You Need Structure: The Importance of Picking the Right Corporate Form for Your Business

Posted on by Louis Fine

qInsulating Yourself from Personal Liability and Other Considerations

If you’re an entrepreneur or small business owner pouring your heart and soul into building and growing your enterprise, the dream is that all of that hard work and investment will be rewarded with success. The nightmare is that you expose your personal finances to significant risk and tax liability that can bring that dream crashing down. One of the ways to minimize those risks and protect yourself is to pick and form the right business entity.

For small businesses, this choice often comes down to two potential corporate structures: a limited liability company (LLC) or an S-corporation (often called an “S-corp”).

As alluded to above, perhaps the most fundamental reason business owners form LLCs or S-corps is to protect their personal assets from business creditors or other liabilities arising out of the operation of the business. Both of these entity types can accomplish this crucial goal, giving owners much needed peace of mind.

However, that protection can be lost if the business owners conduct their affairs in such a way as to render the company a mere “alter ego” of its owners or if they engage in fraudulent conduct. Additionally, both entities provide the benefit of treating your business income as your personal income for tax purposes.

How LLCs and S-Corps are Different

While both LLCs and S-corps provide the benefit of protecting personal assets, there are several key distinctions between LLCs and S-corps. A few of those differences include:

  • Both LLCs and S-corps are “pass-through” entities for tax purposes, which means business profits pass through the business entity and get taxed as the personal income of the owners. Here’s how it works:
    • Single Owner LLCs. If you run a single-owner LLC, you are taxed like a sole proprietorship, which means you can simply attach a Schedule C form to your personal tax return.
    • Multiple Owner LLCs. If your LLC has several owners, you can choose to be taxed as a corporation or a partnership.
    • S-Corps. In an S-corp, the corporation’s income is reported on the shareholders’ personal income taxes, based on their percentage of shares owned, regardless if they received distributions of the corporation’s income.
  • Allocation of Income. If you have others who will have an ownership share in the business, you will have to figure out how income will be allocated between you and your partners:
    • S-corps don’t give you much of a choice, as income must be distributed evenly among all owners regardless of how much labor or money each owner has contributed to the enterprise.
    • In an LLC, however, you can distribute income however you wish.
  • Corporate Formalities. One of the appealing things about an LLC is that, as a general rule, fewer corporate formalities are required than in S-corps and certainly fewer than in regular corporations. But being too casual can lead to serious problems:
    • As noted, failure to treat the LLC as a distinct entity by commingling funds, undercapitalizing the company, failing to hold meetings, etc. can result in the loss of that all-important personal liability protection.
    • While Illinois LLCs are not required to have written operating agreements, I strongly recommend that a written operating agreement be drafted and signed by all members to clarify the parties’ rights and obligations and avoid future conflicts as to its provisions.
  • Ownership Restrictions. An S-corp can have no more than 100 shareholders. By contrast, LLCs can have any number of owners and can even be owned by corporations and other LLCs.

There are numerous other nuances and distinctions regarding ownership, management, and operation of both LLCs and S-corps, and there are special types of LLCs called “Series LLCs” and “Low-profit LLCs” that may be best suited for your business. Additionally, there are other potential entities available, including general partnerships, limited partnerships, and specialized partnerships for the provision of professional services.

The Law Offices of Louis R. Fine

I understand that every business is different and that the goals and concerns of every business owner are unique. That’s why I work closely with my clients to evaluate their specific situation and determine which business structure will best set them up for success and growth. Please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

Please Make It Stop: How Bankruptcy’s Automatic Stay Can Keep (Most) Debt Collectors at Bay

Posted on by Louis Fine

stopIf you are overwhelmed by debt that you simply can’t keep up with, your creditors and debt collectors won’t let you forget it. The calls, the letters, the harassment and constant threats of garnishments, lawsuits, foreclosures, or evictions become a constant presence in your life. You just want it to stop.

The filing of a bankruptcy petition can do that. It marks the end, at least temporarily, of the almost daily reminders of the dire consequences of your current financial situation.

When a bankruptcy petition is filed, an “automatic stay” goes into effect at that very moment. The automatic stay applies to a broad classification of actions against a debtor and is in effect a “time-out” that can allow you, your attorney, the court, and creditors to develop the plans to move forward.

What the Automatic Stay Stops

Under the Bankruptcy Code, most creditors are forbidden at that point from committing any act that constitutes an attempt to collect on a debt. This includes:

  • phone calls and letters from debt collectors and creditor;
  • foreclosures;
  • repossessions and seizures of property;
  • set-offs of funds;
  • perfection of liens;
  • garnishments;
  • civil collection lawsuits.

Exceptions to the Stay

Not all creditors are barred by an automatic stay from continuing in their efforts to collect amounts owed from the debtor. For example, these will not be stopped:

  • certain tax proceedings
  • actions for collecting for past-due child-support
  • actions for collecting criminal penalties
  • eviction proceedings if the landlord has already obtained a judgment for occupancy of the premises prior to a tenant’s bankruptcy filing.

Otherwise, every creditor that you owe money to is barred from trying to collect it while the automatic stay is in place.

Lifting the Stay

Once the automatic stay is in place, creditors who are now thwarted in their efforts to collect from you can ask the bankruptcy court to lift the stay for their particular debt, allowing them to proceed with their efforts to secure payment.  You and your lawyers will receive notice of a creditor’s request to lift the stay and have an opportunity to oppose the request.

As with all aspects of bankruptcy law, the rules regarding how and when the automatic stay is applied and how it may be lifted will to a very large degree depend on the specifics of your situation. You should always consult with an experienced bankruptcy lawyer to determine whether filing for bankruptcy and availing yourself of the powerful tool that is the automatic stay is the right course of action for you.

The Law Offices of Louis R. Fine

If you are facing a mountain of debt that you can’t pay, I can help. I assist clients facing extreme financial challenges and put them on a path to a fresh start and a brighter future. When you meet with me, we will examine your financial situation, discuss your options and determine the most appropriate course of action. Please give me a call at (312) 236-2433 or fill out my online form for a free initial consultation.

Who Should Pay for U? – College Costs After Divorce

Posted on by Louis Fine

tuitionOverjoyed or crushed? For high school seniors across the country at this time of year, acceptance or rejection letters from the colleges they wish to attend are determining which of those emotions they feel upon opening their mail. For parents of those seniors, the pride they feel about their child’s acceptance is likely accompanied by confusion and anxiety about the financial aid process and how they will help pay for four (or more) years of tuition that seems to increase at an exponential rate every year.

For divorced parents, a child heading off to college also means the end of child support and with it the question of who is going to foot the bill for their child’s college expenses. In Illinois, college costs are referred to as “post-majority expenses” and the question of who pays them depends on several factors.

Look to Your Judgment of Dissolution First

First, check your judgment of dissolution. If your marital settlement agreement, which divided all your property and set forth provisions regarding child custody and support, addressed post-majority expenses, they will be incorporated into the court’s final judgment. Illinois law gives family law courts the right to require one or both parents to pay a child’s higher education costs, even after the child graduates high school and turns 18.

The Illinois Marriage and Dissolution of Marriage Act

If your marital settlement agreement says nothing about college costs, and the judgment of dissolution is also silent on the issue, all hope is not lost. In Illinois, either parent can petition the court for college expenses, both before and after a child becomes a legal adult. More importantly, it doesn’t matter if your marital settlement agreement or final divorce decree failed to address the issue of post-majority expenses.

Section 513 of the Illinois Marriage and Dissolution of Marriage Act allows both moms and dads to ask the court to order the other parent to contribute to “the educational expenses of the child or children of the parties, whether of minor or majority age.” Such an application for educational expenses “may be made before or after the child has attained majority” and any order for the payment of college expenses terminates when the child receives a baccalaureate degree,” so no order will include the costs of graduate school.

In the majority of cases, the parent with the higher income is required to pay a larger percentage of the expenses, although courts occasionally order the child to kick in a portion of the bill.

Act Quickly to Receive the Support You Need

Too often, parents delay filing a petition for post-majority expenses until college fees are upon them. If you wait until your child is packing up for the first day of school, you could get stuck with the bill for the first semester.

If you have questions or concerns regarding your child’s college costs after a divorce, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation.

Where There’s a Will, There’s Not Necessarily an Estate Plan.

Posted on by Louis Fine

estate plan5 essential estate planning issues you need to address.

If you were playing a word association game and said “estate planning document,” it is likely that the most common response would be “a will.” Indeed, folks who may not have a full understanding of the universe of estate planning possibilities at least know that they should have a will. What they don’t realize is that a complete estate plan includes much more than a last will and testament.

The whole concept of estate planning is based on the desire to secure your financial future and provide protection and peace of mind for your loved ones. The reality is that a will, while a great start, is often insufficient by itself to accomplish those goals. Whether you are just starting your estate planning or are thinking about updating and enhancing your current documents, make sure that you address these five essential issues.

Incapacity Planning

A will only becomes effective after you die. Unfortunately, many of us will face the possibility that we will become severely ill, disabled, or incapacitated and not be able to make important decisions regarding our health, treatment, and financial affairs. If you haven’t addressed these issues in advance, your loved ones will be left to wonder about your wishes and what they should do, adding another layer of stress and confusion to what is already a difficult time. This is why incapacity planning is a vital part of any thorough estate plan. With an incapacity plan, including such documents as a power of attorney for health care or property, you can appoint a responsible, trustworthy person to oversee your financial and health care needs if you become unable to handle them on your own.

Probate Avoidance

Most people seek to avoid probate, and there are plenty of good reasons for this. The probate process can consume a tremendous amount of time and money, putting stress on loved ones left behind. A well-drafted estate plan can ensure that your heirs receive your bequests swiftly and without the burden of a prolonged probate process.

Retirement Planning

As human longevity increases, and people stay healthier well into their 70s, 80s, and beyond, it’s important to plan for an extended lifespan. You want to have enough money to live comfortably throughout all of your retirement years. Your estate plan should incorporate detailed retirement planning that helps you achieve this goal.

Business Succession Planning

Many business owners plan on selling their businesses as they approach their retirement and use those funds to provide for themselves and their family during their golden years. However, in a recent PwC survey of family-owned business owners, 73 percent reported not having a substantial and documented succession plan. In a family-owned business, this lack of planning can create significant conflict and damaged relationships. A business succession plan provides answers for a variety of contingencies, such as what happens if the owner becomes incapacitated. By providing clear direction, it allows the business to run as smoothly as possible in the event key leadership dies or can no longer oversee the business.

Medicaid Planning

Few people like to think about the possibility of needing Medicaid, but they ignore planning for it at their financial peril. Without proper planning, you might have to pay out-of-pocket for nursing home care. A prolonged stay at a long-term care facility can consume a lifetime’s worth of assets in a relatively short amount of time. With the right strategic planning, you can preserve your estate for your spouse and other beneficiaries.

The Law Offices of Louis R. Fine

When you are ready to start working on your estate planning or if you just have questions about how to proceed, give me a call at (312) 236-2433 or fill out my online form for a free initial consultation. I will work with you to create an estate plan that suits your needs, budget, and goals. While thinking about your own demise may be unpleasant, the peace of mind that comes from knowing that you have provided for your loved ones and spared them from additional grief is invaluable.

Your Choice of a Lawyer Matters. Here are Four Qualities to Look For.

Posted on by Louis Fine

What-To-Look-For-in-a-LawyerI meet with new clients and potential new clients on an almost daily basis. When I do, I know that the reason they are in my office is because they have important issues that need to be addressed; issues that can have a profound impact on their career, family, and future.

I also know that the decision as to which attorney they hire to assist them is one that they don’t, and shouldn’t, take lightly. There is no question that the quality and competence of an attorney can play a significant role in the outcome of a given matter, and how that attorney approaches his practice and relationship with clients can make the difference between peace of mind and constant worry.

Based on my experience, here are some qualities you should consider if you are in the process of looking for an attorney:

  • Knowledge of the Law. It goes without saying that your lawyer should know what he’s doing, and that includes keeping up to date on new developments and approaches. The law is constantly changing; new legislation, court decisions, rules, and guidelines come out all the time. It is crucial to hire a lawyer who not only understands the law as it is but who is aware and alert to the impact of changes which may take place.
  • Experience. So much of what happens in a legal matter is not based on things that can be found in books; knowing the nuances of both the law and the reality of practice is crucial to obtaining successful results. Look for a lawyer who knows their way around the courthouse, hearing room, or conference room. Look for a layer who knows how things work, and knows how things get done. Sound judgment and insight isn’t learned at a seminar. That is something that only comes from years of experience.
  • Communication. You no doubt have many questions about your situation, what may happen next, and what the plan should be going forward. Throughout your case, you’ll want to know that when questions and concerns come up, your attorney will be there, available and ready to answer and resolve them. You also want a lawyer who will actually listen to you and who will take the time to understand your needs and goals.
  • Empathy and Trust. When you meet with a lawyer, you are not there necessarily to discuss a case or a file; you are talking about your life. You want an understanding and compassionate lawyer who you can speak to about your concerns and issues and you want to feel as if they truly care and understand what is at stake. Choose an attorney who makes you comfortable, who is trustworthy and ethical, who you feel will truly expend all necessary efforts on your behalf, and who gives you a feeling of peace of mind every time you leave his office or hang up the phone after speaking with him or her.

The attorney-client relationship is a unique and important one, and the trust you place in your lawyer is something he or she should value and work every day to earn.

“How Much is This Going to Cost Me?” – Understanding How Attorney’s Fees Work

Posted on by Louis Fine

feesEither you or someone you know has likely found themselves in one of these situations at some point: you’re facing a health problem and want to see a doctor, or you know it’s been way too long since you’ve been to the dentist, or that leaky roof, broken air conditioner, or sputtering car is in desperate need of repair – but you put it off or never take care of one of these vital needs because you are worried about how much it’s going to cost.

The same thing happens when people are facing a problem or issue that requires the assistance of an attorney, often for the first time in their lives. But just like the foregoing problems won’t go away on their own, and likely will only get worse, ignoring a legal problem or failing to get help because you are worried about how much a lawyer will cost you may only end up costing you more in the long run. The reality is that a lot of folks don’t understand how attorneys charge for their work; sometimes, speaking with or even retaining an attorney to handle your matter won’t cost you anything at all.

Before you make a decision as to whether or not to reach out to a lawyer for help, it is important to understand the different kinds of attorney’s fee arrangements and which one may apply to your case. Here are the most common fee arrangements:

  • Initial Consultation. The first step in your relationship with a lawyer is usually your first meeting, or initial consultation, in which you discuss your specific problems, concerns, and questions with the lawyer and explore whether or not to retain the attorney to handle your matter. While some attorneys may charge you for that first meeting at a flat rate or an hourly rate (as discussed below), many attorneys, including myself, provide for free initial consultations regardless of whether or not you choose to hire the lawyer after your meeting.
  • Contingency Fee. When you see a lawyer in a TV commercial exclaim something like “You pay nothing unless we recover damages for you,” they are speaking about a contingency fee arrangement. Primarily used in personal injury, medical malpractice, Social Security Disability, and workers’ compensation matters, this arrangement means that if the attorney fails to recover any compensation for you either through trial or settlement, you are not obligated to pay any attorney’s fees (though you may be on the hook for out of pocket costs). If you do obtain a recovery, the attorney will take a percentage of that amount (most often 33⅓%, but sometimes higher or lower depending on the law or the agreement) as their fee and also reimburse themselves for any costs incurred during the case.
  • Flat Fee. For simpler matters like preparing a basic will, a standard bankruptcy matter, or uncontested divorces, an attorney may charge a flat fee, that is, a set amount up front for completing the requested work or for particular aspects of the matter.
  • Hourly Rate. This is perhaps the most common fee arrangement, and the one used most often in litigation matters. The attorney will charge you a dollar amount for every hour of time they work on your matter. How many hours your matter will require and how much per hour the attorney may charge for their work will depend on a number of factors, such as the complexity of the matter, the attorney’s experience, and the average rate in the community in which the attorney practices.
  • Retainer Fees. A “retainer” is essentially a deposit a client gives to an attorney at the beginning of the attorney-client relationship, with the funds being drawn upon to pay the attorney’s fees as the matter proceeds. These funds are usually deposited into a client trust account only to be applied to fees incurred for that specific client’s matter. At the conclusion of the case or relationship, any unused portion of the retainer will be returned to the client.

For those who are involved in a lawsuit, it is important to understand that most of the time (unless a contract, court order, or specific statute says otherwise), the prevailing party will not recover or recoup their attorney’s fees and costs from the losing party at the conclusion of the case.

Whatever the fee arrangement, it is important that you discuss and fully understand how the attorney will bill you for their time and their work, and that a written agreement be executed clearly explaining how the fee arrangement will work. Don’t simply ignore or put off any pressing legal matters; contact an attorney to see what arrangements can be made that will allow you to address your needs.

Consistency, Clarity, and Calculators: New Formula for Spousal Maintenance in Illinois

Posted on by Louis Fine

alimonyA new Illinois law effective on January 1st of this year establishes for the first time specific formulas for calculating the amount and duration of spousal maintenance payments after a divorce.

While child support payments in Illinois have long been determined by statutory factors and formulas, spousal maintenance awards have been subject to wild inconsistency, leading to similarly situated couples receiving vastly different outcomes and making it difficult for the individuals and their attorneys to predict and plan for the ultimate order that will govern their obligations.

The amendments to Sections 504 and 505 of the Illinois Marriage and Dissolution of Marriage Act provide guidelines for judges in the event that they determine that a maintenance award is appropriate (based on the factors listed in Section 504(a)).

Calculating the Maintenance Amount

Notably, the new guidelines only apply where the combined gross income of the parties is less than $250,000 and no multiple family situation exists. For couples within that threshold, the new law provides that a maintenance award should equal 30 percent of the payor’s gross income, minus 20 percent of the payee’s gross income.

Example:

  • Husband’s annual gross income = $100,000 (30% = $30,000)
  • Wife’s annual gross income = $45,000 (20% = $9,000)
  • $30,000 – $9,000 = $21,000 in annual spousal maintenance to wife.

One nuance is that the new law provides that regardless of the result of the foregoing calculation, the resulting award cannot be greater than 40 percent of the parties’ combined gross income when added to the payee’s gross income. The higher the payor’s income is in relation to the payee’s, the less likely the 40-percent rule is to limit the payee’s award.

Duration of Maintenance

How long a spouse will be required to pay maintenance is based on the duration of the marriage.  A judge is to use the following formula in determining how long payments must continue:

  • Married 0 – 5 years = 20% of the duration of the marriage
  • Married 5 – 10 years = 40% of the duration of the marriage
  • Married 10 – 15 years = 60% of the duration of the marriage
  • Married 15 – 20 years = 80% of the duration of the marriage
  • 20 or more years = court has discretion to order either permanent maintenance or maintenance equal to the length of the marriage.

Under this formula, for example, a 5-year marriage would result in a 1-year maintenance obligation, while a 10-year marriage would result in 4 years of maintenance payments.

Judge May Deviate From Guidelines But Must Explain Why

While a judge is not required to follow the new guidelines, if they deviate from them they must specifically state in their findings the amount of maintenance or duration that would have been required under the guidelines and the reasoning for any variance from the guidelines.

In addition to the new formulas, the amendment to the law also:

  • Prevents a judge from ordering unallocated maintenance unless the parties agree to it;
  • Authorizes a judge to permanently bar maintenance for marriages of 10 years or fewer;
  • Specifies that judges must subtract maintenance payments from the payor’s income for purposes of calculating child support.

The hope is that the new law will make it easier to predict and determine spousal maintenance amounts and thus reduce the amount of both acrimony and uncertainty involved in finalizing such amounts during divorce proceedings.

If you have questions or concerns regarding the new law or spousal maintenance generally, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation.

This article has been prepared by the Law Offices of Louis R. Fine for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

Not So “E-Z” After All: The Perils of Using Online Wills and Estate Planning Forms

Posted on by Louis Fine

Internet dangerWith countless websites offering do-it-yourself legal forms on the Internet, especially wills and other estate planning documents, it can certainly be tempting to simply download one of these documents, fill in some blanks, and feel like you’ve taken care of your affairs. Who needs a lawyer when you have your laptop?
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Mediation Can Be a Path to a Less Painful Divorce

Posted on by Louis Fine

There is simply no getting around that fact that the end of almost any marriage is a time fraught with intense emotions, tension, and conflict. Hurt feelings, worries about the future and the well-being of any children, and the practical issues of property division and support can create a perfect storm for lengthy, expensive, and destructive divorce litigation.

It doesn’t have to be that way.

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Don’t Make These Four Crucial Mistakes When an IDFPR Letter Comes

Posted on by Louis Fine

When the mail comes one day and you see an unexpected envelope from the Illinois Department of Financial and Professional Regulation (IDFPR), you’ll likely feel a wave of anxiety and trepidation wash over you as you speculate as to what lay inside. When you open the envelope and see that a complaint has been lodged against you and/or that you are under investigation, your mind may begin racing as you think back to what could have led to the complaint and look ahead towards the possibility of losing the professional license – and career – that you have worked so hard for.

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