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.

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Spousal Support

Section 4321 of the Domestic Relations laws provides that married persons are liable for the support of each other according to their respective abilities to provide support as provided by law. Similar to child support, spousal support will be calculated based on a statewide guideline. Without children, spousal support is 40% of the difference of the net incomes of the parties. If there is also a child support order, spousal support will only be 30% of the difference of the net incomes.

One longstanding exception to the duty to pay spousal support is where the spouse seeking support has engaged in conduct that would constitute grounds for a fault-based divorce. The fault grounds under the Pennsylvania Divorce Code include: (1) willful and malicious desertion without reasonable cause for at least one year; (2) adultery; (3) cruel and barbarous treatment of an injured and innocent spouse; (4) bigamy; (5) imprisonment for at least two years after conviction of a crime; and (6) indignities to the innocent and injured spouse which makes that spouse’s condition intolerable and life burdensome.

Many cases have touched on the issue of whether spousal support is appropriate due to alleged existence of another relationship outside of the marriage. It is up to the spouse who is objecting to a spousal support award to prove a fault ground for divorce by clear and convincing evidence. Adultery is defined as voluntary sexual intercourse with a person other than his/her spouse. Alternatively, indignities may be established even when the evidence does not necessarily support adultery. “Indignities may consist of vulgarity, unmerited reproach, habitual contumely, studied neglect, intentional incivility, manifest disdain, abusive language, malignant ridicule, and every other plain manifestation of settled hate and estrangement.” A single act by a spouse will not support a finding of indignities. Instead, it must be a course of conduct that renders the life of the innocent party intolerable or burdensome.

Conduct which takes place after separation is generally not relevant, however, such conduct may be introduced if it will go to show the conduct began before separation. In one case, the evidence supported that Wife had not started dating someone new until three days after the divorce complaint was filed. Accordingly, the award for spousal support was appropriate because of the post-separation nature of the relationship. In a different case, the support award was upheld despite Wife’s conduct before separation. The evidence supported Wife’s contention that her relationship with a certain man other than her husband was strictly platonic. Even though she had been spotted with the man several times, there was no evidence that anything that would support fault grounds for divorce had occurred. In the same case, Husband also alleged desertion as a reason why he should not have to pay spousal support. This defense was overcome as well since Wife’s absence from the marital home was justified based on Husband’s emotional abuse. In most cases, there will not be a problem obtaining spousal support, however, parties should be careful of the timing of new relationships.

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Contempt for Non-Payment of Support

In Warmkessel v. Heffner, 2011 PA Super 46, the Superior Court held that credit will not be given for time already spent in jail between being taking into custody and the support hearing due to non-payment of child support. The Defendant Father had been ordered to pay $260 per month in child support for his two children. After failing to pay regularly, several contempt petitions and a missed support enforcement hearing, the court issued a bench warrant for Father’s arrest. Police took the Father into custody a few months later and a hearing was scheduled for approximately 3 weeks out. At the hearing, the court found Defendant Father owed $6,037 in late child support payments and sanctioned him to a maximum of 3 months imprisonment. Defendant Father’s attorney asked the court to give Father credit for the 21 days already served and the court declined.

On appeal, the Defendant argued, among other things, that the purpose of incarceration as a sanction is meant to coerce parents to timely pay child support. Accordingly, the Defendant posits the time spent incarcerated based on the bench warrant issued by the family court was indistinguishable from the time incarcerated after the hearing in that the Defendant was able to reflect on the necessity to pay support in both circumstances. Defendant further argued that criminal defendants always receive credit for time served so the court violated his equal protection rights by treating him differently solely based on the civil nature of his case. The Superior Court determined that Defendant Father’s arguments on appeal were without merit and upheld the trial court’s decision.

The takeaway here is that child support obligations are a very serious matter. The family court has the authority to issue a bench warrant to have a party who is not making support payments taken into custody. Additionally, the court can order additional incarceration at a subsequent support hearing as a means of reiterating the importance of regular support payments and demonstrating the severity of the punishment available for failure to comply.

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Division of Pensions in Divorce

Pensions, as well as other retirement plans, are often one of the assets up for division in a divorce. 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. 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 Superior Court recently released a decision regarding the marital status of post-separation cost of living adjustments (COLAs). In MacDougall v. MacDougall, 2012 PA Super 83, the Superior Court held that Husband’s post-separation COLAs were marital property subject to equitable distribution because they accrued without any effort or contribution by Husband. Wife had filed a Petition for Contempt after discovering that Husband’s monthly pension benefit had continued to increase due to COLAs but he was still only paying her a percentage of the monthly benefit from the date of separation. The trial court ruled in favor of the Husband in finding the post-separation COLAs were not marital, however, the Superior Court reversed their decision.

In reaching its decision, the Superior Court analyzed several previous decisions regarding post-separation increases in pension plans. Most notably, in Berrington v. Berrington, 534 Pa. 393 (1993), the Pennsylvania Supreme Court held that increases in a pension plan due to the employee spouse’s own efforts or contributions are not marital whereas increases not attributable to the employee spouse are marital. In MacDougall, the Superior Court determined the increases based on COLAs were automatic and not dependent on any additional effort or contribution by Husband, thus the COLAs were marital and subject to division. Therefore, the Superior Court held Wife’s share of Husband’s pension should also increase to reflect the COLAs. The case was remanded to the trial court in order for exact calculations to be made as far as Wife’s share of the pension with the COLAs included. This approach is arguably more fair in that it doesn’t allow one spouse to benefit from an increase that wasn’t earned and that the parties likely did not know about at the time of equitable distribution.

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Embryos are Marital Property

Frozen embyros are considered marital property and hence, technically up for division in a divorce, however there is some disagreement on exactly how the “property” should be dealt with. This is a relatively new issue in family law and different states have applied different methods for resolving the matter. The Pennsylvania Superior Court recently released a decision regarding the marital status of frozen pre-embryos in Reber v. Reiss, 2012 PA Super 86. In Reber, the court had to determine what should happen to the frozen pre-embyros of a divorced couple. Wife wanted to use the frozen pre-embryos in order to have children of her own whereas Husband wanted the frozen pre-embryos either destroyed or donated for research.

In reaching its decision, the Superior Court considered how other states have dealt with a similar issue. Some states have focused on whether there is a prior agreement between the parties concerning disposition of the pre-embyros in the event of divorce and if so, will uphold the agreement as enforceable. At the same time, other states have held that enforcing such an agreement is a violation of public policy and have declined to do so. The Supreme Court of Iowa follows a mutual consent model requiring both parties to agree on disposition, however, the Superior Court of Pennsylvania did not find this model feasible since parties would not be in court in the first place if they could agree. The approach that was ultimately adopted calls for the court to balance the interests of the parties.

In applying the balancing approach, the court found that Wife’s interest in procreation using the frozen pre-embyros outweighed Husband’s interest against procreation. This decision was based primarily on evidence that the pre-embryos were likely Wife’s only opportunity to procreate along with testimony that Wife would allow Husband to be involved and wouldn’t pursue support in response to the concerns raised by Husband. The court did acknowledge that the party against procreation should normally prevail in a balancing test, however, due to the unique facts of the case, the scales tipped in Wife’s favor. It also seems that the court would’ve likely enforced an agreement on the issue if there had been one. Accordingly, parties who intend to undergo in vitro fertilization should draft a clear, unambiguous agreement as to the disposition of embryos upon separation, divorce or death, or else be subject to a balancing approach by the court.

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Two-Year Separation – Divorce

Most parties pursuing divorce will choose to proceed with no-fault grounds for divorce. A no-fault divorce simply means there has been an irretrievable breakdown of the marriage. There are two different ways to establish an irretrievable breakdown of the marriage under the Divorce Code. First, both parties may consent to the divorce after 90 days from when the complaint was filed and served. This is referred to as a 90-day mutual consent divorce. Alternatively, if one party won’t consent, the other party can move forward after the parties have been “separated” for two years. This is referred to as a 2-year separation divorce.

Separation does not mean the parties have to live separately. Many parties still reside in the same home but are considered to be “separate” based on the definition provided by the Divorce Code. Section 3103 of the Divorce Code defines “Separate and apart” as follows: “Cessation of cohabitation, whether living in the same residence or not. In the event a complaint in divorce is filed and served, it shall be presumed that the parties commenced to live separate and apart not later than the date that the complaint was served.”

Accordingly, the date the divorce complaint is filed will generally be accepted as the date of separation regardless of whether the parties continue to live together or not. However, the date of separation can be an even earlier date. For example, the date one party does move out of the marital home is usually a clear indication the marriage is over, and hence, an acceptable date of separation. Alternatively, even if the parties continue to reside together, a date of separation can be established when one party makes it clear to the other party that the marriage is over by stating so clearly or even reducing it to writing. The party alleging 2-year separation will have to submit an affidavit certifying the date of separation. The other party has an opportunity to object and a hearing may be held if necessary to determine the appropriate date of separation. Accordingly, be sure that the other party is keenly aware of your intended separation, especially if you will continue to reside together and/or hold off on filing for divorce.

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Basics of Child Support

Child support in Pennsylvania is based on statewide guidelines established by the Pennsylvania Supreme Court. The guidelines are intended to ensure that similarly situated parties are treated similarly. Accordingly, all parties making $3000 per month with 3 kids would pay the same amount of support based on the guideline amounts. The guidelines are based on an “Income Shares Model.” Accordingly, the guideline amount will be based on the combined net monthly income of both parties.

The amount of support reflected in the guidelines is based on the average expenditures of children for food, housing, transportation and other necessary miscellaneous items. The guidelines make financial support of children a top priority. Accordingly, outside of the basic needs of the party providing support, the child’s needs in terms of support come first. Pennsylvania has established a self-support reserve based on the federal poverty guidelines. The current self-support reserve is $867 and a guideline amount of support that would leave a party with less than this sum will not be upheld. Instead, the award of support would be modified to leave the party with at least $867 per month.

In sum, parties should understand child support is a serious obligation. There is not much room for argument as far as what amount of support is appropriate. There is a presumption, albeit rebuttable, that the amount of support indicated by the guidelines is the appropriate amount. Further, Pennsylvania does maintain that the support of children is a top priority and is often unwillingly to change the support number based on the financial hardship it may inflict on the party owing support outside of the self-support reserve.

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Role of Gender in Custody

Many parents who are considering custody litigation still assume or inquire as to a gender preference in custody. It is true that moms used to be the preferred custodians for minor children over dads. During the early twentieth century the custody laws of nearly all the states endorsed this view as well. There was a shared misconception that moms would be the better parents based on their natural nurturing instincts. This was especially true of young children or children of “tender years.” In fact, a legal principle termed the “tender years doctrine” called for mothers to have custody of children until they were at least approaching their teenage years.

However, at this point, there are no remaining custody laws that include a presumption in favor of one parent over the other based solely on gender. The Supreme Court of the United States found that the tender years doctrine was a violation of the Fourteenth amendment of the Constitution, providing for equal protection for all, since it impermissibly discriminated against men based on their gender. The tender years doctrine was replaced in most states with an analysis based on the best interests of the child. Pennsylvania is among the states that uses a best interest analysis and the statute discussing the factors to be considered under a best interests analysis is 23 Pa. C.S. 5328. So whether you are a mom or dad, your opportunity to receive custody is the same. It is important to become familiar with the relevant factors in a custody decision and determine which factors weigh in your favor in order to present a winning argument for custody.

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Common Law Marriage

Common law marriage could be established in Pennsylvania up until January 1, 2005. All common law marriages established before that date are recognized as valid marriages. In order to establish a common law marriage, the parties must have exchanged words of intent to be married and held themselves out to their community as being married. Often, the parties also lived together for some length of time. While this is not a requirement in and of itself, it plays into the couple having held themselves out as married. Once a common law marriage is established, it can only be resolved by divorce just as with any regular marriage. Pennsylvania is presently in a transition stage in that while no new common law marriages can be created, there are still inquiries into whether they were previously created and accordingly, how the ancillary issues should be handled, i.e. divorce versus civil suit.

Moser v. Renninger, 2012 PA Super 59 (2011) discusses the procedure and timing for establishing or denying common law marriage.

In Moser v. Renninger, Wife filed a divorce complaint on November 19, 2010 stating that her and Husband had entered into a valid common law marriage in 1985. Husband subsequently filed an Action for Declaratory Relief asking the court to declare that no common law marriage existed. After an evidentiary hearing on the matter the court held a common law marriage was in fact established on June 8, 1985. Husband immediately sought to appeal the court’s finding that common law marriage existed. Husband’s appeal was denied on the basis that it was premature. Because the issue of whether there was a common law marriage was raised in the context of the divorce, the court found that Husband could not file an appeal until the divorce matter is final. If, however, the issue of common law marriage had been addressed separately, an appeal following the decision would be appropriate as the entire matter would be concluded.

This method may be considered favorable in that it allows the entirety of the divorce to be resolved without the delay and disruption of an appeal. On the other hand, it may be a waste of the court’s time to resolve the divorce and all related issues if their ruling that the parties were in fact common law married is later overturned.

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Application of Custody Relocation Law

Section 5337 of the new custody laws sets out the procedures and standards for relocation requests. E.D. v. M.P., 2011 PA Super. 238, is one of the first cases to apply the new relocation law. In E.D. v. M.P., Mother appealed after the lower court granted Father’s relocation on the grounds that Father didn’t comply with the provisions of Sec. 5337 among other issues.

First, the Superior Court found that the new law did apply in this instance since Father filed his petition for special relief in the form of relocation on January 25, 2011 and the new law came into effect on January 24, 2011. Under the new law, the first error was Father’s filing of a petition and Mother’s filing of an answer. Under Sec. 5337 (c) regarding notice of relocation, the initial step procedurally is for the party requesting relocation to send notice to all other interested parties by certified mail, return receipt requested a certain number of days prior to the date set for relocation. Included with the notice should be a counter-affidavit that the opposing party can complete indicating whether or not they agree or disagree with the relocation and/or the modified schedule. If there is any opposition, a hearing will be needed. The counter-affidavit evidencing opposition should be filed with the court and served on the party requesting relocation in the same manner as received; by certified mail, return receipt requested. The next error relates to Sec. 5337 (g) which calls for a hearing to occur before relocation unless exigent circumstance exist. In E.D. v. M.P., the lower court granted Father’s request to relocate immediately without any finding or allegation of exigent circumstances.

Further, Sec. 5337(h) outlines the factors to be considered before a relocation is granted. Those factors include: (1) Nature, quality, extent of involvement and duration of child’s relationship with party proposing to relocate and with the non-relocating party, siblings and other significant persons in the child’s life; (2) Age, developmental stage, needs of the child and the likely impact the relocation will have on the child’s physical, educational and emotional development, taking into consideration any special needs of the child; (3) Feasibility of preserving the relationship between the nonrelocating party and the child through suitable custody arrangements, considering logistics and financial circumstance of the parties; (4) Child’s preference, taking into consideration the age and maturity of the child; (5) Whether there is an established pattern of conduct of either party to promote or thwart the relationship of the child and the other party; (6) Whether the relocation will enhance the general quality of life for the party seeking relocation, including, but not limited to, financial or emotional benefit or educational opportunity; (7) Whether the relocation will enhance the general quality of life for the child, including, but not limited to, financial or emotional benefit or educational opportunity; (8) The reasons and motivation of each party for seeking or opposing the relocation; (9) The present and past abuse committed by a party or member of the party’s household and whether there is a continued risk of harm to the child or an abused party; and (10) Any other factor affecting the best interest of the child. The party proposing relocation has the burden of establishing that the relocation will serve the best interests of the child. Each party has the burden of establishing the integrity of that party’s motives in either seeking the relocation or seeking to prevent it. The Superior Court agreed with Mother that the lower court failed to consider all the factors under Sec. 5337(h) in reaching its decision.

Ultimately, the case was remanded to the lower court for further proceedings applying the applicable laws. The decision indicates that the Superior Court will be diligent in scrutinizing decisions to determine if they have followed the provisions of the new law. This is true in relocation just as it is in standard custody decisions under Sec. 5328 of the custody laws.

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