Dividing Marital Assets in No-Fault Divorce - What's It Worth, and What Do I Get?
February 4, 2016
The adoption of no-fault divorce laws in Pennsylvania changed the primary focus of the divorce process from determining which spouse was at fault to determining the value of and dividing marital assets. Under the former system, divorce proceedings focused mostly upon which spouse was at fault, i.e., who was responsible for the breakup of the marriage. Since the passage of no-fault divorce laws, however, the focus of divorce proceedings has shifted towards determining the size of the marital estate and developing a fair way to divide marital assets between the spouses.
Measuring the Estate - What’s it Worth?
In measuring the marital estate in a divorce proceeding, only those martial assets and debts existing at the date of separation will be subject to distribution. To determine what’s in and what’s out, parties initially should create an inventory listing all assets and debts as of the separation date. If an asset/debt is no longer owned/owed by the parties as of that date, it is not part of the marital estate and will not be subject to distribution.
Generally, any assets acquired or debts incurred during the marriage through the separation date will be considered marital property subject to distribution. One exception to this rule is that property inherited or received as a gift by a spouse during the marriage typically will not be considered marital property unless the assets were converted into a marital asset.
Another factor to consider in measuring the marital estate is that the Divorce Code is “title blind.” This means that in measuring assets and debts subject to distribution, it does not matter in whose name the assets and debts are titled. Instead, the date the asset was acquired, or for debts, the date the debt was incurred, determines whether the asset or debt is marital.
Assets acquired or debts incurred before a marriage are classified as pre-marital property and debts and are not considered marital property subject to distribution. However, the increase in the value of a pre-marital asset during the marriage will be subject to distribution. Also, it is common for spouses to convert pre-marital assets into marital property by transferring title (ownership) of the property into joint names.
Assets acquired or debts incurred after the date of separation will not be considered marital property unless it can be established that marital assets were used in the acquisition of those new assets.
In identifying marital assets, a party to a divorce action should consider the following: real estate ownership, automobiles and motorcycles, non-titled personal property (household contents, collectibles, jewelry, artwork, antiques), bank or credit union accounts; stocks, bonds, mutual funds, money market accounts and certificates of deposit; life insurance; pensions, annuities, IRA accounts, 401(k) accounts and 403(b) accounts; pending lawsuits; business ownership; receivables; and intangible assets.
Once marital assets and debts have been identified, the parties must determine values. The best starting place for that valuation is the date of separation. Generally, however, values of the assets/debts as close to the date of distribution need also to be established.
The asset valuation process can be straightforward or complicated, depending on the asset involved. For example, determining the value of some assets may be as simple as reviewing bank account statements. Other assets, however, may be more difficult to value. For real estate, spouses may wish seek a valuation or appraisal from a real estate professional. Of course, for most assets, the best way to assess value is to sell to a third party in an arm’s length transaction.
Some of the more complex valuations regarding marital estates involve pensions and businesses. For pensions, parties may obtain present-value calculations from a pension actuary for defined benefit pension plans. But those calculations are based on assumptions, and they typically do not address tax considerations. Dividing business assets also can be complex. In fact, determining a fair valuation for a closely held business entity is one of the most difficult valuation issues for spouses.
Regardless of complexity, determining the value of the assets is essential if there is to be a fair division of any marital estate. Without accurate valuations, assets may need to be liquidated or distributed via deferred distribution. So the best course of action is to invest in securing an accurate and agreeable valuation.
Dividing Assets - I Know What It’s Worth, Now What Do I Get?
Once the marital estate has been determined and valued, each party should receive a fair and equitable portion of the marital estate. Like courts in many other states, Pennsylvania courts use an equitable distribution concept to determine which portions of the marital estate each spouse will receive.
In dividing marital assets, Pennsylvania courts are required to consider the following factors:
(1) The length of the marriage.
(2) Any prior marriage of either party.
(3) The age, health, station, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties.
(4) The contribution by one party to the education, training or increased earning power of the other party.
(5) The opportunity of each party for future acquisitions of capital assets and income.
(6) The sources of income of both parties, including, but not limited to, medical, retirement, insurance or other benefits.
(7) The contribution or dissipation of each party in the acquisition, preservation, depreciation or appreciation of the marital property, including the contribution of a party as homemaker.
(8) The value of the property set apart to each party.
(9) The standard of living of the parties established during the marriage.
(10) The economic circumstances of each party at the time the division of property is to become effective.
(10.1) The Federal, State and local tax ramifications associated with each asset to be divided, distributed or assigned, which ramifications need not be immediate and certain.
(10.2) The expense of sale, transfer or liquidation associated with a particular asset, which expense need not be immediate and certain.
(11) Whether the party will be serving as the custodian of any dependent minor children.
While the rules governing the distribution of marital assets are straightforward, application of those rules can be very difficult and complex. The Domestic Relations attorneys at Willig, Williams & Davidson are experienced in guiding divorcing spouses through this often-challenging process. For more information on no-fault divorce or any other domestic relations legal issues, feel free to contact any of our Philadelphia family law attorneys at (215) 656-3600.