Hacking Spouse’s Email

Hacking Email

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Hacking Spouse’s Email


In the highly emotional time of a divorce, it can become tempting for people to cross lines that should not be crossed. Hacking into your spouse’s email account or computer to try and find some damning evidence against them is that step too far. Recently a husband sued his wife for reading the private emails he was sending to other women. The wife had set up her husband’s email to automatically forward any emails sent by him to her. This case eventually reached the U.S. Appellate Court where under the existing Federal Wiretap Act the court found that the wife had violated the law by accessing her husband’s computer without his consent. The wife’s actions were found to be illegal despite the fact that she had uncovered her husband’s adultery. Although not often prosecuted, adultery remains an illegal act in Illinois. One Judge expressed his concern that this law protects the husband’s illegal act by allowing his dishonesty and deception. However, as the law stands you must always get consent before accessing your spouse’s personal email account. Hacking your spouse’s email on a non-shared computer violates the Wiretapping Law. This criminal offense carries a possibility of prison time if convicted and the illegally obtained evidence cannot be used in Court.


Recognizing Unreasonable Divorce Demands

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Recognizing Unreasonable Divorce Demands


As an Illinois couple considers a divorce, financial issues and child rearing can be some of the most contentious matters under the scrutiny of both parties, their lawyers, and the court system. In trying to avoid litigation, an individual might suggest negotiating an agreement without legal help in order to save money on fees. Alternative methods such as collaboration or mediation could also simplify the process, but an individual might want to proceed with caution if the other party seems to be making unreasonable demands.


It can be helpful to have an understanding of divorce laws related to property division and child custody. For example, funds that were received by one spouse as a gift might not be considered marital property. However, the use of such gifted funds to purchase a family home might be viewed as commingling, which could leave an inheritance or gift vulnerable to being split. Retirement benefits might be viewed as marital assets, but there is not a responsibility to split future retirement savings. A court order to split such benefits can typically be processed by the administrator overseeing the retirement fund in question, which will allow each party’s share to be managed independently.


In dealing with a marital home, one spouse might insist on remaining at the property in spite of joint ownership. In such a case, an agreement that no other adult moves in for at least two years from the time of the split is appropriate. In a contentious case, it might be helpful to request the appointment of a guardian ad litem to represent the needs of the children.


In a high asset divorce case, spouses could spend a huge amount of money in fees as they bicker over minor matters. A divorce lawyer could be helpful in streamlining the matter to ensure that a fair settlement is proposed. In reviewing a settlement offered by the other party, a lawyer might bring inappropriate demands to the client’s attention.


Millionaire Ex-spouses Have Been in Court for 7 Years

Judicial Perspective

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Millionaire Ex-spouses Have Been in Court for 7 Years

By: Feinberg Sharma / October 6, 2016



A divorced couple in Illinois has failed to reach a final divorce settlement after seven years of litigation. In April, Cancer Treatment Centers of America founder Richard Stephenson and his former wife Alicia Stephenson formally dissolved their 18-year marriage. However, the couple still has not been able to reach a final agreement about property division.


Though there is no argument that Richard is a multi-millionaire; however, Richard’s attorneys have disputed Alicia’s attorney’s assessment of his wealth. According to Alicia’s attorneys, Stephenson owns assets with a total value exceeding $1 billion. There is a prenuptial agreement in place, but Alicia’s attorneys have argued that Alicia has been denied ownership rights to several businesses that are in her name. The ex-couple has not been able to reach a final agreement about spousal support.


Richard and Alicia’s attorneys have butted heads many times during the seven-year divorce proceedings. An attorney for Alicia claims that he has never seen a court allow a divorcing spouse to withhold financial documents the way that Richard has. Richard’s attorneys have denied allegations that they are hiding financial information and argued that Alicia’s attorneys have inflated the value of the marital estate. Soon after the divorce paperwork was filed, a judge awarded Alicia temporary alimony payments of $65,800 per month.


When divorce proceedings are prolonged, the divorce process can end up costing both spouses a lot more money than it is worth. An attorney may be able to represent a divorcing spouse during property division hearings and work toward an efficient settlement. If a spouse is concerned that they will lose certain assets, an attorney may be able to help them to assert their property rights.


Source: Chicago Tribune, “With millions at stake, trial looms in cancer center founder divorce,” Robert McCoppin, Sept. 22, 2016

Safeguarding a Child’s College Savings During Divorce


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Safeguarding a Child’s College Savings During Divorce

By: Feinberg Sharma / September 20, 2016



An Illinois parent who is going through a divorce might worry about the future, especially with regard to finances. Even those who have saved carefully can see their resources decimated in contentious situations, especially if litigation is focused on minor issues. The best interests of one’s children might be the goal of all parties involved, but expensive settlements could leave options for paying legal bills and settlement costs limited. In such a case, some types of college savings plans might be diverted.


Those involved in high asset divorce situations may have saved a significant amount of money to assure their children of the best possible post-secondary education. A custodial 529 savings plan is one of the safest in terms of how the funds can be used. The beneficiary must remain constant for the life of the plan. A traditional 529 plan, however, could be changed for the use of another beneficiary in paying for college. A new spouse or child could become the recipient of these benefits in some instances. ESAs are similarly flexible in terms of possible beneficiary changes.


To head off the potential diversion of college funds, a concerned parent could request that details related to the accounts and their intended use be specified in the divorce settlement. It is also wise for a concerned party to request that they be listed on the account as an interested person, which can help in obtaining duplicate statements. This provides a method of oversight and accountability.


Because high asset divorces can be complicated, it may be sensible to discuss the situation with a divorce lawyer as early as possible. There may be a need to enlist accounting professionals to evaluate the values of family businesses, investigate possible hidden assets, and determine which assets are subject to property division rules. Not all high asset divorces have to be contentious, and in some cases, a collaborative approach could be considered.


Gaining Financial Skills Important When Preparing for Divorce


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Gaining Financial Skills Important When Preparing for Divorce

By: Feinberg Sharma / June 29, 2016



Most married people in Illinois don’t want to think about the possibility of divorce. Since a large percentage of marriages will eventually end, however, it may be wise for spouses to develop good financial skills.


Individuals should think ahead to their retirement, and both spouses should increase their individual contributions to their plans if they are able to do so. As people get older and their incomes increase, they should continue contributing more to their retirement accounts. This may help to ensure that a person will be able to retire on time even if the marriage ends in divorce.


It is also important for both spouses to develop other financial skills. These include the ability to balance a checkbook, budget money and pay bills. In many divorces, one spouse will be much more financially prepared than the other. People who take the time to learn and implement good financial decisions may be better prepared to deal with the financial impact that a divorce can bring.


If a couple has been married for a number of years, they may have finances that are intermingled. Over time, they may also have accumulated numerous assets, including real property, retirement accounts, stocks, bonds or businesses. The property division of a high-asset divorce can be very complicated. When a person is considering filing for divorce, they may want to get assistance from a family law attorney. A lawyer might be able to locate assets that the other spouse is attempting to hide. The attorney may also be able to work out a property settlement agreement that protects a client.


Cross Examination of a Party in a Relocation Case

Joint Custody

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Cross Examination of a Party in a Relocation Case

By: Joy M. Feinberg



The key to any cross-examination is PREPARATION. A good cross-examination is to the point, direct and swift. Questions should be honed to key into a point-by-point attack on the witness. There are four areas of attack on a cross-examination:


  • Attacking the character or credibility of the witness
  • Attacking the credentials of the witness
  • Attacking the truthfulness of the witness
  • Attacking the theory posited by the witness


Once these four areas are examined, explored and mined for their potential, the attorney can begin preparing the witness for the coming cross-examination or preparing to cross-examine the witness. Preparation for cross-examination begins at the very beginning of the case — the initial interview. Here, the attorney begins to explore the client’s case, desires, interests, case attributes and detriments. If there is a theme to the young lawyer’s dilemma, it is failing to know how to fully prepare for a case. Preparation begins with listening and ferreting out all information possible. It is often helpful to give the client a “homework assignment” — this being a history of all relevant issues. Then the attorney must explore the relevant law and issues and prepare for what is to come.


What are the relevant issues in a relocation case? This varies from state to state, depending upon the relevant statutory provisions as well as the case law in each jurisdiction. If your own state statute and case law is not particularly enlightening, look to case law around the country.


Today, Illinois is arguably the most difficult state in which one can try a relocation case. Let’s look at some of its relevant case law for direction in our preparation. The leading Illinois case is In re: Marriage of Eckert, 119 Ill.2d 316, 518 N.E.2d 1041, 116 Ill.Dec. 220, (1988). The Eckert court made specific reference to the New Jersey case of D’Onofrio v. D’Onofrio, 144 N.J. Super. 200, 365 A.2d 27, (1976). This eloquent and informative decision should be studied and is quoted at length as follows: Even under the best of circumstances and where the custodial parent is supportive of a continuing relationship between the child and the non-custodial parent, the nature of a parental relationship sustainable by way of visitation is necessarily and inevitably of a different character than that which is possible where the parents and children reside together as a single-family unit. The fact remains that ordinarily the day-to-day routine of the children, especially young ones, and the quality of their environment and their general style of life are that which are provided by the custodial parent and which are, indeed, the custodial parent’s obligation to provide. The children, after the parents’ divorce or separation, belong to a different family unit than they did when the parents lived together. The new family unit consists only of the children and the custodial parent, and what is advantageous to that unit as a whole, to each of its members individually and to the way they relate to each other and function together is obviously in the best interests of the children. It is in the context of what is best for that family unit that the precise nature and terms of visitation and changes in visitation by the non-custodial parent must be considered.


Where, however, the custodial parent can demonstrate that a real advantage to herself and the children will result from their removing their residence to a place so geographically distant as to render weekly visitation impossible, then the court must weigh a number of determinative factors in order to accommodate the compelling interests of all of the family members. It should consider the prospective advantages of the move in terms of its likely capacity for improving the general quality of life for both the custodial parent and the children. It must evaluate the integrity of the motives of the custodial parent in seeking the move in order to determine whether the removal is inspired primarily by the desire to defeat or frustrate visitation by the non-custodial parent, and whether the custodial parent is likely to comply with substitute visitation orders when she is no longer subject to the jurisdiction of the courts in this state. It must likewise take into account the integrity of the non-custodial parent’s motives in resisting the removal and consider the extent to which, if at all, the opposition is intended to secure a financial advantage in respect of continuing support obligations. Finally, the court must be satisfied that there will be a realistic opportunity for visitation in lieu of the weekly pattern which can provide an adequate basis for preserving and fostering the parent relationship with the non-custodial parent if removal is allowed. The court should not insist that the advantage of the move be sacrificed and the opportunity for a better and more comfortable lifestyle for the mother and children be forfeited solely to maintain weekly visitation by the father where reasonable alternative visitation is available and where the advantages of the move are substantial. It is at least arguable, and the literature does not suggest otherwise, that the alternative of uninterrupted visits of a week or more in duration several times a year, where the father is in constant and exclusive parental contact with the children and has to plan and provide for them on a daily basis, may well serve the paternal relationship better than the typical weekly visit which involves little if any exercise of real paternal responsibility.


It is further clear that a non-custodial parent is perfectly free to remove him or herself from this jurisdiction despite the continued residency here of the children in order to seek opportunities for a better or different lifestyle for him or herself. And if he or she does choose to do so, the custodial parent could hardly hope to restrain him or her from leaving this state on the ground that his or her removal will either deprive the children of the paternal relationship or depreciate its quality. The custodial parent, who bears the essential burden and responsibility of the children, is clearly entitled to the same option to seek a better life for him or herself and the children, particularly where the exercise of that option appears to be truly advantageous to their interests and provided that the parental interest can continue to be accommodated, even if by a different visitation arrangement than theretofore. 144 N.J. Super at 202-203; 365 A.2d at 29-30.


Eckert, supra, sets forth the Illinois factors for consideration in determining BEST INTEREST IN REMOVAL cases which is quote as follows:

  • Any and all relevant evidence, made on a case by case basis;

  • The court should consider the proposed move in terms of likelihood for ENHANCING the GENERAL QUALITY OF LIFE for both the custodial parent and the children. (Gallagher v. Gallagher (1978), 60 Ill.App.3d 26, 31; D’Onofrio v. Gallagher (1978), 60 Ill.App.3d 26, 31; D’Onofrio v. D’Onofrio (1976), 144 N.J. Super. 200, 205-07; 365 A.2d 27, 30.)

  • The court should also consider the MOTIVES of the CUSTODIAL PARENT in seeking the move to determine whether the removal is MERELY A RUSE intended to DEFEAT or FRUSTRATE VISITATION. (See Winebright v. Winebright (1987), 155 Ill.App.3d 722, 725; In re Custody of Arquliia (1980), 85 Ill.App.3d 1090, 1093).

  • Similarly, the court should consider the MOTIVES of the NON-CUSTODIAL PARENT in RESISTING the removal. (D’Onofrio, 144 N.J. Super. at 206-07, 365 A.2d at 30).

  • It is also in the best interests of a child to have a HEALTHY and CLOSE RELATIONSHIP with BOTH PARENTS, as well as OTHER FAMILY MEMBERS.

  • VISITATION RIGHTS of the non-custodial parent should be carefully considered. (In re Marriage of Brady (1983), 115 Ill.App.3d 521, 523: In re Marriage of Burgham (1980), 86 Ill.App.3d 341, 346).
    Whether, in a given case, a REALISTIC and REASONABLE VISITATION SCHEDULE can be reached if the move is allowed. In re Custody of Anderson (1986), 145 Ill.App.3d 746; and

  • Whether finances will allow for frequent visitation. The Eckert court continued by defining REASONABLE VISITATION as a schedule that …will preserve and foster the child’s relationship with the non-custodial parent. 518 N.E.2d at 1046; 116 Ill.Dec. at 225.

  • When removal to a distant jurisdiction will substantially IMPAIR the non-custodial parent’s involvement with the child, the trial court should examine the POTENTIAL HARM to the child which may result from the move. (e.g., In re Marriage of Bednar (1986), 146 Ill.App.3d 704, 711; In re Marriage of Burgham (1980), 86 Ill.App.3d 341, 346).


The Eckert court made the following cautionary remarks:

  • When a parent has assiduously exercised his or her visitation rights, a court should be loath to interfere with it by permitting removal of the children for frivolous or unpersuasive or inadequate reasons. [citations omitted]
  • However, if the best interests of the child WOULD NOT BE AFFECTED by a move to another state, the custodial parent should be FREE TO MOVE.
  • Thus, if the non-custodial parent objects to the removal but HAS NOT EXERCISED his or her VISITATION RIGHTS, this fact should be considered in determining whether to grant the custodial parent’s desire to move.
  • The trial court’s examination of a removal petition should be guided by the policy of the IMDMA that the purpose of the Act is to secure the maximum involvement and cooperation of both parents regarding the physical, mental, moral and emotional well-being of the children during and after litigation.
  • If the custodial parent establishes a GOOD, SINCERE reason for wanting to move to another jurisdiction, the trial court should consider all the relevant factors in determining the best interest of the child. 518 N.E.2d at 1047, 116 Ill.Dec. at 226.


In the Eckert decision, Ms. Eckert lost her bid for removal because:

  • She did not prove that her Arizona job would advance her nursing career
  • She was not to receive significantly more money from the new job
  • She had not attempted to find Illinois employment and she ADMITTED to not really looking for Illinois work
  • There had been visitation disputes while she was in Illinois
  • She failed to introduce evidence on how Arizona’s climate would help her son’s asthmatic condition
  • Most of the child’s extended family lived in the area of his Illinois home, including his three surviving grandparents
  • Mr. Eckert’s exemplary parenting and exceptionally good relationship with his 7-year-old son was persuasive in keeping the child here and the fact that limited finances would prohibit extensive visits and the expert testimony stating that the child would best be served by remaining in Illinois was difficult to overcome when the other factors were so weakly presented
  • Eckert was reaffirmed by the Illinois Supreme Court case of In Re Marriage of Smith, 172 Ill.2d 312, 665 N.E.2d 1290, 216 Ill.Dec. 652 (1996) (Relocation denied due to detrimental effect on emotional health of an already troubled 11-year-old girl even though mother’s new husband’s finances would allow her to stop working)

The Judicial Perspective

Judicial Perspective

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The Judicial Perspective

By: Joy M. Feinberg



No matter how good or bad we think our trial presentations appear, the ultimate test is in the eye of the decision-maker — the judge. All practitioners ponder what it is that sells their perspective to the court. Presented here are the views of two highly respected judges who have spent most of their judicial careers in the Circuit Court of Cook County, Illinois, Domestic Relations Division.


Judge Edward Jordan has presided over domestic relations cases for eight years. Prior to becoming a judge, he was in private practice for 22 years, during the last 15 to18 years of which he handled numerous and diverse divorce cases. Even with this history of experience, he notes that he handled very few business valuation cases before becoming a judge. But in his years on the bench, Judge Jordan has formulated very strong opinions. He teaches his view to both practitioners and those newly assigned divorce judges (whom often have far less divorce experience than he) who seek his counsel.


Judge Jordan advises having detailed reports that explain the reasoning of the expert witness. He finds that points are usually not made when the expert relies on such catch phrases as “I used my experience and judgment,” even though such a response can be perfectly appropriate in certain circumstances. Nonetheless, the more detail and explanation for a course taken, the more the expert’s credibility is enhanced. This necessarily assumes that the position being taken is also credible.


The judge waits to hear how many factors the expert considered and explored. The more factors considered, the greater the expert’s credibility, as the expert is enhancing the theme of thoroughness used in reaching the conclusions being propounded. This detail also helps the judge analyze what the expert has done. Judge Jordan notes that he has great leeway in rendering his decision of value. Case law allows him to determine a value anywhere between the extremes submitted by the experts. Thus, if he disagrees on a rate or percentage used, he can make his own “haircuts” or “enhancements” given the details presented.


Judge Jordan judges “credibility” rather traditionally. He assesses the following:

  • Is the methodology used sound and recognized by peers and colleagues?Did the expert use or follow all of the steps required or recommended in that recognized methodology? Deviations will raise a red flag that must be thoroughly explained, and, he notes that it is wise to anticipate and “front” the cross-exam which will surely follow.

  • Is this recognized method the correct method of value for this jurisdiction and this business?

  • The area least likely to bolster the judge’s perception of the expert is the area of credentials. While they are helpful and often impressive, they are just the beginning. Whichever expert better explains the factors used in the calculations, as well as why they were used, in an atmosphere of sound reasoning and within the economic realities then existing will more likely carry the day.

  • In a court system that often sees months of delay between the valuation date of the report as opposed to the trial date, the judge wants to know whether current events in the business world have caused changes to the value given. Judge Jordan believes that the current business atmosphere is far more important than what went before, which is emphasized by the current state of the economy as we view it today. This allows the judge to analyze whether or not the experts were too optimistic or too conservative in the analysis of value. Judge Jordan emphasizes that this is not a credibility test; rather, it is a practical examination of how the immediate present impacts the analysis of value in the eyes of one who judges the fairness of value as presented by the experts.


Knowing how your judge thinks, or at least believing that you do, helps the practitioner strategize. Judge Jordan is emphatic that the expert should provide a definite number for value, rather than presenting a range of value. Said Judge Jordan, “I don’t want a range! If you’re an expert, have enough confidence in your work to give me a number. Range is the judge’s job. This is not a negotiation.”


Knowing your judge in such matters is critical. Consider this opinion given from other judges interviewed over time: When so many critical numbers in the valuation process can easily be “correct” within a range — a point or more up or down from what the expert has selected — then how can only one number be appropriate? Some judges believe that the expert’s credibility is enhanced by providing a range of value or by agreeing under cross that a number selected within a range, as determined by various changes in such things as the cap rate or percentage discount, is also appropriate.


One important factor to consider is that many judges have never encountered Business Valuation issues or cases prior to having a case come before them. This lack of experience is often compounded with a background devoid of finance and accounting principles. These judges do not come equipped with an understanding of the basic concepts of valuation and, unlike the practitioner without experience, judges have no expert to spoon feed them through the educational process.


Judge Nancy Katz has been sitting in the Cook County, Illinois, divorce courts for two years. Her background was with the Illinois Department of Children and Family Services, the Legal Assistance Foundation and the American Bar Association. Judge Katz notes that there is a difficult balance between educating the judge and being patronizing. However, she is honest in saying, “Don’t assume that I know basic accounting principles.” She is also not afraid to say so if she is lost during the expert’s testimony and asks that information be repeated and explained to her understanding. She will often ask clarifying questions, but she has no desire to take over the trial. She knows that there may be a strategic reason why counsel is asking certain questions and not asking others. Judge Katz favors demonstrative evidence to assist her in understanding the testimony as well as everyday life analogies that put concepts into a more easily understood context. She says that she has to work hard during such trials to fully grasp the evidence. However, she is smart, willing to work at it and determined to understand the issues.


Ultimately, Judge Katz sees herself always returning to the basic issue: What is a willing buyer willing to pay to a willing seller for this business? She is guided by appropriate selection and proper use of all components of the valuation methodology in assessing the expert’s credibility. She searches for a middle ground and areas where the experts agree during her analysis. She will also look carefully at any changes in practices before and after litigation commences to determine if there is a valid reason for such changes.


Like most judges, Judge Katz’ best advice is to break down the information into understandable components and build each block into the result you desire, while bringing the less experienced judge along as you do your work in presenting your case and your conclusions to the court. These are words of wisdom for all practitioners.


Note: Judge Edward Jordans died in 2012. Judge Katz is now a mediator at JAMS in Chicago.

The Illinois Mental Health and Developmental Disabilities Confidentiality Act

Mental Health

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The Illinois Mental Health and Developmental Disabilities Confidentiality Act

By: Joy M. Feinberg



A. [8.61] Nature of the Privilege
In Illinois, the MHDDCA codifies the therapist-patient privilege as follows:


Except as provided herein, in any civil, criminal, administrative, or legislative proceeding, or in any proceeding preliminary thereto, a recipient, and a therapist on behalf and in the interest of a recipient, has the privilege to refuse to disclose and to prevent the disclosure of the recipient’s record or communications. 740 ILCS 110/10(a).


The encompassing nature of the patient-therapist confidentiality was qualified in In re Doe, 964 F.2d 1325, 1328 (2d Cir. 1992), which held privileged the information that the patient had been the recipient of treatment. In this homicide case, the defendant successfully argued that unless the information sought to be disclosed directly related to the homicide’s immediate circumstance, it would be privileged from disclosure. The court went on to hold that the privilege even prevents suggestions that a party attended therapy. In Illinois, the statute specifically states: “Communication [that is privileged from disclosure] includes information which indicates that a person is a recipient.” 740 ILCS 110/2.


B. [8.62] Definitions
In Illinois, as in other statute-driven states, the MHDDCA provides a number of definitions. Section 2 limits disclosure of “any communication made by a recipient or other person to a therapist or to or in the presence of other persons during or in connection with providing mental health . . . services to a recipient.” Thus, group therapy or family therapy situations are covered by the privilege. Section 2 defines “mental health services” as including, but not being limited to, “examination, diagnosis, evaluation, treatment, training, pharmaceuticals, aftercare, habilitation or rehabilitation.” This statute explains that the broad nature of the term “therapist” includes all types, such as a


  • psychiatrist, physician, psychologist, social worker, or nurse providing mental health or developmental disabilities services or any other person not
  • prohibited by law from providing such services or from holding himself out as a therapist if the recipient reasonably believes that such person is permitted to do so. Therapist includes any successor of the therapist. Id.


Even as broad as this definition is, not every type of treatment is covered by the privilege. Maxwell v. Hobart Corp., 216 Ill.App.3d 108, 576 N.E.2d 268, 159 Ill.Dec. 599 (1st Dist. 1991), involved some form of alcoholism treatment that was not considered “mental health services” as defined by this Illinois statute. Unfortunately, the issue of what kind of treatment the plaintiff actually received was not explored in sufficient detail in this product liability cause of action for the practitioner to know what proposition this case truly defines. Here, “alcoholism treatment” was narrowly defined by the court so that the MHDDCA was deemed to be of no value when the privilege was claimed. It is axiomatic that substance abuse treatment pursues all avenues of mental health, not just treatment for the specific abuse. Additionally, no claim of privilege or confidentiality 20 ILCS 305/8-102, which governs confidentiality for certain substance treatment centers, or claim of privilege under 21 U.S.C. §1175 (drug abuse prevention, treatment, and rehabilitation), 42 U.S.C. §4582, or 42 C.F.R. Part 2, was made in this case. Unfortunately, not all treatment centers or abuse counselors are covered by these very scope-limited statutes. Again, in People v. Leggans, 253 Ill.App.2d 724, 625 N.E.2d 1133, 193 Ill.Dec. 12 (5th Dist. 1993), appeal denied,155 Ill.2d 571 (1994), a defendant’s communications with a drug and alcohol rehabilitation facility were not privileged under the MHDDCA. There is also a limited privilege granted to individuals counseling victims of domestic violence under 750 ILCS 60/227, which provides that any communications or records of a domestic violence advocate or counselor (a person who has undergone 40 hours of training in domestic violence advocacy, crisis intervention, etc. and who provides services to victims through a program, whether as an employee or volunteer) and a victim, even if others are present when the information, counseling, or advocacy takes place, are protected from disclosure.


C. [8.63] Extent of the Privilege
The privilege that all of the statutory provisions ensure is derived out of the belief that therapy is founded on the premise that confidentiality is necessary to the entire patient-therapist relationship. The recipient’s trust in the confidential nature of disclosures to the therapist is a basic requirement in achieving the benefits of therapy. Without such confidentiality, it is believed that treatment and the potential cure may be forgone. A patient who believes there is a possibility of disclosure may refuse to disclose.


  • The patient’s innermost thoughts may be so frightening, embarrassing, shameful, or morbid that the patient in therapy will struggle to remain sick, rather than to reveal those thoughts even to himself. The possibility that the psychotherapist could be compelled to reveal those communications to anyone, let alone to broadcast them in a legal proceeding, can deter persons from seeking needed treatment and destroy treatment in progress. Catharina J. H. Dubbleday, The Psychotherapist-Client Testimonial Privilege: Defining the Professional Involved, 34 Emory L.J. 777, (1985), quoting Caesar v. Mountanos, 542 F.2d 1064, 1072 (9th Cir. 1976).


This is the same policy justification applied to the attorney-client privilege. These assertions have gained judicial acceptance in In re Westland, 48 Ill.App.3d 172, 362 N.E.2d 1153, 1156, 6 Ill.Dec. 331 (4th Dist. 1977), in which it was noted that psychiatry’s beneficial purposes can be fully realized only in the complete freedom from the danger of judicial scrutiny. The Illinois courts have cited this philosophical precept set forth in Westland and in In re Marriage of Lombaer, 200 Ill.App.3d 712, 558 N.E.2d 388, 146 Ill.Dec. 425 (1st Dist. 1990). Most recently, in Jaffee v. Redmond, 518 U.S. 1, 135 L.Ed.2d 337, 116 S.Ct. 1923, 1928 – 1929 (1996), the privilege was broadly embraced as follows:


  • Effective psychotherapy, . . . depends upon an atmosphere of confidence and trust in which the patient is willing to make a frank and complete disclosure of facts, emotions, memories, and fears. Because of the sensitive nature of the problems for which individuals consult psychotherapists, disclosure of confidential communications made during counseling sessions may cause embarrassment or disgrace. For this reason, the mere possibility of disclosure may impede development of the confidential relationship necessary for successful treatment . . . “[t ]here is a wide agreement that confidentiality is a sine qua non for successful psychiatric treatment.” . . .

  • By protecting confidential communications between a psychotherapist and her patient from involuntary disclosure, the proposed privilege thus serves important private interests. . . .

  • The psychotherapist privilege serves the public interest by facilitating the provision of appropriate treatment for individuals suffering the effects of a mental or emotional problem. The mental health of our citizenry, no less than its physical health, is a public good of transcendent importance. [Citations omitted. ]


While the generally accepted purpose of the privilege is to encourage candid patient disclosures by removing fears of embarrassing consequences that would endanger correct and adequate diagnosis, proponents of the psychotherapist-patient privilege fail to cite any empirical research supporting the need for the privilege. Other evidence, such as the fact that therapists in England and Canada do not recognize such a privilege and do not claim that its absence has prevented effective therapy, mitigates against the conceptual construct. Jonathan Baumoel, The Beginning of the End for the Psychotherapist-Patient Privilege, 60 U.Cin.L.Rev., 797, 814 (1992).


In In re Marriage of Lombaer, supra, even the extreme nature of the facts (a mother recently released from a mental institute, who had allegedly exhibited bizarre behavior and had neglected to take her medication) did not prevent the invocation of the privilege. Justice Rizzi stated:


  • The statutory privilege is a legislative balancing between relationships which society thinks should be fostered through the shield of confidentiality and the interests served by disclosure of the information in court. The legislature has determined that except for limited purposes, there is more value to encouraging and sustaining this kind of relationship. 558 N.E.2d at 393.
    See also, Norsko v. Pfeil, 197 Ill.2d 60; 755 N.E.2d 1, 257 Ill.Dec. 899 (2001).


Ongoing treatment is not a pivotal factor in this consideration. When Mr. Lombaer raised the issue that his wife was no longer in therapy so that the court should open up her prior therapeutic treatment records, the appellate court overturned the trial court’s reliance on this argument. Relying on the Illinois statute as well as the case law, the court stated: “We are not persuaded by the argument that since the physician-patient relationship had been terminated, the privilege no longer exists.” Id.


The privilege belongs to the recipient and not to the therapist. In Renzi v. Morrison, 249 Ill.App.3d 5, 618 N.E.2d 794, 188 Ill.Dec. 244 (1st Dist. 1993), appeal denied, 152 Ill.2d 579 (1993), the therapist had voluntarily testified for one spouse in a divorce case following an invocation of the privilege by one of her marital therapy patients. Since the therapist violated the patient’s privilege, the judge, in the civil action brought by the former patient against the therapist, granted damages under §15 of the Illinois statute, holding that the therapist had acted erroneously in testifying contrary to the patient’s desire. The therapist in this case had been providing marital counseling to the couple prior to divorce proceedings. In Illinois, marriage counseling is included within the purview of confidentiality by this statute. See Martino v. Family Services Agency of Adams County, 112 Ill.App.3d 593, 445 N.E.2d 6, 67 Ill.Dec. 714 (4th Dist. 1982). When, then, is this privilege waived? In Novak v. Rathnam, 106 Ill.2d 478, 478 N.E.2d 1334, 88 Ill.Dec. 608 (1985), when the defendant called his own therapist to establish his insanity, he placed his mental condition at issue. Once waived, the privilege would continue to be waived at any future hearing. In People v. Phillips, 128 Ill.App.3d 457, 470 N.E.2d 1137, 83 Ill.Dec. 717 (5th Dist. 1984), the defendant’s disclosure of the psychologist’s testing operated as a waiver. The communications between the psychologist and the defendant were thus no longer privileged and were available for use by the state on a subsequent trial of the defendant.


D. [8.64] Balancing Test
John Wigmore developed four conditions for the application of the privilege that have gained general judicial acceptance and favor. Leila M. Foster, Illinois: A Pioneer in the Law of Mental Health Privileged Communications, 62 Ill.B.J. 668 (1974); 8 John Henry Wigmore, EVIDENCE IN TRIALS AT COMMON LAW §2285 (1961) (Wigmore). In State v. Aucoin, 362 So.2d 503 (La. 1978), his approach was endorsed in a case construing a Louisiana statute involving the physician-patient privilege. Wigmore’s criteria for balancing the privilege were as follows:


  • The communications must originate in a confidence that they will not be disclosed
  • This element of confidentiality must be essential to the full and satisfactory maintenance of the relationship between the parties.
  • The relation must be one which in the opinion of the community ought to be sedulously fostered .
  • The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation. [Emphasis in original. ] Wigmore at p. 527.


The first three elements are almost matters of fact, but the forth element required the court to evaluate both the patient’s privacy and the damage disclosure would cause. For convenience, this fourth element is often referred to as the “balancing test” and was the item that caused great disparity in application of the privilege in many cases. The balance to be found in custody disputes is primarily between the interests of the child’s well-being versus the right of the parent to the privacy deemed necessary for the patient-parent to make full use of and benefit from therapy. Other factors, such as the conditions under which one puts one’s own mental health into issue, the threat of danger to another, allegations or admissions of abuse, etc. are examples of conditions that counter the need for strict adherence to the privilege. Nationally, there is a plethora of conflicting authorities in the custody arena due to varying interpretations of custody claims causing one to “place one’s mental health at issue” as well as the lack of common law in this area, thereby creating a state-by-state analysis of enacted legislation as well as the open-ended language of Federal Rule of Evidence 501 which, until Jaffee v. Redmond, 518 U.S. 1, 135 L.Ed.2d 337, 116 S.Ct. 1923 (1996), provided little guidance in this area.


In Illinois, the test is codified by §10 of the MHDDCA, which specifically states that custody and divorce proceedings brought under the IMDMA do not place one’s mental health at issue. Illinois does require a two-pronged analysis before any disclosure may occur:


  • Records and communications may be disclosed in a civil, criminal or administrative proceeding in which the recipient introduces his mental condition or any aspect of his services received for such condition as an element of his claim or defense, if and only to the extent the court . . . finds, after in camera examination of testimony or other evidence, that it is relevant, probative, not unduly prejudicial or inflammatory, and otherwise clearly admissible; that other satisfactory evidence is demonstrably unsatisfactory . . . and that disclosure is more important to the interests of substantial justice than protection from injury to the therapist-recipient relationship or to the recipient or other whom disclosure is likely to harm. 740 ILCS 110/10(a)(1).


Jaffee v. Redmond, supra, eliminated this test in federal court only as it specifically reviewed the Illinois statute in a civil proceeding emanating from a police officer’s shooting of an alleged perpetrator of a crime. This case specifies:


  • [W]e hold that confidential communications between a licensed psychotherapist and her patients in the course of diagnosis or treatment are protected from compelled disclosure under Rule 501 of the Federal Rules of Evidence. . . .

  • We have no hesitation in concluding in this case that the federal privilege should also extend to confidential communications made to licensed social workers in the course of psychotherapy. . . .

  • We part company with the Court of Appeals on a separate point. . . . Making the promise of confidentiality contingent upon a trial judge’s later evaluation of the relative importance of the patient’s interest in privacy and the evidentiary need for disclosure would eviscerate the effectiveness of the privilege. . . . [P ]articipants in the confidential conversation “must be able to predict with some degree of certainty whether particular discussions will be protected. An uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” [Citation omitted. ] 116 S.Ct. at 1931, 1932.


Thus, there is no longer a balancing test or waiver if the privilege is assiduously claimed and protected in federal court.


E. [8.65] Courts’ Power to Order Mental Evaluations
To buttress the strength of the privilege and to avoid unnecessary procrastination over its use, both the legislature and the Illinois Supreme Court have granted powerful tools to establish the mental health of the relevant parties. In any criminal, civil, or administrative case, the court may order a mental health evaluation of a party through Illinois S.Ct. Rule 215(a). Effective January 1, 1996, this rule expanded its limitation on “physician” to include the full field of mental health providers allowed to perform such evaluations. Of course, as People v. English, 31 Ill.2d 301, 201 N.E.2d 455 (1964), dictates, the privilege does not apply to psychiatric evaluations ordered under the court’s direction, as this would defeat the purpose for which the court uses the power.


IMDMA §§604(b) and 605(a) allow the courts to evaluate the mental health of any of the parties in the custody dispute. The recipient must be informed of the purpose of the court-ordered evaluation. One of the purposes of these statutory rights and the Supreme Court rule is to prevent the disclosure of the mental health records of the parties. Tylitzki v. Triple X Service, Inc., 126 Ill.App.2d 144, 261 N.E.2d 533 (1st Dist. 1970), cited by Justice Rizzi in In re Marriage of Lombaer, 200 Ill.App.3d 712, 558 N.E.2d 388, 146 Ill.Dec. 425 (1st Dist. 1990), makes this apparent by stating that any necessary medical or psychological evaluations required to determine the welfare of the children can be obtained by means of court-ordered evaluations.


The only case in which the court limited the use of an Illinois S.Ct. 215(a) evaluation was In re Marriage of Cohen, 189 Ill.App.3d 418, 545 N.E.2d 362, 136 Ill.Dec. 838 (1st Dist. 1989), appeal denied, 129 Ill.2d 562 (1990), which involved serious allegations of child sexual abuse. This case held that the examination is not a matter of right. A father had been accused of sexually abusing his daughter. He attempted to invoke §215(a) for the purpose of having his wife and daughter evaluated. The trial court denied his request, noting that numerous other evaluations had taken place, subjecting the children to many probing individuals. This refusal to allow another evaluation was reversed on appeal due to heinous allegations and the facts of this case. Again, new S.Ct. Rule 215 no longer mandates that an examination may be had “for good cause shown.” The elimination of these words should allow every party the right to have its own evaluation.


F. [8.66] Disclosure by Therapist
Illinois, consistent with most other states, limits the disclosure privilege in two ways:

  • It allows the patient to consent to disclosure and to revoke that consent.

  • It allows disclosure in a limited number of circumstances that are all defined by circumstantial necessity without the patient’s consent.


740 ILCS 110/5(b) requires the following for the disclosure of privileged records:

  • (b) Every consent form shall be in writing and shall specify the following:
  • The person or agency to whom disclosure is to be made.
  • The purpose for which disclosure is to be made.
  • The nature of the information to be disclosed.
  • The right to inspect and copy the information to be disclosed.
  • The consequences of a refusal to consent, if any.
  • The calendar date on which the consent expires, provided that if no calendar date is stated, information may be released only on the date the consent form is received by the therapist.
  • The right to revoke the consent at any time.


While the patient may revoke the consent at any time, the statute also provides that “any such revocation shall have no effect on disclosures made prior thereto.” 740 ILCS 110/5(c). Thus, any revocation cannot eradicate what has gone before. However, a consent granted that prohibits redisclosure may have the effect of limiting testimony and preventing disclosure. This issue has not yet been addressed by case law.


Most statutes allow disclosure of the mental health records by the therapist to a listed finite type of persons or institutions. This list consists of associated staff of the therapist, persons conducting peer review, and in Illinois, the Institute of Juvenile Research, which performs substantial research, as well as an attorney consulted by the therapist providing services concerning legal rights in relation to the recipient. Persons in custody of the patient are also allowed to obtain information without harming the patient’s claim of privilege.


A psychiatrist who voluntarily disclosed his patient’s confidential communications as a witness for his patient’s spouse in divorce proceedings could be held liable for damages. Renzi v. Morrison, 249 Ill.App.3d 5, 618 N.E.2d 794, 188 Ill.Dec. 224 (1st Dist.), appeal denied, 152 Ill.2d 579 (1993).


G. [8.67] Redisclosure
Illinois also requires:

  • No person to whom any information is disclosed under this Section may redisclose such information unless the person who consented to the disclosure specifically consents to such redisclosure. 740 ILCS 110/5(d).


Notice that the pivotal word here is “person” – not limited to a therapist. Thus, even an attorney redisclosing properly or improperly released information may have liability under this Act. In Johnson v. Lincoln Christian College, 150 Ill.App.3d 733, 501 N.E.2d 1380, 103 Ill.Dec. 842 (4th Dist. 1986), the court held that even when the recipient had consented to initial disclosure, when the initial disclosure did not allow redisclosure, such further disclosure would be prevented. Even the Federal Substance Abuse Act prohibits redisclosure in its release of information form. 42 C.F.R. §2.32.


H. [8.68] Release of Children’s Privilege
In Illinois, the records of a child under the age of 12 may be released by either parent or one of the joint custodial parents without consent of the other parent.


In re Marriage of Markey, 223 Ill.App.3d 1055, 586 N.E.2d 350, 166 Ill.Dec. 392 (1st Dist. 1991); Dymek v. Nyquist, 128 Ill.App.3d 859, 469 N.E.2d 659, 83 Ill.Dec. 52 (1st Dist. 1984).


In re Marriage of Troy S. and Rachel S., 319 Ill.App.3d 61, 745 N.E. 2d 109, 253 Ill.Dec. 335 (3 rd Dist., 2001). 740 ILCS 110/4(a)(1) allows “[a] parent or guardian of a recipient who is under 12” to release records. Thus, the above-noted cases have interpreted the statute as broadly as possible. Note also that children who have reached ages 12 through 18 come under a different disclosure standard. The child or therapist may object to information being released.


Two cases have discussed contemplation of disclosure. In People v. Sagstetter, 177 Ill.App.3d 982, 532 N.E.2d 1029, 127 Ill.Dec. 200 (2d Dist. 1988), the court ruled that the Illinois Act does not contemplate nonconsensual disclosures by the therapist to the criminal justice system. In Bond v. Pecaut, 561 F.Supp. 1037 (N.D.Ill. 1983), aff’d, 734 F.2d 18 (7th Cir. 1984), a psychologist’s letter to the state court would have been privileged if the letter had referred to anything other than ancillary matters not derived from information disclosed in therapy.


I. [8.69] Introduction of One’s Mental Condition
At the forefront of a practitioner’s mind when the patient-therapist issue arises will be the question, “Under what circumstances does a client put his own mental health at issue?”


In Illinois, one’s mental condition “shall be deemed to be introduced only if the recipient or a witness on his behalf first testifies concerning the record or communication.” 740 ILCS 110/10(a)(1). Hence, if the recipient of the treatment introduces his mental condition or any aspect of the treatment as part of his claim or defense, then, to the extent to which he has so introduced the treatments, the recipient may compromise the privilege.


Participation in child custody proceedings does not put one’s mental health at issue in Illinois. This rule was expanded in Bland v. Department of Children & Family Services, 141 Ill.App.3d 818, 490 N.E.2d 1327, 96 Ill.Dec. 122 (3d Dist. 1986), in which it was decided that one’s mental condition is not placed at issue by filing a petition for adoption.


A good example of a person “introducing her mental health as an issue at trial” is Almgren v. Rush-Presbyterian-St. Luke’s Medical Center, 162 Ill.2d 205, 642 N.E.2d 1264, 205 Ill.Dec. 147 (1994). Here, the plaintiff sued a mental institute for releasing her for an afternoon, during which she roamed semiconsciously until hit by a CTA train. An ancillary discussion of the privilege also took place regarding a lawyer’s breach of the court order not to interview a relevant psychiatric doctor.


In Gottemoller v. Gottemoller, 37 Ill.App.3d 689, 346 N.E.2d 393 (3d Dist. 1976), the wife’s authorization of the release of her psychiatric treatment records to her husband’s attorney prevented her from later claiming a privilege over the trial testimony of her psychiatrist when called by her husband. This principle was reaffirmed in Novak v. Rathnam, 106 Ill.2d 478, 478 N.E.2d 1334, 88 Ill.Dec. 608 (1985), in which the defendant placed his own mental health at issue by calling one of his treating physicians to testify at trial, but tried to prevent his other treaters from testifying for the opposition.


Subpoenas issued to obtain records or communications under the MHDDCA must append a written order issued by a judge, or the therapist is required to ignore the subpoena. 740 ILCS 110/10(d).


In 740 ILCS 110/11, the circumstances under which the records or communications may be disclosed are specified. Illinois allows disclosure “to otherwise protect the recipient or other person against a clear, imminent risk of serious physical or mental injury or disease or death being inflicted.” It is at the therapist’s sole discretion to determine when the element of “dangerousness” rises to the level requiring disclosure.


Before using this provision, a therapist must first consider one of the oldest laws impacting on the medical profession: the Hippocratic Oath, which has been a cornerstone of medical practice for over 22 centuries. Before a therapist points the finger of damnation at a patient who has called on him for help, and thus, undermines the profession’s credibility and purpose to that patient, the therapist must balance the harm to another in this mix. The difficulty of this balancing act is set forth in THE PRINCIPLES OF MEDICAL ETHICS WITH ANNOTATIONS ESPECIALLY APPLICABLE TO PSYCHIATRY (APA, 1995) (which governs all members of the American Psychiatric Association). “Because of the sensitive and private nature of the information with which the psychiatrist deals, he/she must be circumspect in the information that he/she chooses to disclose to others about a patient. The welfare of the patient must be a continuing consideration.” [Emphasis added.] PRINCIPLES, p. 6.


Paragraph 2 also states: “A psychiatrist may release confidential information only with the authorization of the patient or under proper legal compulsion.” Id. Paragraph 5 states: “Ethically the psychiatrist may disclose only that information which is relevant to a given situation. He/she should avoid offering speculation as fact.” Id. Paragraph 9 states: “When the psychiatrist is in doubt, the right of the patient to confidentiality and, by extension, to unimpaired treatment, should be given priority.” PRINCIPLES, pp. 6 – 7. Nevertheless, Paragraph 8 states that psychiatrists at times may find it necessary, in order to protect the patient or the community from imminent danger, to “reveal confidential information disclosed by the patient.” PRINCIPLES, p. 6.


The issue of “dangerousness” has sent a chill down the spine of every therapist since the rendering of the landmark decision entitled Tarasoff v. Regents of the University of California, l7 Cal.3d 425, 551 P.2d 334, 131 Cal.Rptr. 14 (1976). In this case, a patient at the university told his therapist that he would murder a certain specified woman. Two months after the disclosure, the patient killed the woman he had threatened in therapy. The psychologist never informed the potential victim that her life was in danger. The psychologist was held liable for damages for the failure to give any warning to the threatened victim. Lipari v. Sears, Roebuck & Co., 497 F.Supp. 185, 194 (D.Neb. 1980), expanded the warning required in Tarasoff to include a warning when the therapist could “reasonably foresee that the risk engendered by [the] patient’s condition would endanger other persons.” This ever-expanding principle seemed out of control in People v. Clark, 50 Cal.3d 583, 789 P.2d 127, 268 Cal.Rptr. 399 (1990), which held that once a therapist revealed a confidence in an endangerment situation, the privilege no longer existed. However, the Menendez brothers reversed this expanding California doctrine in Menendez v. Superior Court,3 Cal.4th 435, 834 P.2d 786, 793, 11 Cal.Rptr.2d 92 (Cal.1992), in which the court stated: ” Clark holds only that when a psychotherapist discloses a patient’s threat to the patient’s intended victim in a so-called ” Tarasoff warning,” . . . only the disclosed threat is not covered by the privilege.” [Citation omitted.]


Illinois has one further restriction rarely found in other jurisdictions. 740 ILCS 110/3(c) mandates that “[p]sychological test material whose disclosure would compromise the objectivity or fairness of the testing process may not be disclosed” to anyone except another psychologist designated by the recipient. Thus, the protocols so necessary for cross-examination are now far more difficult to obtain and use at trial.


The court in Mandziara v. Canulli, 299 Ill.App.3d 593, 701 N.E.2d 127, 233 Ill.Dec. 484 (1st Dist. 1998), held that an attorney violated the Mental Health and Developmental Disabilities Confidentiality Act when issuing a subpoena without obtaining a court order before issuance. The ex-husband, through his attorney, Mr. Canulli, brought an emergency petition to modify custody based on his ex-wife’s attempted suicide. In connection with the petition, Canulli served a subpoena duces tecum on a certain hospital seeking to obtain medical records that may have reflected the ex-wife’s fitness to retain custody. The subpoena required that the medical records be produced in court. In response to the subpoena, the custodian of records appeared in court and tendered the records to the judge, who reviewed them in open court and returned them to the custodian.


The ex-wife filed a complaint against both the hospital and Canulli alleging violation of the Mental Health and Developmental Disabilities Confidentiality Act. The appellate court held that a lawyer cannot serve a subpoena seeking to obtain access to privileged records or communications unless the subpoena is accompanied by a written court order authorizing the disclosure of the records. The issue of damages suffered proceeded to hearing.


J. [8.70] Conclusion
The therapist-patient privilege is a complex matter that requires vigilant protection against disclosure except when the “safety net” of disclosure is required to protect against threats of harm that are, all too often, disturbingly real. Like any other privilege that limits the public’s right to complete access to information, if the privilege is not fully protected, it should not survive an attack. The privilege was never intended to be both a sword and a shield.

Common types of retirement benefits divided in divorce cases

Benefit Plan

News + Insights

Common types of retirement benefits divided in divorce cases

By: Joy M. Feinberg



The divorce practitioner must be knowledgeable in a multitude of areas to competently handle any case. The financial arena shelters a multitude of minefields for all of us, and few of them are as treacherous as the valuation and division of retirement benefits. Since these benefits are often the largest asset a divorcing couple must divide, careful planning is required. In order to be prepared to handle these matters with enough skill to assure your clients of receipt of all benefits due them as well as a just proportion of those benefits, one must begin with a full knowledge and understanding of the many differing types of benefit plans available.


Differentiating between the two types of plans


Two different types of plans exist in the mainstream of retirement benefit plans: DEFINED CONTRIBUTION PLANS and DEFINED BENEFIT PLANS. Defined Contribution Plans (DCPs) are the types of plans where the participant, or employee, has his or her own “Account Balance,” even if the funds are not segregated into separate accounts for each employee. The general fund is valued at least annually and the participant receives a statement of his/her interest in that plan. Thus, it is relatively easy to obtain an exact value of the participant’s interest in these plans. When the participant leaves the employ of the company, plan balances may be transferred to the new company’s similarly styled plan, to an IRA or other such instrument of the individual or the funds may be withdrawn and paid to the individual. If the individual chooses to withdraw his/her funds before reaching age 62, the funds withdrawn are taxed at ordinary income rates, AND a 10 percent penalty (of the entire sum withdrawn) for early withdrawal is added to the taxes paid as an incentive to keep your funds in a retirement account. Examples of types of DCPs are Profit Sharing Plans, Stock Bonus Plans, Money-Purchase Pension Plans, Thrift Plans, Savings Plans, Cash and Deferred Salary Reduction Plans, 401(k) Plans and Employee Stock Ownership Plans (referred to as ESOPs).


Defined Contribution Plans may be divided by using Qualified Domestic Relations Orders and transferring the non-participant’s interest into that person’s own IRA or account balance at their own employer equivalent plan. While Defined Contribution Plans are not required to provide Qualified Joint and Survivor Annuities or Qualified Pre-Retirement Survivor Annuities, securing the non-participant’s interest up until the date the funds are transferred from the participant’s account to the non-participant’s account is crucial. The method of providing this type of protection can be found in the sample QDRO in this issue of the Family Advocate prepared by Wayne S. Jacobsen, an ERISA practitioner in Newport Beach, California.


DEFINED BENEFIT PLANS (DBPs) with the emphasis on “BENEFIT” are more difficult to value. These plans refer to a Future Stream of Payments, based upon a BENEFIT FORMULA, as opposed to a calculable account balance, and, although funded by employer contributions calculated by the plan’s actuarial calculations, do not begin paying out until the employee or former employee retires. Typically, these plans take the average earnings of the participant employee over his/her last five years of service with the company and multiply that sum by the years of service put in by the employee and certain other factors to arrive at a monthly stream of payments to be paid to the employee participant upon his/her retirement. The employee participant may have a variety of payout methods to select from, including payments made over a single life (i.e. for as long as the former employee lives); a joint and survivor annuity (for as long as the former employee lives and, independent of the former employee’s life, for as long as the joint annuitant lives); a 10-year guaranteed payment etc. Each of the choices offered will affect the monthly annuity paid. A Joint and Survivor Annuity, because it is to be paid over the risk of two lifetimes, will necessarily be a lesser sum than a single-life annuity. Under the Retirement Equity Act of 1984 (REA), both ERISA and the Internal Revenue Code were amended to provide that Qualified Retirement Benefit Plans (such plans include: Defined Benefit Plans, Money Purchase Plans and Target Benefit Plans) must pay certain benefits to a married plan participant and his/her spouse. If the participant dies BEFORE retiring, this benefit is called a Qualified Pre-Retirement Survivor Annuity (QPSA), and if the participant dies AFTER retiring, the benefit is called a Qualified Joint Survivor Annuity (QJSA). These benefits are crucial to secure when dividing Defined Benefit Plan interests when representing the non-participant spouse. Not including surviving spouse language in a Domestic Relations Order would be putting the non-participant spouse’s interest at risk of loss and would be tantamount to malpractice. This concept is discussed in Daniel N. Janich’s article entitled, “QDROs and Surviving Spouse Protection: What happens When the Participant Remarried?” elsewhere in this Family Advocate issue. This issue of the Family Advocate also contains two sample QDROs prepared by ERISA expert Wayne S. Jacobsen of Newport Beach, California. Waiver of a QPSA or QJSA require strict compliance with the REA rules and are discussed in detail in Ann Pachciarek and Julie LaEace’s article on “Waiver of Interests in Qualified Retirement Plans in Pre-Marital Agreements,” elsewhere in this issue of the Family Advocate.


Valuing the defined benefit plan interest

The concept of valuing the participant’s current interest in a Defined Benefit Plan involves determining how much money would be required to be put into a bank account TODAY in order to provide enough money to pay the monthly sums for the lifetime of the participant at the time the employee-participant retires in the future. This valuation process is predicated upon a number of assumptions, such as the employee participant’s age of mortality, future interest rates adding to the value of the funds, etc. To arrive at a PRESENT VALUE of the DBP, you will likely call upon an expert witness, such as a CPA or an actuary to give you a report of value. How this valuation is accomplished and how one works with such an expert is covered by Sandor Goldstein’s excellent article included elsewhere in this Advocate Issue.


Negotiating the division of a DBP should include more than merely dividing the annuity payment by use of a Qualified Domestic Relations Order. There are other pieces of the benefits to divide, such as surviving spouse benefits, early retirement buy-out offers, cost of living adjustments (COLAs) and other subsidies.


Understanding certain special types of plans

IRAs come in many varieties today. A simple IRA is available to an individual who is not a participant in an employer sponsored plan or to the individual who has less than $ _______ set aside by his or her employer in that particular year. Individuals can place $2,000 annually into an IRA, whether or not they have been employed in any capacity during the year.
SEP IRAs can be instituted by any C or S corporation, partnership, sole proprietorship or self-employed individual. The employer can restrict eligibility to those over 21 years. Some part-time workers under a defined salary limit can be ineligible from participation. Union workers under a collective bargaining agreement can also be ineligible from participation. Ineligibility can also be limited to those who have worked three out of the last five years. The contributions, made solely by the employer and directly into each individual’s IRA, can vary from year to year and can even be discontinued, so long as contributions and discontinuation are allocated in a non-discriminatory manner. Each individual employee can receive up to 15 percent of his or her pre-tax income into the plan with an annual maximum. The maximum is adjusted annually for inflation and is currently about $24,000. Loans are NOT permitted in this type of plan. The contributions are tax deferred until withdrawal.


Roth IRAs are NOT tax-deferred funds. These are AFTER TAX dollars deposited into a Roth IRA. All growth in the account is tax-free thereafter.


Educational IRAs are set up with AFTER TAX dollars for the benefit of children under the age of 18. Funds can be removed from the account TAX FREE after the child attains age 18 if used for higher educational expenses.


Defined contribution styled plans

401(k) Plans are retirement savings plans that are funded by pre-tax EMPLOYEE contributions and may include matching contributions from the employer. Funds grow tax free until withdrawn. These types of Defined Contribution Plans may be utilized by for-profit and many kinds of tax-exempt organizations, and the employee is often free to direct his/her own investments. These funds are not accessible until the participant reaches age 59, except through payments of taxes and penalties. The plan funds are not guaranteed by the Pension Benefit Guarantee Corporation. Employer contributions may not vest immediately. Some of the limits of annual allowable contributions depend on the number of lower paid employees participating in the plan. Plans vary and certain plans allow for post tax earnings to be contributed to the participant’s account; however, such accounts are 401(a) employee savings plan accounts. Employee savings plans allow for tax-free growth until withdrawal of after tax monies put into the account. 401(k) accounts are limited to employee contributions of $10,500 in 2000 (again, this sum is adjusted annually for inflation) and this dollar limitation applies to the total sum contributed by the employee, no matter how many different employers that individual worked for in any given year. The annual limitation on total contributions to all employee types of plans adjusts annually, but is approximately $30,000 or 25 percent of the employee’s total annual compensation, which sum cannot exceed the dollar maximum. 401(k) plans usually allow access to funds through loans, limited to a certain dollar amount of approximately $50,000, which must be paid back with interest over five years, although that payback period can be extended to 15 years for the purchase of a principal place of residence or an intended principal place of residence. One benefit of a 401(k) plan is that if an employee retires or is “separated from service” during the year he or she reaches age 55 or more, the participant can withdraw any amount from the account without penalties. Additionally, after reaching age 59, the participant, even if still employed, may begin withdrawing funds so long as the plan allows same. Minimum withdrawal rules, being 10 percent, kick in beginning when the participant reaches age 70 if the participant is no longer working at the company.


403(b) plans are structured like 401(k) plans; however, the 403(b) plans are not “qualified plans” under the tax code. Rather, such plans are Tax Sheltered Annuity Arrangements offered only by public school systems and other tax-exempt organizations. 403(b) plans are not limited by the anti-top-heavy rules of 401(k) plans. As such, there is no limitation imposed by “low earning” or other individuals participating in the plan other than the participant. Employer contributions, if any, have different limitations than under 401(k) plans. The 10 percent early withdrawal penalty and the 15 percent excise tax for excess annual contributions apply to both 401(k) and 403(b) plans. Such plans include State Teacher Retirement System Plans and such venerable institutions as TIAA-CREF.


TIAA-CREF is so often encountered, it is important to take a moment to look at its features. The TIAA traditional annuity guarantees to preserve invested principal and to pay at least a contractually specified interest rate, and holds the possibility of dividend payment. The TIAA Real Estate Account and all CREF accounts are VARIABLE ANNUITIES that offer no guarantees on principal or investment returns. CREF investments are directed by the participant into one of eight types of accounts: stocks, global equities, growth, equity index fund, social choice fund, bond market, inflation-linked funds and a money market fund. TIAA-CREF also offers participants the ability to participate in SRAs or Supplement Retirement Annuities in order to provide more retirement funds. Often, such employees have little or no individual Social Security benefits because they have not worked in the private sector long enough to secure such benefits. Both TIAA and CREF accounts are divisible by QDRO; however, the plan provides its own form QDRO for use, and it is wise to have the division decisions made between the client and his/her financial advisor rather than the attorney.


457 Plans are also a form of a non-qualified plan, but is designed for deferring compensation for employees of states, counties, cities, agencies and other political agencies. The purpose of these plans is to provide a tax-favored avenue for such employees to save for their own retirement. The employer contracts with the employee to defer compensation to some future date for currently performed services of the employee and this “promise to pay” is not secured by an institution such as the PBCG. Annual salary deductions are limited to $7,500 or 33.33 percent of salary, whichever is less. Payments are taxable as ordinary income and distributions are not allowed to be rolled over into an IRA. Distributions occur upon retirement, terminations of employment or death. Some plans may have an “extreme financial hardship” withdrawal provision. Virtually every state has its own Public Employees Retirement System or Systems and the rules for same are found in each state’s statutes. These plans are not governed by ERISA and are instead ruled both by state law and by the provisions of the Internal Revenue Code. Division can be extremely difficult, if not impossible. Many of the provisions negotiated for ERISA covered plans, such as “surviving spouse” designation, may be inapplicable in these plans, but each one must be studied thoroughly.


SEPs, or Simplified Employee Retirement Plans, can be set up at a bank or brokerage house based upon a pre-printed form plan document which requires separate accounts for each participant. Each participant has his or her own account balance, and there is no waiting period for coverage. Employees who have not worked 3 out of the last 5 years need not be covered in these plans. SEPs may be set up and funds contributed in the next taxable year up through the date that the tax return is due.


Keogh Plans are either Money Purchase Plans or Profit Sharing styled plans. The Money Purchase Keogh allows up to 20 percent of earnings, with a $30,000 annual maximum contribution to be contributed to the participant’s account balance. These contributions must be made EVERY YEAR. The profit sharing styled Keogh allows for a lesser maximum percentage of earnings to be contributed, and contributions cannot be based on earnings over $150,000 annually. Annual percentage variations are allowed on profit sharing styled Keoghs. Age 21 can be a minimum requirement for plan participation and employees who have not worked for one year may be excluded along with some part-time employees. Keogh plans can limit vesting to three to five years or, if desired, a vest schedule can be strung out over seven years. Employees who leave before full vesting only take vested benefits with them. Keogh plans must be set up before year end, although contributions may be made after year end up through the date the tax returns are due.


The hybrids
There are certain types of accounts which have characteristics of Defined Contribution Plans, yet are also akin to Defined Benefit Plans. Such plans include Cash Balance Pension Plans, Pension Equity Plans, Life Cycle Pension Plans and Retirement Bonus Plans, Floor-Offset Pension Plans, Age-Weighted Profit Sharing Plans, New Comparability Profit Sharing Plans and Target Benefit Plans.


In a Cash Balance Plan, each participant has an account that is credited with a dollar amount that resembles an employer contribution and is determined by a percentage of the participant’s pay. Interest is paid to each account. Typically, benefits are paid as a lump-sum distribution or as an annuity. These plans provide Defined Future Payable Benefits rather than employer contributions. While each account expresses current lump-sum values of the participant’s accrued benefit, in actuality, the account is merely a bookkeeping device. Actuarial valuations control employer contributions to the participant’s account rather than the actual contributions made to each account. Interest is credited at a specified rate and is UNRELATED to the investment earnings of the employer’s pension trust. The annual limits for contributions are applied to the annuity equivalent of the cash balance account, rather than the amount added to the account each year. Loans are permitted under these plans, but because this would be difficult to administer, these plans do not usually allow loans.


Pension Equity Plans, like Cash Balance Plans, define benefits in terms of a current lump-sum value rather than a deferred annuity. The Pension Equity Plan is a final average lump sum valuation determination and it does not have individual accounts to which interest is credited annually. Each year of service credits the employee with an ever-increasing percentage that will be applied to his or her final average earnings. Both lump sum benefits and annuities are methods of payment to the employee upon retirement, depending upon the provisions of the plan.


Life Cycle Pensions Plans and Retirement Bonus Plans: Like the Pension Equity Plan, final average salary is multiplied by years of service credits that are converted into a percentage figure.


Floor-Offset Pension Plans are actually two plans that are interrelated. The FLOOR plan is the defined benefit plan and the BASE plan is the Defined Contribution Plan. The Floor Plan establishes a minimum benefit level that is dependent on the employer’s objectives and constraints. If the defined contribution plan provides a benefit that equals or exceeds the minimum established by the defined benefit floor plan, the participant receives the balance in the defined contribution account and NO benefit is payable from the floor plan. The level of contribution from the floor plan will depend upon the benefits payable from the defined contribution plan’s ability to meet or exceed the established minimums.


Age-Weighted Profit Sharing Plans provide greater benefits to older employees and are often used by smaller companies. These plans have an age factor weighted into the formula allocating profit sharing funds to individual accounts rather than being based solely on the percentage of the employee’s salary.


New Comparability Profit Sharing Plans divide employees into separate allocation groups to provide larger percentage contributions for certain select employees.


Target Benefit Plans set a “TARGET” benefit for each participant at normal retirement age, which is usually age 65, using a defined benefit plan formula. Employer contributions are determined actuarially. Unlike a traditional defined benefit plan, the target benefit is NOT GUARANTEED. Individual accounts are established for each participant and investment decisions are usually left to the employee, whose account gets the interest or losses generated by those investment decisions. The employer only has an obligation to make the contribution required by the plan formula. It is the employee who runs the risk of the investments yielding the benefits anticipated by the investment strategy.


Non-ERISA covered plans
Up to this point, virtually all plans discussed were ERISA plans or ERISA styled plans. ERISA plans allow the employee to have PRE-TAX dollars put into an account and grow TAX FREE until withdrawal. Non-ERISA covered or styled plans do not have such benefits; nor are such plans guaranteed by coverage from the PBGC.


TOP HAT PLANS are unfunded plans maintained by employers primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. These plans are designed to attract and keep key employees and executives. Because these plans are unfunded, tax forms are not filed annually. Finding these plans is difficult without disclosure or very specific discovery requests to employers and employees alike.


SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERPs) are unfunded plans maintained by employers to reward and attract key executives. Top Hat Plans are one such plan. The underlying assets in SERPs are considered corporate-owned and are thus available for use by owners and creditors of the corporation. When corporations are potential merger or takeover candidates, or, at times when facing bankruptcy, a single or group fixed annuity is purchased by the corporation to secure these benefits for the key employees. Again, specific requests for such information from the corporation and the employee as well as the Benefits Director would be the avenue for locating such a valuable asset.


RABBI TRUSTS are security devices, akin to an escrow account, which contains segregated funds to be used for the purpose of securing “unfunded” employer obligations to employees under one or more of its non-qualified plans. It is an irrevocable trust established for the benefit of the participant by the employer. Again, specific language in discovery requests to employers and employees is required to ferret out these trusts.


Railroad retirement plan
Military Retirement Systems and the Federal Employees Retirement System (FERS) are discussed elsewhere in this Family Advocate issue in an article by Mark Sullivan of Charlotte, North Carolina. There is one other type of plan not elsewhere discussed: the Railroad Retirement Plan, another non-ERISA plan. This plan has two types of benefits: Tier I, which is equivalent to Social Security and Tier II, which is a defined benefit styled plan. Only Tier II benefits can be divided, and these benefits CANNOT be used for spousal support or child support collection. The Railroad Retirement Board provides its own form G-177d with model language for inclusion in a Judgment of Dissolution of Marriage, as no separate instrument, such as a Domestic Relations Order, is required to divide these benefits. Parties must be married for 10 years immediately preceding divorce before the spouse can obtain any benefits.


The importance of section 72(t)
The Internal Revenue Code provides a special tax exception for the distribution of ERISA pension benefits prior to age 59 to a spouse or former spouse when incident to divorce via section 72(t), which provides that the 10 percent penalty on the entire sum withdrawn is waived. The taxes on the sum withdrawn are not waived and must be paid over and above the 20 percent withheld by the plan and forwarded to the IRS. Practitioners should check their local state taxation rules as a number of states do not tax retirement distributions.

Direct Examination of the Business Valuation Expert

Direct Examination

News + Insights

Direct Examination of the Business Valuation Expert

By: Joy M. Feinberg



Skillful, seamless direct examinations are crafted by careful planning and attention to detail. Preparing the direct examination of a business valuation expert requires even more attention to details than most other examinations, as well as some knowledge, if possible, of the audience to whom you are presenting the evidence. How well does the judge comprehend accounting, finance and valuation principles? Where are the weaknesses in the positions being advanced? Upon what areas will your opponent focus the attack? All of these factors must be considered by the attorney when constructing the expert’s examination.


When preparing the direct, consider whether there is any risk associated with your expert’s credentials or ability to be accepted as an expert. Has the expert strayed from his or her field of expertise? Such examples may be the business appraiser who offers an opinion on compensation issues, the value of equipment or even the fair square footage rental rates in a certain community, any or all of which may be outside of that expert’s true field of expertise. If the expert is demonstrated to be lacking in the specialized knowledge required to formulate such opinions, you may find your expert’s testimony is limited, stricken or excluded.


Consider whether or not the theory of valuation upon which your expert is basing his or her opinion is generally recognized by the valuation community as a valid methodology of determining value. If not, your expert may not survive a Daubert or Frye challenge.


Again, if your expert does not use a generally recognized method, the testimony may never be allowed to occur in the trial. Such problems should be detected before the report is finalized so that you and your expert are not caught short at trial. The attorney should also check to see if the retention agreement comports to the work performed. Did the valuator exceed his or her authorized work arena by moving from valuator to litigation consultant? Review the expert’s time records and files to see if any notes in those files reveal damaging or potentially damaging information.


Building a business valuation expert’s direct examination should be accomplished in logical blocks of information, presented with demonstrative evidence and analogies to assist the judge in understanding the information being presented. A typical outline of such an examination begins with credentials of the expert. All experience in the industry of the business being valued should be emphasized. Move on to the work which the expert did in preparing for the valuation, such as documents reviewed; sources consulted; any site visit; other expert reports reviewed, such as equipment appraiser report, real estate expert report on fair rental rates for owner-leased premises, etc.; personnel interviewed and the information gleaned from each such resource; competitors examined; recasting of income and financial statements to include income not accurately reported or to exclude expenses of personal use, such as a boat or condominium owned for the personal use of the owner; or nonbusiness meals and entertainment charged and paid by a corporate credit card; extended family members receiving perquisites such as gasoline charge cards; home or cellular telephones paid by the business; repairs to the owner’s home being paid by the business; and the like. The purpose of each of these actions should also be explained.


When representing the business owner who also acts in the capacity of CEO, be certain to point out all actions the valuator took to check the veracity of the information being supplied by that individual. This will add to your expert’s credibility.


Have the expert detail the impact of the economic circumstances of the community, country and world at and around the time of the valuation, and how this information impacts the valuation. Move on to an explanation of the particular industry and then to the specific products or commodity for the entity being valued. Have him or her explain any peculiarities of that field or product, such as a limited life of the product, so that the judge formulates a perception of the depth and breadth of the expert’s knowledge of this specific enterprise.


Once this background of information has been completed, it is time to move on to the nitty-gritty of valuation. Explain what generally recognized valuation method is being used and why. Just like we did in law school, explain what methods were rejected or used as a secondary methodology, along with the reasoning for each such decision. Itemize all components of the valuation method and explain how the expert carried out the work required for each such component. Included within this portion of the testimony should be the financial calculations printed in large enough print to be read without strain. Provide the judge with a copy to write upon for each segment of the calculation, such as the capitalization rate calculation, revenue growth assumptions and projections, and the like.


At this point, all discounts must be explained and calculated, such as risks of size, management, high percentage of income from one source, minority discounts, lack of marketability discounts and the like. The expert must explain all sources relied upon in determining the percentages to be attributed to such discounts and the relative comparison between those sources and the particular entity being valued.


Finally, the ultimate conclusion of value or range of value should be presented with the report being accepted into evidence, subject to cross-examination. In order to prepare for any upcoming cross-examination, the opponent’s theories or conclusions should be debunked or discounted at each stage of direct examination. If your expert is also serving to rebut the other expert’s report, and that report has been presented, you will want to address any areas of disagreement not already covered in each previous block of information presented.


This article has not addressed the general rules and concerns of direct examination which should always serve as guideposts to the practitioner. It is the attorney’s job to assess the judge’s understanding of the information being presented and to direct the witness to clarify information that does not appear to have been understood as stated. Keeping this testimony simple, interesting and comprehensible is a challenge, but not impossible. Careful planning and preparation, as always, are the cornerstones of success at trial.