Tag Archive for: marital property

If You Plan to Marry, and One or Both of You Own a Business, a Prenuptial Agreement Makes Sense

A properly drafted, enforceable prenuptial agreement may greatly reduce, if not prevent, disputes concerning the equitable distribution of marital property if a married couple divorces. Making such an agreement before you marry is not a sign your marriage is doomed. It only means you are smart and preparing for a life-changing event that may or may not happen, especially if one or both of you own a company. 

If you own a business, do not have a prenup, and the business grows, your spouse would be entitled to half of that growth upon your divorce. You could be forced to give up other assets, pay your spouse over time, or, in the worst-case scenario, close the business. However, a well-crafted prenup can protect you and your business.  

What Is Equitable Distribution? 

Part of the divorce process is the equitable division of marital property. The couple’s assets and debts are organized, and their values are estimated. The parties must decide which are separate or personal and belong to the individual and which are marital (normally property acquired during the marriage) and belong to the couple, or a court will do it for them. 

Marital property is subject to fair or equitable division during a divorce. The increased value of separate property could also be divided depending on the circumstances. The parties can agree to this, or it will be resolved at a trial. 

What Is a Prenuptial Agreement? 

What is a prenup? A prenuptial or antenuptial agreement is a contract entered into before marriage. The parties can agree on which assets and debts are personal and which are marital and identify them accordingly. The agreement should include how marital assets and debts will be divided, possibly preventing disputes during a potential divorce.  

Why Is a Prenuptial Agreement a Good Idea? 

Just creating the document can be beneficial. The two of you need to think about your financial lives and assets and your duties and rights during and after your marriage. These agreements may be particularly helpful if one or both parties have significant assets before the marriage, a well-paying job, or a business. One or both parties may feel more at ease if they know what will happen financially if the marriage ends in divorce, and the outcome will be fair and mutually agreed upon. 

If one or both spouses start a business during the marriage and it is not mentioned in the agreement, who ends up owning what can be determined by a contract made during the marriage (a postnuptial agreement), by amending the prenup, through negotiations during a divorce, or at a trial. The issue can also be part of a business ownership agreement covering what will happen if you divorce. 

What Effect Does Business Ownership Have on Equitable Distribution Without a Prenuptial Agreement? 

Consider what would happen if a marriage ends in divorce and one or both spouses own a business but there is no ownership, prenuptial, or postnuptial agreement. One spouse could argue it would be fair and equitable that they should get part ownership (if they do not already have it) and make the case for how much that should be (whether they own part or not.) The outcome would depend on how actively the spouse aided the business and what sacrifices they made so it could be a success, including contributing personal funds, working for the company, or sacrificing their career to help it. 

The fate of family-owned businesses can be a highly charged divorce issue. A prenuptial or other type of agreement would spell out how this would be handled and should prevent these types of conflicts from erupting. 

Karen Ann Ulmer, P.C., Can Help You With a Prenuptial Agreement 

Contact us if you have questions about a prenuptial agreement, want one created, or think you are being forced to sign one. For a confidential discussion with a Doylestown premarital agreements attorney at Karen Ann Ulmer, P.C., call (215) 752-6200 or email us. We can meet in our Doylestown or Langhorne office or speak with you by phone.

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Should I Move During My Divorce?

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Not to sound like a lawyer, but that depends. If you feel unsafe or your spouse drives you crazy, you should move, but you should be aware of and prepare for the negative consequences. If you can still tolerate each other and be civil, you’re probably better off staying in the home, at least until you reach a divorce agreement. 

Moving out makes the most sense when: 

  • You’re earning an income that will pay for both homes’ expenses 
  • You don’t have kids or, if you do, you aren’t interested in having primary custody 
  • You (and your kids) must leave an abusive situation 
  • You’re not interested in owning the house when marital assets are divided 

Should you stay or should you go? You have to consider the issues: 

  1. Would Moving Impact a Custody Dispute? 

If you have kids, do you plan to move out with them, or will they stay with the other parent? Moving out of the home while your kids remain will likely impact your custody claim, so if that’s a priority, stay where you are. 

Unless you’re involved in an abusive relationship, it’s usually in a child’s best interests to stay in the family home during a divorce because it should minimize the potential disruptions to children’s lives.  

  1. How Would Moving Affect Your Finances in the Short and Long Term? 

Moving means two households and possibly twice as many expenses. Leaving your marital home doesn’t mean you no longer need to worry about its bills. If you share the title and a mortgage to a house, you must keep up the payments. You’ll have your new expenses, plus your old ones. Can you swing that? 

Your house may be the most valuable asset the two of you own. Though it’s no guarantee, when it’s time to decide who will get the house, the spouse living in or maintaining it can have a stronger claim than the one who moved out or who isn’t helping to maintain it.  

If you want the house when marital property is divided, remaining in it may help protect your interests. Leaving is not a big deal if you don’t want the house and would rather have your share of it paid to you in cash or some other asset. 

  1. Might Remaining at Home Push the Divorce Process Along? 

Emotionally, moving out can be a mixed bag. In the short term, the two of you are physically away from a source of stress which should improve your peace of mind. This reduced stress takes some pressure off and makes finalizing the divorce less urgent. Therefore negotiations may drag out longer. If you share the same household, the two of you may be more motivated to get the divorce over and done with. 

Don’t Make a Move Without Talking to Us 

Moving out of your marital home may have far more consequences than you realize. You may see living on your own as a major goal that shouldn’t wait for a finalized divorce. Depending on your circumstances, you may be able to achieve that with minimal impact on your interests. It may also be a significant financial stretch that can impact your ability to get custody of your kids and your house as part of the division of assets. 

Should you move during your divorce? Like all other issues, that depends on your goals, situation, and the law’s impact. If you’re thinking about getting divorced and how that’ll impact where you’ll live, contact us here at Karen Ann Ulmer, P.C., so we can answer your questions and discuss how we can help you.  

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How Will Your Divorce Impact Owning a Business?

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If you own a business, or your spouse does, and you plan on divorcing, it is potentially a big issue that must be addressed.

Marital property is usually divided during a divorce. That can be done through an agreement by the spouses or a judge’s order if no agreement is reached. That marital property can include ownership in a business. 

Every divorce and business is unique and how it’s handled in your case can vary depending on your circumstances.   

Karen Ann Ulmer represents clients who are ending their marriages. Her divorce practice can help you whether you, your spouse, or the two of you own a business. Dealing with this issue can be very stressful and emotional, but it doesn’t have to be that way. If you have any questions, call us at (215)608-1867.

Issues Outside Divorce Law May Determine What Happens to the Business Ownership

Different agreements can impact the division of business ownership in a divorce:

  • Ownership: If it’s a small business with more than one owner, there should be an agreement between them. It should clearly spell out what happens to the divorcing partner’s share. It could state that their share needs to be sold to the other partner(s) at a given price or the price may be calculated based on the company’s value or some other calculation.
  • Partnership agreements: If there was a partnership agreement in place before the marriage, it may have required that a prenuptial agreement be signed specifically stating how the non-ownership spouse will be compensated (or not) should the marriage end in divorce.  
  • Pre or post-nuptial agreements: Before or during the marriage, a couple may have agreed on financial matters if they get divorced. How business ownership would be handled may be part of that agreement.  

If you and your spouse both own a business, you need to decide if you want one or both of you to sell your interests. If the divorce is amicable and you both feel you can work together, you can both keep your interests and see if you can work it out. However, the details of this arrangement, including what happens should a spouse want to cash out, should be clearly spelled out. It is important to remember that you are divorcing for specific reasons and working together may be very difficult. We recommend giving this a trial run with very detailed scenarios detailed in agreements to protect the business and both spouses in the future.  

How Should the Business Ownership Be Divided?

Marital assets (generally what the couple obtained during their marriage) are supposed to be split equitably or fairly under state statute 23 Pa.C.S. § 3502(a). If one spouse has an ownership interest in a business, it could be split with the other based on the following factors:

  • The length of the marriage
  • The age, health, income, vocational skills, employability, estates, liabilities, and needs of each party
  • The contribution by one party to the education, training, or increased earning power of the other
  • The opportunity for each party to acquire capital assets and income in the future
  • The income sources of both parties, including insurance or other benefits
  • The contribution or lessening by each party of the acquisition, preservation, depreciation, or appreciation of the marital property, including the contribution of a party as a homemaker
  • The value of property set apart to each party
  • The parties’ standard of living established during the marriage
  • Each party’s economic circumstances when the property will be divided
  • How taxes and costs impact the property division
  • Whether the party will be the custodian of any dependent minor children

Either through an agreement or court order, it would be decided if the business ownership is marital property to be divided, and if so, by how much and how that would be accomplished.

How Might This Play Out?

A common outcome is the value of the ownership would be determined and the party owning it would pay the other spouse for their share. That payment could be in cash or as part of a larger asset agreement. If the husband owns the business and must pay his wife $100,000 for her share of ownership, he could give up claims to $100,000 worth of other assets (cash, investments, share of the house, vehicles) which would go to the wife to satisfy what’s owed.  

It is also common for this amount to be paid out over time so the business can remain solvent. However, we recommend putting safeguards in place in case the business is sold or starts to encounter financial trouble. Both the paying and receiving spouse need to be protected.  

Get the Help You Need From an Attorney You Can Trust

Whether you, your spouse, or the two of you together own a business and want to learn more about how a divorce may impact you, call our office at (215) 608-1867 or book a consultation online now. We can speak over the phone, via a teleconference, or meet in one of our offices in Doylestown or Langhorne.

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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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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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Important Dates for Defining Marital Property

There is often a misconception that assets and debts individual names will not be divided as part of a divorce action. This is simply not true. Section 3501 of the Divorce Code defines marital property as anything acquired by either party from the date of marriage up to the date of final separation. It also includes any increase in value on pre-marital assets. In the event of reconciliation after separation, the time frame for items acquired during the marriage and ultimately subject to distribution would change as the Divorce Code refers to final separation as the date to consider when determining the marital estate.

Case law has distinguished what actions/behavior will be considered a successful reconciliation, hence eliminating any prior date of separation for cut-off of the marital estate, versus those actions/behavior that will not change the initial separation date. Separation for the purposes of divorce is defined as the “complete cessation of any and all cohabitation.” Cohabitation, though not specifically defined in the Divorce Code, is generally understood to be living and dwelling together as husband and wife with the mutual assumption of all marital rights, duties and obligations.

Click below to read more.

Mere attempts at reconciliation likely do not change the date of separation for the purposes of divorce. There must be more than just remaining in the same house overnight or for the weekend or taking a week long trip together. Even isolated instances of sexual relations do not mark successful reconciliation. The court will examine the facts of the reconciliation to determine if it was a full-blown resumption of the marital relationship which would potentially result in a different date of separation or alternatively, treat the failed attempt as further evidence that the marriage is irretrievably broken and the divorce should proceed on the initial separation date. In Britton v. Britton, 400 Pa. Super. 43 (1990) a reconciliation did defeat the period of separation when the reconciliation lasted three months, the parties resumed living together, ceased to maintain separate residences, jointly purchased a townhome, shared the same bedroom, engaged in sexual relations, shared a joint bank account and had a social life as husband and wife.

Click here to read more about equitable distribution of marital property.

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