MODIFYING CUSTODY: CHANGE IN CIRCUMSTANCES VS. CONTINUATION OF A KNOWN PROBLEM

In Minnesota, custody modifications are governed by Minnesota Statute section 518.18 (d). The threshold question in a motion to modify custody is whether a significant change in circumstances has occurred since the previous custody order was issued making a modification necessary to serve the child’s best interests. The change must be real, not a continuance of ongoing problems. A previous custody order is an order that either sets or modifies the custody labels, not an order that deals only with the parenting time schedule.

On August 18, 2014 the Court of Appeals issued Spanier v. Spanier which addressed the threshold question in every motion to modify custody – has there been a change in circumstances?

When the parties in Spanier divorced in 2008, husband was awarded sole physical custody of the children because wife was enlisted full time in the Navy and had signed a contract to go to California. In 2010 wife returned to Minnesota and the parties agreed to share parenting time on an equal basis as long as wife was in Minnesota. They did not agree to change the physical custody label. A court order was filed by the parties in 2010 memorializing their equal parenting time agreement.  Then, in 2013 wife received orders to deploy to Virginia.  Wife wanted to move the children to Virginia and filed a motion to modify custody.

Wife alleged that her pending move to Virginia was a change in circumstances. The trial court disagreed, finding that wife was on full-time duty with the Navy at the time of the divorce and therefore had knowledge that she could be deployed to various locations under the terms of that employment.  Wife appealed, arguing that her move to Virginia was a change in circumstances from the 2010 parenting time order. The Court of Appeals was asked to decide whether the trial court should have used the 2008 divorce decree or the 2010 parenting time order as the “prior order” to decide if a change in circumstances occurred.  

The Court of Appeals found that a “prior order” is a “either an original order entering custody or a subsequent order modifying custody, and it does not include orders that modify parenting time only and that do not modify custody.”  Therefore, the trial court was correct in evaluating the facts that had arisen since the 2008 divorce order, rather than the 2010 parenting time order to decide if a change in circumstances occurred.

What does this mean for you?  The initial setting of custody is very important and you should hire a competent and experienced attorney to represent you. If you have concerns about the other parent, those concerns needs to be addressed during the initial custody determination. You cannot bring a motion to change custody later based on those continued concerns because it will not be considered a change in circumstances to support a custody modification.  

DIVORCE IS NOT A TOOL FOR AVOIDING CREDITORS

Citizens State Bank Norwood Young America v. Gordon Brown (2014)

Background:

Husband and Wife were married for 23 years. During the marriage, Husband personally guaranteed commercial loans made by Citizens Bank (Bank) to two businesses. The businesses defaulted on the loans and Husband did not satisfy the loans under his personal guarantee. In January of 2010 the Bank sued Husband to enforce the personal guarantee. Wife was not named in the Bank’s lawsuit.

While the Bank’s lawsuit was pending, Husband filed for divorce against his Wife in what appears to be an attempt to avoid repaying his obligations to the Bank. As part of their uncontested divorce settlement, Husband was awarded all of the debt and Wife was awarded most of the liquid assets. Wife was awarded an investment account valued at $1.2 million while Husband was awarded a checking account valued at less than $3,000. Clearly this settlement favored Wife.

The Bank was awarded a default judgment against Husband in June of 2010 for the remaining balance on the loans, plus interest, costs and attorney fees.

Husband and Wife’s divorce was final in October of 2010. However, Husband and Wife continued to live together as a married couple after the divorce.

When the Bank was unable to collect on its judgment against Husband – because all of the liquid assets had been transferred to Wife – the Bank sued Wife. The Bank alleged the transfers in the divorce were made with the intent to defraud the Bank. And, therefore, the Bank should be allowed to satisfy its judgment against the assets awarded to Wife in the divorce. The Bank relied on the Minnesota Uniform Fraudulent Transfers Act (MUFTA) as justification for its lawsuit.

Minnesota Uniform Fraudulent Transfer Act (MUFTA):

The Minnesota Uniform Fraudulent Transfers Act’s (MUFTA) purpose is to prevent debtors from placing property that is otherwise available for the payment of their debts out of the reach of their creditors.

This case tells us that MUFTA can apply to transfers made in an uncontested divorce if those transfers were made for the purpose of avoiding a creditor.

An uncontested divorce means that the parties did not have any true disagreements about the value of assets or how those assets should be divided. While most people reach settlement agreements in their divorces, very few couples divorce without disputing the value of at least one item of property.

MUFTA uses 11 “badges of fraud” when assessing whether a fraudulent transfer has occurred. Those 11 “badges of fraud” are:

1.      The transfer was to an “insider”. An insider is someone who is highly trusted by the transferor.

2.  The debtor retained possession or control of the property transferred after the transfer.

3.      The transfer or obligation was disclosed or concealed.

4.      Before the transfer was made, the debtor had been sued or threatened with a lawsuit.

5.   The transfer was substantially all of the debtor’s assets.

6.      The debtor absconded.

7.    The debtor removed or concealed assets

8.    The debtor failed to receive reasonably equivalent value for the asset transferred.

9.     The debtor was insolvent or became insolvent shortly after the transfer was made.

10.  The transfer occurred shortly before or shortly after a substantial debt was incurred.

11.  The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

There is no magic number of badges needed to prove that a fraudulent transfer occurred; even one badge may be enough.  Therefore, a court must look closely at the details of each case to determine if MUFTA may apply.

WHAT DOES THIS CASE MEAN FOR YOU?

Divorce should not be used as a tool to avoid creditor claims against one or both spouses. If a creditor believes that a fraudulent transfer has occurred, that creditor can use MUFTA to set aside the transfer and collect on its debt. Therefore, it is important to discuss all debts at issue during a divorce with competent counsel to make sure that you are protected.