Legal ease
Documents may seem intimidating, but can save you a world of trouble.
By Alexa Pozniak and Carol Latter

Many people, intimidated by 
the very thought of undergoing 
what they imagine to be 
the convoluted process of 
drawing up a legal document, 
will procrastinate about 
getting it done – sometimes 
waiting until it’s too late.

But many common legal documents are fairly straightforward. 
They can also save you from 
ending up in a place you’d rather 
not be – whether it’s getting 
taken to the cleaners during 
a divorce or having your children 
fight over your healthcare 
options or your assets.

We spoke to three of the state’s 
leading attorneys to find out which 
important legal documents are 
most commonly needed, and why.

Promissory Note
Borrowing or lending money to a relative or a friend without a loan agreement, usually in the form of a promissory note, can have “numerous 
pitfalls,” according to Marty Clayman, senior 
member of Clayman, Tapper & Baram, LLC in Bloomfield and New Haven.

Clayman said he’s seen many instances 
where someone borrowed $10,000 or $20,000 
from a relative, then later argued it was a gift. 
“A promissory note is legal evidence of a debt,” 
and can be used to prove otherwise, he said.

A note also states whether the loan will be repaid in a lump sum or installments. It should 
say how much interest will be paid, and when. Otherwise, the borrower may assume it is an 
interest-free loan.

A note is just as critical when it comes to 
business-related loans. “There may be an issue 
with who the debtor is; is it a corporation or an 
individual? The businessperson may say, ‘I didn’t personally agree to pay this. My company agreed 
to pay.’” So if the company goes out of business, 
the person owed the money may be out of luck.

Clayman said the IRS will typically use a 
federal rate schedule to assess tax on the interest earned by the person or company giving the loan – whether or not that interest was actually paid by the borrower. “If I’ve loaned money, the IRS will take the position that I intended part of [the 
repayment] to be interest, and therefore I have to pay income tax on it. Specifying the interest rate 
in the note is critical, and avoids a big surprise when the IRS comes to visit you.”

This document is also critical when there are multiple parties involved. It spells out whether each individual borrower is “severally” liable only for a certain share of the debt or “jointly liable” for the entire amount in the event the other borrowers can’t or won’t pay.

While promissory notes can prevent numerous problems and even help to preserve personal and business relationships from breaking down over a dispute related to the loan, many notes are “a page or less” in length. “They’re very efficient. That’s why banks use them.” And they’re based on a 
uniform commercial code, meaning they’re fairly standard in every state.

Separation Agreement
To avoid a trial, couples contemplating divorce must decide upon a separation agreement, which 
is designed to settle issues like property, child 
custody, visitation and alimony, or spousal support.

The agreement can be reached during a traditional proceeding, or through mediation, where 
the parties work with a mediator who facilitates negotiations. “Separation agreements should be carefully crafted, designed to anticipate and address or eliminate any future issues,” said 
attorney James Wing, whose law practice is located in Simsbury and Hartford. “I strongly recommend that an unrepresented party immediately schedule an appointment with an attorney if presented with a proposed separation agreement drafted by his 
or her spouse’s lawyer. Investing in a couple of hours of attorney time to confirm that he/she understands the meaning of the language in the agreement and completely comprehends his or her rights and obligations under the agreement may save money and aggravation.”

He said some parties “come to the divorce process angry or hurt, and want a punitive outcome. But even assuming that each side is only looking to have a reasonable result, ‘reasonable’ is defined for each client by the attorney they engage.”

Employment Contract
Most people in Connecticut are employed at will 
by their employers, which means they can be 
dismissed at any time, with or without cause. Executives are often an exception; they generally have an employment contract.

Salespeople, and employees who have a particular specialty or are highly trained, may also have a contract, said Clayman. In that situation, employers may seek to protect specific information – like proprietary information about products, customer lists, marketing plans or pricing – and may ask the employee to sign a covenant not to divulge this information if he or she leaves the company to work for another firm.

The employee may also be asked to sign a 
non-compete agreement, which prevents him 
from competing directly with his former employer for a specified period of time if he leaves.

In addition to protecting a company, employment agreements can also protect the employee by spelling out benefits during the time an employee works there (vacation, sick pay, bonuses), or compensation (think “golden handshake”) if the company merges with another one, closes its doors or lays the person off. The agreement might also state that an employee can’t be fired except under specific “just cause” scenarios, like being drunk on the job or stealing from the firm.

Articles of Organization
There are a number of pitfalls involved in forming a business partnership – including the fact that partners are legally liable for each other’s actions and one partner can incur debt without the 
other’s permission. As a result, most people 
looking to form a small or medium business today opt to create a Limited Liability Company, or LLC.

Clayman said an LLC, “a cross between a partnership and a corporation,” provides better protection for individuals, is recognized in all 50 states and is relatively easy to form. In Connecticut, 
a member can fill out a one-page “Articles of Organization” form and pay a filing fee of $120 to register online with the Secretary of the State.

“Like a partnership, the formalities of operating an LLC are very minimal. You don’t need annual meetings or titles,” said Clayman. “The members are not liable for debts incurred by other members. Their liability is limited to their investment, they have no liability to each other, and the entity stands alone. Taxes on the profit or loss flows through to the members like in a partnership. 
The LLC doesn’t have any taxable income like a corporation would.”

However, the very simplicity of LLCs can create problems, he said. Articles of Organization “do not state who all the members are, and the division of profits and losses is not on that document. Many other things aren’t addressed: How do you dissolve your LLC or merge with another entity? What happens if a member dies? Can you restrict the sale [of that portion of the business] to someone else? There are a million questions that aren’t answered by that document. It’s a trap for the unwary; it really is.”

Clayman recommends that the owners of any new business consult a lawyer about also creating 
an operating agreement, which “works like the operating system in a computer.”

Durable Power of Attorney
In the event that you become incapacitated, you will need someone to manage your finances and property. A durable power of attorney is given to an agent you appoint. He or she will have the power to perform tasks like paying your bills, maintaining your investments, and filing taxes on your behalf. It’s important to know that this document goes into effect as soon as you sign it, so if you wish, you can specify that the 
document not be activated unless a doctor deems you incapacitated.

Whatever the case may be, attorney Kate McEvoy, deputy director of the Agency on Aging of South Central Connecticut, said you need to choose someone who is able to make decisions based on your wishes, as opposed to what he or she wants. “It’s important to remember to be careful who you deem trustworthy enough to give power to. Choose someone who won’t make decisions against your interest and behave opportunistically with your money.”

Typically, a close family member is chosen 
to have “durable power of attorney,” but McEvoy recommends caution. “We usually advise against appointing more than one person to have 
the durable power of attorney. Typically, that happens if two adult children want to be involved, but generally it’s best to appoint one person because there may be a difference of opinion, and that could make a situation go 
from bad to worse.”

Last Will and Testament
The best way to ensure that your assets, such as money, property and other possessions, will be distributed in accordance to your wishes after death is to have a will. This legal document can also establish guardianship of children.

“You definitely don’t want to wait until later 
in life to draft a will,” advised McEvoy.

One way to go about drafting a will is to 
consult a lawyer, especially if you own a large number of assets. Another option is to seek out specific websites, such as the Office of the Attorney General, on the Internet.

“Here in Connecticut, there are a number 
of resources online that will give you template 
wills that you can do yourself,” she said. In order to execute a will, you must be 18 or older and sound in mind and body. The will should be in writing and witnessed by two disinterested 
parties, meaning those who can’t benefit in any way from the assets.

Although the process is pretty straightforward, there are some mistakes that commonly occur.

“Sometimes wills aren’t properly executed, they’re not witnessed by two disinterested 
parties, or they’re written informally. And sometimes there are two conflicting documents. Remember, in order to revoke a will, 
in Connecticut you are required to destroy 
the original copy, before you execute a new 
document,” said McEvoy.

Antenuptial Agreement
In order to protect their assets, a couple planning to marry may sign an antenuptial, or prenuptial, agreement. The document, which takes effect once the marriage is official, typically lists all of the property each person owns and his or her debts. It also allows the parties to address how they will deal with their finances, property and other assets in the event of divorce or death, and whether alimony or spousal support will be paid should the marriage end.

“There is an inherent awkwardness in process of negotiating an antenuptial agreement, even though it seems more are entered into each year,” Wing said.

He said people are often “reluctant to take issue” with a proposed agreement, even if they don’t like the terms, because they’re afraid it will put a damper on the upcoming marriage. “This is a trap to avoid,” he said. “These are very serious documents that control the future rights and obligations of the spouses.” He said it is in everyone’s best interests to work out terms that are fair to both parties. And he highly recommends that couples seek out a lawyer to negotiate this agreement.

Healthcare Representative
An “appointed healthcare representative” has the authority to make any and all healthcare decisions for a person who is incapable of expressing those wishes himself or herself. This designated individual is often a close family member.

Since many situations in life arise unexpectedly, McEvoy advises people to “do this now, while you’re calm, and while there is no crisis.” That way, if a person is struck with a sudden illness or accident, or a seemingly manageable medical situation takes a sudden turn for the worse, there will be someone with the legal authority to carry out his or her wishes.

One way to obtain this document is to meet with a lawyer. Another option is the Internet. McEvoy pointed out that fewer than 20 percent of Americans have written directions with regards to their wishes in terms of healthcare. “They might think you need the help of an attorney to do it. Or they might be deterred by the cost of it. But it’s pretty easy. There are even options where you can do it yourself. We no longer even require the documents be notarized,” she said. HM

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