Can You Be Held Personally Liable for Your LLC’s Debts?
Entrepreneurs who create a limited liability company (LLC) are protected from putting their personal assets at risk for business debts. Right? After all, that’s the main purpose of the LLC. “Limited liability” is even in the name.
Well, not always. There are situations in which a member of an LLC is not protected and can be held personally responsible for business debts.
Today we’re going to look at a 2019 case from the South Carolina Court of Appeals, Johnson v Little (read it here), that touches on a number of issues that are important for business owners to know, including limited liability and breach of contract.
Johnson v Little: The Facts of the Case
Robin Johnson of CQI Pharmacy Services, LLC and Robert Little of CQI Oncology/Infusion Services, LLC, had a rather unusual situation. Both were the sole owners of their companies and at the same time were employees at the other’s company, with the power to write checks from the other’s business.
In spring 2013, Johnson paid invoices in the amount of $25,568.59 to settle vendor accounts for Little’s company, CQI Oncology. At some point, Little removed Johnson as an authorized signatory for his business and the checks Johnson had signed and sent to the vendors ended up not going through.
Shortly thereafter, the two entered into a contract for Johnson to purchase assets of Little’s company for the price of $30,000. The contract stated that “the Property is free and clear of any liens or encumbrances” but due to the bounced checks, that turned out not to be the case. Johnson discovered that the invoices were still outstanding and that as the new owner, she owed the outstanding amount to the vendors.
Johnson sued Little for breach of contract, among other things. The matter was tried by a master, who found in favor of Johnson. An appeal followed.
The Three Elements of Breach of Contract
The master found that the following three elements of breach of contract were satisfied in this situation:
- There was a valid contract. Neither party disputed this.
- There was a breach of the contract. The contract contained language stating the Property was free and clear of “encumbrances” when that was not true. The outstanding invoices were a clear encumbrance. Little tried to argue this point unsuccessfully.
- There were damages resulting from the breach. Johnson had to pay the vendors’ invoices herself, costing her over $25,000.
All three criteria must be satisfied in order to find a breach of contract occurred, as they were in this case.
The standard remedy for a breach of contract is for the breaching party to reimburse the nonbreaching party so that it’s as if the breach had never happened. The Court of Appeals reaffirmed this standard in this case, by rejecting the master’s decision to award Johnson an additional $30,000 above the amount of the invoices. This would have put her in a better position than she would have been had the breach never occurred, which violates the general rule for breach of contract remedy.
A Lesson on the Limits of Limited Liability
Now we come to the part about personal liability for company debts. In the appeal, Little argued that the master erred in finding him personally liable in addition to his company. The contract he entered into with Johnson was done so and signed by Little as the sole member and manager of the LLC, and as an individual.
This is so important, it bears repeating: Little entered into the contract and signed it as a representative of his LLC and on his own behalf.
The Court of Appeals states that because Little “was a party to the contract as an individual and his actions caused the contract to be breached, the master did not err in holding him individually liable.”
A simple lesson here is to always sign anything relating to your business as the LLC’s owner. When signing a contract or endorsing a check, include the full name of the LLC and sign as “John Q. Smith, Manager.” Sign a company check (which already has the LLC’s name on it) with your name and role.
Other Limits of Limited Liability
If Little had signed only as a member/owner and not as himself, could he still have been found personally liable? Possibly. In its decision, the Court of Appeals cites a 2012 South Carolina Supreme Court case, Dutch Fork Dev. Grp. II, LLC v. SEL Props: “as a matter of law, a manager of a limited liability company can wrongfully interfere with his company’s contracts and be held individually liable for his acts.” In the case at hand, the Court did determine that Little’s actions constituted “wrongful interference” with the company contracts, whether he signed the contract as an individual or not.
Another way a business owner may be held personally liable is if they commit a tort, or wrongful act, such as fraud. Liability can also be suspended due to piercing the corporate veil. Learn more about this important concept on our blog, here.
Get Help with Contracts Strategic Business Advice
This is just a brief overview of the ways in which an LLC owner may be held personally liable for business debts, and the true lesson is that business law is often not as straightforward as it appears. For that reason, it’s smart to have an experienced business attorney in your corner who can provide you with strategic business advice like Gem McDowell.
Gem is a problem solver and a business attorney with over 25 years of experience who can advise you whether you’re looking to buy a company, start a new company, or grown an existing company. Call Gem and his associates at their Mt. Pleasant office at 843-284-1021 to schedule a free consultation today and get the help you need.
Why Common Law Marriage was Just Abolished in South Carolina
Common law marriage will no longer be recognized in South Carolina. In making this determination, the Supreme Court of South Carolina joins the trend of several other states who have already put an end to the practice over the years.
This decision comes in the context of a case from family court and offers some interesting insights into the purpose of public policy and how society’s changing mores affect the law and its interpretation.
Where Did Common Law Marriage Come From?
Before we look at why it was abolished in SC, let’s look at where it came from.
Common law marriage comes from pre-Reformation Europe and arrived in the new world from England during colonization. Not all states adopted common law marriage, but the majority did at some point.
At the time, this institution made a lot of sense. America was sparsely populated, particularly in the Midwest and the West, and it was difficult to find and/or travel to religious or government officials to marry two people. It was also a way to add some legitimacy to a situation that would otherwise be seen as objectionable, e.g., living together, children out of wedlock, and women with children who might otherwise rely on the state for assistance.
However, times and situations have changed drastically, and the institution doesn’t make as much sense as it once did.
Common Law Marriage in Modern Times
In its decision (which you can read here), the Court states that “the common law changes when necessary to serve the needs of the people” and that it will act when it is “apparent that the public policy of the State is offended by outdated rules of law.”
Common law marriage is, indeed, outdated. Cohabitation before marriage, children born out of wedlock, and single mothers are widely accepted today without stigma, and rights to child support and inheritance no longer depend on marital status. Getting married legally is easy and inexpensive, and therefore there are no substantial practical barriers to marriage as there once were.
In addition, common law marriage presents some thorny problems. Namely, how do you know when you have entered into a common law marriage, since (by definition) there is no formal ceremony or documentation, and how are courts supposed to make that determination when asked? What if one party of a couple believes they are married, but the other party doesn’t? What happens when a couple like this decides to split? These issues were central in the case at hand.
Married or Not Married?
A. Marion Stone, III and Susan B. Thompson met in the 1980s and began dating. In 1987, they had a child together, and in 1989 they had a second child and began living together. For approximately twenty years following this, they lived together, raised kids, and managed rental properties. The relationship ended when Thompson discovered Stone was having an affair.
In 2012, Stone sought declaratory judgement that the two were common law married, a divorce, and an equitable distribution of alleged marital property. The family court held a trial to determine whether the two were common law married. After hearing evidence from both sides – including witness testimony on how they introduced themselves as a couple, proof of cohabitation, joint financial documents, and so on – the court concluded that Stone and Thompson were common law married starting in 1989, and so awarded over $125,000 to Stone in attorney’s fees and costs. The family court stated that the evidence showed a “presumption of marriage that could only be refuted by strong, cogent evidence they never agreed to marry.”
The South Carolina Supreme Court Disagreed
The Supreme Court disagreed, not finding the evidence as overwhelming as the family court did. Some witnesses said Stone and Thompson introduced each other as husband and wife, while others didn’t; some documents were signed jointly, others singly; and the children had their mother’s last name only until 2000, when their father’s last name was added. There was a period of time from 2005-2008 where documents were signed as though a married couple – medical documents and an application for a mortgage loan – but the Supreme Court viewed these as evidence of seeking financial benefits through the appearance of marriage, not as an indication of actual marriage.
Ultimately, common law marriage requires mutual understanding and assent. Both parties must understand what common law marriage is and express a desire for it, and understand that the other feels the same way. The Court didn’t find that this was the case with Stone and Thompson, and therefore reversed the family court’s decision (and the decision for Thompson to pay Stone’s attorney’s fees).
Prospective, Not Retrospective – and a Stronger Test
The Court notes that while it does have the power to “undo” current common law marriages, it’s reserving this right of retrospective power and its decision applies only prospectively. From the date of the Supreme Court’s decision (July 24, 2019) forward, you may only be married in South Carolina with a valid license.
At the same time, the Court took the opportunity to strengthen the test of validity of current common law marriages. “A heightened burden of proof is warranted,” which it calls an “intermediate” standard: more than a preponderance of the evidence but not to the level of beyond a reasonable doubt. The “clear and convincing evidence” standard used for matters of probate “should also apply to living litigants.”
The Supreme Court states that the “right to marry is fundamental, and so is the right not to marry” so it cannot be an institution that people enter into unwittingly. Furthermore, the Court can’t “see inside the minds” of litigants, it “must yield to the most reliable measurement of marital intent: a valid marriage certificate.”
Keeping Up with Changes in the Law
Though South Carolina is following in the footsteps of other states in ridding the practice of common law marriage, this is still a big step. It’s important to remember that laws can change, as can the interpretation of them, and that these changes can have very real consequences for residents of the state.
This is especially true for estate planning when it comes to complicated family dynamics. To make sure you’re covered, work with an experienced estate planning attorney Gem McDowell. He and his associates at the Gem McDowell Law Group in South Carolina can help you plan ahead and make sure your estate planning documents are in order. Schedule your free consultation by calling 843-284-1021.
See How South Carolina’s Counties Are Growing and Shrinking
We know that of South Carolina’s 46 counties, some are growing and some are shrinking, but knowing that alone doesn’t tell the whole story. Today we’re going to look a little more in depth at the actual numbers.
South Carolina Counties That Have Grown Consistently 1970-2018
Forty counties have grown in population since 1970, including Aiken, Anderson, Beaufort, Georgetown, Greenwood, Jasper, Kershaw, Lancaster, Laurens, Newberry, Oconee, Pickens, and Saluda Counties.
Some have grown by an impressive amount. The growth of the state capital Columbia is largely responsible for the growth of mid-state counties Lexington and Richland. Lexington more than doubled its population, growing from 89,012 to 295,032, while Richland grew from 233,868 to 414,576. Upstate, Greenville County, Spartanburg County, and York County grew significantly, too. Greenville County went from 240,546 in 1970 to 514,213; Spartanburg County from 173,724 to 313,888; and York from 85,216 to 274,118.
Unsurprisingly, the Charleston tri-county area has seen huge growth in the last 50 years. Charleston County grew from 247,650 in 1970 to 405,905 in 2018. Even more impressive, Dorchester County went from 32,276 to 160,647 and Berkeley County from 56,199 to 221,091. That’s a net gain of nearly half a million people (451,518 to be exact), from 336,125 to 787,643.
But the county that takes the cake is Horry County. Horry County exploded in population with the development of Myrtle Beach and the surrounding area, taking the population from 69,992 in 1970 to 344,147 in 2018 – a net gain of 274,155 people, or nearly quadrupling the number of people.
All of these counties have seen consistent growth over this time, with no losses in population at each 10-year census mark.
Chart of South Carolina counties with population changes from 1970 to 2018. Red text = decline. Orange shading = gain 100,000-199,999. Yellow shading = gain 200,000+. Click to enlarge.
South Carolina Counties That Have Shrunk 1970-2018
From 1970 to 2018, six counties have had a net loss in population. This is significant since the state as a whole nearly doubled its population, from 2,590,066 in 1970 to 5,084,127 in 2018 – a net change of 2,494,061. The fact that any county lost population is notable.
Allendale County and Marlboro County lost the least, with a net loss of 789 people for Allendale and 753 for Marlboro. The counties that lost between 1,000-2,000 people are Bamberg County, from 15,950 to 14,275; Lee County, from 18,323 to 17,142; and Union County, from 29,230 to 27,410.
The unfortunate “leader” in this category is Williamsburg County, which lost more than 10% of its population between 1970 and 2018, going from 34,243 to 30,606.
Map of South Carolina showing counties and county seats
What About the Rest?
That accounts for 28 of South Carolina’s 46 counties, but what about the remaining 18?
These counties have had net growth in that time but have seen population losses in recent years. For some counties, it’s not too concerning: Cherokee County lost just 27 people from 2017 to 2018, and had a net gain of 20,287 since 1970. Likewise, Edgefield County has had a net gain of 11,360, but saw a dip in numbers between 2010 and 2016.
But others look like they’re beginning to see a steady downward trend. Marion County has had a net growth of 769 from 1970 to 2018, going from 30,270 to 31,039. But it’s actually lost over 4,000 people since a high of 35,466 in 2000, and has been steadily losing people since 2010. Similarly, Orangeburg went from a high of 92,501 in 2010 to 86,934 in 2018 – a loss of 5,567 people – and has been on the decline, despite an overall gain of 17,145 from 1970.
This story is repeated in several other counties, though to a lesser degree. Abbeville, Barnwell, Calhoun, Chester, Chesterfield, Clarendon, Colleton, Darlington, Dillon, Fairfield, Florence, Hampton, McCormick, and Sumter Counties have all seen population declines over the last several years.
Whether these 18 counties are headed for continued decline can’t be predicted, but it’s something to keep an eye on.
A Strategic Partner for the Growth of Your Business
Business attorney Gem McDowell of the Gem McDowell Law Group in Mt. Pleasant is a problem solver with over 20 years of experience helping business owners start, acquire, grow, and run their businesses soundly. He and his associates can help you with legal matters and provide strategic advice for the long-term health of your company. Call the Gem McDowell Law Group today at 843-284-0120 to schedule your free consultation.
How Much Money Do People Earn in South Carolina?
In a previous blog, we looked at population trends in South Carolina over the last decade in the context of how that information could impact business owners looking to do business in the state. Today we’re going to look at another factor that has affects businesses: median household income. Specifically, the median household incomes in select cities in South Carolina.
Median Household Income in South Carolina’s Cities
According to the U.S. Census Bureau, the median household income (MHI) in the U.S. in 2017 was $60,336. That same number in South Carolina was $50,570. Interestingly, looking at the 2013-2017 median income of the top 20 cities in S.C. by population, half fall above this number and half fall below.
Of the ten South Carolina municipalities with a MHI higher than the state average, the Town of Mount Pleasant leads with $90,454, with Hilton Head Island coming second with $72,569. Median household income was between $51,863-$65,539 for the other eight cities on the list, Maudlin, Goose Creek, Charleston, Hanahan, Summerville, Aiken, Greer, and North Augusta.
Of the ten where the MHI is lower than the state average, Greenville is at the high end with $48,984, and Anderson comes in last with $32,655. The other eight falling in between are, in descending order, Florence, Rock Hill, Columbia, North Charleston, Myrtle Beach, Sumter, Spartanburg, and Conway.
Chart showing median household income of 20 cities in South Carolina in the time period 2013-2017, along with each city’s population count in 2010 and 2018 and difference in percentage and absolute numbers.
What This Means for Business Owners
If you’re thinking of starting a business in South Carolina, or opening a branch or plant of an existing business here, median household income is another factor to consider (along with population) when deciding where to set up shop.
A city’s MHI could have a significant impact on your business, depending on what it is. If you’re a manufacturer, like Volvo, that doesn’t depend on selling your product to the local market, you’re in a much different position than a baker or a doctor who depends on the residents for their living. If you do depend on making sales in the local market, consider whether your product or service is a necessity or a luxury, since households with a higher MHI have more for discretionary spending.
More Strategic Advice for Business Owners
If you’re an entrepreneur looking for strategic or legal advice on how to start or grow your business, contact Gem McDowell of the Gem McDowell Law Group. He and his associates help with matters of incorporation, corporate governance documents, business planning, acquisition, and more. Call the Mount Pleasant office today to schedule a free consultation at 843-284-1021.
Is Your Lawyer Legit?
The legal profession is one of the most heavily regulated professions in the U.S. Every state requires attorneys to be licensed, yet people still practice law when they shouldn’t, which can lead to huge complications for their unwitting clients.
If you are considering hiring, or have already hired, a lawyer to represent you in any capacity in South Carolina, do your due diligence and check their standing first.
How to Determine if Your Attorney is In Good Standing in South Carolina
There are a few different online resources you can use. The South Carolina Bar’s directory tool allows you to search for attorneys in the state and returns information on their law school, the year they passed the bar in South Carolina, and their Status. You want to see “Good Standing” here. The South Carolina Bar also maintains an ongoing list of Member Discipline, which includes instances of reprimands and reinstatements.
The South Carolina Bar is not the agency responsible for disciplining judges and attorneys; that’s the Disciplinary Counsel of the South Carolina Judicial Branch. Use the search at the top to look for your attorney’s name, and if they’ve been disciplined in the past then the South Carolina Supreme Court’s published opinion will show up in the search results. (If you’re looking for the disciplinary agency in a state other than South Carolina, check out the American Bar Association’s Directory of Lawyer Disciplinary Agencies instead. Link to pdf.)
Finally, while it’s not as official as the sites listed above, Avvo.com does list instances of professional misconduct, or lack thereof, on each attorney’s page. Use the search tool to find your attorney’s profile and check for a history of disciplinary action.
Licensed in Your State?
As you likely know, each state requires attorneys to be licensed to practice in that state. Still, sometimes people licensed in one state decide to practice in another. In South Carolina, this can lead to being Debarred, which is different from Disbarred. Disbarred means the person was once licensed to practice in the state, but now no longer is. Debarred means they were never licensed to practice in the state, and now they never will be allowed to (without first obtaining an order from the Supreme Court of South Carolina).
This is exactly what happened to two people earlier this spring, Farzad Naderi and Christopher Michael Ochoa, who were (separately) debarred for providing legal services to people despite not being members of the South Carolina Bar. In Ochoa’s case, he accurately represented himself as being “licensed in the State of Florida” and not able to practice in South Carolina, but implied that he had a “network of attorneys” allowing him to take cases in South Carolina when in fact that was a misrepresentation. The attorneys he worked with in South Carolina and other states were hired on a piecemeal basis and in various instances, he provided the legal services himself. (You can read the details in the Supreme Court’s opinions in this PDF here.) The lesson here is to be very careful when entering into an arrangement for legal services with someone who is licensed in another state so you understand exactly what you’re getting.
There is an important exception to this rule, however. A lawyer who is not a member of the South Carolina bar but who is admitted and authorized to practice in the highest court of another state or D.C. may apply for pro hac vice admission in South Carolina. “Pro hac vice” means “for or on this occasion only” (literally “for this turn”) and adds an attorney to a case in a jurisdiction in which they are not licensed to practice so that they are, for that case, legally allowed to practice in another state.
Finding a Lawyer in Good Standing to Represent You
The South Carolina Bar has information online to help the public locate pre-screened attorneys, certified mediators, and even free legal aid, all of which you can find links to here. You can also ask your friends, family, and colleagues for a referral to someone they trust.
If you’re looking for help or advice on estate planning or business law, give Gem McDowell and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC a call at 843-284-1021. Gem is a problem solver with over 20 years of experience and he and his associates are ready to help you. Call to schedule a free consultation today.
What Makes a Will Invalid? Common Challenges to a Will’s Validity in South Carolina
We write a lot on this blog about the last will and testament. That’s because it’s an extremely important document to have, particularly when you have a large estate or a complicated family situation. It’s the only legal document that speaks for you after you’re gone to ensure your wishes are carried out with respect to your estate. But it can only do that if it’s valid.
The proliferation of fill-in-the-blank, do-it-yourself wills online may make it seem like last wills are simple documents. They can be, but they can also be a legal minefield. A number of cases having to do with the validity of a will make it as far as the South Carolina Court of Appeals or even the South Carolina Supreme Court every year. The underlying issue in these cases is almost always the same: the validity of the will.
With that in mind, today we’re going to look at a few of the most common challenges to the validity of a will in the state of South Carolina.
Procedural Errors
South Carolina code states that “An individual who is of sound mind and who is not a minor […] may make a will” with the following basic requirements for validity:
- The will must be in writing
- It must be signed by the testator, or by someone else in the testator’s name and presence
- It must be signed by at least two individuals who witness the testator’s signing or the testator’s acknowledgement of signing the will
- Amendments to a will must also be witnessed by two individuals (as we looked at in a recent blog)
An error such as a missing signature can lead to challenges of the validity of the will.
Note that South Carolina does not require a will to be notarized, as the law provides for self-proving (but it is strongly recommended). Also note that South Carolina generally accepts out-of-state wills as valid, even if the will does not meet South Carolina’s criteria, as long as it meets the requirements of the state in which it was executed.
Lack of Testamentary Capacity
South Carolina code quoted above states that the testator must be of “sound mind.” This may be surprising, but the required level of what’s called “testamentary capacity” to execute a will is relatively low. To put it in perspective, a higher level of mental competency is required to sign a contract.
In South Carolina, testamentary capacity demands that you know at a minimum two things:
- The nature and extent of your bounty (that is, what you own)
- The natural objects of your bounty (that is, your heirs and close relatives)
The presumption is that adults have the testamentary capacity to make a will. If someone challenges a will on the basis of testamentary capacity, claiming the testator was not of sound mind, it’s up to them to provide clear and convincing evidence of that fact. This may be evidence of senility, dementia, insanity, mental illness that compromises sound judgment, declining cognitive function or memory, or the like. Proof may come in the form of medical records or sworn statements by the testator’s health care providers, caretakers, or friends and family who witnessed the testator’s condition during the time in question.
Undue Influence
Another argument to challenge the validity of a will is undue influence. Undue influence occurs when a person influences or pressures the testator to change the terms of their will in the influencer’s favor. This influence takes away the testator’s free will and substitutes their own interests for those of the testator.
Undue influence may be tied together with lack of testamentary capacity, because it’s often an older person suffering from a degree of dementia or senility who is unduly influenced to change their will. The influencer may use tactics like physical force, threats, or isolation from family member and friends to get what they want.
If a will is challenged on these grounds, again, it’s up to the challenger to provide clear and convincing evidence that this is the case. (We recently touched on this issue of undue influence on a blog about no-contest clauses in wills, which you can read here.) Since undue influence can be more challenging to prove, let’s look at it more in-depth.
The Standard for Undue Influence
A recent case filed by the South Carolina Court of Appeals in April 2019 looks at the issue of undue influence, as well as testamentary capacity, when the validity of a will was challenged.
In short, Vinto Willis Tucker (Decedent) died in March 2012. He executed a will in January 2012 the same evening he discovered he had suffered an aneurysm. He did so by dictating the terms of his will to his niece in the presence of two witnesses, who confirmed that he raised the subject of a will and that his niece wrote down the terms as he requested.
The will divided his estate among twelve nieces and nephews but left out one niece and two nephews. In May 2013, Decedent’s sister, Mary Jean Tucker Swiger, petitioned for formal testacy, a proceeding to establish a valid will. She asserted that Decedent’s personal representatives (the niece who had written down Decedent’s will and a nephew) had exerted undue influence on him and sought to remove them as personal representatives.
In its decision, the Court of Appeals cited South Carolina code and other cases to establish a standard of review, including the following:
“Contestants of a will have the burden of establishing undue influence, fraud, duress, mistake, revocation, or lack of testamentary intent or capacity” S.C. Code Ann. § 62-3-407
“Undue influence must be shown by unmistakable and convincing evidence, which is usually circumstantial.” Russell v Wachovia (2003)
“Generally, in cases where a will has been set aside for undue influence, there has been evidence either of threats, force, and/or restricted visitation, or of an existing fiduciary relationship.” Russell v Wachovia (2003)
“A mere showing of opportunity or motive does not create an issue of fact regarding undue influence.” In re Estate of Cumbee (1999)
In the Swiger v Smith case at hand, the challenger presented no evidence of undue influence. The opinion states that “significantly,” the challenger didn’t provide any evidence that the nephew and niece restricted visitation of the challenger’s side of the family (which included the disinherited niece and nephews). The Court concluded that the challenger “failed to provide more than a scintilla of evidence to establish undue influence” and that “Decedent had the testamentary capacity to dispose of his estate.” Therefore, the Court affirmed the lower court’s decision.
Ensuring Your Will is Valid
Having a last will go through litigation is something no one wants. It’s a time-consuming process that strains and destroys family relationships, eats up the estate’s resources, and makes private family information public. The best way to avoid this is to have a valid, up-to-date will.
Work with an experienced estate planning attorney to ensure your will is valid and is worded to carry out your wishes after you’re gone. Gem McDowell and his associates at the Gem McDowell Law Group in Mount Pleasant near Charleston, South Carolina can help you. They are experienced at handling estate planning for all kinds of estates whether they’re small, large, straightforward, or complicated. Call to schedule a consultation to discuss your estate plan. Call 843-284-1021 today.
Want to Make Changes to Your Will in South Carolina? Read This First
We’ve stressed before on this blog why it’s important to have a last will and testament and why you need to keep it up to date. Not doing so can mean that your wishes aren’t carried out, which can lead to drawn out litigation and cause strife between family members and heirs.
It’s also important to make any changes to your will in a way that is valid and legally recognized. Here’s the right way to amend your will – and what happens if you don’t.
How to Correctly Amend Your Will in South Carolina
When you make your last will and testament, South Carolina code states that it must be signed by you (or by someone else in your name, in your presence and at your direction) and two individuals who either witnessed you signing it or your acknowledgement of signing it.
If you want to revoke your will entirely, you can do that either by getting a new one that contradicts the old one or by physically destroying the old one with the intent of revoking it.
However, if you want to make changes to just a section or two, you have to amend it. This requires a codicil, which is a legal document that amends specific parts of the will but leaves the rest as is. A codicil has the same requirements as the will in order for it to be valid: your signature and the signature of two witnesses.
Handwritten Changes Don’t Count
You may wonder whether you can simply strike out a clause in your will and/or make handwritten notes in order to change it. For example, let’s say you want to give your niece $20,000 instead of $10,000, or you want to cut out your nephew entirely.
The answer is no.
A recent case, filed by the South Carolina Court of Appeals in April 2019, centered around this issue. William D. Paradeses died in January 2016, leaving a will dated October 2008. The will was submitted to the probate court and was found to contain handwritten changes. Item IV(2), which would have given Faye Greeson (Eleanor Glisson) $50,000, was struck out, with the handwritten note “Omit #2 W.D. Paradeses” next to it. This led to a disagreement between family members over whether or not the handwritten changes – which were not witnessed – were valid.
The probate court said no, and the Court of Appeals agreed. It stated that this was an attempt at a codicil but didn’t meet the standards of a properly executed codicil, and therefore was invalid. The $50,000 bequest stands.
The lesson here is simple: if you want to make changes to your will, do it by correctly executing a codicil with witnesses, ideally after consulting with an estate planning attorney.
Written Memoranda: An Exception
There is an exception worth noting here. In South Carolina, you can include language in your will that allows for written memoranda. This is a document that’s in addition to the will that doesn’t require the signature of witnesses to be valid. However, it must either be written in the testator’s handwriting or signed by the testator.
The key point is that written memoranda only allows for the dispersal of tangible personal property. For example, you may use it to leave a beloved rocking chair to your grandchild, or a cuckoo clock to your sister. You may not use written memoranda to dispose of assets like stocks, bonds, or real property (real estate).
Experienced Advice for Your Estate Plan
Whether you want to make (valid) changes to your will, update it, or you don’t yet have will at all, you can get the help you need from estate planning attorney Gem McDowell and his associates at the Gem McDowell Law Group in Mount Pleasant, SC. Call today at 843-284-1021 to schedule your free consultation.
Why You Need to Keep Separate Businesses Separate
In the business world, it’s not uncommon for people to own stakes in multiple enterprises and take on various roles in different companies. This doesn’t often cause problems, but it can. When the lines between companies, roles, and interests are blurred, it can lead to a determination of amalgamation, which can be used to pierce the corporate veil and end an individual’s liability protection.
Amalgamation as a Way to Pierce the Corporate Veil (PCV)
The “corporate veil” is a metaphorical term for the liability protection covering owners and managers of certain business entities like corporations and limited liability companies. Piercing the corporate veil, then, refers to when the court removes that liability protection, making managers and owners liable for the company’s debts and more. (Learn more about piercing the corporate veil here on this blog.)
One way South Carolina courts can PCV is through demonstrating amalgamation. A 1986 South Carolina Court of Appeals case, Kincaid v. Land Dev. Corp., first addressed the “amalgamation of interests” theory, but it was only last year, 2018, that the South Carolina Supreme Court recognized amalgamation as a way to PCV, in the case Pertuis v. Front Roe Restaurants, Inc. (Read more about Pertuis here on this blog.)
Amalgamation is also called the “single business enterprise theory” because it has to do with multiple businesses acting as one. Essentially, when multiple businesses operate as if a single business, they may be treated by the court as a single business, rather than distinct businesses.
What Amalgamation Is and What It Requires
In Pertuis, the South Carolina Supreme Court stated “where multiple corporations have unified their business operations and resources to achieve a common business purpose and where adherence to the fiction of separate corporate identities would defeat justice, courts have refused to recognize the corporations’ separateness […]”
So there are two parts to determining amalgamation:
- Multiple corporations must have unified their operations and resources to achieve a common purpose, and
- Justice would be defeated if the corporations continued to be treated as if separate
To this second point, the Supreme Court said that intertwined operations aren’t enough to show amalgamation, requiring “further evidence of bad faith, abuse, wrongdoing, or injustice resulting from the blurring of the entities’ legal distinctions.”
The Supreme Court, importantly, also stated “we acknowledge that corporations are often formed for the purpose of shielding shareholders from individual liability; there is nothing remotely nefarious in doing that.”
Case in Point
A recent Court of Appeals case also looked at this issue of amalgamation, in Stoneledge at Lake Keowee v. IMK Development. (You can find the full PDF of the Court’s opinion here.)
Briefly, the HOA of a development in Oconee County sued Marick, Integrys Keowee, IMK, and other parties over defects causing leaks in the development’s townhomes. Marick, a construction company, and Richard Thoennes, one of its principals, appealed.
Among many other issues, Marick and Thoennes appealed the trial court’s finding that Marick, Integrys Keowee, and IMK were amalgamated, arguing they were distinct and separate entities.
The Court of Appeals affirmed the trial court’s decision. Here is just some of the testimony the Court cites as evidence of amalgamation between the three:
- They were “corporately affiliated” under the umbrella of IMK
- They passed corporate funds directly between one another
- They allowed individual members to operate as dual agents without distinction as to which business they represented at any given time
- IMK was created to hold title to Stoneledge project, Marick was to do construction, and Integrys Keowee was to provide the investment, and then split the profits
- Thoennes knew about the defects that (in the Court’s words) “plagued the project,” but was still involved with IMK and Marick’s marketing and sales, demonstrating “their operations were clearly in pursuit of a common business purpose, albeit to the detriment of the HOA members.”
The Court found “evidence of a unified operation” between the parties “as well as evidence of self-dealing,” satisfying both parts required to show amalgamation.
How You Can Avoid PCV Through Amalgamation
Refer to the post on this blog about PCV for what you can do to help maintain the liability protection your company offers you.
If you have other questions about liability protection, amalgamation, PCV, or business law, contact the Gem McDowell Law Group in Mt. Pleasant, SC. Gem and his associatess can help you navigate business law, which can be complex. Call today to schedule an initial consultation at 843-284-1021.
A Closer Look at Transmutation
The issue of transmutation has come up on this blog before, when we did a quick overview of how non-marital property can undergo transmutation to be considered marital property. This issue can be critical in cases of divorce, when assets are divided between spouses. Often, one spouse comes into the marriage with an asset (non-marital property) and when it comes time to divide assets in the divorce, the other spouse claims that the asset should now be considered marital property so they can get what they consider their fair share of it.
But determining transmutation is not black and white. The court must look at the evidence to decide. Today we’re going to look at the details of a specific case to better understand what type of evidence courts look for when considering transmutation.
The case in question is Brown v Odom, heard by the South Carolina Court of Appeals in May 2018. (PDF of case) Grady C Odom and Emily S Brown divorced after an 8-year marriage. In the divorce, a family court determined that a company founded by Odom before he and Emily married, Twin Oaks Villas (LLC), had transmuted into marital property over the course of the marriage. It was therefore subject to division in the divorce settlement. Odom disagreed with the lower court and appealed.
Producing Evidence for Transmutation
The SC Court of Appeals affirmed the family court’s decision, finding that the LLC did indeed transmute into marital property. In its decision, it cites previous cases to establish a basis for analysis:
“Nonmarital property may transmute into marital property if ‘[1] it becomes so commingled with marital property that it is no longer traceable, [2] is titled jointly, or [3] is used by the parties in support of the marriage or in some other way that establishes the parties’ intent to make it marital property’” (Wilburn v Wilburn, 2003)
and
“The spouse claiming transmutation must produce objective evidence showing that, during the marriage, the parties themselves regarded the property as the common property of the marriage.” (Jenkins v Jenkins, 2001)
Quoting directly from the decision, Brown provided the follow evidence of her involvement in the LLC, which included:
- “Loaning the entities [referring to both the LLC and a separate Corporation Odom had also founded before the marriage] over $200,000 during the marriage—including $25,000 to upgrade the LLC’s building’s telephone system and $17,400 to make noncritical repairs to the building;
- Assisting in obtaining loans, including a HUD loan, and refinancing loans for the entities;
- Consulting with architects and engineers to implement Department of Health and Environmental Control (DHEC) regulatory codes;
- Overseeing compliance with structural standards;
- Purchasing sheetrock and iron needed for DHEC building upgrades”
And more. In addition,
- Brown and her son testified that Odom introduced her as his partner and owner
- Brown testified that Odom had said he intended for the LLC to be marital property
- Brown testified she sometimes worked without pay
- Brown testified she sometimes invested money in the entities rather than her retirement accounts
Shifting Burden of Proof
It isn’t necessarily enough for a spouse to provide evidence that an asset has been treated and considered as marital property. The Court of Appeals again cites a previous case: “If the [spouse] presents evidence to show the property is marital, the burden shifts to the other spouse to present evidence to establish the property’s nonmarital character.’” (Wilburn v Wilburn, 2013)
However, Odom did not present evidence to refute Brown’s evidence. In fact, he didn’t even appear at trial, let alone call witnesses or present evidence that refuted his wife’s evidence. In short, the burden of proof was on him, but he didn’t make any case to show that the property had not transmuted.
Dividing the Assets
The family court divided up the assets equitably, and Brown was awarded her share of the LLC (along with her share of the Corporation and other assets) which she had put time and money into in support of the marriage.
The family court ordered a “constructive trust” for Brown to secure the $590,018 awarded to her in the split. A “constructive trust” is one that doesn’t actually exist, and has no trustee, but is a fiction that orders a person (in this case, Odom) who might otherwise be “unjustly enriched” to transfer property to another party (Brown).
Estate Planning and Protecting Assets
By planning ahead, you can avoid many problems that could arise later on, such as a battle over marital and non-marital assets. Whether you’re considering a pre-nuptial agreement, post-nuptial agreement, a trust, or other estate planning advice, contact the Gem McDowell Law Group in Mt. Pleasant today by calling 843-284-1021. Gem has over 25 years of experience and he and his associatess can solve problems and help you protect your assets.
What Is A No-Contest Clause and Why Have One in Your Will?
A no-contest clause, also known as an in terrorem clause, is a clause in a will or revocable trust that is intended to prevent parties from contesting the will or trust by penalizing them for doing so. For example, a no-contest clause in a will may state that any party that contests the will is barred from inheriting anything under the will. A no-contest clause is a deterrent to nuisance lawsuits and cash grabs by parties who may want to get more from the estate than the will or trust allows.
A no-contest clause can:
- Discourage years of expensive and time-consuming litigation over an estate
- Prevent bickering and strain between family members and heirs of the estate
- Keep the testator’s private details private (since private details may become public in litigation)
This is not a standard clause in most estate planning documents. It’s typically only included if the testator expects there may be some disagreement over the estate plan after their death. You may want to include one in your will or revocable trust if, for example, you have given some children a larger portion of your estate than your other children, or have disinherited a child altogether, and therefore might expect a challenge to your estate plan.
When a No-Contest Clause is Unenforceable
In general, these clauses are valid and enforceable.
But many jurisdictions have recognized certain circumstances where no-contest clauses are not valid and enforceable: If the party challenging the will or trust has probable cause. If they believe forgery is involved, or they believe the document is the result of undue influence or duress, then the no-contest clause can be held invalid and unenforceable.
A South Carolina Supreme Court case filed in 2006, Russell v Wachovia, looked at this very issue. The opinion cited a North Carolina case in which 6 of 10 children contested their deceased father’s will, citing undue influence and duress. In this case, the deceased was 90 years old when he died, had been in declining health for years, was “worn out and feeble,” and at times failed to recognize his own children. The children challenging the will also noted that two other daughters who stood to inherit a substantial amount were always present at their father’s home when they visited. The court ruled that in this case, the no-contest clause was not enforceable, as the children who contested the will had probable cause to do so. The evidence demonstrated that it was reasonable to believe their father’s estate plan may have been the product of undue influence or duress.
That was very different from the case at hand in Russell v Wachovia, in which two children filed actions to set aside their father’s will and trusts. The South Carolina Supreme Court ultimately found that the no-contest clauses were enforceable. The only evidence to support probable cause here was “strife and discord” in the family, and the fact that the two children who contested the estate plan weren’t treated as well as they believed their father intended. The Supreme Court did not find this to be probable cause to contest the estate in the first place, thus the no-contest clauses were upheld. The two children who contested the will were therefore not allowed to inherit anything under the will and trust they contested.
Creating a Strong No-Contest Clause
If you do want to add a no-contest clause to your will or revocable trust, there are a few things you can do that may strengthen its validity if your estate plan is ever contested. In Russell v Wachovia, the Supreme Court noted that the testator:
- Was in good physical and mental health when he created his estate plan, still working and taking care of himself
- Told one of his sons and his attorney that he anticipated a potential challenge to his will and trust after his death
- Asked a former law clerk of his (he was a judge) to represent his grandchildren, whom he made beneficiaries, in case of a challenge
- Visited a psychiatrist to create a record of his testamentary capacity, i.e., to certify that he was legally and mentally able to make a valid estate plan
- “And most importantly,” according to the Court, he amended his will and revocable trust to include language that explicitly barred any party contesting the documents from benefiting under them
Taken altogether, these points only helped strengthen the validity of the no-contest clauses, as they demonstrated that his estate plan was not made under duress or undue influence. The Court concluded that “If a no-contest clause cannot be upheld under these facts, such a clause would not ever be enforceable.”
Get Help Creating a Strong and Enforceable Estate Plan
Estate planning can be complex, especially if you have a substantial estate, a large or blended family, or own a business. Having a solid estate plan is the best way to ensure your wishes will be carried out and can help keep peace in the family. For help with your estate planning documents, contact the Gem McDowell Law Group in Mt. Pleasant. Gem McDowell and his associatess are problem solvers who can develop the estate plan you need to protect your assets and your family. Call 843-284-1021 today to schedule your free consultation.
The Ongoing Battle over the James Brown Estate
The Godfather of Soul James Brown was born in Barnwell, South Carolina in 1933 and went on to become one of the greatest figures in music of the 20th century in a career that spanned six decades. He received a Grammy Lifetime Achievement Award, has a star on the Hollywood Walk of Fame, and was one of the first to be inducted in the Rock and Roll Hall of Fame. Brown left an indelible mark on music and was a huge influence on generations of musicians that came after him.
These days, his legacy also includes a very complicated estate. Brown died on Christmas Day in 2006 at the age of 73, leaving behind assets in the millions (the exact value hasn’t been disclosed) and an estate that’s been contested ever since.
The Estate of James Brown
Brown executed a will in 2000 in South Carolina and later that year had an irrevocable trust created, too. His assets were to be divided in part among his six living children. (Brown was married four times and acknowledged nine children as his, three of whom have since died, but DNA testing has shown he fathered more children. They were not named in the will.) Another substantial part of his estate was to go into a charitable and educational trust, the I Feel Good Trust, for the benefit of children in South Carolina and Georgia.
Several lawsuits have been filed by various parties over the years, and no distributions from the estate have occurred, either to Brown’s heirs or to the intended beneficiaries of the educational trust. The New York Times published an article in early 2018 covering much of the history of fighting over Brown’s estate, which you can read here.
One lawsuit of particular interest is the one the South Carolina Court of Appeals published an opinion on in May 2019. That’s because it required the court to interpret the law de novo, or for the first time, while courts usually rely heavily on precedent in their findings.
The Background
The background to this particular lawsuit is this: Several of Brown’s children and grandchildren (referred to as the Respondents) contested the Will and Trust. In 2015, the Respondents and the Fiduciaries of the estate reached a settlement wherein each of the Respondents would receive a payment of $37,500 in return for dismissing their claims to contest the Will and Trust. Importantly, they’d retain all their other rights and the Will and Trust would not be altered by the terms of the settlement.
Before the settlement was confirmed, two of Brown’s children, Terry Brown and Darryl Brown, who had not contested the Will and Trust, opposed the settlement. After a circuit court found the settlement was just and reasonable, Terry Brown appealed.
The Findings
It’s well established in case law that it’s acceptable for the heirs of an estate to make an agreement dividing the assets among themselves in a way that’s different than the will outlines, as long they all agree to it. But the Brown estate was different, since only some of the heirs were part of the settlement, not all of them. Terry argued that under South Carolina law, all the successors must consent to and approve of a settlement, and he didn’t consent to it, so therefore the settlement should not be considered valid.
However, the Court of Appeals looked at the law (specifically, Section 62-3-912) and held that his consent wasn’t necessary. The settlement didn’t seek to alter the amount of assets any successor was entitled to under the Will, and in fact specifically preserved the Estate Plan as is.
The Court also looked at Sections 62-3-1101 and 62-3-1102 and found that his approval wasn’t necessary, either. The settlement was not binding to Terry or to any other party that was not involved in the settlement. It, again, did not impact Terry or anyone else with an interest in the estate. To quote the Court, “He will receive precisely the same thing under the Will and Trust that he would have received had Respondents never challenged the Estate plan.”
Furthermore, the Court notes that it is unable to allow a successor who’s not part of the settlement to veto the settlement when it does not affect nor bind him. “This of course we cannot do, and Appellant’s position would allow a holdout successor to force the Fiduciaries to engage in the very thing [the law] is intended to avoid: dissipating the Estate in wasteful litigation.”
Complex Estate Planning
While the estate of James Brown is particularly complicated, all estate planning requires thoughtfulness, thoroughness, and attention to detail. That’s exactly what estate planning attorney Gem McDowell and his associatess provide when you work with them on your estate plan. Not having an estate plan, or having one that’s outdated (like Brown’s), can create a plethora of problems for your heirs. Contact the Gem McDowell Law Group to schedule your free consultation and take the first step towards peace of mind. Call 843-284-1021 today.
9 Reasons You Need a Will
We all know we “should” have a will. But why, exactly? Here are 9 good reasons to have a will.
1 To Maintain Good Family Relations After You Die
The main reason to have a will is for your family. After you pass, what happens to your assets won’t matter to you, but it will matter a lot to those who survive you. Many families have been torn apart by squabbles over an estate. Family members may spend years in court, and untold money, to get what they think they’re due. Meanwhile, those relationships fall apart. This doesn’t just happen after the death of people with large estates, but those with modest estates, too. A clear, current will can prevent many of these squabbles from happening in the first place and maintain the peace.
In short, you don’t get a will for yourself. You do it for your family.
2 To Ensure Your Assets Go to a Particular Individual
The primary purpose of a will is to determine where your assets will go after your death. If you don’t decide, and die intestate (i.e., without a will), the state will decide for you. In South Carolina, if you die without a will, your assets that are subject to probate will pass to your children, your spouse, your parents, and/or your siblings, depending on your family situation. You may not want your assets to go where the state wants them to go. Having a will lets you decide.
3 To Prevent Your Assets from Going to a Particular Individual
Just as your will allows you to ensure assets are going to the individuals you want them to go to, it also allows you to keep assets from individuals you don’t want to inherit anything through your will.
There may be several reasons for doing this. Perhaps you choose not to leave anything to an individual in your will because they’ll receive other assets directly outside of your will, such as life insurance payouts, pensions, retirement accounts, real property held as joint tenancy with right of survivorship, and assets held in trust of which they are the beneficiary.
Perhaps you and your spouse have mutually agreed to leave all of your property to your children rather than each other, especially if this is not your first marriage and there are children from previous partners. (Read more about estate planning in “Brady Bunch Marriages” here.)
Other times, you may choose to disinherit a child or other dependent because of strained familial relations. This is your choice, and a legally binding document will help ensure your wishes are carried out after your death.
4 To Make One Last Donation
So far, we’ve considered how a will can help you divide assets among surviving family members. But a will allows you to leave assets to organizations, too. If you’ve supported a particular cause, charity, or church during your lifetime, you can use your will to leave one final gift. (And depending on the size of your estate, a qualified donation can help reduce taxes, too.)
5 To Appoint a Guardian of Your Minor Children
If you’re the parent of a minor child, you should have a will in order to name your child’s guardian. This is the person who would take physical custody and care of your child after you die. (This assumes that there’s not another parent who would take custody.) If you don’t decide, then the state will, and it may choose someone you don’t want raising your child.
6 To Choose Your Executor
Similarly, the court will appoint an executor or personal representative to administer your estate after you die if you don’t name one in your will. You want to choose someone competent, trustworthy, and fair to settle your estate. It’s also a smart idea to speak with this person first to get their agreement, and to list alternatives in case your first choice is unavailable or declines the position after you’re gone.
7 To Speed Up the Process
Having a will can shorten the time it takes to settle your estate for the simple fact that it’s clear what should happen to your assets. Dying without a will invites family arguments over who should get what, and these arguments can last years and ruin relationship. (See #1.)
8 To Avoid Probate Altogether
What if all your assets are in trusts, so that when you die you have no assets to your name that are subject to probate? You should still have a will, specifically what’s known as a “pour-over will.” This dictates that any assets that are not in trust at the time of your death are to be distributed to the trust. If you don’t have a pour-over will, the assets still in your name when you die that are subject to probate will go through probate.
Learn more about the probate process here in South Carolina.
9 To Minimize Estate Taxes
Smart estate planning can reduce your estate taxes. However, this is not a big concern for most people. The only people who need to take into account estate taxes when drawing up a will are people with very large estates (worth over $11,180,000, as of 2018, or double that for married couples) and people in states that impose estate tax.
If you’re in this situation, you may want more than a simple will, and should speak with an estate planning attorney about your options.
Draft or Review Your Will with Mt. Pleasant Estate Planning Attorney Gem McDowell
If you don’t have a will, hopefully the nine reasons above convinced you that you need one. Call Gem McDowell at his Mt. Pleasant office to schedule a free consultation so you can get started on your estate plan right away. Gem has over 25 years of experience in estate planning, and he’s helped individuals with estates large and small with the planning they need. Call (843) 284-1021 or use this contact form to get in touch today.
