Legislature(1997 - 1998)

04/25/1997 08:30 AM House JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 HB 199 - COMMUNITY PROPERTY                                                 
                                                                               
 Number 0767                                                                   
                                                                               
 CHAIRMAN GREEN announced the next item on the agenda was HB 199,              
 "An Act relating to the property, transactions, and obligations of            
 spouses; relating to the augmented estate; amending Rule 301,                 
 Alaska Rules of Evidence; and providing for an effective date."  At           
 the previous hearing, some testimony had been taken.                          
                                                                               
 GEORGE GORRIG, Attorney at Law, testified via teleconference from             
 Anchorage.  He favors HB 199 not only for the income tax advantage,           
 which would put Alaska on equal footing with community property               
 states, but also as an important vehicle to help plan Alaskans'               
 estates.   Even though there are no more federal and state taxes              
 between husbands and wives, oftentimes the major wage earner is               
 listed and liquidation of the assets is necessary.  A half-interest           
 in a piece of property cannot be sold.  People incur an income tax            
 liability because of the death of a family member, which he                   
 believes is patently unfair compared to the advantage enjoyed in              
 community property states.                                                    
                                                                               
 MR. GORRIG explained that there are problems equalizing estates               
 when there is a joint death.  The ability to enter into a community           
 property agreement precludes having to equalize estates on an                 
 annual basis.  A person could choose to have community property               
 status for certain property, which would continue to have that                
 status as an undivided interest, without having to worry about one            
 property having a much greater value than another.                            
                                                                               
 MR. GORRIG said on the down-side are problems with potential                  
 creditors.  As it currently stands, the creditor of one spouse                
 cannot reach the assets of the other spouse unless a professional             
 is involved.  This provision is to prevent doctors, dentists and              
 attorneys, for example, from transferring assets to their spouses             
 in case they are sued for malpractice.  He believes this is a poor            
 offset against the advantages.                                                
                                                                               
 MR. GORRIG referred to AS 13.26.332, relating to statutory powers             
 of attorney.  He said whoever receives the power of attorney has              
 tremendous powers.  He stated, "And we know that this could be a              
 problem, but there are sufficient warnings in the statute which put           
 these people on alert that they could have problems with property             
 ownership and the ability to dispose or sell if you execute these             
 general powers of attorney."  He said similar warnings could easily           
 be put into HB 199, saying, as a caveat, that this could affect the           
 creditors' rights to certain mineral property and that the person             
 should be advised to seek competent advice regarding liability.               
                                                                               
 MR. GORRIG concluded that overall, HB 199 is invaluable.  He said             
 instead of Alaska being one of the last states to enact what he               
 believes is a "very advanced law," it should be one of the first.             
                                                                               
 Number 1022                                                                   
                                                                               
 CHAIRMAN GREEN said a concern is whether HB 199 would pass muster             
 with the Internal Revenue Service (IRS).                                      
                                                                               
 MR. GORRIG responded, "No question."  He said when he worked for              
 the IRS, community property estates had a much greater advantage              
 than separate property estates in regards to federal taxes.                   
 Enactment of the unlimited marital deduction in 1982 took away the            
 fear of being forced to sell property.  When a tax between a                  
 husband and a wife is generated due to a death where the property             
 is being sold, a double taxation occurs in separate property                  
 estates; the living spouse is forced, by a tax consequence, to                
 incur a capital gains tax.                                                    
                                                                               
 MR. GORRIG said he believes in 50 percent of the cases that he is             
 handling on probate, some liquidation is necessary because of other           
 issues such as loss of the major wage earner.  He commented that              
 when persons are forced to sell something, they never get the full            
 market value and are forced to incur a tax.                                   
                                                                               
 MR. GORRIG said the IRS looks to state law to determine who gets              
 what.  It is not the states but the federal government that gives             
 the community property status or "step-up in basis" for both                  
 halves.  This bill says that this tax advantage, available by the             
 federal government, should be made available to Alaskans.  If the             
 state allows a community property status when a person dies, the              
 entire community is going to be stepped up.                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked what Mr. Gorrig's background is.                
                                                                               
 MR. GORRIG said he was a federal/state gift tax attorney for three            
 years beginning in 1971 for the Seattle district and moved to                 
 Alaska to perform the same job for two years.  His background is              
 both in community property estates and separate property estates.             
 He has been doing estate planning throughout Alaska since 1977.               
                                                                               
 Number 1180                                                                   
                                                                               
 SHARON GLEASON, Attorney at Law, testified next via teleconference            
 from Anchorage, saying she is a domestic relations and family                 
 lawyer.  She has practiced in Alaska for 14 years.  She is not an             
 estate planning lawyer but has done several wills.  Her practice is           
 primarily divorce law, with increasing focus in recent years on               
 large-asset property division cases rather than custody work.                 
                                                                               
 MS. GLEASON expressed concern about HB 199 from her perspective as            
 a divorce lawyer.  This bill, as presently drafted, would be a                
 departure from many of the protections afforded by Alaska to                  
 spouses when they go through a divorce.                                       
                                                                               
 MS. GLEASON said from a general standpoint, divorce in Alaska is an           
 expensive process.  Many dissolutions require more than 20 pages of           
 paperwork; that would magnify to include these community property             
 issues.  She recalled seeing a chart where estate lawyers show a              
 tax savings of $14,000 in a hypothetical situation of a spouse                
 deciding to sell property upon the death of the other spouse.  In             
 her view, 50 percent of couples in Alaska are going to divorce.               
 For those couples, this community property law would greatly                  
 increase the costs associated with getting that divorce.                      
                                                                               
 MS. GLEASON referred to a discussion with a lawyer who is head of             
 the family law section in Wisconsin, which adopted a similar bill             
 about ten years ago; they call their bill "the divorce lawyers' and           
 tax accountants' relief and pension fund act" because the law is so           
 complex that it has mushroomed into making divorces far more                  
 difficult for the parties involved.  Ms. Gleason offered to discuss           
 additional concerns.                                                          
                                                                               
 Number 1438                                                                   
                                                                               
 CHAIRMAN GREEN asked for examples of problems that HB 199 might               
 create.                                                                       
                                                                               
 MS. GLEASON referred to page 11, lines 1 through 26; this specifies           
 when a community property agreement can be set aside.  Under                  
 current Alaska law, if the parties venture into a premarital                  
 agreement and then later divorce, a spouse can argue that the                 
 agreement should not be enforced because it is unconscionable at              
 the time of the divorce.  And she reads it, HB 199 would eliminate            
 that argument.                                                                
                                                                               
 MS. GLEASON said HB 199 basically allows an agreement to be set               
 aside if there was no disclosure at the time it was made or if it             
 was not voluntarily executed.  Under present Alaska law, an                   
 agreement, whether premarital or following marriage, can be set               
 aside at the time of the divorce if enforcing it would be grossly             
 unfair to one spouse.  As reflected in the court system, a husband            
 and wife entering into an agreement should be accorded a different            
 level of review than two people entering into a business                      
 transaction.                                                                  
                                                                               
 Number 1598                                                                   
                                                                               
 CHAIRMAN GREEN asked:  If property or something of value was                  
 voluntarily put into this kind of a trust, how would that be held             
 unconscionable at a later date?                                               
                                                                               
 MS. GLEASON explained that the problem is that a party can take               
 action after entering into the agreement.  She cited an example               
 where a woman has premarital stock in her family business.  When              
 they marry, she and her husband decide that the husband will run              
 the business.  They put the stock into a community property                   
 agreement, as well as including a no-alimony provision.  Unknown to           
 her, the husband transfers the entire community property interest             
 to a third party, which under a different provision of this bill is           
 allowable.  At the time of the divorce, the woman cannot set that             
 transaction aside.  The result would be that the husband had,                 
 during the marriage, defrauded the wife of this property, and the             
 wife could not argue that it was unfair in light of the husband's             
 actions after the date of the agreement.                                      
                                                                               
 MS. GLEASON said another example might be when one spouse develops            
 a serious illness or problems that would warrant something other              
 than an equal division of assets, given the disparity of the                  
 parties' circumstances.  Those types of "after arising"                       
 circumstances are what the court deems appropriate considerations             
 when determining whether an agreement between the parties should be           
 enforced at the time of divorce.                                              
                                                                               
 Number 1706                                                                   
                                                                               
 CHAIRMAN GREEN referred to prior testimony and said they had heard            
 this sort of thing could be "opted out."  He asked, in the                    
 situation where a husband is seriously ill, whether opting out                
 would be possible.  He also asked whether Ms. Gleason sees other              
 sections of Alaska law allowing something entrusted voluntarily by            
 both parties as being subject to withdrawal by one party.                     
                                                                               
 MS. GLEASON replied that as she reads HB 199, no provision allows             
 one spouse to opt out.  Once property is put into the community               
 property characterization, it would require both parties' consent             
 to opt out.  This is in contrast to the provision that would allow            
 one party, on his or her own, to sell, transfer or encumber the               
 community property without the consent or knowledge of the other              
 spouse.  One spouse cannot opt out of the agreement unless they               
 both agree.                                                                   
                                                                               
 CHAIRMAN GREEN said, "It could be encumbered by one by not opted              
 out by one."                                                                  
                                                                               
 MS. GLEASON concurred.  She said a form of opting out would be to             
 transfer the asset, unbeknownst to the other spouse.  Typically,              
 the desire to opt out would arise in the spouse who had not managed           
 the assets at the time of divorce.                                            
                                                                               
 Number 1787                                                                   
                                                                               
 REPRESENTATIVE BUNDE proposed a situation where the community                 
 property is a building.  He asked whether it is possible to                   
 encumber one-half of the interest in that building, unbeknownst to            
 other spouse.  He doubted that he could get a second mortgage on              
 his home without his wife's consent and involvement, as they had              
 both signed the mortgage.  He asked whether one could get a second            
 mortgage on a building without the spouse's knowledge.                        
                                                                               
 MS. GLEASON responded, "The issue would be if the building was only           
 titled in the name of one spouse, so that on the deed it indicated            
 `husband is the owner,' but separate and apart from the deed, there           
 was a community property agreement, which would not be recorded,              
 that ... identified that asset as community property, that what               
 this bill does, as I understand it, is say that husband can go out            
 and he can get a loan, without the consent or knowledge of the                
 other spouse, regarding that property."                                       
                                                                               
 MS. GLEASON continued, "Now, as a practical matter, the banks                 
 typically require the other spouse to sign a waiver of a homestead            
 exemption if it's residential property.  But with regard to                   
 commercial property, there would be nothing to preclude one spouse            
 from getting loans or transferring the property, provided that on             
 the deed, he was - or she was - the sole owner of the property.               
 You'd have a separate agreement that would not be recorded."                  
                                                                               
 Number 1875                                                                   
                                                                               
 REPRESENTATIVE BUNDE observed that if there is an encumbrance on a            
 piece of property, and if the attorney involved in creating the               
 loan, for example, does not discover it, that is a whole other                
 story.  He referred to the "unconscionable portion," page 11, lines           
 25 and 26, and asked whether that addresses Ms. Gleason's concern.            
                                                                               
 MS. GLEASON said she wondered about that herself.  To her, that               
 section could be interpreted two ways.  She stated, "When you                 
 determine what's unconscionable, as that term is used above in                
 sections (f) and (g), then this section (h) is saying that's up for           
 the courts to decide.  The other way would be the interpretation              
 that I understand you would be proposing, which is to say that this           
 is, in essence, a catch-all that would allow the court to determine           
 that the agreement is unconscionable at the time enforcement is               
 sought.  To me, at least, it's unclear, and in the context of the             
 bill, it would be likely that a court might well conclude that the            
 term there is intended to define its use above and not to accord              
 additional rights to a party seeking to set aside the agreement."             
                                                                               
 REPRESENTATIVE BUNDE said his interpretation is that this                     
 subsection affords additional rights, which is the second                     
 interpretation presented by Ms. Gleason.  He suggested                        
 strengthening this language.                                                  
                                                                               
 Number 1960                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ asked, "The question of unconscionability            
 is a question of law for the courts to determine regardless, isn't            
 it?"                                                                          
                                                                               
 MS. GLEASON said yes.                                                         
                                                                               
 REPRESENTATIVE BERKOWITZ asked whether her concern with the bill              
 was from the divorce aspect, not relating to estate planning.                 
                                                                               
 MS. GLEASON replied that she had no concern, nor ability to                   
 testify, regarding estate planning.                                           
                                                                               
 Number 1983                                                                   
                                                                               
 REPRESENTATIVE JEANNETTE JAMES presented a situation where a party            
 has property in their own name and then enters into a community               
 property agreement in Alaska, providing this became law.  The                 
 scenario presented by Ms. Gleason was that the person who had the             
 property in their name could dispose of it.  Representative James             
 said she would be surprised if people did not understand that if              
 there is a community property agreement, it must be recorded.                 
                                                                               
 Number 2033                                                                   
                                                                               
 MS. GLEASON responded that in her practice, she would disagree.               
 The vast majority of business interests she sees are held in the              
 name of one spouse.  Although there might be a premarital agreement           
 addressing the rights of parties in respect to business interests,            
 she does not recall ever seeing a premarital agreement recorded.              
 It is quite common for a court to divide property in a divorce that           
 is titled in only one spouse's name.  To her, it is a cause for               
 concern.  She said she had several other concerns as well.                    
                                                                               
 Number 2078                                                                   
                                                                               
 REPRESENTATIVE JAMES asked whether it would be wise to include                
 something in this legislation that indicates that these need to be            
 recorded.                                                                     
                                                                               
 MS. GLEASON answered that her sense is that most parties would                
 prefer to keep these agreements between themselves.  As with a                
 will, this is a private document regarding assets, debts and                  
 agreements with each other.  Although recording does have a benefit           
 in giving protections, she believes most Alaskans would prefer                
 privacy.                                                                      
                                                                               
 Number 2132                                                                   
                                                                               
 CHAIRMAN GREEN asked where the recording for more liquid properties           
 such as stocks or a business would take place.                                
                                                                               
 MS. GLEASON answered that interest in real property is recorded at            
 the Recorder's Office, which is the only place where a third party            
 is expected to know of transactions between spouses regarding real            
 property.  For security interests in stock, theoretically, one                
 could do a Uniform Commercial Code (UCC) filing, but the process              
 does not achieve any purpose because it is accounted in so many               
 different ways.  For example, if a building is owned by a                     
 corporation, the title at the Recorder's Office will show that `ABC           
 Corporation' owns it.  However, the corporation might be owned 100            
 percent by one of the spouses.  That will not be at all apparent              
 when one goes to the Recorder's Office.                                       
                                                                               
 Number 2203                                                                   
                                                                               
 MR. GORRIG suggested this problem occurs when one person has their            
 name on the property and then enters into a community property                
 agreement.  Because it is not recorded, the person whose name is on           
 the property could dispose of it or do anything with it.  He asked,           
 "Well, why can't they do that anyway?  I mean, it seems to me that            
 the community property agreement at least would give the other                
 spouse some claim against that property."  He asked what the damage           
 would be if there was no community property agreement.                        
                                                                               
 MS. GLEASON responded that it ties in with another provision of HB
 199.  Referring to the top of page 10, she said under AS                      
 34.75.090(e), there is a provision that says a community property             
 agreement may not adversely affect the right of a child to support.           
 By implication, to her that would mean a community property                   
 agreement could adversely affect the right of a spouse to support.            
 A situation could occur where someone sells an asset with a                   
 community property agreement in place.  If the community property             
 agreement says that neither spouse is entitled to spousal support,            
 someone could walk away with virtually nothing out of a divorce               
 under this language.                                                          
                                                                               
 MS. GLEASON said if the same scenario happened under existing                 
 Alaskan law, at the very least, the court would have the ability to           
 order spousal support in an effort to address the needs of both               
 parties.  The community property agreement, in addition to giving             
 one spouse complete control over assets, could eliminate the right            
 of a spouse to support.  She said this is also a way to address               
 equities when a property is encumbered or difficult to access, such           
 as in a professional practice.                                                
                                                                               
 Number 2326                                                                   
                                                                               
 CHAIRMAN GREEN asked whether there is some way, not already                   
 afforded, that a community property agreement would preclude court            
 intervention or invasion.  He referred to a building being deeded             
 to one spouses and asked, under a divorce proceeding, whether the             
 court could invade that or whether it was precluded under community           
 property.                                                                     
                                                                               
 MS. GLEASON said that was an interesting question and stated,                 
 "You're correct that you can invade under existing law quite                  
 readily.  As I read the intent of this bill, the intent would be to           
 preclude invasion because there is a provision of the bill that               
 would require a 50-50 split of community property, unless at the              
 outset - at the time of entry into the agreement - the parties had            
 agreed on a different split between them."                                    
                                                                               
 REPRESENTATIVE BERKOWITZ asked whether Ms. Gleason had a copy of              
 her comments or a sectional analysis.                                         
                                                                               
 MS. GLEASON offered to prepare comments and forward them to the               
 committee.                                                                    
                                                                               
 CHAIRMAN GREEN asked about Ms. Gleason's concerns.                            
                                                                               
 MS. GLEASON said there are two other concerns.  She referred to               
 page 7, line 4, relating to gifts of community property to third              
 persons.  This is substantially a variance with existing Alaskan              
 law as it would apply in equitable distribution.  Currently, if one           
 spouse makes a gift of marital property, the other spouse has two             
 years after learning of the gift to have it set aside.  Referring             
 to subsection (d), beginning on line 18, she said under HB 199, the           
 spouse that learns of the gift has a much more limited time period,           
 the earlier of one year after notice of the gift or three years               
 after the gift.  Three years could pass without the spouse learning           
 of the gift, precluding them from setting it aside.                           
                                                                               
 TAPE 97-63, SIDE B                                                            
 Number 0001                                                                   
                                                                               
 MS. GLEASON continued, saying this could harm the spouse that has             
 less knowledge or involvement in an asset put into a community                
 property agreement.                                                           
                                                                               
 CHAIRMAN GREEN referred to line 7 and said there is a limit of                
 $1,000 in a calendar year.  He asked if this is under existing law.           
                                                                               
 MS. GLEASON said no.  There are no current limits on "gifting."               
                                                                               
 REPRESENTATIVE BUNDE said he understands the problem of having an             
 open-ended window; a person could give a gift and then 20 years               
 later, the recipient might receive notice that they must give it              
 back.  He asked:  If three years is not an adequate amount of time,           
 and since it is not acceptable to him to have no time limit, what             
 would be an acceptable time limit?                                            
                                                                               
 Number 0043                                                                   
                                                                               
 MS. GLEASON replied that she does not have an idea on the time                
 limit as much as on the appropriate remedy.  She agreed one could             
 not go back and recover the gift necessarily, but the open-ended              
 time limit, if it allowed a remedy between the spouses, is a                  
 workable solution; that is what exists in current law.  Rather than           
 setting aside a gift learned about 20 years later, the other spouse           
 can be held accountable for the gift transaction in the divorce.              
 She said she had not thought about it but would consider the idea             
 of a time limit that would apply irrespective of notice to the                
 spouse.                                                                       
                                                                               
 MS. GLEASON referred to page 5, lines 2 through 5, which says in              
 part, "income earned or accrued by a spouse or attributable to                
 property of a spouse during marriage and after the determination              
 date is community property."  She said this is problematic in two             
 respects.  First, it sets up the problem of tracing, which is                 
 already an expensive process in divorce litigation on occasion;               
 this would double the cost.  She presented a situation where people           
 put apartment buildings into community property, leaving everything           
 else as noncommunity property, with the intent of lumping the rents           
 into a joint account used for their various needs.  Money also                
 accumulates in this account.  She questioned what should be done              
 with the income attributable to the building, which is supposedly             
 community property, while other income going into that same account           
 would be marital property subject to equitable distribution.   This           
 is an accounting problem.                                                     
                                                                               
 MS. GLEASON said the other problem with this provision is that                
 existing Alaskan law clearly establishes that the date when parties           
 physically separate from one another is a cut-off date for                    
 allocation of marital and nonmarital property.  For example, when             
 the husband leaves the home, his post-separation earnings are his             
 own and not part of the marital property, even if it takes a year             
 for the divorce.  That year's earnings are his, subject to child              
 and spousal support obligations that might be imposed.  To Ms.                
 Gleason, this would run counter to that provision because it would            
 make all of the income during that post-separation process                    
 community property.  It would complicate an already-complex                   
 accounting problem that arises in divorce cases.                              
                                                                               
 CHAIRMAN GREEN noted that there was a response and asked that Ms.             
 Gleason send further testimony to the committee.                              
                                                                               
 Number 0201                                                                   
                                                                               
 REPRESENTATIVE JOE RYAN, sponsor of HB 199, read the first portion            
 of subsection (d), which says, "If the community property agreement           
 provides that all property acquired ...."  He emphasized that this            
 is an agreement; he assumed people planning to do this would hire             
 someone like Ms. Gleason or an estate planning attorney, who would            
 inform them that if they sign this agreement and put these                    
 provisions in, there are consequences if they separate.  It is a              
 voluntary agreement, and people must hire someone to inform them of           
 the consequences.                                                             
                                                                               
 REPRESENTATIVE RYAN read from page 8, subsection (b), beginning at            
 line 5:  "After the determination date, a spouse's obligation to              
 satisfy a duty of support owed to the other spouse or a child of              
 the marriage may be satisfied only from community property and                
 other property of the obligated spouse that is not community                  
 property."  He said you take the portion that is designated as                
 community property; the other assets are individual property and              
 apply under the laws applicable to that.  He questioned how all the           
 "what-if scenarios" could be addressed in legislation.  "This is              
 why we have courts to make these decisions," he added.                        
                                                                               
 Number 0282                                                                   
                                                                               
 MS. GLEASON responded that this is why the Wisconsin lawyer called            
 this type of legislation "the divorce lawyers' and tax accountants'           
 relief and pension fund act," because of the complexities                     
 associated with it.  She hopes most Alaskans who choose to enter              
 into these agreements would obtain legal advice.  She cautioned               
 that there are people who will write their own community property             
 agreements after reading what a wonderful tax savings they could              
 obtain.  Some people do not like to seek legal advice; she believes           
 it is those people who may be severely impacted by this type of               
 legislation.                                                                  
                                                                               
 Number 0321                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG said he did not expect an answer; however,            
 at the previous hearing, he had posited a scenario where the                  
 prenuptial agreement has a provision that the parties would elect             
 to have a community property agreement.  He asked:  Under Alaska              
 law and case law, could a prenuptial agreement stipulate that if              
 there was a divorce, the parties would automatically opt out of the           
 community property agreement and settle into existing state law?              
 He further asked:  In the alternative, could the legislature, in              
 this bill, allow for that instance if it would not be allowable               
 under existing case law?                                                      
                                                                               
 MS. GLEASON answered that there is a provision that allows parties            
 to set a termination date for their community property agreement.             
 She advised that she would give thought to that in her written                
 comments.                                                                     
                                                                               
 Number 0377                                                                   
                                                                               
 JOAN CLOVER, Attorney at Law, Gruenberg and Clover, testified next            
 via teleconference from Anchorage.  She has practiced domestic                
 relations law for 15 years.  Like Ms. Gleason, she is currently a             
 member of the executive committee of the state family law section             
 of the Alaska bar; she and Ms. Gleason had been co-chairs of that             
 section a few years ago.                                                      
                                                                               
 MS. CLOVER specified she was speaking with a "voice of caution."              
 She said the family law section had received a mailing from, she              
 believes, the probate section; she received it March 1.  That was             
 the first they knew of HB 199.  She has received several phone                
 calls regarding the bill.  She believes it is important enough to             
 Alaskans that it should be held over the interim so that family law           
 attorneys can study it and provide input.                                     
                                                                               
 MS. CLOVER said she is personally a proponent of individuals'                 
 ability to contract and believes people can be held responsible for           
 their own voluntary actions.  However, the purpose of our laws, to            
 a certain degree, is to protect citizens.  The legislature should             
 proceed with great care when embarking on something that puts                 
 Alaska at the forefront of the nation.  She said Alaskans will be             
 the guinea pigs.  She noted that only eight states have community             
 property; she said one must wonder why.  In addition, only                    
 Wisconsin has adopted the uniform marital property act.  Alaska has           
 a well-established body of case law dealing with equitable                    
 divisions and the way that we hold property in a separate property            
 estate.                                                                       
                                                                               
 MS. CLOVER advised that she went to law school in California.  She            
 recalled discussions of community property and said it is                     
 substantially different from equitable division.  The rights of the           
 parties during an intact marriage, where each owns a separate half            
 of property, are significantly different.  Similarly, the rights in           
 divorce are different.  She believes HB 199 can be improved and               
 that it deserves the study that can be given to it by allowing                
 domestic relations attorneys an opportunity for greater input and             
 time to study this over the interim.                                          
                                                                               
 Number 0538                                                                   
                                                                               
 CHAIRMAN GREEN noted that there has been an expressed desire to               
 move this rapidly because of "a competitive edge that the state of            
 Alaska may have."  He said holding it over the interim may impact             
 that significantly.  He asked Ms. Clover to comment.                          
                                                                               
 MS. CLOVER answered that this advantage involves attracting money             
 from outside of the state for the benefit of the lawyers who will             
 draft these agreements and some trust officers who want to                    
 administer.  She believes that legislators' obligations are to                
 their constituents, to Alaskans, most of whom are married and many            
 of whom will find themselves embroiled in a divorce.  Along with              
 Ms. Gleason, she fears that not only people who have carefully                
 considered the consequences and have obtained competent advice will           
 enter into these agreements.  Unlike many estate planning attorneys           
 who write prenuptial agreements, she said she tears them apart.               
 She is involved in litigation either attempting to sustain them,              
 under attack, or attacking them.                                              
                                                                               
 Number 0602                                                                   
                                                                               
 MARYANN FOLEY, Attorney at Law, testified next via teleconference             
 from an offnet site.  She has been a practicing divorce attorney              
 for more than 16 years.  She agreed with many of the comments made            
 by Ms. Gleason and Ms. Clover.  She believes the bill is not in the           
 best interests of most Alaskans, mainly because of the                        
 discrimination that occurs within the bill to Alaskans themselves.            
                                                                               
 MS. FOLEY cited an example.  One couple decides not to go with a              
 community property agreement; they will divorce under the "fair and           
 equitable" division of property, with the court looking at all the            
 factors contained within AS 25.24.160(a) in making a fair                     
 allocation of their property.                                                 
                                                                               
 MS. FOLEY said under HB 199, however, if a second couple has                  
 entered into a community property agreement, the court cannot vary            
 from that agreement.  Therefore, it cannot consider factors such as           
 the income-earning capacity or health of both parties, the length             
 of marriage or the fact that the marital home should probably go to           
 the spouse who may be getting primary custody of the children.  The           
 court is not allowed to balance the equities under HB 199.                    
                                                                               
 MS. FOLEY referred to a section where parties who chose a community           
 property agreement may opt for a dissolution instead of divorce in            
 Alaska.  Under this proposal, the court could still check into                
 those factors to ensure that the dissolution is fair and equitable.           
 Therefore, there are three different possibilities of treatment               
 from the courts for three different couples.  She believes this is            
 discriminatory and may not stand up to muster with the Alaska                 
 Supreme Court should someone challenge it.                                    
                                                                               
 CHAIRMAN GREEN asked whether Ms. Foley had prepared comments.                 
                                                                               
 MS. FOLEY replied that she could send them by Monday.                         
                                                                               
 CHAIRMAN GREEN commented that the last three testifiers had brought           
 concerns that the committee had not yet heard.  He asked Mr.                  
 Thwaites whether he could offer a summation to help them through              
 this dilemma.                                                                 
                                                                               
 Number 0730                                                                   
                                                                               
 RICHARD THWAITES, Attorney at Law, testified via teleconference               
 from Anchorage.  He said it is true that HB 199 adds complexity to            
 the law of the state of Alaska.  It provides an optional provision            
 regarding treatment of marital property, which will help spouses in           
 the area of income taxes related to their estate planning.                    
 However, it complicates some of the marital issues.                           
                                                                               
 MR. THWAITES said he had talked with Representative Ryan and                  
 Representative Croft about the possibility of placing a fairly                
 strong warning in the bill.  He advised that he had just been                 
 handed a proposed amendment that contains some of that language,              
 saying it is essentially the same type of caveat that is placed on            
 the durable power of attorney section.                                        
                                                                               
 Number 0817                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ said it seems that HB 199 creates a                  
 collision between estate planning and family law.  He said as it              
 was explained to him, the focus of the bill was on the estate                 
 planning end of it.  He expressed support for that.  However, he              
 suggested finding a way to work out the family law concerns                   
 expeditiously so that no harm is visited on those who must use                
 family lawyers.                                                               
                                                                               
 CHAIRMAN GREEN asked Mr. Hompesch to address the concerns expressed           
 or send comments to the committee.                                            
                                                                               
 Number 0900                                                                   
                                                                               
 RICHARD HOMPESCH II, Attorney at Law, Hompesch and Associates, PC,            
 testified via teleconference from Fairbanks, agreeing to send                 
 comments.  He cited a personal example, then stated that very few             
 people do estate planning and few will enter into these community             
 property agreements.  He said he finds that most people who do                
 estate planning do not divorce.  He does not believe Alaskans will            
 be guinea pigs because he believes more people from outside of                
 Alaska will do this than from inside the state.                               
                                                                               
 MR. HOMPESCH referred to Mr. Thwaites' testimony and said he                  
 believes this is a freedom of contract issue.  Yes, there are many            
 risks and complexities in the case of divorce, and those will need            
 to be considered.  He asked, "But can't we rely on the judgment of            
 Alaskans who have acquired one or two or three or four or five                
 million dollars to plan their affairs in the best way they think              
 they should do so?"  He said these are sophisticated agreements,              
 with sophisticated planning.  He believes his clients can make                
 these choices.                                                                
                                                                               
 Number 0991                                                                   
                                                                               
 REPRESENTATIVE BERKOWITZ commented that this legislature has                  
 determined that it wants predictability to be one of the focuses in           
 the courts, with more predictable outcomes.  In that respect, the             
 concerns of the family lawyers are of some interest to him; he                
 would like to address them before proceeding; however, he would               
 like to get this bill through as soon as possible.                            
                                                                               
 REPRESENTATIVE BUNDE requested testimony from a tax attorney and              
 someone from the IRS the next time the bill is heard.  Regarding              
 the last point, he said he had seen a lot of very wealthy people              
 make fools of themselves in public.                                           
                                                                               
 CHAIRMAN GREEN commented that in effect, they had heard some                  
 testimony regarding taxes, as George Gorrig had worked for the IRS.           
 He announced HB 199 would be held over for further discussion.                
                                                                               
 REPRESENTATIVE RYAN said he did not mind addressing these concerns.           
 However, he hoped to see positive ways to improve the bill, not               
 "what-if scenarios."                                                          
                                                                               
 (HB 199 was held over.)                                                       

Document Name Date/Time Subjects