Workers Compensation Awards

Pennsylvania law does recognize workers’ compensation awards as marital property subject distribution in a divorce action. In order for the award to be classified as marital, the underlying injury creating the eligibility for workers’ compensation must have occurred during the marriage. Pennsylvania generally utilizes the timing of the receipt of assets for identifying marital property. The court still has the discretion to consider the purpose of the award and other equitable considerations when determining what percentage should go to each spouse in distributing the marital estate.

Drake v. Drake, 725 A.2d 717 (1999), is one of the cases that explains Pennsylvania’s stance on workers’ compensation awards. In the opinion, the court rejects the analytic approach which only allows an award to be marital if it’s intended to replace lost wages during the marriage. It disagreed with the other approach which is to classify an award as separate property if it is intended to replace future lost earnings extending beyond the end of the marriage. In Drake, Husband had sustained an injury in 1985. By 1989 he had entered an agreement with his employer to receive a lump sum commutation award. The parties did not separate until 1993. The court held that surely the right to receive the award had accrued during the marriage and was accordingly, marital property subject to equitable distribution.

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Vanishing Credit

In certain circumstances, the court may give credit for separate property brought into the marriage. Generally, any credit to be received decreases with the length of the marriage. For example, Bucks County will reduce the credit by 5% a year such that there is no longer a credit after 20 years. A prime example of a situation where this rule would be applicable is the purchase of a marital home. Say Spouse A contributed $40,000 of their pre-marital money to the purchase of the house. If the parties separated after 5 years, the amount of Spouse A’s individual contribution is reduced by 25%. Accordingly, Spouse A would argue that 75% of the $40,000 down payment, or $30,000, is their separate property and not subject to equitable distribution in the divorce. Chester County may apply a vanishing credit over the course of 10 years such that the credit vanishes in 10% increments.

The rules on credit for individual or pre-marital property can vary county to county since it’s not a statute, but more or less a policy used by the respective Masters when looking at the marital estate in a divorce matter. It is important to be familiar with the policy in the county where you are pursuing a divorce. Another practice tip is to avoid mixing individual property with marital property. It will be very difficult to make an argument on the amount of individual property that should be credited to a party if it’s impossible to trace the source of the funds. An experienced family law attorney can help you navigate these issues.

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Treatment of Pensions in Divorce

Pensions are subject to division in a divorce to the extent one of the parties earned the pension benefit during the marriage. The court will equitably divide the marital portion of a pension plan after considering all the relevant factors in equitable distribution. The marital portion of a plan would be the portion that accrued from the date of marriage through the date of separation. An entire pension will be marital if the parties were married the entire time a party earned benefits under the pension. In other cases, a coverture fraction is applied based on the total years of service compared to the number of years of marriage. Pensions are often a deferred distribution asset meaning that each party will receive their share at retirement age of the participant. There is the option to do an immediate offset of the marital portion of the pension if there are other assets of comparable value.

In a deferred distribution scenario, post-separation increases in the pension plan might also be allocated between the parties. An example would include post-separation cost of living increases. Since this increase in the benefit is not due to the effort or contribution of a party the courts feel it should be shared. Increases in the benefit due to the effort or contribution of the party or their employer post-separation will be non-marital. This treatment of post-separation increases has been addressed in several cases including MacDougall v. MacDougall, 2012 PA Super 83 and

Berrington v. Berrington, 534 Pa. 393 (1993).

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Inherited Assets

The receipt of an inheritance may impact your divorce or support case. Section 3501 of the Divorce Code defines what will be considered marital property, and up for division, versus what will be considered non-marital property. 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 be classified as non-marital property. A problem is created if the party who receives the inheritance places the funds into a joint account and/or commingles with other funds properly classified as marital. In that scenario, it can be difficult, if not impossible, to trace which funds were from the inheritance versus which funds were marital when trying to figure out equitable distribution at some later date. As a practical tip, parties should avoid commingling inheritance funds with other marital funds. Inheritance funds should still to be disclosed in a divorce action since the separate assets of the party are a factor for equitable distribution under 23 Pa. C.S. 3502.

As it relates to support matters, money received by way of an inheritance is not to be considered income. 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 lists factors for the court to consider for possible deviation from a guideline support obligation. One of the factors the court may consider is the assets and liabilities of the parties, including inherited assets. 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 as income.

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Steps in Equitable Distribution

Equitable distribution is the term used in Pennsylvania as it relates to division of marital property in a divorce. Marital property will consist of nearly everything acquired in either party’s name from the date of marriage through the date of separation. Equitable distribution does not mean an automatic 50/50 split of all marital property. Instead, the statute on equitable distribution sets out thirteen (13) factors to be considered when seeking to set percentages for distribution on a case-by-case basis. In any divorce involving equitable distribution, the parties should first identify all the property to be considered. Specifically, Pennsylvania Rule of Civil Procedure 1920.33 discusses the requirement of each party filing an Inventory. The Inventory should list all marital assets and debts at issue. An Inventory must be filed prior to requesting a hearing on equitable distribution.

The second part of Rule 1920.33 goes over the requirements for a pre-hearing statement. This statement is to be prepared when your case is ready to go to court on equitable distribution (i.e. after you have grounds for divorce). Again, you will need to list all marital assets and debts, however, you should also include more detailed information regarding the assets and debts such as their values or balances at date of separation and present. Corroborating documentation should be attached to the pre-hearing statement as exhibits. Appraisals may be needed to confirm the fair market value of real property or defined benefit retirement plans such as pensions. Pre-hearing statements should be filed at least sixty (60) days prior to a scheduled equitable distribution hearing. It is important to work with an experienced family law attorney when dealing with equitable distribution matters to ensure all marital property is identified and subsequently submitted to the court in a timely fashion.

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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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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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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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Changes to Military Retirement Benefits

Retirement benefits can be a substantial asset up for division in the context of a divorce action. The same is true in the case of military retirement benefits. There is a certain time requirement for service in order to be eligible for military retirement. Once this threshold is reached, a spouse is then entitled to their share of the military retirement benefits no matter how insignificant. Under the ten year rule, where the parties have been married for 10 years and the service member has accumulated 10 years of service, DFAS (Defense Finance and Accounting Services) can pay the spouse directly. When the ten year rule has not been met, the spouse can still receive a portion of the military retirement benefits however the service member will be responsible to pay the spouse themselves. A court can only award a division of a military pension if it has jurisdiction over the service member via residence, domicile or consent.

As of January 2018, the framework for military retirement benefits is changing. All new service members will automatically be enrolled into the blended retirement system which is a combination of the traditional military pension as well as a Thrift Savings Plan. Members with up to twelve years of service can elect to switch to the new blended retirement system. There is a new continuation pay option between years eight and twelve of service contingent on an additional three years of service and a new lump sum payment option. The new rules will also freeze members pay grade as of the time of divorce for use in calculating the marital portion of the pension. This will have the effect of reducing the share to the spouse.

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Pension Valuations

Pensions are often one of the assets up for division in a divorce. The marital portion of a pension plan may be divided amongst the parties. The marital portion of a plan would be the portion that accrued from the date of marriage through the date of separation. In some cases, the entire pension will be marital depending on the timing of the marriage alongside the start date of the pension plan. The marital portion will also include investment experience on the marital portion that accrues post-separation. It will not include contributions by the employee made post-separation. Parties can divide the marital portion of the plan by way of percentage or fixed dollar amount.

It is useful to get a pension valuation completed to identify the lump sum marital value of a pension. This can be particularly useful if the intent of the parties is to offset the value of the pension with other assets. For example, if Husband has a pension worth $200,000 and Wife wants to keep the house with equity of $200,000, the parties may agree Husband keeps the entire pension and Wife keeps the house as an equitable distribution. To arrive at the lump sum value of the marital portion of a pension, a coverture fraction calculation needs to be completed to account for the total years of marriage in the context of the total years of contribution to the plan applied to the total benefit available. The valuation also accounts for interest and mortality factors to arrive at the present value. An expert can be retained to complete this valuation.

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