Tag Archive for: equitable distribution

Dividing the Family Cars in a Divorce

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When couples begin the divorce process, all assets and liabilities need to be listed and valued in order to determine division between the spouses. Negotiation often involves one spouse being given certain assets in exchange for other assets of the same value – and greater need or emotional attachment are values along with cost that can be weighed in the negotiation process.

If a couple can settle out of court with the help of qualified divorce lawyers to ensure a fair and satisfying distribution between both parties, the couple maintains control over their own assets and their own preferences. However, if they cannot come to an agreement, the divorce must go to court and the division of assets is put into the hands of a judge.

Pennsylvania is an Equitable Distribution state, which means the judge does not necessarily divide property 50/50 but rather in a manner that seems fair. Therefore, when determining who gets what, including the vehicles, the judge will consider many factors.

Was the car owned and paid for completely before marriage by one spouse? It is almost assured that the owner will be awarded the car. Was the car purchased after marriage, but it’s in one spouse’s name and that spouse’s money was used to pay for the car or the loans? Chances are very likely that this spouse will receive the car, although other factors could come into play.

Who has greater need for the car? If there is only one car, who needs it to commute to work because there are no public transportation options available? If there are multiple cars, who needs the van to take the kids to school, or who needs the newer car for a long and difficult commute? All these individual factors weigh into the judge’s decision.

The car’s value is also taken into consideration. If the family has two vehicles and one is worth significantly more than the other, the judge will likely award the cars based on need, circumstances, and payment history, but may also award additional compensation to the spouse receiving the car with less value in order to balance the asset division.

If a car is awarded to you in a divorce settlement, be sure to change the title and owner immediately to yourself. If a balance is owed on a loan, the loan should be restructured or refinanced to have only your name on it.

Your divorce attorney will walk you through the many intricacies and details involved in the divorce process and starting over. Reach out to us here at Ulmer Law to see how we can help you.

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Issues When Dividing Vacation Properties in Divorce

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In Pennsylvania, if a divorcing couple cannot come to an agreement outside of court, all marital assets will be divided according to equitable distribution, which means, effectively, whatever the court thinks is appropriate after considering a number of factors. As long as both parties are reasonable, we encourage divorcing couples to avoid court so they can retain control of the division of their marital assets.

This is true for all assets, including vacation property. Even if the property was given to one spouse exclusively or purchased exclusively with one spouse’s income, and no family money was ever used to pay for its mortgage or upkeep, such property may be considered marital and will factor into the division of assets. Whether your divorce goes to court or not, you will probably have to decide what is to become of your vacation property.

Appraise the asset

Before you decide what to do with the property, you need to get an accurate appraisal of its market value. Also important is a complete listing of all costs associated with owning and maintaining the property: mortgage, interest, taxes, utilities, repairs, landscaping, and more.

With this clear, factual foundation, you can begin to evaluate the course of action that will best benefit the two of you and any children you have.

Decide your best option

Selling the property might be the easiest choice, allowing you to divide the funds received between you. It can be emotionally difficult to let go of a place where you may have created fond memories, but consider your need for liquid assets and the simplification of the process, which are important advantages to this option.

If you and your spouse are on reasonably good terms, you could choose to keep the property and divide its use. This is advantageous if children are involved, since they would still have the familiar vacation home to go to, providing them with much-needed security and continuity. But be sure to create a written document, signed by both of you, that will clearly delineate the times and seasons each will be using the home, the expenses each of you will be responsible for paying, and the dates those payments must be made. Your lawyer will be able to create a comprehensive document that will ensure that you both get good use out of the house without increasing tension.

You may also decide that one partner gets the family home and the other gets the vacation home. The complication here is in the valuation of each residence. If one house is worth significantly less, the spouse with the less expensive house can negotiate additional assets or benefits in order to balance the value of the two properties. However, if that house also has much lower expenses, the spouse with the more expensive home should insist that this benefit be factored into the negotiations.

 What about timeshares?

Treat a timeshare in the same manner you would treat a vacation home or vacation yacht or any other additional asset. First, get it appraised so you know what it is worth. Then, negotiate.

Get help

A seasoned divorce attorney can help you through all the nuanced legal and financial issues involved in divorce because we have helped many people through the process. Contact us here at Ulmer Law to see how we can help you, too.

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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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Student Loans and Your Divorce

Given the high cost of higher education, student loans carried by either or both spouses can weigh heavily on financial decisions and life choices. Often it can delay the purchase of a house or starting a family. This can cause a great deal of stress. It’s not surprising that 13% of divorced people say student loans were the major cause of their divorce.

But who pays the loans after you split? There’s no easy answer to this question. You might think that the spouse who got the loan pays for the loan, but there are many factors.

  • Was the loan incurred before or after marriage?  Here in Pennsylvania, loans acquired during a marriage will be considered marital property.
  • Did the other spouse supply support, such as delaying education, taking over additional responsibilities, or taking another job while the incurring spouse was in school?
  • Did the supporting spouse help pay down the debt already?
  • Was a degree earned?
  • How long were you married after the degree?
  • Did the degree lead to a lucrative career from which both parties benefited?
  • How well can the other spouse support himself or herself without the incurring spouse’s income?

The determination of whether the loans are considered separate property or marital property is the most fundamental factor, before other considerations are made. In a community property state, marital property, including debt, is split 50/50. In an equitable distribution state, the factors listed have much more weight when determining the distribution of the debt.

If the loan was incurred before marriage, it is considered separate property – generally. But if the degree was subsequently incurred once married and both spouses benefited from the degree, the loan may be considered to have been incurred in order to attain marital property, and therefore it will be considered marital debt. If a degree was not earned or no benefit came from the degree, it would likely remain separate property. The spouse who incurred the debt would be solely responsible for it.

In some situations, the support provided by the other spouse may actually be considered a loan in kind, which could offset the supporting spouse’s portion of the incurring spouse’s loan debt.  It is important to note, when we work with you on equitable distribution of assets and debts, the loan may still fall primarily on the party who attended school.

The best approach when dealing with these muddy waters is to enlist the help of a lawyer with expertise in the area of student loan debt. The lawyer will be able to give you the likely scenarios for your particular situation and come up with a presentation of facts that will best benefit you. Talk to us to see what we can do for you.

 


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Appraisals for Divorce

An appraisal may be needed to ascertain an accurate value of an asset in a divorce or estate matter. Assets that may require an appraisal include real property, jewelry, vehicles, antiques, and even retirement plans. Parties may elect to use one appraiser or have their own independent appraisers. When choosing an appraiser, it is important to make sure the appraiser is licensed or certified. A licensed appraiser has met the minimum requirements for practice. A certified appraiser must complete additional classroom hours and practice in the field. A list of all licensed and certified appraisers is available online. You should also make sure the appraiser you select has prior experience with the exact type of appraisal sought. This would include experience in the geographic market, the type of property, and intended use of the property.

You should discuss with the appraiser if any information you supply to them is confidential and should not be included in their report. You should also make it clear who the appraiser is permitted to discuss the appraisal with and/or share the report with. For example, you may not want to share certain information with the opposing party. You should be clear about the valuation date for the appraisal. This may be the date of purchase, date of separation, date of death, or current value. Per the Uniform Standards of Professional Appraisal Practice, appraisers are not permitted to revise an appraisal to account for a different valuation date after completion. Instead, the standards require a completely new appraisal which is not cost-efficient. Finally, you should ascertain whether your appraiser would be available as witness if their testimony in a court hearing becomes necessary. This is generally an additional cost above the cost of the appraisal itself.

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Market Experience on Accounts

Certain accounts that may be considered marital property and up for division in the context of a divorce can have fluctuating value based on the market. For example, mutual funds, stock benefits, 401ks, and annuities will reflect gains and losses that can change daily. Similar to other assets, the cut-off date for value purposes is technically the date of separation however gains and losses on that date of separation value through the date of distribution are also considered marital. This can result in a significant sum for an account with a large balance or in the instance of a lengthy separation period.

It is good practice to work with an experienced family law attorney and/or retirement division attorney or actuary to ensure you are getting an equitable distribution of these types of assets. To the extent a Qualified Domestic Relations Order (QDRO) is necessary, your attorney can draft/review an Order with the appropriate language to effectuate the desired distribution. A QDRO is a document that identifies the plan to be divided and gives specific details as to how that division will take place and what rights the party receiving the funds, referred to as the alternate payee, will have going forward. Failure to address the market experience can result in an unfair distribution.

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How to Divide Your Retirement Plan

Retirement plans are often one of the significant assets up for distribution in the course of a divorce. Careful attention should be given to the type of retirement plan at issue to avoid tax penalties and/or early withdrawal penalties to the extent possible. Additionally, the type of retirement plan will dictate what will be necessary in terms of documentation or court orders to effectuate the rollover. Non-qualified plans include individual retirement accounts or IRAs. These can usually be rolled over by completion of a form with the applicable institution. You should still do a direct rollover to a similar account to avoid taxes and/or withdrawal fees.

Qualified plans include defined contribution plans such as 401Ks as well as defined benefit plans such as pensions. A Qualified Domestic Relations Order (QDRO) will be necessary to distribute a qualified plan. A QDRO is a document that identifies the plan to be divided and gives specific details as to how that division will take place and what rights the party receiving the funds, referred to as the alternate payee, will have going forward. Rights of the alternate payee may include receiving cost of living adjustments similar to the plan participant and being able to elect their own survivor beneficiary for their interest in the plan. Both qualified and non-qualified plans will be taxable as distributed. The QDRO effectuates a tax-free rollover of funds to the spouse being awarded a share of the retirement plan in divorce but the spouse will be taxed on it when they withdraw it.

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Diminishing Credit

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Diminishing credit is a concept that property brought into a marriage loses its separate nature and becomes marital in nature as the marriage progresses. The court may give credit for separate 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. In contrast, Chester County applies a 10% reduction per year so that after 10 years there is no credit. In the above example, after 5 years 50% of the credit will have vanished so that Spouse A would only be able to assert $20,000 as separate property not subject to equitable distribution.

Since the diminishing credit is not a statute or official rule but more or less a policy used by the respective Masters when looking at the marital estate in a divorce matter, it varies from county and county. In that regard, it is important to work with an attorney who is familiar with the county where you are seeking a divorce. It is practical advice to avoid where possible 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. You ultimately risk all of the assets being addressed as marital property in equitable distribution and subject to division with your spouse if you cannot provide clear proof of their separate nature.

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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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