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When spouses divorce, their property must be divided between them. Many divorcing spouses accomplish this division of property themselves by entering into a settlement agreement without court intervention. When divorcing spouses are unable to divide their property, the courts may assist through a three-step process known as equitable distribution. Equitable distribution requires the court to identify, evaluate and distribute marital property.

Which Property Is Subject to Equitable Distribution?

The Pennsylvania Divorce Code establishes the presumption that marital property includes “all property acquired by either party during the marriage (without regard to title), including the increase in value … of any nonmarital property acquired (prior to marriage or by gift, bequest, devise or descent).”

In other words, the court does not look to whose name is on the property, but when it was acquired. Property acquired from the date of marriage to the date of separation is presumed to be marital property unless it falls into one of the nine exceptions provided by law.

Among the exceptions, the most significant are:

• Premarital property
• Property excluded by prenuptial agreement
• Gifts and inheritances received during the marriage
• Property acquired after separation

Property which is not marital property is called separate property or nonmarital property. However, separate property can be reclassified as marital property — a process called transmutation — if that property was placed into joint names or not kept separate from marital assets. A spouse may be able to preserve separate property if they can trace the property from one account to another during the marriage. In addition, the court may impose a constructive trust upon marital property transferred by one of the parties into the title of a third person.

The marital portion of income streams, such as pensions, trusts and stock options, includes all income earned from the date of marriage until the date of separation.

How Are Retirement Benefits Treated in a Pennsylvania Divorce?

Retirement accounts, often considered among the most valuable assets in the marital estate, are likely to be divided by equitable distribution, factoring in the comparative earnings of each spouse, their stage of life and their opportunities for future retirement acquisitions. If the benefits are in pay status, they might be considered as income for paying child support, spousal support, alimony pendente lite (payments made while the divorce case is pending) or alimony.

Depending on the circumstances, the court may:

• Allow a spouse to keep his or her retirement benefits while giving other marital assets to the other spouse (immediate offset)
• Divide the retirement account between the spouses
• Order the benefit to be divided each month as it is received (deferred distribution), as in the case of a pension annuity

Sometimes a nonemployee spouse may receive a cash distribution from a 401(k) plan (but not an IRA) that is exempt from the 10% early retirement tax penalty. Still, distributions from a 401(k) or IRA account are generally subject to federal income tax. Retirement accounts (other than Roth IRAs) contain pre-tax dollars that may be viewed as less valuable than bank accounts or other assets of the same dollar amount.

Pollock Begg lawyers are trained to consider the income tax consequences of retirement benefits when resolving equitable distribution cases.

How Does Pennsylvania Value Marital Property?

To evaluate marital assets, the court generally determines fair market value. Although the court utilizes the date of separation to identify marital assets, the presumptive date for valuation is the date of trial. A party who contributes nonmarital property to the marital estate may be entitled to a credit, which declines over time, to compensate for the nonmarital contribution. Additionally, a party who utilizes post-separation income to maintain marital assets may be entitled to credit.

The value of a marital asset may be reduced by the amount of the owner’s real or hypothetical income tax liability or selling expenses. The value of a business includes goodwill value if the business is not dependent solely upon the reputation, skills or labor of the proprietor.

How Is Marital Property Divided?

After marital property is identified and evaluated, the court must weigh 11 statutory factors to determine equitable distribution. Contrary to popular belief, the court does not start with a presumption of an equal 50-50 distribution. The court must consider the parties’ incomes, abilities to rebuild their assets and income in the future, custodial responsibilities and other factors. The court may not consider marital fault in dividing property. When a spouse has furthered the education or career of his or her spouse, he or she may be entitled to a larger share of the marital estate as reimbursement equity. The court must consider the parties’ nonmarital assets, but not potential gifts from family or inheritances to be received in the future. In evaluating and distributing marital property, the court may make inferences against a spouse who intentionally reduces his income or divests assets to evade distribution. Also, the court has discretion to distribute property in kind or compel one spouse to buy out the other spouse.

Our Pittsburgh property division attorneys have extensive experience in high net worth and complex divorce matters involving equitable distribution. We can work with you toward a solution.

What About Marital Debt?

Generally, marital debt includes all debts, charges and liabilities incurred prior to the final separation, whether they are in joint names or the name of just one spouse. As with assets, the law is less concerned with who incurred debts than with when they were incurred. 

Examples of marital debt include mortgages, home equity loans and lines of credit, car loans, credit cards and tax obligations. Some debts, such as mortgage loans, come with tax benefits that should be carefully considered. On the other hand, other debts may need to be refinanced or extinguished so that they do not adversely affect the credit rating of the other spouse. These considerations are not always contemplated by the courts when divorces are litigated, so litigants must be vigilant when trying or settling cases.

A good settlement or trial outcome will protect both spouses from the financial consequences of dividing debt. At Pollock Begg, our lawyers possess the knowledge and skills necessary to help you ensure that any debts arising from your marriage are properly addressed.

Our Pittsburgh asset protection attorney team has extensive experience in high net worth cases involving equitable distribution. Contact Pollock Begg at 412.471.9000 to discuss your unique situation and receive the guidance and counsel you need to solidify your financial future.