Equitable Distribution in Pittsburgh
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Divorcing spouses must somehow divide their property. Many divorcing spouses (with the help of counsel) are able to divide their property and debt by agreement, outside of court. But if the parties cannot agree, then the parties' marital property is divided by the court through “equitable distribution”. If you are considering a divorce, you should be aware of the mechanisms of equitable distribution. Dividing property and debts can cause considerable tension and strain upon divorcing parties, especially those involving a high net-worth divorce.
What is equitable distribution?
In a Pennsylvania divorce, equitable distribution is the process used by the court to divide the marital property. The marital assets and marital debts constitute the marital estate. The marital estate may be divided on a 50/50 basis or as a “skewed distribution” where once side receives more than 50% and the other side receives less then 50% of the marital estate. The Pennsylvania divorce code contains numerous factors that go into dividing up the marital estate.
It is important to understand that equitable distribution does not require the division of each asset and debt. For example, in a simplified “house/pension 50/50 case”, if the house and pension make up the marital estate and are each worth say 500K, then one party would typically get 100% of the house and other party would typically get 100% of the retirement account.
The court uses a 3-step process in determining equitable distribution:
- It identifies the marital property.
- It values the marital property.
- It divides and distributes the marital property.
What is marital property?
Generally speaking, marital property consists of the assets, property, and debts acquired between the date of marriage and date of separation. This includes the increase in value of pre-marital property. So, a pre-marital house (without any debts) worth 100K at the date of marriage and 225K at the time of distribution has a marital value of 125K. The determination of whether property is marital (or how much is marital) often depends on when it was acquired. If property was acquired during the marriage, it is usually marital property - even if it is the name of only one spouse. However, there are several exceptions to this rule. For example, property can be non-marital (even if acquired during the marriage) if it is excluded by agreement or was a gift or inheritance. Conversely, non-marital property can be transmuted into marital property if it is placed in joint names. Many other exceptions exist.
How is marital property valued?
To value marital property, the court generally determines "fair market value." Although the court uses the date of the couple's separation to identify marital assets, the presumptive date of valuation is usually the date of trial (or as late as possible). However, debts such as credit cards are typically valued as of the date of separation. So, if one of the parties after the date of separation, pays a marital debt, may be entitled to a credit.
Because "fair market value" is the standard, the value of an asset may be reduced by the amount of the owner's potential tax liability or expense to sell it. An example would be deducting closing costs from the value of a house.
A pension is typically valued by use of a “coverture fraction” which involves dividing the total value of the pension by the duration of the marriage during the pension to arrive at a marital value.
How is marital property divided?
In a Pennsylvania divorce, this marital property is divided equitably between the parties. Equitably does not necessarily mean "equal," but what the court decides is a fair arrangement. Contrary to popular belief, the court does begin with a presumption of an equal distribution. Instead, the court may divide the marital estate on any percentage that is indicated by the factors (60/40, 57/43, 50/50 etc.). The court may also take into account alimony payments when deciding upon a distribution split.
In Allegheny County, it is very rare to have a split more skewed than 60/40 and even a 60/40 split typically involves compelling facts.
Pensions covered by ERISA (the Federal rules on pension) are typically divided by a “Qualified Domestic Relations Order”. It is important to properly structure a QDRO so that it will be accepted by the company and will properly divide the pension via a coverture fraction.
Factors in Equitable Distribution
There are 11 factors that the Court must consider in assigning a relative percentage of the marital estate to each party. Factors including minor children, the length of the marriage, the standard of living while married, the age, health, income, skills, ability to gain employment, earning power, needs, and liabilities of each party, contributions to the education, training, or earnings of the other spouse, sources of income, value of non-marital property and other factors. Each case is unique with its own variations in factors that dictate how equitable distribution is decided.
The court has the discretion to distribute property in kind or to compel one spouse to buy out the other spouse. In negotiations, a good divorce attorney will go through the 3-step equitable distribution process to determine the most likely outcome if the case were to go to trial. Anything as good (or better) than the likely outcome is a fair settlement in negotiation. Also, various points of leverage may affect the fairness of a settlement. In litigation, a good divorce attorney will understand the court's thinking and prepare a case which emphasizes the most important factors.
It is best to discuss your situation regarding the division of property in a divorce directly with the divorce attorneys at our firm. Call now to review your legal options.
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