Receipt of an Inheritance

The receipt of an inheritance may impact your divorce or support case. Section 3501 of the Pennsylvania Divorce Code defines what will be considered marital property, and up for division, versus what will be considered non-marital property. Marital property includes all property acquired by either party from the date of marriage through the date of separation. There is a presumption all property acquired during the marriage is marital regardless of how title is held (e.g. individually vs. jointly). However, property received as a gift, bequest, devise or descent is non-marital per 23 Pa. C.S. 3501(a). Accordingly, an inheritance that is received during the marriage can still be claimed as non-marital property. As a practical tip, parties should avoid commingling inheritance funds with other marital funds. Inheritance funds may still need to be disclosed since the separate assets of the party are a factor for equitable distribution under 23 Pa. C.S. 3502.

Money received by way of an inheritance should not to be considered income for a support matter. This was established in the case of Humphreys v. DeRoss, 790 A.2d 281 (Pa. 2002) wherein the court noted that the term “inheritance” was not expressly listed in the statutory definition of “income” under 23 Pa. C.S. 4302 and so was not intended to be included. However, Humphreys also established that receipt of an inheritance may still be a factor under Pennsylvania Rule of Civil Procedure 1910.16-5. Rule 1910.16-5 states factors for the court to consider for deviation from a guideline support obligation. One of the factors the court may consider is the assets and liabilities of the parties. In E.R.L. v. C.K.L., 2015 PA Super 220, the court upheld an upward deviation of a child support award where father had just received a $600,000 inheritance. The base support award was appropriately calculated in that case without the inclusion of the inheritance money.

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Pre-Nuptial Agreements

A pre-nuptial agreement is a private contract between the parties entered into prior to their marriage that outlines how assets and debts will be handled if the parties subsequently divorce. A simple pre-nuptial agreement often provides that each party retains their respective premarital property and any increase of value of premarital assets. It may also provide that anything they acquire in their individual name during the marriage would remain their separate property. Property acquired in joint names can be divided based on the applicable divorce laws or the parties can agree to split at a certain percentage, e.g. 50/50. A pre-nuptial agreement may also address spousal support. It is not uncommon for the amount of support to a spouse to increase based on the number of years married or number of children produced. Alternatively, one spouse may be required to pay support as a punishment if they commit adultery during the marriage.

As a contract, a pre-nuptial agreement must meet several requirements to be held valid. One, there must be a full and fair disclosure of the financial resources/existing assets by both parties. If there is not such a disclosure, there must be a provision in the agreement providing that the parties voluntarily and expressly waived the right to disclosure. Two, it must be clear that both parties voluntarily entered the agreement. For these reason, the agreement should be signed well before the wedding to avoid any challenge to the agreement that a party was forced to sign because the wedding date was fast approaching. Finally, steps should be taken to make sure the agreement is not invalidated on the basis of fraud, duress and/or misrepresentation. Any challenge under the above listed causes of action will require a fact-based analysis with the standard being a preponderance of the evidence, or more likely than not. Overall, it is difficult to overturn a pre-nuptial agreement once entered into, however, it can provide some peace of mind if the parties do not end up living happily ever after.

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Exclusive Possession

Many parties in the process of separating are anxious to find out how they can get the other party out of a shared residence. For married individuals, a decision on which party will keep a marital property will not come until the end of the divorce matter and in the interim both parties retain the right to access the marital property. There are two exceptions to this general rule. First, a party may be evicted from a marital property in the context of a Protection from Abuse Order. A final PFA Order can remain in place for a maximum of three (3) years. The second way to have a party removed from marital property is through an application for exclusive possession.

Pursuant to 23 Pa. C.S. § 3502(c), the court has the express authority to award exclusive possession of the marital residence to one or both parties during the pendency of the divorce. This provision gives the court the authority to issue injunctions or other orders necessary to protect the interests of the parties.

Laczkowski v. Laczkowski, decided in 1985, was the first case to hold that the court could award exclusive possession of the martial residence during a divorce. 344 Pa. Super. 154 (Pa. Super. 1985). In Laczkowski, the home was to be given to the spouse having physical custody of any minor children. Other cases have clarified and expanded the instances under which exclusive possession may be ordered. In Uhler v. Uhler, the court indicated exclusive possession should only be awarded sparingly. 428 Pa. Super. 630 (Pa. Super. 1993). Uhler also pointed to the emotional welfare of children as the most important consideration. In Vuocolo v. Vuocolo, the court held an award should be based not only on the needs of minor children, but also the age and health of the parties and their financial needs and resources. 42 Pa. D. & C. 398 (1987). In Merola v. Merola, the court granted exclusive possession in an instance where there were no minor children but the wife was vulnerable and confined to a wheelchair. 19 Pa. D. & C. 4th 538 (1993). In contrast, in Duzgon v. Duzgon, the court did not grant exclusive possession based on wife’s allegations of tension in the home because of husband’s phone calls to his girlfriend. 76 Pa. D. & C. 4th 538 (2005). The court’s rationale was that there was no abuse between the parties and hence no clear need for husband to be excluded from the home. In sum, an award of exclusive possession is a last resort remedy that will not be awarded without clear need and is more likely to be awarded where minor children are involved.

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Bankruptcy and Family Law

Parties who are unable to keep up with their financial obligations may consider filing for bankruptcy. Chapter 7 bankruptcy involves liquidation of a party’s assets to repay debts. Chapter 13 bankruptcy involves a payment plan with all collected funds subsequently distributed to creditors in order of their priority. A bankruptcy filing results in an automatic stay meaning the party filing for bankruptcy is protected from creditors seeking payment from them until the bankruptcy is resolved however, there are exceptions to this general rule. Specifically, the filing of a bankruptcy petition does not operate as a stay for any proceeding regarding the establishment or modification of an order for domestic support obligations, concerning child custody or visitation, or for the dissolution of a marriage (including decree with court order or property settlement agreement except to the extent that such proceeding seeks to determine the division of property that is property of the estate). Accordingly, a party may not seek to dismiss all their obligations in a family law matter by filing for bankruptcy.

Pennsylvania case law reiterates this point. In Schulze v. Schulze, 15 B.R. 106 (1981), the court held that “there can be no doubt that the state court action as it pertains to divorce and the custody of the minor children should not be stayed.” A party that files for bankruptcy cannot discharge an obligation to provide support. A party may however discharge an obligation to split assets and/or debts under a property settlement agreement or order on equitable distribution. In Deichert v. Deichert, 402 Pa. Super. 415 (1991), the court discusses which marital obligations are dischargeable or non-dischargeable in bankruptcy and concludes the court is to look at the intent of the parties and/or the effect/function of the obligation since debts under property settlement are dischargeable but support obligations are not.

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Irrevocable Trusts

A trust is a mechanism wherein assets are set aside for certain beneficiaries and managed by a trustee subject to the terms of the document. Irrevocable trusts cannot subsequently be modified or terminated. Irrevocable trusts can help protect assets for parties who may need long-term care. Elderly persons needing long-term care often try to utilize Medicaid to assist with the expenses. Medicaid is a need-based health care program so there are limits on the amount of income and assets a party can have when seeking eligibility. An individual should plan ahead to make sure any countable assets and income are structured so as not to affect any future applications for Medicaid. Medicaid can look back five years from the date of an application so it is important to do any relevant estate planning well in advance.

An irrevocable trust must be established prior to the five-year look-back period to avoid any penalty. Additionally, the beneficiaries of the trust cannot be the party needing care or their spouse. The children can be named as beneficiaries with the hope that they would utilize the assets to assist their parents as needed. This does come with some risk as the trust cannot specifically limit the children in this manner so the children would need to be trustworthy. It can also be problematic if the party is subsequently released from care and now needs to support themselves again. You should consult with an experienced estate planning attorney regarding the best options for your circumstances.

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Stock Options as Income

Stock benefits are often given to employees as part of their compensation or as an incentive to remain with the company. One of the factors to consider when dealing with stock benefits is whether the benefits are vested or not. Vesting is when all restrictions on the exercise of stock benefits are lifted. Each employer may have different rules on how long it takes benefits to vest. It is important to review the grant documents for the benefits to understand how they work and when they will vest.

The value of stock on its vesting date can be considered income to the employee. Any appreciation after vesting is capital gain. Any subsequent exercise of stock benefits is taxable. Tax consequences may be reflected on the employee’s W-2 or the employee may need to report the receipt of income from stock options separately. The Pennsylvania Superior Court addressed stock options as income in Murphy v. McDermott. However, the court also noted that a one-time exercise of stock options should not be imputed for future years. The court may impute the value of unexercised stock options to the employee if they are available for exercise. A good family law practitioner should be able to identify all possible sources of income for each case.

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Military Retired Pay vs. Disability Pay

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Military retired pay is a divisible asset in the context of a divorce matter. For marriages of at least ten (10) years, military retired pay can be divided through DFAS such that each party receives their share of that benefit directly. For marriages of less than ten (10) years, the service member would be responsible to make sure the spouse received the correct amount of the benefit. Disability pay is not a divisible asset. The amount of disability pay is based on the extent of the service member’s disability rating. Service members used to have to reduce their retired pay by the amount of any disability pay they elected to receive. This could result in the spouse of the member being shorted.

Now, concurrent retirement and disability pay is permissible. This benefits the service member in that they can receive both benefits. It also protects spouses since retirement pay which they can be awarded will not be reduced. The Howell case discussed the post-divorce waiver of military retired pay in exchange for disability pay. It held that the courts can not intervene and the spouse could lose out on all retired pay if a service member subsequently elected disability pay instead. To protect spouses, it is important to reserve jurisdiction to deal with possible post-divorce issues. Alimony may be used as an alternative method for making sure the spouse still receives a certain amount per month as initially contemplated in division of the retirement pay.

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Allocation of Support

Allocation is the identification of separate portions of a support award where a party receives both child support and some form of spousal support simultaneously. Child support and alimony payments have different tax consequences. Child support is not tax deductible by the payor or taxed as income to the payee. The exact opposite is true of alimony. Alimony can be claimed as a tax deduction for the payor and must be claimed as income by the payee. Parties can reach a mutual agreement to allocate a support award however they see fit. Where support is calculated pursuant to the guidelines, the Order will spell out what portion of the support award is child support versus what portion of the support award is alimony.

Child support is payable to the custodial parent until the child is 18 or graduates high school, whichever is later. Child support is subject to modification based on a change in circumstances such as different income for the parents, different expenses for the child or a different custody schedule. Alimony is support paid to an ex-spouse following the divorce decree. The amount of alimony is largely based on the incomes of the parties but may also be affected by the distribution of the other assets, if any. Unless otherwise stated by agreement, alimony may be subsequently modified due the changed circumstances of either party. The changes must be substantial and of a continuing nature. As previously alluded to, an alimony provision within an agreement between the parties may not be modified in the absence of a specific provision allowing such a modification within the agreement.

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Wills for Heroes

Wills for Heroes is a program in conjunction with the Pennsylvania Bar Association that provides free wills, living wills, and powers of attorney to first responders and their spouses/significant others. Proof of military or public service affiliation is required. Appointments are required and can be made on the Pennsylvania Bar Association website. Each appointment is for one hour. At the conclusion of the appointment, each participant will have their final, notarized documents to take home with them. If a spouse or significant other is also participating, their appointment will be immediately following that of the first responder. The program is made possible through the time of volunteers including attorneys, reviewers and witnesses.

Montgomery County has a “Wills for Heroes” event coming up on Saturday, December 9, 2017.

The event is being held at Arcadia University. Their address is 450 S. Easton Road, Glenside, PA 19038. For more information and events at other locations throughout the state, you can visit www.pabar.org/wfh/. Our firm is also able to assist with estate planning documents at a reasonable cost including trusts, wills, living wills and powers of attorney. Please contact our office if you would like additional information or to set up an appointment.

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Survivor Benefit Plan

Survivor benefits refer to the benefit that can be paid to the selected beneficiary following the death of the employee. This type of benefit is available in the context of a military pension plan. A survivor benefit is a marital asset that should be addressed in the context of a divorce. It is a separate asset than the pension itself such that a spouse could receive a portion of the actual pension as well as the survivor benefit. The participant spouse must elect a survivor benefit plan at the time of retirement. This is because there is a cost for the survivor benefit plan which is paid through a reduction of the base amount for the benefit. Presently, there is a cost of 6.5% the base pay to elect a survivor benefit plan.

The benefit payable to the survivor is 55% of the base amount of the participant’s retired pay for the lifetime of the survivor. The survivor benefit is non-divisible. This is important to keep in mind if the service member has been married more than once since a former spouse and a current spouse cannot both receive the benefit. If a former spouse is to receive the benefit, they should submit an application within one year of the divorce. If a former spouse dies before the service member, there is an automatic reversion of their survivor benefits to the military member.

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