Defamation Lawsuits to Rise?

The growing number of websites such as Yelp and Angie's List, where consumers can post reviews of local businesses, may have the effect of increasing the number of defamation lawsuits that are filed.  Defamation includes the similar torts of libel and slander.  Historically, libel was defamation in written form while slander was oral defamation.  Both involve publishing (whether by word or mouth) false or misleading statements about another.

Defamation lawsuits in the United States are fairly uncommon due to the First Amendment, which guarantees freedom of speech.  In Great Britain, libel and slander suits are much more common.  But the growing use of the Internet, the prospective reach of the Internet and the relative anonymity of the Internet are all pointing to signs in a rise of such suits.  Here's how it works:  A consumer gets what she feels is shoddy service from a local business.  Instead of complaining directly to the business (or perhaps after doing so without getting satisfaction) she posts a scathing review on one of the websites devoted to that or to her Facebook page.  The fact that she can do so from her own home without immediately being subjected to any contrary feedback might prompt her to embellish the "facts" a bit.  The shoddy workmanship might become an intentional attempt to rip her off.  The business might be described as crooked.  All of a sudden her rant gets spread to hundreds or thousands of readers.

Businesses, who rely on word of mouth and reputation, are becoming pro-active in attempting to squelch negative images.  For example, a Chicago plastic surgeon sued when a former patient accused him of giving her "Frankenstein breasts."  The woman might suddenly find herself a defendant in a defamation suit.  While it's true that truth is an absolute defense, that vindication might come only after the expenditure of thousands of dollars in legal fees.  And there are cases of consumers losing.  A California technology company was awarded $1.5 million against a blogger who accused the firm of cheating associates.  A Florida woman won an $11.3 million verdict over claims she was a "crook" and a "con artist."

Before you hit the "publish" button, stop and think what the effect of your rant might be.

Beware the Purchase Money Security Interest

When filing bankruptcy, or any time you're buying on credit, beware of the Purchase Money Security Interest (PMSI).  A PMSI gives the seller of the goods a security interest in whatever you purchase.  This is especially sneaky when you use an in-store credit card, such as one issued by Best Buy, Sears or, in the Salt Lake City area, R.C. Willey.  When you applied for credit with these companies the credit application you signed says that you grant a PMSI in whatever you buy using the card.  This extends to EVERYTHING you buy, even if you bought it five years ago and think you long ago paid that purchase off.  If you still owe money on the card, those items are probably collateral for the debt.

Suppose that last Christmas you used your Best Buy card and purchased a laptop and an iPod.  You kept the laptop but you gave the iPod as a gift.  Now you find you have to file bankruptcy and you list Best Buy as a creditor.  Everything seems fine until a representative of Best Buy calls and asks if you intend to reaffirm their debt.  It's a credit card, you say.  I'm not reaffirming with VISA or Master Card, why would I reaffirm with them?

The simple answer is the PMSI.  As a secured creditor Best Buy is entitled either to be paid the value of what you want to keep or have the merchandise returned.  You probably don't want to go to whomever you gave the iPod to and ask for it back so you have no choice but to pay for it.  Reaffirmation is a negotiated agreement between debtor and creditor and a creditor doesn't have to reaffirm, so if Best Buy demands that you reaffirm the entire debt if you want to keep the iPod you might have to pay the entire debt, even though you'd be happy to give back the laptop.

The reason you don't have to reaffirm with VISA or Master Card is that they are unsecured creditors.  They did not get a PMSI in whatever you bought using the card so they have no right to demand anything back.

Miley Cyrus Hopes to Avoid Achy-Breaky Heart

Miley Cyrus and fiance Liam Hemsworth are reportedly working on a pre-nuptial agreement in case their planned marriage should fall apart.  Cyrus is reportedly worth $130 million, while Hunger Games' Hemsworth is only worth a paltry $20 million.  But there's more.  Cyrus is said to be equally concerned about the possible fate of the couple's six dogs in the event of dissolution of the marriage.

It isn't clear where the couple is getting married.  Hemsworth is from Australia; some reports indicate a wedding in England.  If so, a pre-nup might not be binding.  In England a pre-nuptial agreement does not carry the same force it does in the United States.  Rather than being considered as a binding contract it is merely one of several factors that a court can consider.

Avoid this Year-End IRA Trap

Because the Individual Retirement Account (IRA) was created as part of the Internal Revenue Code, there is  nothing simple about the way it works.  There are a number of traps that can end up hurting you if you're not careful.

One of this is failing to take a Required Minimum Distribution (RMD) every year after you turn 70-1/2.  The RMD is first due by April 1 of the year after the year in which you turn 70-1/2.  Once RMDs begin they must be taken every year by December 31.  If an RMD isn't made, or is made in an amount less than the RMD required, the IRS imposes a 50% penalty on the shortage.  The amount of the RMD is determined by dividing the IRA balance as of December 31 of the prior year (after that year's RMD) by one of three life expectancy factors.  Be sure you use the right one!

Here's how it would work for an 85-year old whose IRA balance is $900,000 as of December 31, 2011:  Using the life expectancy factor of 14.8, the RMD for 2012 would be $60,811 ($900,000/14.8).  If this person failed to take any RMD the IRS would impose a penalty of 50% of $60,811, or $30,405.50.  If the person took a distribution of $50,000, the penalty would be 50% of $10,811 (the shortage), or $5,405.50.  Of course, you can take more than the RMD without penalty; you just have to take the minimum each year.

If you have more than one IRA the RMD is calculated on the total of all IRAs and can be taken from any or all of them.  So if the person in the above example had two IRAs, one of $500,000 and one of $400,000, he could take the distribution equally from both, all from one or the other, proportionally from each or however he wants.  One thing he should do is re-balance the account from which the distribution is made after he takes it.

With the year end approaching watch out for tax traps.

Your Own Fiscal Cliff

We're hearing a lot lately about the fiscal cliff that the country is about to plunge over if Congress doesn't act before December 31.  Many people might be facing their own fiscal cliffs with the coming holiday season.  This is a time for giving but don't get carried away by all the marketing hype.  If your finances are precarious, this is not the time to throw caution to the winds and spend recklessly.

Some may have the idea that they can run up a large credit card bill, have a great holiday season and then declare bankruptcy.  That would be possibly the worst thing you could do from a financial standpoint.  Creditors look closely at expenditures just before a person files bankruptcy with an eye to objecting to the discharge on the grounds that the debt was fraudulently incurred.  A debt is fraudulently incurred if, among other things, the debtor knew or should have known that she couldn't pay the debt at the time it is incurred.  Filing right after running up a big credit card debt, especially for non-necessities such as gifts, movies, dining or luxury items is an indication that the person knew she wouldn't be able to pay those debts.

Even worse, the United States Trustee might look into the case and decide to challenge the entire bankruptcy as opposed to a single debt.  Or, in the worst case scenario, the Trustee refers the case to the Department of Justice for possible prosecution as bankruptcy fraud.  That's a federal crime punishable by imprisonment.

Remember that bankruptcy is intended for the honest debtor who simply can't make ends meet.  It isn't meant as a way of letting someone have their cake and eat it too.  This holiday season make sure to use your common sense before you use your credit cards.

Post Election Uncertainty

The great election of 2012 is now history and President Obama will serve another four years.  In response to  his re-election the NYSE dropped to its lowest point in a year.  That's probably the best indication that business doesn't favor what the future might hold under a second Obama administration.

One issue that has been waiting for resolution until after the election is the estate and gift tax.  The Bush era tax cuts are set to expire at the end of the year, reverting the estate and gift tax exemption to $1,000,000 from its current $5+ million.  If that should happen (and that's a big IF), a lot of families could get caught with an unexpected estate tax.  Five million is a lot of money in an estate, but one million, even with today's depressed real estate values, is not that uncommon.

There's no clear-cut answer.  President Obama has said he's in favor of allowing the tax cuts to expire. Does that mean he would veto an extension if passed by Congress?  Give that the House is under Republican control while the Senate is under the Democrats, will Congress even work together to pass a bill in time to present to the president?  Most advisers are saying to use your exemption while it exists if you would have an estate tax issue under a reduced, $1,000,000, exemption.  If you fall in that category, or even think you might, talk to a qualified estate planning attorney.

Does Your Pet Need a Trust?

An article in today's online Wall Street Journal addresses the question whether you should set up a trust for your pet.  At first glance that may seem like a preposterous idea.  But think about it.  Many pets are practically family members.  A pet is property, and will be treated as such in the eyes of the law, meaning if there is no one to care for it, it could be treated as abandoned property.  That could result in the pet being sent to the pound or even euthanized.

Since a pet isn't a human, it can't receive an outright bequest of money.  If you want to leave money to your pet you will need to establish a trust and appoint a trustee.  The trust should give direction to the trustee how to care for the pet and specify how much money is being left to the trust for the benefit of the pet.  You might also want to make a "no contest" clause in your will.  That clause deletes an heir's share if that heir challenges the will.  Such a clause could discourage one of the human heirs from challenging grandma's bequest of her estate to her cat.