Legal Update New Year 2018
A. Mediation
B. IRC § 1031 Like-Kind Real Property Exchanges
C. Late Life Marriages
D. Oil & Gas Business
A. Mediation
Alternative dispute resolution has been around for several decades. When I first graduated from law school, arbitration clauses became common in contracts. Arbitration evolved into a fairly structured process that involves discovery, witnesses, 1-3 arbitrators (that are expensive), and several months to complete. Binding arbitration is risky, and appealing an arbitrator’s decision in court results in trying the case twice. As a result, arbitration is not a great alternative in business disputes under $100,000.00.
Most Colorado real estate contracts provide for mediation, and I add a mediation clause to most business agreements I draft. In addition, most state court judges require the parties to mediate their disputes prior to trial. Mediations are usually facilitated by one mediator whose hourly rate is slightly higher than that of most attorneys. Most mediators I’ve used never have the parties meet face to face. Instead, the parties are put in separate rooms with their attorneys and the mediator goes back and forth to negotiate a settlement. Prior to the mediation, the parties’ lawyers prepare a Confidential Settlement Memorandum to disclose their version of the case so that the mediator is well versed in the facts, case law, and statutes that apply to the case.
Very often once a party has the opportunity to verbalize their side of the dispute to an independent party they will make a valid attempt to settle the case. Since everything said to the mediator is confidential, the mediator will point out the good and bad of each party’s case.
The legal fees required to take cases to trial is also a motivating factor to reach a settlement for both litigants. I have had numerous complex cases settle in an 8-hour mediation that I thought were headed for expensive and time-consuming trials. Mediation has evolved into a very cost effective means of avoiding litigation. Make sure your contacts require mediation prior to litigation.
B. IRC § 1031 Like-Kind Real Property Exchanges
Selling an investment property can result in paying substantial income tax. IRC § 1031 allows a person to purchase another property with the proceeds and defer paying income taxes. If the proceeds from the sale are held in escrow by a 1031 facilitator (for a fee) the seller has 45 days after a closing to identify up to five properties to acquire with the proceeds from the closing. The new property must be purchased within six months of the sale of the original property.
This process is desirable if a quality property is found, but I’ve seen several clients get in a rush and buy properties that turned out to be poor investments. There are times when it’s better to pay income taxes and have more time to find a great investment.
To avoid the panic of selecting a property in 45 days it is wise to search for desirable properties prior to the closing on the first property.
If a 1031 tax deferred exchange is your future, remember:
Review the rules with an experienced real estate attorney
Talk to realtors prior to the sale of your property about potential replacement properties
Seek tax advice from your CPA or tax attorney as to the potential tax consequences of the sale
Research who will be able to hold your seller proceeds so that you will qualify for a 1031 tax-deferred exchange. Inquire as to the fee for service.
Disclose the 1031 exchange in the real estate contract to sell your property
Never take possession of the sales proceeds
Identify the potential replacement property or properties within 45 days.
C. Late Life Marriages
There was a widower in his early 70’s who had 2 children with his deceased wife.
He was diagnosed with cancer and he was lonely, so he turned to the internet to find a girlfriend. Of course, after a few months they got married, and then he died six months later. The newlywed widow turned on the 2 children and legally took most of his assets. The foolish man did not have a will or prenuptial agreement.
It turns out that the “black widow” had done this several times, and the credit card bills revealed she was back on the internet looking for a new love during the last 10 days of her husband’s life.
Lessons Learned:
There are professional criminals on the dating websites preying on seniors
All individuals with assets should have a prospective spouse sign a prenuptial agreement.
All individuals should have a will to provide for their family
Adult children of seniors should discuss the need for estate planning and prenuptial agreements with their widowed or widower parent
A middle class widower’s estate can be wiped out by a short-term marriage: i.e. Exempt Property Claim ($30,000.00), C.R.S. § 15-11-403; Family Allowance ($32,000.00), C.R.S. § 15-11-404; and joint tenancy assets, C.R.S. § 15-15-102.
The real lesson learned is that if you think it’s uncomfortable to discuss estate planning with a parent, it’s not even close to the discomfort of talking to a black widow’s attorney informing you that your inheritance is gone.
“Don’t confuse brains with a bull market.”
-Humphrey Neill
D. Oil & Gas Business
Pipelines: The oil business is picking up. If a land owner is contacted by a company desiring to run a pipeline across farm or ranch land it is important to seek legal advice concerning negotiation of the easement. A pipeline’s impact on future development, damage to crops during construction, access for future inspection and repair, and existing easements need to be considered and addressed in writing. Adequate compensation is crucial to offset the negative consequences of an easement.
Leases: Never sign an oil and gas lease without consulting an attorney. There is no such thing as a simple “standard form” in the oil business. Lease rates are rebounding. A poorly negotiated lease could encumber a property for several decades.
Sport News
The University of Denver Hockey Team won the Division I NCAA National Championship on April 8th, 2017 in Chicago, Illinois. DU has won eight national titles in hockey. Tickets for the regular season games are very reasonable; treat yourself to a hockey game. You can reach the DU box office at (303) 871-6083
http://www.denverpioneers.com/tickets/hockey.html