Tag Archive for: equitable distribution

In Carney v. Carney, a recent decision by the Superior Court of Pennsylvania, the Court held that costs associated with the sale of a business and related tax effects were relevant to an equitable distribution order.

The trial court entered an equitable distribution order, which gave Husband the couple’s trucking business. Husband was required to make monthly payments to Wife for 10 years to offset the value of the business with the remaining marital assets, all of which were awarded to Wife. The monthly payment was calculated without accounting for costs associated with a potential future sale of the business and possible tax effects.

Under Pennsylvania law, costs of sale and related tax effects are relevant to equitable distribution regardless of the likelihood of the sale. Therefore, the value given to a marital asset for purposes of equitable distribution should be the value after deducting any expense required to liquidize the asset.

Retirement assets are often one of the substantial assets in a marital estate. It is possible to do a tax-free rollover of retirement benefits as part of a divorce. First, you will need to know what kind of benefits are involved. Qualified benefits will require a Qualified Domestic Relations Order (QDRO) to achieve the tax-free rollover. Qualified plans include defined contribution plans such as 401K as well as defined benefit plans such as pensions. Federal retirement plans (e.g. CSRS, FERS, TSP) also require a court order to achieve the rollover however the appropriate order for federal plans is a Court Order Acceptable for Processing (COAP). Once the QDRO or COAP is drafted to dictate the percentage or fixed amount to be rolled over, it is signed by the parties and then the Judge prior to submission to the plan for execution.

Non-qualified plans, most notably IRAs, do not require a specific order to do a rollover. Often, just a copy of the settlement agreement or Order and copy of the Divorce Decree may be sufficient to complete a rollover. It is important to make sure the rollover is direct to ensure it is tax-free. If the funds are instead withdrawn with the intention to re-deposit into the other party’s account, there will be a 20% tax withholding on the withdrawal in addition to any early withdrawal penalties that may be applicable. It is also a good idea to make sure the rollover is done promptly after the divorce. As the party receiving funds via rollover, be careful as to how you elect to receive distributions once the funds are in your account. Similar, tax and any applicable early withdrawal penalties will apply to you once accessing the funds.

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The Divorce Code defines marital property as that acquired from the date of marriage through the date of separation. It may also include the increase in value of property earned prior to the marriage to the extent the increase occurs during the marriage. A popular example of this may be a retirement plan or savings account. With assets or property earned prior to the marriage, it is important to ascertain the value of that property as of the date of marriage to assign that portion to the party who owns it.

The court may determine that an asset that is technically outside the definition of marital property is still up for distribution. This is a possibility for long term marriages such that the longer you are married, the less likely you are able to successfully keep certain assets off the table as being pre-marital. For example, Bucks County has applied a vanishing credit for pre-marital assets. The separate nature of a pre-marital asset is reduced by 5% a year such that there is no longer a credit after 20 years and the entire asset is considered marital.

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, Spouse A can still claim 75% of the down payment. However, if the parties separate after 20 years, there is no credit back to Spouse A for that initial investment of pre-marital funds.

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 a good idea to be careful about commingling any separate or non-marital property with marital property.

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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. In any divorce involving equitable distribution, the parties are tasked with identifying 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. Further, if you are served an Inventory first, you have twenty (20) days to file your own Inventory. In this regard, it is certainly helpful to have some understanding of what you and your spouse have prior to filing for divorce. You can supplement the list of marital property if you do not have knowledge of all the assets and debts at the outset.

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. Again, you will list all marital assets and debts. However, by this stage in the divorce you should have gathered all the information you need and be able to provide more detail regarding the assets, debts and their values or balances. Corroborating documentation should be attached to the pre-hearing statement as exhibits. Pre-hearing statements should be filed at least sixty (60) days prior to a scheduled equitable distribution hearing. The court does have the ability to impose sanctions for failure to file these forms as directed by the rules. 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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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 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.

A court order is necessary to effectuate a distribution of a pension, or other qualified plan, in a divorce matter. Often called a qualified domestic relations order, or QDRO, the court order provides requisite information to the plan administrator regarding the split of the pension. Qualified plans are governed by the Employee Retirement Income Security Act (ERISA) and the QDROs allow an exception to ERISA’s anti-alienation provisions. QDROs may also be utilized outside of pension plans to allow for a tax-free rollover of benefits. A popular example would be a 401k or other profit-sharing plan. It is important to check with the plan administrator to confirm if a special court order is necessary in the context of a non-qualified plan. In some instances, a property settlement agreement or transcript describing the transfer along with a divorce decree is enough.

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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. It will also include pre-marital assets that have increased in value during the marriage. 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. While the length of marriage is a factor in equitable distribution, it does not mean that assets won’t be split at all in shorter marriages.

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. It is important to have knowledge of all the marital assets and debts at issue. Additionally, parties should have documentation to prove the value of any assets and debts to be addressed. Key dates for valuation may include date of marriage, date of separation and final hearing date. Items acquired after the date of separation but prior to the final divorce decree should also usually be excluded.

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If you want to keep the house in a divorce, you may wonder what they will entail. If the mortgage is in joint names or in your spouse’s name, you are definitely going to need to refinance the mortgage into your own name at the time you get divorced, unless your spouse is nice and agrees to stay on the mortgage longer. If there is equity in the home, and not enough other assets to compensate your spouse in other ways, there is a good chance you are also going to need to come up with additional money as part of the refinance in order to buy your spouse out. The equity will be the value of the home at the time of the distribution less all the debt on the home (mortgage, home equity lien, etc.). The amount you will have to pay your spouse will depend on the percentage split of the assets as well where you live. In some counties they will deduct the cost of sale even though you are not selling the home. In others, they do not. If you need to time to be able to refinance, in some cases, it is recommended that you wait the two year period that you can delay a divorce by not consenting. During that time, as long as the mortgage is being paid you can remain the house while you work to build your credit or income so that you can refinance. If you are interested in keeping the house, you will want to check your credit as soon as you separate and talk to a mortgage broker or lender to see what things you will need to do in order to qualify for a loan and then set a plan to meet those steps. You also want to make sure you create a budget to make sure that you really can afford the home. You will need to project your income, the support you receive and the costs of the home, not just the mortgage but all the maintenance and make a decision based on all those factors.

In a divorce, especially a long term marriage, a pension can be a very valuable asset. Assets accumulated during the marriage are marital assets, regardless of whose name the asset was accumulated in. Retirement accounts, including pensions are marital assets to the extent that they were acquired during the marriage. If a portion of the pension was accumulated prior to the marriage or after the marriage, the court will use a coverture fracture to determine the marital portion. This means the number of years married over the total years that the pension was accumulated will be marital. In addition, many pensions have a survivor benefit that should also be considered. A survivor benefit is an election when the pension is taken that reduces the monthly pension payment based on the election that is chosen. Depending on the value of the pension and the health of the parties, the divorcing spouse may want to pursue the survivor benefit whereby they secure a monthly payment in the event of pension earner’s death which could be various percentages of the monthly pension depending on the election that was taken. Instead of doing a percentage of the marital portion, in some cases, it may be beneficial to have the pension appraised and the survivor benefit appraised to offset the value with other assets. Usually a private company will be hired to do this type of valuation.

If you are served with divorce papers, you will want to first, keep them. Do not throw them away even if you are upset or angry. You can get a copy from the courthouse, however, if you have already done this. You are considered served on the day you receive them even if you tell the person who tries to hand it to you that you do not want the divorce papers. Your service date is an important date as it starts the period of time in which you have to wait if you are doing a mutual consent divorce. You will want to have an attorney look at the papers that you received so that they can determine for you if you need to response. The papers will always say you only have so many days to respond. Do not panic. It is unlikely that you will lose rights if you do not answer them within that time frame. Do, however, consult an attorney, who will be able to explain the legal jargon to you and let you know whether a response is required. A response is only usually required if you need to raise new claims such as spousal support or alimony or equitable distribution. Most attorneys will offer a consultation either by phone or in their office, and oftentimes, this initial consultation will be free. If you need support, you may bring someone with you to the appointment or have them on the phone with you. If you are served papers, in most cases, you will want to freeze any joint debt and secure any joint assets, but you may also want to discuss it with your attorney. Being informed and knowing what to expect is an important part of getting you through the process. An attorney can discuss with you what you can expect with respect to distribution of assets, support, and also the time frame in which things may happen or how things may be delayed.

The receipt of an inheritance may impact your divorce or support case. Regarding divorce, and specifically equitable distribution of marital property, 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. Marital property includes all property acquired by either party from the date of marriage through the date of separation. There is a presumption all property acquired during the marriage is marital regardless of how title is held (e.g. individually vs. jointly). However, 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 still be claimed as non-marital property. As a practical tip, parties should avoid commingling inheritance funds with other marital funds. Inheritance funds may still need to be disclosed since the separate assets of the party are a factor for equitable distribution under 23 Pa. C.S. 3502.

Money received by way of an inheritance is similarly not to be considered income for a support matter. 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 states factors for the court to consider for deviation from a guideline support obligation. One of the factors the court may consider is the assets and liabilities of the parties. 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.

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