Equitable Distribution

Potential Gold Mine? (No)
Potential Gold Mine? (Answer: No)

Leslie Spoltore, a partner in our Wilmington, Delaware office, recently wrote a post on our Delaware Family Law Blog about a uniquely unusual to Delaware “asset:” license plates.

Unlike every other state in the Union, there seems to be an dedicated, obsessed, and well heeled local market for low number Delaware license plates. According to the article written by Adam Duvernay of The News Journal, a couple recently paid $325,000.00 for license plate number 14. In Delaware, you can reuse the license numbers and even transfer them to other people (either through sale, will, or auction). Consequently, enthusiasts will bid to own low plate numbers. For perspective, the Governor, Lieutenant Governor, and Secretary of State have license plate numbers 1, 2, and 3, respectively. Number 6 sold in 2008 for $675,000.00.

The larger point behind this unique bit of Americana is that the value of a marital estate may take many forms. We’ve written about the million dollar shoe collection, but there could be any number of unusual collectibles or pieces of personal property that are more than the norm and, in fact, justify their own consideration, appraisal, and identification as marital assets. I have had a case where our claim for antique carnival games was countered (unsuccessfully) by a claim for value in a Longaberger basket collection (apparently the secondary market had dropped out at the time of the case).

You simply never know where the value may appear and it is important for clients and lawyers to fully explore every potential source of value.


// Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

iPad Texts?
iPad Texts?

We have written about electronic discovery and Pennsylvania’s wiretapping law on this blog before. For family law attorneys, they are issues which can be critical to your case, but also present a minefield of ethical and evidentiary issues. How information may be collected and in what manner can be unclear; similarly, it can be ambiguous to counsel and the courts how to weigh evidence collected electronically and presented to the court in a manner which makes it difficult to authenticate (i.e. text messages).

The criminal courts are, as always, the great laboratory of evidentiary law and last June the Superior Court issued a ruling in a case involving text messages from an iPad. Specifically, whether the Pennsylvania Wiretapping and Electronic Surveillance Control Act was violated by police when had an informant relay text messages to them from the defendant in a drug deal.  The trial court in Commonwealth v. Diego suppressed the text message evidence.

The Wiretapping Act was originally passed in 1978 and has been periodically updated to address evolving technology, though probably not quickly enough. This case presents iPad communication as a case of first impression.  The Superior Court cited a 2001 case (Commonwealth v. Proetto) which found that there was no reasonable expectation of privacy in sending emails or chat-room messages to third parties. Basically, using email and text services renders moot any expectation of privacy. Not unlike arguments used with social media; once released, an email or text may be forwarded, modified, and read by anyone the recipient chooses to disclose it to. Knowledge that the message was being recorded by text or email was sufficient notice to keep it from within a protected category of communication.

An iPad is not a telephone under the common understanding of the relevant term, the Superior Court reasoned, and no one would misidentify an iPad for a telephone.  The Superior Court’s decision, however, did not ultimately hinge on the type of device more so the method of intercept. The informant cooperated with police and relayed to them the contents of the text messages he received from Diego. Rather than observing them before the informant received them – which the Court identified as being a separate and distinct legal issue – the informant was voluntarily disclosing them to the police after he received them.  Accordingly, the evidence collected which lead to Diego’s arrest was legally obtained.

The take-away, as always, is that anything placed in a digital format poses a threat of being repurposed, passed along, or disclosed to unintended third parties. Maintaining solid “e-security” is difficult, if not overwhelming, but as this case indicates, you cannot be certain that texts and emails are not going to be discoverable or accessible to third parties; you can never be sure the recipient’s eyes are the only ones on them.

(Photo Credit: 123rf.com; Dirk Ercken).


Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

Ashley Madison Data Breach only Slightly Less Obvious
Ashley Madison Data Breach only Slightly Less Obvious than Lip Stick on the Collar


When I first heard of the Ashley Madison data breach, I seem to be one of the few family law attorneys who felt somewhat cool to the idea it was going to result in a crescendo of divorce filings. First, due to Ashley Madison not having an email verification protocol, the presence of an email on the list is not in any way a confirmation that the legitimate owner of the email registered it with the website. Secondly, I had to assume that anyone with common sense was not using a “real” email and the chance for exposure would be minimal. Thirdly, I assumed that of the millions of identified users, perhaps a smaller percentage were active users and a portion were fake emails or users who registered as a goof; I imaged a much smaller pool relative to amount of registered users. Finally, I considered the other spouse and whether they would have the wherewithal or suspicion to search for their spouse’s email (emails?) among the users. Overall, I imagined a smattering of “Ashley Madison motivated divorces” being reported, but nothing that would move the needle on average filings.

If initial reports are accurate, I clearly overestimated the common sense of many Ashley Madison users and grossly underestimated their laziness in not opening anonymous, dedicated email accounts to register to the site.

Now that the data has been dumped and various websites are combing the data for notable users and email suffixes, I am much more certain that there will be some serious fall-out for relationships, certainly, but also for the employment of users. The news coverage surrounding the breach also brought to light what might end up being the most relevant aspect of the breach for any future divorce cases: the expense. Again, while the presence of an email is not dispositive of use, the credit card records are pretty conclusive.

Based on the price scaling reported, a motivated philanderer could rack up a fairly significant bill on Ashley Madison before they ever get to their first illicit rendezvous. When you factor in the costs of carrying on an affair (i.e. meals, travel, and gifts) the expenses increase exponentially. Each dollar applied to the affair is a dollar inappropriately dissipated from the marital estate.  Once the affair is exposed and a case is in litigation, a forensic accounting of bank accounts and credit cards will occur and eventually the financial scope of the affair will emerge.

The affair, in of itself, may not have a tremendous impact on a case since equitable distribution in Pennsylvania is blind to the bad actions of parties (unless those actions have a financial impact on the estate). For members of the armed forces, however, adultery is a punishable crime which could lead to dishonorable discharge and loss of financial benefits, such as pensions. Losing a pension adversely impacts not just the service member, but the service member’s spouse. Losing a retirement account due to such behavior would undoubtedly be argued as a dissipation of that marital asset and with the value of the lost pension being assigned to the service member and corresponding assets given to the spouse (assuming there are any).

Other people may be in sensitive positions involving confidential data or public positions where the appearance of impropriety from an exposed affair has a greater impact than whether the affair affects their ability to do their job. Losing a job over an affair could be interpreted as a “voluntary decrease” in income, not unlike being fired for cause or voluntarily taking a lower paying position to avoid a support obligation.

The real story about Ashley Madison data drop is not the salacious exposure of people seeking out affairs, but the breach of security for an organization relying so heavily on confidentiality – their entire business model and marketing campaign hinges on it. Go see our blog on data security for more information on such topics.

What will continue to generate news for the coming weeks, however, will be the cases where Ashley Madison data will be presented as evidence for economic loss in divorce or support cases, and the jumping off point for investigations into certain registered users. After the initial fireworks of the disclosures, this will be a slow burn story as more people are exposed and the repercussions are felt. The easy joke is that this is a boon for divorce lawyers, but I think it will be the family therapists and accountants who end up the busiest in the end.

(Photo Credit: Copyright a href=’httpwww.123rf.comprofile_toniton’toniton  123RF Stock Photoa)


Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty

On April 15 of this year, a company called ETSY went public offering 111.25 million shares of stock at $16 a share. This produced what in stock parlance is called a market capitalization of 1.78 billion.  That means what the world thought ETSY was worth.  Once offered to the public it quickly shot to almost $30 a share, doubling its market capitalization. Today, the stock trades below $15.

Sometimes stocks rocket to levels that make them difficult to trade. In 2006 Mastercard went public at just under $40 a share. By 2014, it has risen to more than $800 a share. In order to make the stock more attractive to buyers in January of that year, the company announced a 10:1 split. Thus a person who owned 100 shares of the stock on January 21, 2014, awakened the following morning with 1000 shares.  Eureka! Right? Well not really, because when a stock splits, the price is divided commensurate with the split. So the 818.00 closing price on the day before the split was an $81 price the next morning. The market capitalization did not change. The investor was not enriched. Now typically, Mastercard at $81 a share is an easier stock to buy than at $818 but lawyers and clients need to understand that splits do not themselves create value.

There is also something called a reverse stock split. We saw some of these in the wake of the 2008 recession. When a stock plummets so low that buyers start to equate it with a penny stock, discussion turns to pumping up the price by reducing the number of shares. In 2009 the insurer AIG announced a 1:20 split. The AIG owner who went to bed with 200 shares on one night woke up the next day with 10. Again, the market value of the investment is not changed but the stock now has a price that seems more “dignified”.  Radio Shack is struggling with this issue as we write this. RSH trades for under 10 cents.

When tracing securities holdings this can be important to know.  If husband held 20,000 shares of AIG when he married in 2006, how come he owns only 2,000 today? Dissipation? Transfer to another account to hide the asset. Sometimes a quick check at a website like StockSplitHistory.com can clarify this issue.  Some of the on-line market charts will actually reference a split on the chart. But most charts simply adjust the chart as if the split never occurred because it is the most efficient way to show changes in market price over time. We ran into this recently when a client received a securities account that was 10% lower than the date of trial value in a market that rose 3-5% over the corresponding period. As we examined this, two matters became clear. First, husband’s stock in Apple had undergone a 7:1 split in Summer, 2014 and his heavy reliance upon the future of Russian and oil based stocks had wiped out the gains his other investments had experienced.

There are several sites that provide information on stock splits. It is worthwhile to note this tool in valuing a marital estate.

401(k) retirement plans are commonly divided in divorces by way of a Qualified Domestic Relations Order which prevents the transfer of the funds from the plan participants account to the other spouse from being a taxable event such as it would be if they simply withdrew money from the account. If you participate in a 401(k) plan then you are probably well aware that withdrawing money before you reach retirement age subjects you to a 10% penalty on the amount of money you withdrew and you have to pay income tax on the withdrawal.

For many divorce cases, however, the use of the 401(k) funds is a necessity for one or both of the parties. Recognizing the reality that people needed access to their accumulated retirement funds for legitimate and immediate financial purposes, the IRS created a mechanism for being able to utilize your 401(k) funds without having to pay the taxes or penalty on the withdrawals. A “hardship distribution” is defined by the IRS under Reg. § 1.401(k)-1(d)(3)(i) as an immediate and heavy financial need by the employee or the employee’s spouse or dependent with the withdrawal being a sufficient amount to satisfy the need.

The need to take a “hardship distribution” is not uncommon for many people involved in a divorce. Divorces can cause financial damage to both parties, but particularly the “dependent spouse” who may not have the cash flow or immediate resources to address an urgent financial need. It can also be a tool for the “independent spouse” who transferred a significant portion of their wealth to the other spouse. The award of 401(k) assets (if in the form of an IRA, the analysis changes somewhat) may be the financial resource they need to stabilize and rebuild their financial health. While any financial advisor would advise against using tax deferred money if it all possible, circumstances dictate otherwise at times and knowing this option exists may be helpful.


Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter @AaronWeemsAtty.

The general rule is that personal expenses are almost never deductible by taxpayers on Schedule “A” (Itemized Deductions) of their personal returns.  But all rules have exceptions and almost everyone is familiar with the deductions available for medical and dental expenses.  These are great deductions but with this hitch.  You only get to deduct the amount that exceeds 7.5% of Adjusted Gross Income.  Thus, it takes some pretty catastrophic medical expenses to get past the threshold.

But there are two lesser known deductions that merit some attention.  Under Section 212(1) of the Internal Revenue Code, a taxpayer may deduct expenses directly attributable to the production or collection of income that is taxable.  Spousal support and alimony is taxable income and both the Tax Court and the Internal Revenue Service agree that counsel fees attributable to the determination and collection of spousal support and alimony are proper deductions under Section 212.  This includes proceedings to collect arrearages (overdue amounts) and to increase alimony payments.  The deductions apply only to the payee.  The payor does not qualify for a similar deduction in defending these claims.

The fees must be reasonable for the goal sought.  Thus a $10,000 deduction to secure a $9,000 increase may be subject to challenge.  The deductions for legal fees are also limited to those greater than 2% of adjusted gross income.  Thus if an otherwise unemployed spouse incurred $10,000 in fees to secure an award of $3,000 a month in alimony, her adjusted gross income of $36,000 per year means that the first $720 (2%) of counsel fees are not deductible.  The deduction is taken on Schedule “A” under “Job Expenses and Certain Miscellaneous Deductions” (lines 21-27 for 2014).

The second and more nebulous area where deductions may be taken is for “Tax Advice.”  Section 212 (2) of the Internal Revenue Code allows deductions for “the management, conservation or maintenance of property held for the production of income.”  This is a far trickier deduction as there are no Treasury Department regulations directly addressing it.  The regulations under Section 212(1) inform us that investment management fees and custodian fees associated with investments are deductible.  The same costs for a personal residence are not. Expenses of estate litigation are afforded deductibility even though not directly related to production of income.  Expenses incurred in asserting rights to property are non-deductible.  But if the property produces income and the claim is related to collection of a portion of it, that “income” portion is deductible.  Expenses associated with preparing tax returns are deductible but again the deduction is for expenses beyond 2% of Adjusted Gross Income.  The general view (not found in the regulations) is that “tax advice” secured for purposes of managing one’s investments is deductible and many divorce practitioners sometimes freely “allocate” a substantial portion of their invoice to “tax advice” to help a client out.  But, this is a slippery slope for both the adviser and the tax payer because unlike the alimony deduction, there is no real means to measure what is reasonable and what is not and to a large degree, the assets being allocated in the divorce are not income producing.

We have recently been working with a client married to a “sophisticated investor.”  When we cracked open the documents telling us what Mr. Investor owned, we found a succession of limited partnerships not one of which offered us any information from which we could begin in ascertain value.

Meanwhile, there were eight of these and one formed the impression at the outset that the investments were heavily weighted towards newly formed businesses.  

Valuing any closely held business is a challenge.  The typical approaches employed to do this involve measuring the stream of income or cash flow and efforts to find a comparable company that has recently sold.  The trouble with startup companies is that they rarely have strong financials.  It is not uncommon to engage a business appraiser to have that person come back and report that while they can see value from an intuitive viewpoint, the objective criteria needed to opine about value in an objective report is simply not there.  

Occasionally, the stock market affords us a demonstration of this conundrum and the recent transaction involving Merck’s acquisition of tiny Cubist Pharmaceuticals is a good example.  Cubist was formed in 1992.  It has fewer than 1,000 employees but it has been publically traded at a price that did not crack the $25 mark until 2010.  Startup pharmaceutical companies can be a roller-coaster as good and bad news circulates about the products they are trying to develop.  Moreover, it costs millions if not billions to bring a meaningful drug to market and that investment is typically a multi-year journey.  However, Cubist rose in price on a pretty steady basis until early 2014 when it reached $75 a share.  In 2014, after peaking early, it tumbled back toward $60 and then clawed up to $75 a share.  

In today’s world pharmaceutical companies trade at about 40x earnings.  As December approached Cubist was trading at 87x earnings, more than double the industry average.  It’s profit margin was 5.6%. Operating margin was 9.5%.  Return on assets was 2.3%.  Return on equity 4.47%.  On these numbers one could argue that the market had it a little overpriced. 

Then Merck stepped in offering to buy the company for $8.4 billion; roughly $110 a share.  That’s just about one-third more than the market thought it was worth the day before.  But then, on the very evening when the sale was announced, a court in Delaware issued a ruling that challenged one of Cubist’s patents.  Cubists shares instantly fell 4% and Merck’s shares fell 5%. 

Cubist’s largest individual shareholder holds 176,000 shares.  He saw this transaction coming as he is the CEO.  Let’s assume he was dividing his property with a spouse.  Last Friday his spouse would have been negotiating over shares with a market value of $13,200,000.  On Monday those same shares were worth $19,360,000.  A day later; $2,640,000 less.   If you were being divorced from the shareholder and made your deal on December 5, you would have had no idea that the following Monday would see the shares worth an additional six million.  But then who could predict both a court ruling on Tuesday and just how the market would react.  The experts are saying Merck overpaid by $2 billion. 

The point of this is that we all like certainty when valuing assets.  But even it situations where the stock is publically traded, the tides of the market can change precipitously.  The problem is all the more difficult the smaller the business involved because small companies, like small boats, are less seaworthy in changing economic climates.

The process of equitable distribution is multi-stage, often involving one or more conferences with a “master” specifically assigned to the case and who is an expert in equitable distribution. The master develops a recommendation which can be accepted by the parties; negotiated further, or; rejected outright by one or both parties who take exception to it and move the matter to an equitable distribution trial before a judge. The recommendation is just that – a recommended outcome – and while the master’s recommendations often closely mirror the outcome determined by the judge, they are not dispositive and they are not binding once the parties go before a judge.

Due to the propensity for the trial court to seemingly adopt the master’s determination, litigants can get confused as to the weight afforded the recommendation by the trial court or fail to understand that the trial court has no obligation to incorporate in part or in whole the recommendation. It is against this reality that the Superior Court recently issued a non-precedential (i.e., it cannot be cited as law) opinion highlighting the trial court’s ability to fashion an outcome dissimilar from the master’s recommendation.

The case, Waterstone v. Waterstone, Memorandum Decision, No. 444 MDA 2014 (Pa.Super. November 13, 2014), involves the trial court’s decision to deviate from the master’s recommendation on the allocation of marital debt. Wife received 60% of the marital estate and while the master allocated only 20% of the marital debt to Wife, the trial court – recognizing the disproportionate amount of the assets awarded to Wife – decided to allocate 40% of the debt to Wife. Wife’s arguments for a greater portion of the debt going to Husband are persuasive – she alleges that the bulk of the debt was due to gambling and repairs made to automobiles that he was keeping. Nevertheless, the trial court declined to consider the manner in which the debt was accumulated; it cited the well-settled law that since the debt was accumulated during the marriage it is subject to equitable distribution.

Wife’s reliance on the master’s recommendation was misplaced. Though both the master and the judge were considering the same equitable distribution factors, the judge is ultimately making findings of facts and conclusions of law. The trial court judge may make, in his/her discretion, determinations on credibility and evidentiary determinations. What may have persuaded a master at the equitable distribution conference may not have been admitted into evidence at trial.

Though it is unstated, the master’s hearing may well have been a non-record hearing; meaning there was no transcript taken establishing evidence on the record which could be relied upon at the trial level. Absent that record, the trial court would have been the opportunity to place on the record all of the essential facts for the trial court to consider. The trial court, affirmed by the Superior Court, made their own independent decision on the distribution of the assets and liabilities and Wife lost her appeal.

I’m sure it felt cathartic at the time. An estranged husband rolled his wife’s 1990 Camaro into the Delaware River. He was frustrated that his wife had not turned the family mini-van over to him.

The funny thing about having impulse control issues is that there is a certain lack of foresight as to the consequences. For instance, there is the impact on your divorce case: destroying a marital asset such as a car will likely result in the value of the vehicle being assigned to him at equitable distribution.

Other consequences that this gentleman failed to consider would be the law enforcement response to his actions. Perhaps it did not occur to him that dumping a car in a river might be illegal and that the police have the obligation to send divers into the freezing cold, 30 foot deep water to make sure no one was in the vehicle when it went under. He might not have considered that the police consider having to deploy divers into a dangerous environment for a frivolous reason the reckless endangerment of law enforcement officers.

In his mind, however, the husband, John Kramer, didn’t think he was doing anything wrong. How do we know this? Mr. Kramer’s next move, after having had an arrest warrant issued and his actions garnering a lot more attention that he expected, was to talk to a reporter. In what is probably an interview chock full of good sound bites, the husband, John Kramer, pleads to Philadelphia CBS3’s Todd Quinones, “I didn’t know I was doing anything wrong.” He was sick of fighting over the car and really wanted to use that mini-van.

Of all of his poor decisions, however, Mr. Kramer’s greatest sin was that of pride: according to detectives interviewed by Quinones, he boasted to his wife over text that she could find her car in the river. Unfortunately for him that text violates the Protection from Abuse Order she has against him which prohibits direct and indirect contact. That text could constitute contempt of the PFA and potentially land him in jail. The PFA contempt would be a separate action from the criminal charges the police has filed against him.

Mr. Kramer’s interview made a bad situation worse by making admissions as to the commission of the act and having fled the area. He caps off his day of backfiring decision-making by then dictating through the media his conditions for turning himself in to the police (his demand: released in eight hours on an ankle monitor). This string of decisions took what may have been a frustrating and contentious divorce case and now expanded it to criminal charges, the likelihood of fines, jail time, and a worse outcome in his divorce (and, I assume, any custody case). The momentary gratification of antagonizing an estranged spouse rarely results in any long-term gain.


Aaron Weems is an attorney and editor of the Pennsylvania Family Law Blog. Aaron is a partner in Fox Rothschild’s Blue Bell, Pennsylvania office and practices throughout the greater Philadelphia region. Aaron can be reached at 610-397-7989; aweems@foxrothschild.com, and on Twitter@AaronWeemsAtty.

We periodically report on macro trends in housing prices because our clients typically have a lot of their wealth invested in their homes.  And each time we have a case, one of the questions that comes about is:  Stay or go?

We recently happened upon some data that gives us insight into home values measured over roughly 20 years.  In the early 1990s Toll Brothers began to build luxury homes in central Chester County, about 30 miles Northwest of central Philadelphia and accessible to the city both by train and turnpike.  These were big homes ranging in size from 3100-6300 square feet on lots that were typically one acre.

What was unusual was that we identified seven homes on one street which had sold in the last nine months.  We confirmed that this was not a fire sale caused by the construction of a nuclear plant or abattoir next door.  Moreover the economy of this area is strong with low unemployment.  Median household income in the township where the homes are located ranges near $100,000 per annum.

The homes we examined were all built between 1995 and 1998.  Only one sold more than once during the last 18 years.  So, we looked at what they sold for when built and what prices they commanded in 2013 and 2014.

A.     7/2014 4/4 6300 1        650,000 1995/410,000
B.     7/2014 5/4 4800 2        570,000 1995/435,000
C.     2/2014 5/3.5 5200 1        590,000 1998/335,000
D.     11/2013 5/4 3100 1.2        555,000 1997/341,000
E.    10/2013 4/2.5 4200 1.2        557,000 1996/345,000
F.    10/2013 4/2.5 4500 1        579,000 1995/435,000
G.    10/2013 5/4 3500 1.3        565,000 1995/354,000


Four of the Magnificent Seven were sold in 1995 at an average price of $85.50 per foot.  In 2013-4 these houses sold for $124 per foot.  Over 19 years, the average return comes to 2.4%.  This trails the 2.7% average annual increase in consumer prices over the same period.  It rose from 162 to 245 for the Philadelphia region.

The lesson.  In June 1996 the S&P 500 closed at 670.  Nineteen years later it was just over 1600. So where the Toll Brothers manse increased by 1.45x, an index fund would have increased 2.3x.

Now, we acknowledge, you can’t raise a family inside an index fund.

An index fund does not allow $250-500,000 in gain to pass tax free.

And you can’t margin stock 90% anymore when you can still buy a house with less than 10% down.

But houses are not the investment they were from 1950-2007.  We are in a new age where real estate is not high-yield and risk free.  So, think clearly when choosing to keep a marital residence.