. Check out the list of franchisees who have left the system in the last year, and call some of these people. If the franchiser suggests that you talk to particular franchisees, don’t bother. One way or another, these people are part of the franchiser’s sales team, and are unlikely to give you fully objective information.

Step 3: Look at All the Costs

Carefully study sections five and six of the UFOC for answers to these questions: how much is the upfront franchise fee? How much money do you have to pay the franchiser by way of a monthly fee, often called a royalty? Is there an additional marketing or advertising fee? Are there other fees, for such things as travel, training, audits, and attorneys? How much will it cost you to actually get into business – that is, to construct a building or buy equipment?

Step 4: Find Out About Recent Lawsuits Against the Franchiser

You’ll want to know whether any unhappy franchisees have sued the company recently. Any such lawsuits should be listed near the beginning of the UFOC. If you find a history of litigation, contact the people involved to get their side of the story.

Step 5: Check Out the Competition

Open the phone book, and count the competitors in the particular market niche. In any popular field, chances are there will be a number of other competing franchise operations, as well as many independents. Do the franchise operators really have an advantage over the well-run independents?

Step 6: Analyze Your Options.

Finally, compare the cost of a franchise to the cost of opening and operating a similar independent business for a year. If, for example, you’d save $50,000 by operating independently, pretend you invest this money in United States bonds, and leave it there until you retire. Obviously, it makes sense to invest in the franchise only if you are pretty sure you would earn more than you would take in running an independent business plus your annual investment income.

The material you have just heard is excerpted from the Nolo book, “How to Run a Thriving Business: Strategies for Success and Satisfaction,” by Attorney Ralph Warner.

Copyright by Nolo. For over thirty years, Nolo has published reliable plain English books, software, and forms. Check it out at www.nolo.com.

Do Good Companies Make for Good Stocks?

2006-02-22T14:49:00.000-08:00

The following is an excerpt from an audio presentation given by Bob Clyatt, author of, Work Less, Live More: The New Way to Retire Early, (Nolo) in which the best-selling author details six common stock market myths.

Myth #1. Find a Hot Fund Manager

Have you heard this Myth before? “Sure, you and I may be investment amateurs, but this fund manager I heard about is a genius. He has outperformed the market now for eight years, through up markets and down. Your best move would be to just invest with him, beat the market, and grow rich.”

Now here’s the Reality: While there is nothing wrong with looking for fund managers with good track records—assuming their fees are reasonable, which they usually are not—expecting to actually find ones who will outperform in the future is nearly impossible. On average, only about a quarter of fund managers outperform their relevant index, after fees, in any year; and only one in 10 outperforms for three years running. One study shows the average mutual fund underperforms the market by 1% and Vanguard’s John Bogle recently calculated that the average stock mutual fund achieved just 9.9% in annual returns from 1984 to 2004, falling 3.1% short of the S&P500 Index, which returned 13%. He argues that fees and trading costs make up the difference in this zero-sum game. With thousands of funds out there, a few can always be found that outperform for several years running. But you can never be sure if this year will be its last. Far better to invest to match the market, with low fee index-style mutual funds, than to try to bounce around trying to find a manager who will beat the market over the long run.

Myth #2. Bonds Are for Wimps

This Myth can be summed up like this: “If the average rate of return on stocks is 12% per year and the average long-run rate of return on bonds is 6%, then why would I ever want to own bonds? I am a long-run investor, so I’m going to load up 100% on stocks and trounce the balanced investors over the long run.”

Here’s the Reality: Sure, you can load up on stocks if you don’t need to withdraw money for a very long time. And if you have a stomach made of cast iron. But as an early retiree, you will likely need to make annual withdrawals for decades, so you’ll be selling some assets every year. That means you’ll need to sell some of the stocks in your portfolio even if the market has dropped like a rock. In short, this myth ignores volatility: An asset class that has a high expected rate of return over time is almost invariably riskier. That is fine as a small portion of a balanced portfolio, but if the volatile asset is your only asset and you need to sell some of it for living expenses every year, you can be wiped out.

Myth #3. All-Bond Portfolios Are All-Safe

The Myth: “I know how to retire early and be really safe. I’ll buy a portfolio of 20-year AAA municipal bonds with enough tax-free interest every year to support me in fine style. Who needs to think about asset allocation or risk? All bonds means no worries.”

The Reality is that this myth neglects to factor in inflation. Enticing as this approach is on the surface, this strategy will safely and securely decimate the real value of a portfolio and its withdrawals. Whether the bonds are municipal bonds, long-term CDs, or regular taxable bonds, the dilemma for the investor is the same. First, what the bondholders receive each year from this portfolio is a fixed coupon that diminishes in spending power every year. Second, what the investor gets back at the end of 20 years is the original principal, which, at 3% inflation rates, will be worth about half of its original value in real terms. The investor now has just half of the spending power he or she had at the beginning of retirement, permanently eaten away by inflation. And note that the popular strategy of building a bond ladder—an array of bonds with varying maturities—won’t solve this problem.

There is nothing inherently wrong with bonds or tax-free municipal bonds, though most early retirees will be taxed in such low brackets that the tax advantages of munis will be wasted. The problem is not properly setting aside the first 3% or so of yield each year for inflation. After you have done that, you can withdraw safely and know the real value of your portfolio will remain intact, though there may be little left to withdraw. In order to set aside 3% for inflation and withdraw the desired 4%, Safe Withdrawal Rate, you’d need a high quality bond yielding at least 7%, something as scarce now as snowballs in July.

Myth #4. Good Companies Make Good Stocks

This Myth runs like this: “This stock-picking business isn’t so hard. I can just buy the shares of good, profitable growing companies whose products I really like and hold on. I’m bound to do well.”

The Reality? Of course, quality companies with strong growing revenues, steadily rising profits, well-known brands, and solid managements can provide investors with good stock returns. But it happens much less frequently than you might assume. That’s because these firms, their successes touted throughout the business press, are well-known and attractive to investors—and their stock prices are almost always already high. While you might want to buy their products, you’ll generally want to avoid their stocks. Because they start out expensive, growth stocks’ returns tend to lag behind those of value stocks, which are on the other end of the spectrum.

Unloved, unknown, or temporarily embarrassed, the riskier value stocks should be an investor’s friend, as they outperform the broad market averages over the long term by as much as 3%. Of course, these are averages and trends. There are some growth stocks that start out expensive and just keep going up. And no one wants to get caught in the “value trap” in which they buy a depressed stock—after all, it is cheap for a reason—and then have it go bankrupt. These frightening emotional totems are what produce the value-stock premium, which is created anew each day as investors flinch at the thought of owning a value stock or smile at the thought of owning a growth stock, and adjust their prices accordingly. When the growth stock slips, it is mercilessly hammered down. Investors have long since given up on the value stock, so when the company finally turns around, the stock is brought up smartly due to the upside surprise. That is when the value fund sells it. And the cycle starts again.

Myth #5. The S&P 500 Index is the Stock Market

This Myth isn’t so dangerous, but it is still worth noting here. It runs like this: “I shouldn’t try to time the market, pick stocks, or even pick a fund manager. I’m just going to load up the equity portion of my portfolio in a low-cost S&P 500 index fund and be done with it.”

The Reality: Actually, this approach does get us closer to long-term investment sanity than many of the other myths, but the S&P 500 is only a part of the world’s stock market—and not the most important piece at that. For example, it is among the most heavily skewed of the major indices, with just the top 22 stocks comprising a third of the overall weight or movement of the index and the bottom 150 stocks in the index comprising just 5% of the index weight. So tying your fortunes to the S&P 500 essentially ties you to the fortunes of a tiny fraction of America’s firms. The S&P 500 is a convenient way to track some megacap firms, but to get real diversification into less-correlated asset classes—such as small stocks, international stocks, and value stocks—you will need to go beyond the S&P 500.

Myth #6. Foreign Assets Are Un-American and Unnecessary

“Why should I bother with foreign stocks? After all, U.S. firms are bigger, safer, and better understood than all those other companies out there. And besides, American companies are so global in their operations that good times overseas will surely be reflected in my U.S. company stocks.”

In Reality, while most people are drawn to invest more heavily in their local markets, there is little economic rationale for it any more. American stocks and bonds do represent about 40% of the world’s financial assets, but now that investing overseas has become safe, inexpensive, and convenient, it is time for Americans to look further a field. The goal is to find low-correlation asset classes with liquid markets, quality securities, and reasonable transaction costs. While emerging markets and the chances for shenanigans still put those securities at the furthest limit of acceptable risk, well-documented scandals in major American companies don’t exactly measure up to a gold standard of corporate probity, either. In any case, the global marketplace is fast growing up and foreign companies offer great potential for returns at reasonable prices.

The idea that strong overseas operations for American firms will capture that growth in their stocks is not supported by historical data. Global American companies’ stocks tend to rise and fall with other American companies; their international operations do not provide meaningful diversification. An investor gets far better diversification, both through non-dollar currencies and the actual foreign companies themselves, by owning pools of foreign stocks.