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Dividing home equity in a Pennsylvania divorce as real estate rebounds

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Improvements in the housing market mean that more couples again have equity in their homes. Division of marital property is one of the challenges in any divorce. When a marital home will be too expensive or more than one spouse can maintain, selling the home is again becoming an option. The sale of a home can result in a sizable profit, but consider the tax consequences and timing of the sale.

In Pennsylvania, the court equitably divides property in a divorce action by reviewing certain factors including some of the following:

The duration of the marriage;
Age, health and sources of income available to each of the spouses;
Contributions or dissipation of assets made by each party; and
Whether there are any minor children.
Equitable division does not always mean an equal award of the equity in the home. If one of the spouses owned the home prior to the marriage or sold a previous home prior to the marriage to secure a down payment, part of the equity may be considered non marital. This means it would belong to the spouse that brought the asset to the marriage and would not be divided.

While a divorce is pending, the court can award one or both of the spouses the right to continue to live in the martial home. When it is not practical for either spouse to stay in the home, the spouse who lives in the home may need to list the home for sale.

TAX CONSEQUENCES OF THE SALE OF A PRINCIPAL RESIDENCE
When certain rules are met, the seller of a principal home can avoid paying federal income tax on up to $250,000 ($500,000 for a married joint-filing couple) of the gain in value. When a couple has owned a home for many years in an area that has appreciated this becomes very important.

The Internal Revenue Service test requires that the seller owned and used the property as a principal residence for two years during the five-year period preceding the sale. To pass the joint-filer test, both spouses must pass the use test and one must pass the ownership test.

This is very straightforward when the sale occurs before a finalized divorce decree or within the same year. The couple could file jointly for one more year and claim the $500,000 exclusion.

When a sale of the principal residence happens after the divorce and the court awards the home to one of the spouses, then that spouse may only be able to claim the $250,000 and will owe taxes on any additional gain from the sale.

When considering divorce, contact an experienced family law attorney. Advice at an early stage in the process often means avoiding costly mistakes down the road.

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Unearthing hidden assets: Signs your spouse may not be honest

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Some people going through a divorce in New Jersey may attempt to hide assets to prevent a spouse from receiving them in the split.

Any divorce in New Jersey presents a myriad of decisions that must be made: perhaps it has to do with how property may be divided or who will have custody of the children. Though the details of each case may differ, there is one constant: each party should be honest in disclosing any information that would be pertinent to making these decisions.

In fact, New Jersey laws require parties to complete and submit a “family case information statement” within a timeframe set by the court. The statement details family information, employment and income.

When it comes to property division, having a complete picture of each spouse’s assets is critical to ensuring the equitable distribution of those assets. Unfortunately, some people attempt to obscure items in an effort to prevent the loss of them. Here are some signs that this may be occurring:

Large purchases

Cash tends to be king, as it has a concrete value and is easily divided. However, cash is easily spent. When one spouse starts making large purchases – such as with expensive artwork, cars or taking big trips – it may be in an effort to prevent the other spouse from getting that cash. In other words, the cash is being converted into physical assets – and the spouse could even attempt to underreport the actual value of those assets.

Another way to minimize the amount of cash available in a divorce is to overpay a credit card or other debt. Perhaps one spouse decides to start putting extra money into the house payment. Sometimes, people create “fake” debts, such as money owed to a friend, in order to “pay off” the debt so the person essentially holds on to the cash until the divorce is final. This should raise a red flag.

Questionable statements

It is always critical to monitor statements from credit card companies and investments. But what happens if those statements suddenly go missing? Or perhaps have unexpected transactions on them? It could indicate that a spouse is trying to keep his or her other half from accessing assets.

People going through a divorce should also keep an eye out for new statements from banks or credit card companies that may be new. While it is not illegal for someone to open a new account during this time, it is essential that they disclose that information during the divorce proceedings.

Underreported income

Even with the financial disclosure statement is submitted, both parties should thoroughly review it for accuracy. Some people may try to underreport what they make. Though a W-2 or other tax form could easily dispute this, it is not always as easy with people who are paid in cash.

Uncovering assets

Fortunately, with a little work, these hidden assets may be uncovered. Experts suggest hiring a forensic accountant or other specialist who can do a deep dive into a couple’s assets. This process may require providing names, addresses and Social Security numbers of family members.

Anyone who has concerns about this issue should speak with a family law attorney in New Jersey.

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Unearthing hidden assets: Signs your spouse may not be honest

,

Some people going through a divorce in New Jersey may attempt to hide assets to prevent a spouse from receiving them in the split.

Any divorce in New Jersey presents a myriad of decisions that must be made: perhaps it has to do with how property may be divided or who will have custody of the children. Though the details of each case may differ, there is one constant: each party should be honest in disclosing any information that would be pertinent to making these decisions.

In fact, New Jersey laws require parties to complete and submit a “family case information statement” within a timeframe set by the court. The statement details family information, employment and income.

When it comes to property division, having a complete picture of each spouse’s assets is critical to ensuring the equitable distribution of those assets. Unfortunately, some people attempt to obscure items in an effort to prevent the loss of them. Here are some signs that this may be occurring:

Large purchases

Cash tends to be king, as it has a concrete value and is easily divided. However, cash is easily spent. When one spouse starts making large purchases – such as with expensive artwork, cars or taking big trips – it may be in an effort to prevent the other spouse from getting that cash. In other words, the cash is being converted into physical assets – and the spouse could even attempt to underreport the actual value of those assets.

Another way to minimize the amount of cash available in a divorce is to overpay a credit card or other debt. Perhaps one spouse decides to start putting extra money into the house payment. Sometimes, people create “fake” debts, such as money owed to a friend, in order to “pay off” the debt so the person essentially holds on to the cash until the divorce is final. This should raise a red flag.

Questionable statements

It is always critical to monitor statements from credit card companies and investments. But what happens if those statements suddenly go missing? Or perhaps have unexpected transactions on them? It could indicate that a spouse is trying to keep his or her other half from accessing assets.

People going through a divorce should also keep an eye out for new statements from banks or credit card companies that may be new. While it is not illegal for someone to open a new account during this time, it is essential that they disclose that information during the divorce proceedings.

Underreported income

Even with the financial disclosure statement is submitted, both parties should thoroughly review it for accuracy. Some people may try to underreport what they make. Though a W-2 or other tax form could easily dispute this, it is not always as easy with people who are paid in cash.

Uncovering assets

Fortunately, with a little work, these hidden assets may be uncovered. Experts suggest hiring a forensic accountant or other specialist who can do a deep dive into a couple’s assets. This process may require providing names, addresses and Social Security numbers of family members.

Anyone who has concerns about this issue should speak with a family law attorney in New Jersey.

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Why do I need a prenup for a remarriage?

Prenuptial agreements offer blended families a way of estate planning as well as protecting spouses in the event of a future divorce.

Anyone in Pennsylvania who has been prematurely widowed or divorced at least once knows that sometimes a marriage does not last as long as originally hoped or planned. Many people choose to get remarried and often question whether they need a prenuptial agreement for various reasons.

The American Academy of Matrimonial Lawyers noted in a 2016 survey that the prior three years had seen a jump in the number of prenups created.

Protection in the event of another divorce

The possibility of a divorce always exists and that can spell financial disaster for some. In addition to salvaging some assets, U.S. News and World Report notes that a prenup might even help protect one spouse from getting stuck with the other person’s debt.

Many people go into second or third marriages with children (or grandchildren) from previous relationships whom the parents or grandparents want to protect financially in case remarriage ends in divorce.

In divorce, separate property that belongs only to one spouse because he or she owned it prior to the marriage or received it as a gift or inheritance that continues to be held in that person’s name alone normally remains the property of that spouse, however, the increase in value becomes marital. This can be sheltered by a prenuptial agreement so that the increase in value can also be protected. Marital property, meaning assets accumulated during marriage by either spouse or by them jointly, is divided equitably or fairly in divorce unless a prenuptial agreement determines what assets are distributed and in what percentage. A prenuptial agreement also may be used to determine the level of spousal support or alimony or if there is a payment at all to the other spouse.

In a prenuptial agreement, the parent of a child from a prior relationship could negotiate that part of future marital property go to that child. For example, the parent might want to direct the marital part of his or her retirement accounts or part of the equity in other accounts or assets go to support or benefit the child, rather than becoming part of the marital property subject to division.

If the child has disabilities, the parent might want certain assets of the marriage to go into a special needs trust to protect the child’s future.

A prenuptial agreement entered into before the marriage can set forth the course of what will happen in a divorce and eliminate doubts on motives of the spouse.

Lifestyle provisions

Trying to include some lifestyle provisions might not be reasonable, such as how one spouse should wear their hair. Other matters may well be included in a marital contract. According to Time, use of social media is a topic often referenced in these documents nowadays to prevent one person from publicly humiliating or denigrating the other during or after a divorce.

A prenuptial agreement might also designate who will get the family’s pets if the couple divorces.

Estate planning assistance

Fidelity Investments explains that a prenuptial agreement can aid in a couple’s estate planning, especially when one or both spouses has children from prior marriages.

People may understandably want to take care of their spouses after they die. They also might want to make sure that their children or grandchildren from previous relationships receive certain assets or family heirlooms.

With no prenup directing assets to people outside the marriage, a spouse might automatically inherit certain assets when the other person dies even if there is a will in place as a spouse can elect to take against a will. The surviving spouse could live for quite some time longer in which case there may be little to nothing left of the estate to pass on to the deceased spouse’s children. The surviving spouse might also leave remaining assets to their biological children only and not the children of the spouse who died first. A prenuptial agreement can be used to waive that elective share and allow the will to control in the event of death.

Family businesses

Oftentimes there may be a family business that a spouse wishes to keep separate in the event of death or divorce. The spouse and his or her family may desire to keep the business intact and in the hands of family members or other owners or to avoid expensive and intrusive evaluations of their records. A prenuptial agreement can aid in easing the mind of other family members and creating a better family environment without the threats that may otherwise occur.

Otherwise, if the other spouse has an interest in the business in divorce or as an heir, the business might have to be sold or take on significant debt to pay the other spouse his or her share. In addition, if the business becomes embroiled in a court proceeding, the discovery process to determine its size, value and ownership can be expensive.

Legal assistance

Anyone contemplating remarriage should contact an experienced attorney prior to walking down the aisle for the second time. This will give him or her the insight of a professional to help make decisions about a prenuptial agreement. At a minimum, no potential spouse should sign a prenup before talking to a lawyer about its implications.

The family lawyers at Karen Ann Ulmer, P.C, represent people approaching remarriage in Eastern Pennsylvania and New Jersey, including providing advice about, reviewing, drafting and negotiating prenuptial agreements. The are available for consultations by phone prior to coming in to the office to determine if you would benefit from a prenuptial agreement.

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Marital vs. Non-Marital Property

When most people think of property, they think only of assets, but debts are also considered property for the purpose of a divorce settlement. In order to divide assets and debts between the spouses, a thorough listing and determination of status is needed. That status can be marital, non-marital, or a combination of the two.

If the couple cannot decide on the division of property, a judge will do so. Pennsylvania and New Jersey are Equitable Distribution states, which means the judge divides the marital property based on what he or she considers fair. The criteria can include earnings of each spouse, length of marriage, health of the spouses, and minor children.

Marital Property – Marital property will be the bulk of your property. A partial list includes:

 

  • Assets acquired or debts incurred during the marriage
  • Gifts from one spouse to the other
  • Benefits from retirement accounts, pension, insurance plans, etc.
  • Benefits from reward programs, such as frequent flyers, etc.
  • Electronic online storage or entertainment (iCloud, iTunes, Netflix, etc.)

A recent blog provides a list of shared accounts to include when listing your assets.

Non-Marital Property – The list of possible non-marital property is short. It includes:

 

  • Assets acquired or debts incurred prior to the marriage
  • Inheritance
  • Gifts received from someone other than the spouse
  • Assets (or liabilities) with a written agreement clearly stating the property is non-marital

When Non-Marital Can Also Be Marital Property

Things are not always as they seem, and just because a spouse had property before marriage doesn’t mean it will remain entirely non-marital property. Here are just a few possible scenarios for each of the types of non-marital property:

 

  • Asset: If one spouse owned the house or a business before marriage, but both spouses worked to pay off the mortgage or grow the business, a portion of the value of the house or business would be considered marital property.
  • Debt: If one spouse incurred student loans before marriage, but the education led to a lucrative job that benefited both spouses, a portion of the debt could be considered marital property.
  • Inheritance or gift: If an inheritance or gift was used to upgrade the family home or purchase property that would generate income for the family, the clear intention was to treat the inheritance as a marital asset.

How to Protect Non-Marital Property

If you want to protect your non-marital property, you can arrange a prenuptial agreement. Such agreements can also be drawn up after marriage, designating specific assets or liabilities that both parties wish to be considered non-marital. These agreements can be challenged if subsequent use of the property suggests marital use, as described above, but the challenging party would have to provide a very strong case to overturn a written agreement.

Division of marital property is best resolved with a professional who is experienced in helping couples come to equitable and amicable agreements. Such an agreement will avoid giving a judge the power to decide for you.

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Divorcing and Preserving the Proceeds from the House Sale

If you are getting divorced and need to sell your house as part of the divorce process, it is important to keep your attorney informed. Oftentimes when you go to settlement, if you do not have an agreement in place, the proceeds will be split equally. As part of the divorce process, you can obtain a court order either through an agreement with the other spouse or through the court that preserves your proceeds until such time that an agreement on divorce is reached. In Pennsylvania, assets are distributed equitably, not equally. Usually the spouse who earns less money at the time of the divorce receives more than half the overall assets, although there are many factors that determine equitable distribution. If the parties can agree, it may be best to distribute equally that portion of the proceeds that are not in dispute and only hold the amount disputed in escrow or in joint names requiring two signatures. You should have this agreement or court order put in place prior to closing and if possible, prior to signing your agreement of sale.

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

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Date of Separation in a Divorce

When you get divorced in PA, the date of your separation is no later than the date that a divorce is filed. It can be earlier but the burden will upon the party seeking an earlier date to establish it with evidence should the other spouse contest it. The date of separation is an important date when it comes to determining what is an asset and what is a debt. Assets and debts accumulated up until the date are marital. This means if you file for divorce or separate you will want to know what the balances are on your debt at that time. It does not matter whose name the debt or asset is in. If your spouse has credit cards, even if you did not know about them during the marriage and they can produce statements showing a credit card balance on the date of separation, it gets included. If you think your retirement is your own, again you will be mistaken. Retirement assets up until the date of separation are marital assets even if they are only in one person’s name. There are exceptions on some assets that are passive such as a house where the value is determined as of the date of distribution. Much money and time is spent in a divorce figuring out what the assets and debts are and what the balances are. It is a good idea to keep records, when you marry, when you separate and each month after you separate. It will save much time and much money to stay organized.

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Putative Spouse Doctrine

The putative spouse doctrine provides an equitable remedy where one or both spouses believed in good faith they were married and subsequently discovered the marriage wasn’t valid. The spouse that is unaware of any impediment to the marriage is the putative spouse. The equitable remedy provided more or less mirrors the relief that would be available if the parties were divorcing from a valid marriage. The purpose of the doctrine is to protect those who have an honest belief that they are married from being denied the economic and/or status related benefits of marriage including potential property division and support.

The doctrine is recognized in many states across the country as long as the key elements are met. First, there must be a proper marriage ceremony. Second, one or both parties must have a good faith belief the marriage is valid. Good faith is defined as an honest and reasonable belief. If either spouse receives information concerning the validity of the marriage, they have a duty to investigate further.

Click here to read more on division of property.

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