Vanishing Credit

The court may give credit for individual property brought into the marriage depending on the circumstances. 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.

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. Be careful with the commingling of individual property with marital property. It will be hard to make an argument on the amount of individual property that should be credited to a party if it’s hard to trace the source of the funds. If you encounter a situation in your divorce where it may be necessary to make a distinction between assets that are clearly marital versus those that you can trace back as being pre-marital and/or separate, you should be sure to consult with an attorney with experience in the valuation of these type of assets or risk all of the assets being addressed in equitable distribution and subject to division with your spouse.

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Disability Pension

Pensions are generally considered marital property and subject to distribution at the time of divorce. The pension may need to be appraised to determine the marital value of the pension, specifically in an instance where the party began accruing the benefits prior to the marriage or the parties were separated for numerous years before a divorce action was commenced. There are also retirement benefits that are excluded from equitable distribution. For example, under 23 Pa. C.S. 3501(a)(6), veterans’ benefits are excluded from equitable distribution.

Other disability benefits besides veterans’ benefits may also be excluded from equitable distribution. The key is to consider the purpose of the benefit and whether it is being used to compensate for lost income. In other words, if the purpose of the benefits is to provide earnings in lieu of what the recipient would’ve made were they still able to work, those benefits will not be subject to distribution. If, however, a portion of the benefit also includes standard retirement benefits, the portion representing retirement benefits will still be subject to distribution.

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Factors in Equitable Distribution

Equitable distribution is the term used in Pennsylvania referring to division of marital property at the time of divorce. Marital property will consist of nearly everything acquired in either party’s name from the date of marriage through to the date of separation. Equitable distribution does not necessarily mean a 50/50 split of all marital property. Instead, the statute on equitable distribution sets out 13 factors to be considered. Those factors are listed in 23 Pa C.S. 3502 and include the following:

(1) Length of the marriage; (2) Any prior marriage of either party; (3) Age, health, station, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties; (4) Contribution by one party to the education, training or increased earning capacity of the other party; (5) Opportunity of each party for future acquisitions of capital assets and income; (6) Sources of income of both parties, including but not limited to, medical, retirement, insurance or other benefits; (7) The contribution or dissipation of each party in the acquisition, preservation, depreciation or appreciation of the marital property, including the contribution of a party as a homemaker; (8) Value of the property set apart to each party

(9) Standard of living of the parties established during the marriage; (10) Economic circumstances of each party at the time the division of property is to become effective; (10.1) Federal, State and local tax ramifications associated with each asset to be divided, distributed or assigned, which ramifications need not be immediate and certain; (10.2) Expense of sale, transfer or liquidation associated with a particular asset, which expenses need not be immediate and certain; (11) Whether the party will be serving as the custodian of any dependent minor children

The remainder of 23 Pa C.S. 3502 goes on to discuss the courts powers relating to who can reside in the marital home pending the divorce, maintaining life insurance policies, interim partial distributions, and enforcement powers in the event of contempt of a court order on equitable distribution. Parties should keep these factors in mind when fashioning a settlement agreement of their own. If the parties have to go to court for equitable distribution, they will be required to submit a statement beforehand laying out what they allege is the marital property at issue, how the factors listed affect their case, and what they are ultimately seeking as an “equitable” distribution.

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Qualified Domestic Relations Order

A qualified domestic relations order, or QDRO for short, is a document often used in the context of splitting assets in a divorce to rollover a portion of one party’s retirement plan/benefit to the other party. QDROs are frequently utilized when pensions, 401ks and other retirement benefits have been classified as marital in nature and therefore up for distribution at the end of the marriage. The benefit of a QDRO is that it allows a tax-free transfer of the funds from one party to their new or soon-to-be ex-spouse. The receiving spouse would then be taxed as they withdraw the money as the tax laws provide. The exact nuances of how the plan/benefit is split and what options are available will vary based on the type of plan. For example, it may be that the party receiving a benefit as a result of a QDRO, often termed the alternate payee, cannot begin to do so until the initial participant in the plan begins to do so. The receiving party may or may not be able to designate an alternate successor if they die before the benefits begin to pay out. Or, the plan may provide the receiving party can only designate a survivor beneficiary that would be able to receive the balance of their portion of the benefit if they have started receiving the benefit before they die. The receiving party’s benefit may or may not be affected by the death of the initial participant or his/her early withdrawal penalty, if applicable.

It is always advisable to review the procedures for the specific plan you may need distributed to understand what their rules and policies are when it comes to splitting a participant’s benefits via QDRO in the context of a divorce. You will also likely benefit from having an attorney review the terms of the QDRO as well before signing off on it and submitting it to the plan. Finally, most plans have very specific requirements as far as how the language of the QDRO is to be worded in order for it to be accepted and processed. At a minimum, a QDRO should identify the parties, the plan at issue, and the amount going to the receiving party either as a lump sum or a percentage of the total benefit. It is wise to enlist the services of a company that routinely drafts QDROs to ensure the language is correct and all requirements are met.

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Hidden Assets in Divorce

Often in the context of divorce parties may attempt to hide assets in an attempt to keep them out of the marital estate that will be up for distribution. One of the biggest red flags as far as potential hidden assets is if the spending/assets of the party are way more than would be expected based on their reported income. A party who has a small business and deals in cash can easily hide money. It may become necessary to hire an expert to analyze the income flow and see if their reported income is correct after a thorough investigation. Top level executives may receive alternative forms of income. Examples include stock options, bonuses, car allowances, and deferred compensation plans to name a few. Military members also often have a compensation package that goes beyond their base salary. It is important to obtainformation on all benefits of employment so they can be either be included as income in a potential support calculation or treated as an asset subject to distribution. Another potential problem as far as hidden assets is offshore accounts. Many offshore banks have confidentiality provisions that deflect detection. Parties should also be weary of the other party transferring assets over to family members or friends.

The first step in tracking down assets, hidden or otherwise, is discovery. Discovery in family matters typically consists of interrogatories (set of questions to the opposing party) and a production request (requesting certain documents be turned over). Tax returns and bank statements are routinely requested and are good starting points for tracing sources of income as well as where the income is going. From a tax return you can see rental income, interest on bank accounts, dividends on stock, etc. Bank statements can show the transfer of money and identify where it went to and for what purpose. Parties in a divorce may also conduct depositions wherein they question a party under oath. Further, the parties can subpoena documents directly from the custodian of the documents if the spouse will not turn them over. If these initial avenues of discovery do not yield the desired results, a party will have to contemplate whether it is worth to invest more money in the chase for hidden assets. Additionally, if a party anticipates that hiding or dissipating assets may become a problem during the pendency of the divorce, it is important to get a court injunction right away preventing the dissipation or transfer of any marital assets.

For more information visit /Family-Law-Divorce/Division-of-Marital-Property/

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