Lopsided Equitable Distribution in Favor of Business Owner Vacated

Perhaps the recent non-precedential Superior Court opinion in Rice illustrates the hazard that is inherent when a business owner gives half of the stock and pays an equal salary to his spouse who does not actually work in the business. The Fayette County trial court in Rice v. Rice, No. 1125 WDA 2012 (October 31, 2013) awarded 57% of the marital estate to the husband, including all of the stock in the funeral business, due to husband’s superior contributions of time and effort in building the business. Wife, who acted as corporate secretary, received 43% of the marital estate and none of the stock. During the marriage, she had drawn a salary equal to husband’s salary.

On appeal, she argued that the trial court’s distribution of marital property was inequitable because it would cut her income in half while enhancing Husband’s income. She also argued that the court should have considered the tax consequences associated with the marital residence, which was awarded to her, as well as the tax consequences of her PSERS pension.

The Superior Court vacated and remanded the decision, agreeing that Wife should not suffer such a drastic income reduction. (The Superior Court opinion does not say why alimony was not considered to remedy this problem.)  The Superior Court also held that the hypothetical taxes associated with the sale of the marital residence must be considered, because the trial court’s distribution would not leave wife with sufficient income to sustain the mortgage, forcing her to sell the house. Finally, the Court held that the tax incurred upon liquidation of wife’s pension must be considered.