The ‘Tuition Claw Back’

By L. Alexandra Hogan, Esq.

L. Alexandra Hogan

If you find yourself financially struggling while you are paying for your child’s college education, filing for bankruptcy protection may have a greater impact than you might expect. The concern is a newer trend that may be employed by bankruptcy trustees called the ‘tuition claw back.’

The tuition-claw-back scenario looks something like this: you have an adult child in college, and you have paid some or all of your child’s tuition and other costs and expenses for a few years.  As time passes, you find yourself struggling financially because you have accrued a great deal of unsecured credit-card debt trying to make ends meet. You file for Chapter 7 bankruptcy protection to discharge your credit-card debt. As a bankruptcy debtor, your financial transactions within the recent years become a matter of public record, and the bankruptcy trustee appointed to administer your case learns that you have been paying tuition and related college costs, but not other creditors.

The trustee files a lawsuit against your child’s college demanding that the payments made over the last few years be returned to the bankruptcy estate to be distributed to creditors of the bankruptcy estate in accordance with the priority prescribed by the Bankruptcy Code. Your child still has one year of college left.

Concerns immediately come to your mind as a parent. Will the college allow your child to finish college if the college must pay the bankruptcy estate the tuition and cost payments it previously received? Will the college sue your child for the tuition and costs?

The concept of a tuition claw back is quite alarming and worthy of serious consideration if you are contemplating bankruptcy and have paid college tuition for a child in the past few years. This certainly does not seem fair to the innocent child or college.

While some commentators are critical of the seemingly unsavory actions of the bankruptcy trustee, the reality is that the bankruptcy trustee is required by law to pursue transfers that may result in recovery of assets for the benefit creditors of the bankruptcy estate. The public-policy argument in support of the tuition claw back is that it would be unfair for the adult child’s college to receive the parent’s payments to the detriment of the parent’s creditors, given that the parent is not legally obligated to pay for the child’s college and the parent does not receive any benefit from the child’s education.

The next logical question is, what is the legal basis of the tuition claw back? The theory is based upon a state’s ‘fraudulent transfer’ laws, utilized in conjunction with the Bankruptcy Code to avoid the monetary transfers and recover them for the bankruptcy estate.

The word ‘fraudulent’ can be a bit of a misnomer. Clearly, the parent in this scenario is simply attempting to act in the best interest of the child and not to defraud anyone. Nevertheless, when a debtor has transferred money at a time when the debtor is financially insolvent, or rendered insolvent as a result of the transfer, and the debtor has not received consideration for the transfer — as an example, reasonably equivalent value in the form of a personal benefit — the transfer falls under the scope of the statute and has been called ‘constructive fraud.’

Under the Massachusetts fraudulent-transfer laws, the trustee may avoid and recover transfers going back four years from the date of the bankruptcy filing. This could amount to significant recovery for the bankruptcy estate’s creditors.

Currently, the issues presented here have not been reported in any published decisions in Massachusetts. However, there is at least one case pending in Massachusetts against Sacred Heart University, and several other claims have been made by trustees but ended in a settlement prior to trial. There are numerous reported decisions from other states’ bankruptcy courts. However, there is a split in authority as to whether tuition payments may be avoided and recovered on the basis of non-economic consideration. For example, might love and affection or family obligation satisfy the consideration issue?

The question as to what constitutes ‘reasonable equivalent value’ has been the focus of these cases. In Pennsylvania, two bankruptcy courts have ruled that non-economic benefits are satisfactory consideration, and therefore the trustees could not recover the payments. In one case, the court held that payments were “reasonable and necessary for the maintenance of the debtor’s family.”

In the other case, the court held that the “payments were made out of a reasonable sense of parental obligation,” noting that “there is something of a societal expectation that parents will assist with such expense if they are able to do so.” Conversely, in Michigan, a court noted that the parents had no legal obligation to provide their adult child with a college education and allowed the trustee to recover the college payments because any value received by the parents must be a concrete and quantifiable economic benefit.

Many trustees, lawyers, debtors, and colleges are eagerly awaiting a Massachusetts bankruptcy-court decision to settle the law in Massachusetts and provide guidance. Until then, suffice it to say, those who find themselves in a similar situation should discuss the matter with qualified bankruptcy counsel, as strategic options or defenses may be available. u

Attorney L. Alexandra (Alex) Hogan is an associate with the Springfield-based firm Shatz, Schwartz and Fentin, P.C., and concentrates her practice primarily in business, litigation, and bankruptcy law;  (413) 737-1131; [email protected]

Law and Disorder

Many lawyers say they entered the legal field to help people with their problems — often very difficult, serious problems. The danger is internalizing those problems and making client stress a permanent part of one’s psyche. That pitfall, and other stressors common to lawyers, from time pressures to sometimes-adversarial work relationships, contribute to unusually high levels of burnout, depression, substance abuse, and even suicide in the legal field. One challenge, experts say, is to recognize those dangers before they take root.

To many who aspire to the field, being a lawyer is a job to die for.

Unfortunately, many do, far too young. According to the Centers for Disease Control, lawyers are more likely than almost any other type of professional to commit suicide —  ranking behind only doctors and dentists — and are 3.6 times more likely to suffer from depression, a common trigger for suicide. Others deal with poor health due to overwhelming stress.

“A lot of lawyers are dissatisfied with their work, for reasons including long hours, conflicting demands on their time and energy, and the exacting and confrontational nature of the work,” said Linda Benoit, a licensed clinical social worker with Lawyers Concerned for Lawyers (LCL), an organization dedicated to helping legal professionals navigate the pitfalls of career stress — and worse. “Many lawyers are leaving the profession, and it appears job burnout is implicated in the exodus.”

Benoit spoke at a recent seminar at Western New England University School of Law titled “Stress Management for Lawyers: Building Resilience and Avoiding Burnout,” talking with lawyers and law students alike about the health problems, physical and emotional, common to their field, and how to tackle — or, better, avoid — them.

“Realistically, you could plug a lot of occupations in — you could say the same thing about elementary-school teachers or social workers — so take it with a grain of salt,” she said about the general topic of job stress. “Yes, some things are unique to each profession, but there are more likely to be commonalities.”

Still, an American Bar Assoc. survey suggests that more than one-third of lawyers are dissatisfied and would choose another profession if they could, and 15% to 18% suffer from some measure of substance abuse, compared to 10% of the general population, so something is clearly going on.

“If these things are particular to the legal field, why is that?” Benoit asked. “There’s something called an addictive personality … is there a legal personality?”

She cited several common characteristics of lawyers, including a need for achievement, extroverted and sociable — yet competitive and aggressive — personalities, a focus on the economic bottom line and material concerns, and, perhaps as a result, a higher incidence of psychological distress and substance abuse.

According to CNN, at least seven state bar associations have become so concerned about suicides that they took measures to stop the pattern, adding a mental-health component to mandatory legal continuing education.

“One of the things we have to guard against is unhealthy ways to alleviate stress,” said Eric Gouvin, dean of the WNEU School of Law. “It’s easy to get caught up in short-term alleviation of stress through drugs and alcohol, which only makes things worse in the long run.

“This has always been an issue in the legal profession,” he went on. “The only profession with a higher rate of alcoholism is the clergy, which has the same dynamic of folks trying to help people deal with their problems. Those problems are not trivial; they can get to you. And if you find a release with a drink at the bar, that could easily become three, four five drinks.”

“You have to learn how to talk yourself off the ledge,” said Barbara Bowe, another licensed clinical social worker with LCL. “And if you can’t do that, you had better have some people in your life you can call to help talk you off.”

A Question of Empathy

Benoit pointed out that most stress is psychological; while many people think of stress as something that attacks them, they bring their own beliefs to it. She cited the famous Anais Nin quote, “we don’t see things as they are; we see them as we are.”

As an example, she recalled a client who was upset that his wife frequently yelled at him. But he wasn’t responding to her only; he had been severely ridiculed and yelled at growing up, “and he was responding and filtering and exaggerating it based on his own history.”

How does that apply to lawyers? Basically, Gouvin told BusinessWest, they are constantly saddling themselves with the feelings and concerns — often negative — of others, which warps the way they see the world.

“People generally come to lawyers because they’ve got problems, and lawyers tend to get into this line of work because they want to help people solve their problems. It’s easy for lawyers to take on clients’ problems as if they were their own, and that’s where the stress comes in,” he explained.

Linda Benoit, left, and Barbara Bowe say Lawyers Concerned for Lawyers is a response to a very real tendency for attorneys to succumb to stress, depression, substance abuse, and even suicide.

“Most successful lawyers, over the long term, are able to get a little professional distance between their clients’ problems and their own individual life,” he added. “But sometimes folks need to be reminded of ways to take care of themselves and their mental health. They get so wrapped up in these issues, and if they don’t take a minute to step back every now and then and find a way to center themselves, the stress will accumulate over time and cause psychological and physical damage.”

Indeed, Benoit said, chronic, unmanaged stress is implicated in 50% of all illnesses, contributing to atherosclerosis, hypertension, weight gain, memory impairment, decreased immune-system functioning, increased blood-glucose levels, and mental-health and substance-abuse problems.

“In spite of all this,” she noted, “almost half of all adults say they’re not sure they’re doing enough to manage stress, and one in five Americans say they do nothing to manage stress.”

And managing the stress of others makes it even worse, Bowe said. She spoke about one of her past clients, a lawyer on the cusp of retiring from decades of solo practice. His wife, a teacher, had recently retired herself, so they planned on getting a boat and setting sail into their leisure years. “But he presented with a lot of anxiety, a lot of panic. He lost sleep, he lost weight, he couldn’t swallow. He had talked to his doctor about his blood pressure and cardiac levels.”

And then, she discovered the core issue. It turned out her client’s father had “gone down the rabbit hole” after retirement, dealing with issues that landed him in a psychiatric hospital. He ended up killing himself when her client, the one now approaching retirement, was 18 years old.

“He was afraid he would wind up like his old man, even though that wasn’t his story at all,” she said. “So whenever his wife talked about retirement, he broke into a panicked sweat, sweaty palms, wondering, ‘if I retire, what will become of me?’ He had the sense, because of what happened to his father, that would be his future, too.”

While that’s not the same as empathizing with a client, Bowe sees some similarities between that man and lawyers so emotionally involved with their clients that they bury their own needs, and make their clients’ worries their own.

“You need to have the ability to step outside of that,” she explained. “Maybe you put your best case together and things don’t go as planned. So many things are out of your control. How do you manage that?

“As a laywer,” she went on, “you can always do more, and clients expect you to do more. At some point, internally, you have to say, ‘I’ve dotted my Is, I’ve crossed my Ts. I’ve done what I can do, although someone thinks I could have done more.’”

Though attorneys see themselves as problem solvers, Bowe said, there have to be limits. “You have to figure out your own level of stress. If your satisfaction is based on what the client says, you’re in trouble. It’s never going to be perfect, so you have to decide for yourself what is good enough. It’s never going to be 100%. That’s not the nature of law.”

Change the Tapes

Benoit was quick to point out that not all stress is negative; sometimes, it can serve as a motivator. “Any kind of stress can have beneficial benefits, depending on the strength of the stressor and how an individual deals with it.”

She pointed out the difference between ‘eustress’ — stress that provokes a positive response, from enhanced performance to improved mood to sharper memory — and ‘distress,’ which produces a negative cognitive response, like nervousness, anxiety, fatigue, and depression.

Most jobs have stress triggers, she added, from lack of communication in the office to unrealistic expectations and time demands; from lack of appreciation to job insecurity. Lawyers have specific stresses on top of those, including billable-hour pressures, the sometimes-adversarial nature of their working relationships, perfectionist tendencies, student-loan debt, and a sometimes-poor public image of the profession.

It’s important, she said, to take control of one’s thoughts when those pressures start to overwhelm. “What is your cognitive response? Are you able to visualize a positive outcome, or do you dwell on catastrophic, worst-case thinking?”

Bowe referred to the importance of “changing the tapes” that play in one’s head.

Eric Gouvin says people often become lawyers to help others, but tend to make those problems their own.

“You have that power. It doesn’t mean the cognitive fairy will come to your house and change everything, but you can work to develop a pattern of visualizing and assessing a situation from a more positive standpoint, and ask, ‘what kinds of resources do I need to draw in to do better on this?’” she explained. “Some lawyers put their head down and keep moving, even though it’s not necessarily in a positive direction.

“You can definitely bring a different mindset to a situation to influence an outcome,” she went on. “But you have to have the desire and want to do it.”

Benoit agreed. “The stress isn’t going to go away,” she said, “but it doesn’t have to be this constant negative thinking. When you do that, you’re doing violence to yourself. Why would you want to participate in that?”

Building resilience against factors that trigger stress can come in many forms, she went on. “If you’re in a toxic or hostile work environment, you may have to cut your losses and leave. If you’re in a solo practice, maybe hire someone to help you develop or redesign career goals.”

Other tips include taking firmer control of one’s schedule by rigidly prioritizing tasks, getting away from the desk once in a while by taking short breaks, avoiding unpleasant colleagues as much as possible, educating clients about the process of law (to counter unrealistic expectations), and avoiding workaholism.

“Set limits, and don’t put all your well-being eggs — how you feel about yourself — in your work basket,” Benoit said. “You’re more than your occupation. Make time for yourself and your relationships every day.”

And, overall, be realistic. “You don’t have to be perfect, or read every journal article,” she said. “Remind yourself that you can’t solve all your clients’ problems, even though they will want you to. Remind yourself that you can’t save everybody.”

Finding Purpose

Obviously, clinical depression, substance abuse, and suicidal thoughts aren’t issues people can defeat through positive thinking, and LCL offers resources to lawyers struggling with those demons.

But for everyday stresses, a little mindfulness doesn’t hurt. Some of Benoit’s stress-reduction tips are applicable to many fields, such as finding humor in situations, setting aside time for rest and leisure, avoiding drugs and alcohol, maintaining good nutrition and sleep habits, setting small, achievable goals, and having two specific friends: “one friend you can vent with, and one you can’t.”

It also helps, she said, for lawyers to remember their purpose and passion. She cited a mission statement from the American Bar Assoc. that touches on concepts like defending liberty and pursuing justice, and said lawyers should step back once in a while and reassess why they chose the career to begin with.

“Is it being a defender of rights? A commitment to social justice? Being a protector of human dignity, or a crusader against discrimination? Maybe there are some bigger things that will re-energize you. You can change the system.”

Joseph Bednar can be reached at [email protected]

Let’s Talk

Couples who decide to end their marriage are often dealing with the most upsetting, stressful time of their lives, and the prospect of fighting tooth and nail in court to decide issues like child custody, visitation, and finances only piles on the emotional trauma. That’s why divorce mediation — a less costly, less stressful alternative to a contested divorce — is gaining in popularity. It’s a process that doesn’t deal in who’s right or wrong, but allows two people to take control of a bad situation and talk it out — often for the first time in years.

Divorce is difficult — perhaps the roughest, most emotionally draining experience of a person’s life.

So why, Michael Frazee asks, would a couple want to make it even harder?

“The court system already struggles to problem-solve in divorce, and then they add regulations, they add rules, and they add requirements to each divorce without regard for the actual needs of the parties, and especially the needs of the children,” said Frazee, a family-law attorney who practices with Divorce Mediation Group in Springfield.

“Mediation doesn’t impose any template on any case because every family situation is different,” he went on. “We help them navigate the divorce process by applying creative problem solving. Really, we help people come to their own solutions, as opposed to imposing a boilerplate approach on them, which is what the court system does.”

In other words, he told BusinessWest, while the litigated divorce process has only become thornier to people already going through a tough time, “we live in solutions; we don’t live in problems.”

Increasingly, divorcing couples are taking notice, and the field of mediation has experienced an uptick in recent years even as the divorce rate has quietly crept down.

“The goal is to have a more respectful, less expensive process — both emotionally and financially — while trying to resolve issues of divorce or dissolution of marriage,” said attorney Julie Dialessi-Lafley, who counts divorce mediation among her practice areas at Bacon Wilson in Springfield. “That can include child-custody issues, who pays for college education, uninsured medical expenses … anything the parties might disagree on. In mediation, it’s supposed to be a non-litigious setting with a neutral mediator, who tries to help the parties come to their own agreements and resolution.”

At its heart, the process is all about control, she explained.

“Mediation differs from litigation in the sense that the parties craft their own settlement; they’re advocating for themselves,” she said, noting that, while the couple may occasionally retain attorneys, they don’t control the process for the two parties. “The mediator’s role is really as a facilitator. The goal is to get them to an agreement. Judges don’t want to make this decision. A judge will say, ‘I’ll decide this, but at the end of the day, you’re in the best place to know what’s in your best interest and your children’s best interest; you know more about your life than I do.’”

For this issue’s focus on law, BusinessWest examines the process of divorce mediation, and — considering the financial and emotional benefits — asks the question, why would a couple not choose mediation?

Give and Take

As it turns out, there are several answers to that question.

“I think some people have the perception that their spouse will not engage in a cooperative process, and some feel like they need the additional strength of having a laywer to rely upon,” said Bruce Clarkin, who launched Divorce Mediation Group in 1989. “But the people we see are so relieved to have a solution to the biggest problem they ever face in their life; I think it motivates them to work really hard to get a solution.”

And they’re doing so at a much lower cost than paying two attorneys to fight out every issue in court.

Julie Dialessi-Lafley says the cost of mediation — both financial and emotional — is typically far less than in a litigated divorce.

“At a time when the legal cost of divorce is exploding exponentially, the costs of a mediated divorce remain pretty stable and predictable,” Clarkin said. “We can predict at the outset what mediation is going to cost about 80% of the time, and the typical cost is between $1,500 and $2,000.

“The reason the cost is so low is the process is so efficient,” he went on. “It’s very problem-solving-oriented. You learn how your clients see the future and try to help them achieve that goal. Meanwhile, litigation has only become more expensive and is often so unsatisfactory.”

Frazee agreed, adding that it’s mainly a lack of awareness about the mediation process that holds some couples back. “It’s a cooperative, collaborative process. And, again, when you consider the expense of litigated divorce versus the expense of a contested divorce, why wouldn’t someone at least try it? We do a free consultation, and the vast majority of people who meet with us come to understand what the process is, and want to engage in the process right away.”

He added that some 80% of all litigated divorces wind up back in court for some tangential issue. “Whereas, with a mediated divorce, you’re rarely back in court. You’ve already set yourself, as a divorcing couple, on a path to better parenting and better communication, as opposed to being adversaries in the court system.”

Dialessi-Lafley says the overwhelming majority of clients are positive about forging an agreement they can both live with. One exception would be couples with serious, closeted issues involving each other or their children that need to be worked out in therapy before they can work on their divorce agreement.

“We’re definitely not therapists,” Dialessi-Lafley said, but the training necessary to be certified as a divorce mediator emphasizes getting divorcing couples to communicate more effectively — perhaps more than they have in years.

“In all these years,” she said, thinking back over 19 years in practice, “the common thread in every divorce is lack of communication. They don’t communicate about intimate issues, child issues, financial issues … whatever the issue is, communication is the problem.”

Agreeing to mediation, she went on, is basically an agreement to communicate — to be willing to talk and listen in equal measure.

“There’s no blame here. It’s more, ‘let’s see if you can actually hear each other,’” she told BusinessWest. “I have had parties who would run each other over in the street if given the chance. When they come in, they’re angry and tense and negative about the process. But if they’re willing to try it, and you can get them to open up, it’s a start.”

Some couples require what she called ‘shuttling’ at first, putting them in separate rooms initially and talking with them one on one. Often, they eventually wind up in the same room, talking.

As for couples who choose litigation, “they may not know about mediation or understand it,” Dialessi-Lafley went on. “Or, very commonly, one party may have a stronger personality, and the other thinks, ‘I won’t be able to advocate for myself and say what I need to say.’ One party may be worried they’ll give up more than they should.”

However, she added, “the goal is to get to a resolution, and the process itself is designed to keep the parties respectful of each other — I wouldn’t use the word ‘amicable,’ but at least able to have less tension and less consternation between them.”

Building Trust

Alison Patton, a family lawyer and mediator who blogs at lemonadedivorce.com, said the ideal mediator, first and foremost, listens intently and asks questions not for the purpose of deciding who’s right or wrong, but to better understand two people who are seeking to resolve some very challenging issues.

“When your mediator is listening, validating, and empathizing with your spouse, this is a good thing,” Patton writes. “It may not feel good; it may bring up the ‘not true! What about me!’ feelings typical of what one feels in mediation when the other person is getting to talk.

“But know that your mediator’s focus on your spouse is intentional and necessary to get your case to a settlement,” she continues. “It doesn’t mean your mediator is taking sides or agreeing with what your spouse is saying. It doesn’t mean your mediator likes your spouse more or that he doesn’t believe your version of the facts. You have a good mediator if he is intently listening and nodding his head and asking your spouse clarifying questions and summarizing what your spouse said (as long as you get your turn too).”

Frazee agreed. “Being an active listener is imperative as a mediator, and guiding the discussion — and note that I didn’t say controlling the discussion.”

Clarkin went a step beyond that and said the mediator’s role is one of leadership, which includes getting both parties to totally buy into the process and have confidence that he is neutral. “Some people come here and fight like cats and dogs, and we’re trained to deal with that. But even then, when clients have confidence in the process, it most often works out in their favor.”

Bruce Clarkin, left, and Michael Frazee say a good mediator shows the kind of leadership that breeds confidence in his or her neutrality.

It helps, Frazee added, that anything said to a mediator is completely private and confidential and, importantly, inadmissible in court on the rare occasions the couple can’t work out their own solution and opt for litigation. Those who come to recognize the mediation room as a safe space often surprise themselves, and their partners, with their candor.

“Honestly, a lot of people say things to each other that could have been said — and should have been said — years before they sat down with us,” he went on. “That sort of openness — especially between parents — is critical to the success of the process. I agree that the mediator leads in the sense of guiding the dialogue between the parties, but the goal is always working toward a resolution of the issue.”

That said, Clarkin added, “I don’t inquire about what went wrong in the marriage. I always see that as information that belongs to clients, and most of the time, it’s not helpful for me to hear it.”

A Few Clicks Away

What has been helpful for practitioners of divorce mediation, Clarkin told BusinessWest, has been the tendency of consumers to research what they plan to purchase on the Internet — a trend that affects everything from car sales to travel bookings to … divorce.

“Mediation is coming of age at the same time the Internet is becoming the default resource for the middle-class consumer,” Clarkin said. “Years ago, when someone was on the cusp of divorce, they asked their brother-in-law what lawyer they should call; now, when a divorce is on the horizon, they go to the Internet. It’s self-determination; people are making decisions before they even call. And by the time people get through using the Internet to research this, they’ve already made a decision whether mediation is likely to work for them. It’s really changed the landscape in a huge way.”

In some cases, Frazee said, “we see people who have already started charting an agreement and want to make sure their agreement will be approved by the court. They’re not coming to us for verification, necessarily, but a lot of them understand what the process is and have already started framing some areas of agreement and disagreement.”

In other words, they’re taking control. “If the same people go to the court system, they have a template and expenses imposed on them.”

That matter of control, for couples who can bring themselves to talk rationally with each other, is a major benefit of mediation, Dialessi-Lafley said. After all, the issues involved in divorce are wide-ranging and can impact families for decades. “And you can’t quantify the emotional impact of a litigated divorce.”

A contested divorce is also subject to the scheduling whims of the court, whereas a couple in mediation agrees to their own schedule and timeline, which peels back another layer of stress, Dialessi-Lafley added.

For an increasing number of divorcing couples, just stepping back from the stress of constant fighting and actually trying to communicate makes a lot of sense.

“When I see one spouse listening, validating, asking questions, and empathizing, I don’t assume he or she is agreeing with what is being said or backing down. It means to me that this person is mature and kind enough to honor and respect their spouse’s feelings, in spite of it all,” Patton writes. “Truly, the real secret of divorce mediation is that simple — feeling heard, honored, and respected by the person you loved enough to marry.”

Joseph Bednar can be reached at [email protected]