Thursday, February 4, 2016

YOURS, MINE, OURS, BUT MOSTLY OURS—A MARITAL PROPERTY PRIMER
When two parties are divorcing, one of the first questions they have is who gets what.
The rules that define assets as marital property subject to division can be a little bit tricky. Many people are more than a little surprised to find out that the court views marriage as a partnership and, regardless of who earns the money, purchases the assets, or has things in their name, it is generally believed that each of the parties have an interest in whatever assets are acquired during the marriage.
Pennsylvania is what we call “title blind”—it doesn’t matter if it’s in your name, your spouse’s name or both of your names. To the extent that it was purchased during the marriage, it’s going to be a marital asset subject to equitable distribution.
This means your spouse has an interest in the car titled in your name, a share of the pension that you receive through your employment, and any other asset that might be acquired, including investments, retirement assets, homes, other vehicles, etc.
Pensions in particular seem to surprise people. In essence, it’s part of your compensation from the job you went to day after day for however long you’re married. Regardless of the fact that it was only your individual efforts at work which resulted in the generation of the asset, it’s marital. Your spouse was at the same time making their own contributions to the marriage, be they through employment, as a homemaker, or both, and they have as much interest as you do in that pension, regardless of how fair you might think that to be.
Here is an important point to note, and maybe some of you caught it reading through; maybe you did not. Assets acquired during the marriage are divided equitably. That doesn’t mean equally and doesn’t mean that every single asset is divided the same. It’s the goal of the Divorce Code to “effectuate economic justice between the parties.” Economic justice does not simply mean that all of the assets are lined up, wacked in half and 50% of each given to either party.
Maybe “economic justice” dictates that one party to receive 55% of the marital estate, or even 60%.
Maybe “economic justice” means that the majority of the assets should be divided 50/50, but there’s an asset out there that shouldn’t be because it wouldn’t be fair to do that.
A good example of the above would be if somebody had $50,000 coming into the marriage and they put it into a savings account in joints name. A couple of years later, the parties separate and there’s $60,000 in that account. You don’t get back every dollar that you bring to the marriage, but the court would probably consider the fact that most of the savings account was originally one party’s pre-marital asset and in all likelihood would think it fair that they get some of that transmutated asset back, especially if the parties have a short marriage.
(Transmutation is what we call it when you take your separate property and change it into marriage property by jointly titling it. We will talk more about this in the future. The example above also touches on what we call a diminishing credit argument, wherein you get some credit for what you transmutate, but you don’t get it back dollar-for-dollar and you get back less dollars as more time passes).
There are some exceptions to marital property. Not every single thing that you acquire during your marriage is going to be subject to equitable distribution. Things like inheritances or gifts— if you keep them just in your name --- will remain just your property. However, the growth on these assets is a marital asset subject to distribution.
The same is true with property that you hold coming into the marriage. Even if you keep that investment account or savings account in your name, any growth in in its value is going to be subject to equitable distribution. Some folks don’t think that this is particularly fair and these rules can vary from state to state, but here in Pennsylvania, even a passive increase in value, (the increase from something just sitting there while you do nothing) is marital and your spouse will receive their equitable portion of that asset at the time of equitable distribution.
While there are these and other exceptions and nuances as to what is or is not marital property, at the end of the day, more of your assets are in than out, regardless of how you feel about that, or whose name things are held in.
However, these rules are subject to modification. It’s for this reason that a lot of people look into pre-marital agreements. That passive growth on your non-marital asset can stay non-marital if the two of you agree to that. Pretty much, a pre-marital agreement can manipulate all of the rules set forth in the Divorce Code, so as long as you are not doing so in an illegal manner. This has a lot of appeal to people, especially when they come into the marriage on relatively equal footing and intend to stay on relatively equal footing. In the absence of such an agreement, there may be claims for support, complicated litigation, and extensive discovery where you are compelled to exchange documents with one another to define what’s marital, what’s not, and what its value is. A pre-marital agreement can set the rules in advance, hopefully easing the burden of any potential divorce litigation down the road.
I hope this helps to give folks a little bit of an idea about how marital property works in Pennsylvania. Obviously, feel free to post any questions or comments. I would be happy to respond to same.
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