In preparing for a divorce in Pennsylvania, one of the more significant issues you will need to address is how to divide the marital property. Specifically, the parties to a divorce must determine which property is considered marital property and which spouse will walk away with what property.
EQUITABLE DIVISION V. COMMON LAW
Pennsylvania is not a 50/50 common law state. PA law requires divorcing couples to equitably divide the marital property. This means that the division of marital property should be based on fairness utilizing a set of enumerated factors in the PA Divorce Code. Where possible, divorcing spouses should work with their attorneys to negotiate their own agreement as to the division of marital property. To do this, divorce lawyers must counsel the client on the PA equitable division laws and how Judges will most likely apply the laws to a specific case. By knowing how a Judge will likely divide your marital property, you can negotiate a fair division or at least know what to expect should the decision be left to the Judge.
DEFINING MARITAL PROPERTY IN PENNSYLVANIA
In Pennsylvania, there is a distinction between marital property and nonmarital property and this is important because only marital property is subject to equitable division. Marital property generally includes the property that either spouse acquires during the marriage or acquires with funds earned during the marriage. Marital property also includes the increase in value of non-marital property up to the date of separation. So, let’s say one spouse has a retirement account with a value of $100,000.00 on the day of the marriage. This is non-marital property since the value of the retirement account was acquired prior to the marriage. If the value of that account increases to $150,000.00 upon the parties’ separation, only $50,000.00 is considered marital property and subject to equitable division instead of the entire value of $150,000.00. However, if one spouse starts a new job during the marriage and the retirement account goes from $0 to $150,000.00 at the time of separation, then upon the parties’ separation, the entire $150,000.00 is considered marital property since the entire portion was earned or acquired during the marriage. Property can include all real and personal property such as cash, personal property, vehicles, real estate, retirement accounts, or even a family business.
WHAT IS THE EQUITABLE DIVISION PROCESS?
Your divorce attorney will guide you through the equitable division process in Pennsylvania. The goal is to negotiate an amicable resolution of the issue with the other spouse. In order to make this happen, you and your attorney will have to assemble a list of all the assets and debts, how they were acquired, how they were titled at acquisition, how they are currently titled, their value at acquisition, and their current values. Attorneys can provide clients with a Form of Inventory and a Checklist of Marital Property. If necessary, the attorney can also obtain signed Authorizations for Release of Documents from you. These Authorizations will enable the attorney to seek information directly from the source, e.g. banks and financial institutions. And finally, your attorney can make a request from your spouse or your spouse’s attorney to produce documents.
If an agreement cannot be reached on the issue of equitable division of the marital property, then Pennsylvania law and local county rules require a series of formal steps to conclude the matter. Many counties require the matter to first proceed to a court appointed master who will issue informal and if necessary, formal recommendations. If the parties are unable to agree even after the master’s recommendations, the matter will proceed to a Judge who will hold a formal hearing with evidence and witness testimony.
HOW DO YOU VALUE THE MARITAL PROPERTY?
After a determination is made regarding the identification of marital v. non-marital property, it is necessary to value the marital property. Some property, like bank accounts and stocks can be easily valued simply by looking at the statements issued by the institutions for the relevant date. Real estate is valued using websites such as Zillow or through certified real estate appraisers. Small businesses can be valued by accountants or business valuation experts. When appraisers and other experts disagree on the value of a certain asset, this can sometimes lead to a dispute that must be resolved by a court appointed master or Judge.
WHAT ABOUT MARITAL DEBT?
Marital property also includes debts incurred by either spouse after the date of marriage and before the date of separation. Typically, marital debt includes mortgage loans, personal and business loans, credit card accounts, and tax obligations. Even if your spouse was the one who racked up a large amount of credit card debt during the marriage, the debt may still be considered marital debt. While this may not seem fair, it is the reality of how property is equitably divided during a divorce in Pennsylvania.
HOW IS MARITAL DEBT DIVIDED?
While rare, some creditors may allow the transfer of a debt from both spouses to one spouse. Creditors generally do not want to lower the number of potential debtors because creditors want to hold both spouses accountable in the event of a default. For mortgage loans, one option is for a spouse to refinance the mortgage. This allows for the removal of a spouse on the “old” loan and removes that spouse’s legal obligation to repay the loan. The spouse who refinanced the loan is solely responsible for the “new” loan. Even if a debt cannot be transferred to the name of one spouse, the debt is still part of the equitable distribution process. When marital debt is equitably divided by the Court, you and your spouse will be instructed to pay a certain portion of any debts and it is assumed that you both will do so. As with any other asset subject to the equitable division law, a Judge will look at the amount of the debt, how and when it was incurred, and applies a number of factors in determining each spouse’s financial responsibility.
Pennsylvania courts are frequently deciding divorce cases that involve substantial debts, whether it be mortgages on real estate or credit card debts incurred during the marriage. Because equitable distribution is somewhat of a subjective standard, every court decision is important for divorce attorneys. These decisions give attorneys insight into how courts are looking at debt and provide the attorneys with a level of confidence when making legal arguments or in settlement negotiations.
CREDIT CARD DEBT
As an example of how a Judge may equitably divide marital debt, suppose a married couple incurred $14,500.00 in credit card debt. The husband may try to argue that the majority of that debt was incurred by the wife; however, if the wife can show that the debt was used primarily for everyday items that were used by both spouses, the court will likely equitably divide the debt. While the Court may deem the debt as marital debt, it need not be divided equally between the parties. Typically, masters and courts will assume that any debt incurred during the marriage and prior to separation is marital debt, unless it can be shown otherwise.
Even though Pennsylvania law does not mandate a 50/50 division of marital property, in practice, a 50/50 division is quite common. If the divorcing spouses have similar incomes from their jobs and the marital assets include a home and modest retirement accounts, the courts will often order a 50/50 division. For these cases, divorce attorneys are usually able to facilitate expedited divorce settlements since a resolution of the division of marital property is fairly straightforward.
In many other cases, however, the distribution percentages are not so easy to assume. For example, (1) if one spouse has a substantially higher earning capacity then the other spouse, (2) one spouse has significant student loans, and (3) one spouse has significant non-marital property; the opinions as to the determination of distribution percentages can vary. For these cases, divorce lawyers will rely on their prior experiences in similar cases to counsel the client on what is and what is not “equitable”.
OTHER COMPLEX MATTERS
Some unique equitable division matters that we have handled at The Martin Law Firm include the following:
- Season tickets to sporting events
- Social Security Benefits
- Personal Injury Settlements
- Payments of Joint Liabilities
- Partnership Interests
- Mineral Rights
- Military Benefits
- Stock Options
- Will Contest Proceeds
ALIMONY AND EQUITABLE DIVISION
Courts may award alimony after a divorce decree has been entered. The court will allow alimony, in a reasonable amount and duration, to either party if alimony is necessary. The court will use a set of factors for considering the appropriateness of alimony. Generally, the purpose of alimony is to ensure a spouse’s reasonable needs are met. Alimony is often viewed as a secondary remedy. Courts will first determine whether economic fairness can be achieved through an equitable distribution award.
DISPOSITION OF PROPERTY AFTER TERMINATION OF MARRIAGE
After a decree of divorce is entered by the court, the parties whose marriage is terminated have complete freedom of disposition as to their separate real and personal property. For this reason, a court will not issue the decree in divorce until after marital property division and distribution is complete. When the equitable division of marital property is unresolved, the court will often enter an order confirming the grounds for divorce, but will defer issuing the divorce decree until property matters are resolved.
THE MARTIN LAW FIRM, P.C. – EQUITABLE DIVISION GUIDANCE AND SOLUTIONS
The Martin Law Firm is a family law firm located in Blue Bell, Pennsylvania that serves men and women in divorce and equitable division matters in Montgomery County, PA and in the surrounding counties. We are committed to serving your needs in a compassionate and efficient manner. Call us today for a free case evaluation at 215-646-3980