The law in its wisdom is designed to prevent sneakiness and subterfuge in the avoidance of one’s legal financial responsibilities.
The rules regarding child support represent one example of this.
Many a lawyer who practices in the area of family law has heard of a person who may be obligated to pay child support, which is based in large part upon the income of the parties, quoted as saying: “I’ll just quit my (high paying) job and go to work for nine bucks an hour then.”
Typically, that is a quote delivered by a co-parent who wants to avoid paying to support the children they have helped bring into this world.
And whenever I hear that, I think, what a prince of a parent that person is.
But a review of the child support rules reveals that: “If a parent is unemployed or found to be underemployed, ‘gross income’ may be based on imputed income.”
What that means is that in a case where child support is in issue, a court is authorized to base child support on what a parent could and should be making, not their actual income, where they are shown by the evidence to be unemployed or underemployed.
Nice try, though.
Another scenario is where a debtor takes the indecorous step of transferring title to his house, his Harley, his bank account and his new truck over to his mother, sister, close friend, or other party, to avoid judgments and creditors’ claims.
This is covered by the Missouri Uniform Fraudulent Transfer Act, which applies to a situation where a debtor transfers assets to another party with an actual intent to hinder, delay, or defraud a creditor of the debtor in collecting on an obligation.
This statute provides that a creditor who establishes that a debtor has so transferred assets may obtain court orders that include having the transfer of assets set aside, execution on the assets even though they’ve been transferred to another party, an injunction prohibiting further transfers of the assets, and the appointment of a receiver to take charge of the assets fraudulently transferred.
Again, nice try. But no.
Another common scenario is where one or more individuals form a corporation or limited liability company, incur major debt in the name of the entity, loot the entity of its assets for personal gain, and seek to avoid any responsibility for the debts of the entity, while enjoying the fruits of its fraudulent undertakings.
And while LLC’s and corporations are ordinarily considered separate legal entities where the individual members and owners are generally not liable for the entity’s debts, our courts have held that this protection is not absolute.
And when a creditor of such an entity, corporation or LLC, can establish that such an entity has been used for an improper purpose and to perpetuate injustice by which to avoid its legal obligations, a court may use its equitable power to “pierce the corporate veil” of the entity, and hold the individual owners and members personally liable.
Once again, nice try.
Each of these propositions – imputing income to an unemployed or underemployed child support obligor, setting aside fraudulent transfers by parties seeking to avoid financial obligations, and piercing the corporate veil of an entity being used to perpetuate injustice – can represent challenging and tedious undertakings for a lawyer and, unfortunately, significant expense for a client seeking to employ them.
But still, it is good to know that we have a legal system with measures in place to address such tactics and injustices.
-- Ken Garten is a Blue Springs attorney. Email him at firstname.lastname@example.org