Iowa Law Blog : Iowa Lawyer & Attorney : Sullivan & Ward Law Firm : Iowa Law Blog

The popular legal document production website, LegalZoom, is "zooming" to the court based upon a class action lawsuit in Missouri.  The Plaintiff's in the suit are claiming that LegalZoom is engaging in the unauthorized practice of law. 

While some people may see attempts by attorneys to knock LegalZoom out of business in order to protect the attorney's "ground", the reality is that if there are any issues that come out of the documents created by LegalZoom, the attorneys are likely to make much more money in fees in cleaning up the mess than they would have in drafting the documents in the first place.  Most clients are surprised at the relatively reasonable cost we charge for the same "document preparation" that these DIY companies provide.  Is it as cheap as LegalZoom? No.  Do you get what you pay for?

There are plenty examples of people performing their own surgeries, but there is a reason that physicians go through years of school and training and are subject to regulations.  Similarly, whether you like attorneys or not, there is a reason they too go through years of school, training and subject to regulations. 

Don't you have a little more comfort in knowing that the critical legal documents are done accurately?  Plus, if there is a question later on, having that initial relationship with an attorney will help with dealing with any problems.

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In an opinion released by the Iowa Supreme Court today, the Court found that a suit for breach on a covenant of title requires that the coventor be giving notice of the underlying claim before they are obligated to pay.  In this case, Gaede's purchased land from Stansberry.  After the sale was completed and the Gaede's took possession, the city approached the new owners, Gaede, and claimed that part of the property they purchased was actually a city street and they needed to "get off" the city property.  A "quiet title" action ensued (quiet title is where a party attempts to establish the true owner of the land) and the Gaedes lost the battle.  Unfortuantely, the Gaedes spent nearly $24,000 for a property valued at about one-half that figure.

After their loss, the Gaedes went to the seller, Stansberry, and asserted that as Stansberry had given them a warranty deed, they should stand behind their warranty and make the Gaedes whole and compensate them for their damages.  Stansberry was not given notice of the proceedings by the city.  As  a result of that failure to be given notice of those prior proceedings and to defend title in that trial, the Iowa Supreme Court ruled that before a party is liable for the cost, they must be given notice of the challenge and have the opportunity to defend the title.

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It seems like business formation activity is starting to pick up as people are starting to not only thaw out from the winter but also thaw out from the "economic ice storm".  Part of the process of any business formation involves consideration not only of creating the company but also terminating the relationship.  Much like a premarital agreement predetermines how assets are split at divorce or at death, a "buy sell" agreement will determine how the business will continue or dissolve in the event of a death of an owner, disability of an owner, bankruptcy of an owner, the divorce of an owner or a dispute by the owners.  None of these issues are typically on the near horizon when the process is starting, so it is easy to forget about them.  However, most small businesses will end at some point.  Better to start the planning now before too much is invested and when relationships are strong.

In looking at the issues, here is a brief outline of some items to consider as the business owner formulates a plan.

• Triggering Events
  
  • Death
  • Disability (consider length of necessary disability)
  • Divorce by one owner (ex-wife digging through company financials?)
  • Bankruptcy by an owner (bankruptcy trustee involved in company?)
  • Desire of one party to get out of the company

• Valuation Issues
  • Annually have the owners determine the value of shares by unanimous agreement or by appraisal or by some formula using company financials.
  • Professional appraisal at time of triggering event
  • “Texas Shootout” – one party submits price that they would either be willing to buy OR sell. Other party has option to either buy OR sell for that price.
  • Can use combination of valuation issues with different triggering events.

• Funding Issues - Upon a triggering event, how will the departing member be paid for his or her shares.
  • Insurance (life insurance, disability insurance, business continuation insurance)
  • Installment payments
  • Cash reserves of Company

• Company redemption vs. Cross purchase
  • Determining whether the company will redeem the company shares or whether the other owners will be making the purchase (who buys the owner out - company or other owners?).
  • This decision affects the valuation of the company and a shareholder’s basis in the company.

This outline is simply a starting list to get the thought process moving.  The final provisions can either be placed in the formation documents, or a separate "buy sell" agreement. The drafting of such a document can be very complex and you should consult an experience attorney to assist with the drafting of such a document.  Implementing the "business pre-nup" now will hopefully help smooth out the process later.

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Once in awhile you'll come across someone that wants to disinherit their spouse.  Sometimes it isn't done with ill-will.  For example, maybe it is a second marriage situation and both spouses decide they don't need to leave anything for the survivor.  Sometimes it is ill will. 

The general rule is that you can only disinherit your spouse if he or she agrees to it.  In other words, a surviving spouse can choose (elect) after your death to basically ignore your will or trust that doesn't provide for that surviving spouse, and have basically a third of your estate go to them.  For example, if you left your entire estate to your children and not your spouse, your spouse can say "wait a second.  I don't like that idea.  I'll take one-third of the estate thank you very much."   And believe it or not, money can make people change their minds.

For a while, individuals were using trusts to get around this "election against the will", but eventually the Iowa laws corrected that "end around" planning.  But now, a recent ruling out of an Iowa district court in Pottawattamie County created another option.  In a December 2009 ruling, the district court permitted some bank accounts with a payable on death (POD)/ Transferrable on Death (TOD)  designation to escape the spouse's ability to get the one-third elective share.  The result, under this ruling, is that you can now disinherit your spouse by using the POD/TOD designation on these accounts.  While this ruling is not the law of the state, the court creates a roadmap for a valid argument to properly disinherit your spouse.

TOD and POD accounts are very easy and flexible planning tools.  In fact, they can be almost too easy.  If this ruling continues to stand, it may result in some unintended consequences contrary to the intent of the spousal election laws.  The court places the burden on the Iowa legislature to correct the statute if they don't want this type of "loophole".  Time will tell.

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A recent ruling from the Iowa Court of Appeals dictates that once a natural parent loses custody of their child in a guardianship proceeding, if the parent seeks to terminate the guardianship and regain custody, it is necessary that the parent seeking to terminate the guardianship must show a "substantial change in circumstances" in order to terminate the guardianship. 

To understand the significance of this ruling, it is important to understand the normal rule involved with guardianships where a natural parent is involved.  The normal rule in establishing a guardianship for a minor is that a natural parent, if qualified and suitable, shall be preferred over all others in an appointment as a guardian.  This strong legal presumption is a result of the strong societal desire to preserve the natural parent-child relationship.

The Iowa Court of Appeals stated that once the issue of the natural parent's ability is litigated in the establishment of a guardianship, the normal rule in favor of a natural parent doesn't apply in later proceedings to terminate the guardianship as it is not in the child's best interest.

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