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equitable distribution Archives

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.

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.

Diminishing Credit

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.

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.

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.

Treatment of Pensions in Divorce

Pensions are subject to division in a divorce to the extent one of the parties earned the pension benefit during the marriage. 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. An entire pension will be marital if the parties were married the entire time a party earned benefits under the pension. In other cases, a coverture fraction is applied based on the total years of service compared to the number of years of marriage. Pensions are often a deferred distribution asset meaning that each party will receive their share at retirement age of the participant. There is the option to do an immediate offset of the marital portion of the pension if there are other assets of comparable value.

Inherited Assets

The receipt of an inheritance may impact your divorce or support case. 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. 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 be classified as non-marital property. A problem is created if the party who receives the inheritance places the funds into a joint account and/or commingles with other funds properly classified as marital. In that scenario, it can be difficult, if not impossible, to trace which funds were from the inheritance versus which funds were marital when trying to figure out equitable distribution at some later date. As a practical tip, parties should avoid commingling inheritance funds with other marital funds. Inheritance funds should still to be disclosed in a divorce action since the separate assets of the party are a factor for equitable distribution under 23 Pa. C.S. 3502.

Steps in Equitable Distribution

Equitable distribution is the term used in Pennsylvania as it relates to division of marital property in a divorce. Marital property will consist of nearly everything acquired in either party's name from the date of marriage through the date of separation. Equitable distribution does not mean an automatic 50/50 split of all marital property. Instead, the statute on equitable distribution sets out thirteen (13) factors to be considered when seeking to set percentages for distribution on a case-by-case basis. In any divorce involving equitable distribution, the parties should first identify 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.

Exclusive Possession

Many parties in the process of separating are anxious to find out how they can get the other party out of a shared residence. For married individuals, a decision on which party will keep a marital property will not come until the end of the divorce matter and in the interim both parties retain the right to access the marital property. There are two exceptions to this general rule. First, a party may be evicted from a marital property in the context of a Protection from Abuse Order. A final PFA Order can remain in place for a maximum of three (3) years. The second way to have a party removed from marital property is through an application for exclusive possession.

Military Retired Pay vs. Disability Pay

Military retired pay is a divisible asset in the context of a divorce matter. For marriages of at least ten (10) years, military retired pay can be divided through DFAS such that each party receives their share of that benefit directly. For marriages of less than ten (10) years, the service member would be responsible to make sure the spouse received the correct amount of the benefit. Disability pay is not a divisible asset. The amount of disability pay is based on the extent of the service member's disability rating. Service members used to have to reduce their retired pay by the amount of any disability pay they elected to receive. This could result in the spouse of the member being shorted.

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