Pennsylvania Family Law : Pennsylvania Divorce Lawyer & Attorney : PA Family Law Blog : Fox Rothschild Law Firm : Family Law Serving Philadelphia, Pittsburgh, Bucks County, Montgomery County, Chester County

For some segments of our society litigation is part of everyday life. Insurance adjusters make their living out of measuring damages and assessing the risk and cost of doing battle over insurance claims. As such, they make judgments every day as to whether a particular claim is something they want to fight over. In so doing, they take into consideration the damage the claimant incurred, the cost of contesting the claim and the likelihood they will prevail over the claimant (or otherwise reduce the claim recovery).

Businessmen are not as immersed in litigation as those in the insurance industry, but businesses deal with various kinds of legal claims every day. Employees sue for wage claims or discrimination claims. Developers battle municipal authorities over home many homes they can build on a parcel. Again, each of these matters involves assessment of risk and benefits associated with potential litigation.

Family law litigants, even those who assess commercial risks and rewards every day tend to lose sight of the fact that they have a role in deciding when to fight versus when to switch. Tell someone that a planned vacation with his/her children for the summer has been abruptly “cancelled” by a former spouse and many will tell you they do not care what it costs to enforce their rights as parents. That may be true until the bill comes in.

In family law, many clients tell us that they are fighting for principle. Principle does have its place and there are times when a matter must be litigated simply to “send the message” that a client takes his or her rights very seriously and will invest in the principle of the matter even when a dollar recovery is remote. But even in these cases, it is worthwhile to ask, how likely is it that the principle I am promoting will be validated by the Court. And what will I invest for that validation.

A classic example involves child support. Even in a world where there are support guidelines with explicit definitions there is still room for battle. Husband loses his job in the current economic environment. Wife says he quit. Husband says he was laid off. Wife wants to assert that support should be based not on his unemployment but his earning capacity. There is a triable issue of fact. But what is the likelihood that each side will prevail? And what is the cost of the hearing or trial.

Let us say that unemployment is $2,000 a month. Husband formerly earned $7,000 a month. Assume spousal support only is in issue. Further assume that Wife is working and making $2,000 a month. Husband’s best case is no support at all as wages are equal while he is unemployed. Wife’s best case scenario is that Husband owes her $2,000 a month in support based on his earning capacity. Now we have a range of outcomes. Let’s assume that Wife’s attorney estimates his chance of a total win at 50%. The value of the claim is no longer his best case of $2,000 a month but half of that amount. Now how long can he expect to collect the support if he prevails. If it is estimated at two years the value of the claim is 24 months multiplied by $1,000 representing the value of the claim. Now the question becomes what are the litigants willing to spend to enforce an outcome that centers around $24,000. If they try the case for a day before a judge or hearing officer they will each invest probably 30 hours between the various preliminary proceedings. At $300 an hour, each will invest $9,000. Now we see an $18,000 investment pursuing a probably $24,000 outcome. Now, bear in mind, each party will only be putting up half but most would agree that $9,000 is a fairly pricey expense where $24,000 is the probably value of the claim.

Take equitable distribution of a case involving $500,000 in assets. The best outcome for a dependent spouse is probably no greater than 60% or $300,000. The primary breadwinner argues that the spouse can make as much as he can and he proposes 50/50. That means Wife gets $250,000; a discount of $50,000 from her goal. The “spread” buys roughly 165 hours of legal time. That may seem like a lot but spread it over the 18-24 months that most divorces take in Pennsylvania and we are now looking at each side devoting 4 hours a month to preparation and litigation of the case.

The point is to use your attorney and pick your fights wisely. Remember that a $100,000 claim where you have an 80% chance of a win is only an $80,000 claim in reality. Meanwhile, the cost is certain to occur. Even when the most important of principles is involved; cost and likelihood of winning are two factors that cannot be sensibly ignored.

• Email This
• Print
• Comments
• Trackbacks

It is a common scenario. When a couple divorces, one or both spouses may have a retirement plan governed by the Employee Retirement Income Security Act of 1974 (ERISA). The most common ERISA retirement plan is the 401(k). As with other assets, those ERISA retirement plans must be divided and/or distributed between the spouses. It is easy to assume that the distribution of an ERISA retirement plan is addressed in a property settlement agreement or divorce decree, no further action is needed. However, ERISA contains strict rules regarding how a participant can change a beneficiary, and includes a strict “anti-alienation” provision that prohibits benefits under a plan from being “assigned” or “alienated.” ERISA sets forth specific requirements that must be followed when changing a beneficiary or during the one exception to the anti-alienation provision: divorce. 

The Supreme Court of the United States issued an Opinion on January 26, 2009 addressing this issue. In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan et al., 555 U.S. ___ (2009), a husband named his wife as the beneficiary to his employer’s savings and investment plan (SIP) during the parties’ marriage. The parties later separated and the divorce decree stated that the wife was “divested of all right, title, interest, and claim in and to . . . any and all sums . . . the proceeds [from], and any other rights related to and . . . retirement plan, pension plan, or like benefit program existing by reason of [the husband’s] past, present or future employment.” The husband never executed a form to remove the wife as his beneficiary of the plan.

The husband passed away and the parties’ daughter asked the husband’s employer to pay the benefits to the husband’s estate. The employer refused, citing the beneficiary designation form completed by the husband, and paid the benefits to the wife. The daughter sued the employer. The District Court found for the daughter. The Fifth Circuit reversed. The Supreme Court affirmed the holding of the Fifth Circuit, albeit using different reasoning than the Fifth Circuit.

The Supreme Court’s rationale was essentially that the plan documents set forth explicit directions regarding how to set and change a beneficiary. The husband followed the procedures to list the wife as his beneficiary, but neither the husband nor the wife followed the proper protocol to change the beneficiary to the husband’s estate. The language contained in the divorce decree did not follow the requirements of the plan and was, therefore, not an effective change of beneficiary.

The moral of this story is that when a retirement plan is being divided, the rules of the plan itself as well as the requirements of ERISA must be followed very carefully. In the Kennedy matter, the husband’s pension benefit was awarded to his ex-wife despite an order of court because of a failure to follow plan rules. Other possible implications include unintended tax consequences and penalties, waiver of benefits.  So when in doubt, call the plan administrator to ensure you are following all of the rules correctly.

• Email This
• Print
• Comments
• Trackbacks

Most of us do not spend our spare time reviewing recent amendments to the US Bankruptcy Code. But if you are contemplating or going through a divorce a bit of attention is warranted because the 2005 amendments to the law change the landscape of what occurs when bad times come about.

A little history tells the story.  Twenty years ago the prevailing bankruptcy law distinguished between equitable distribution and alimony obligations. An obligation to make a payment or asset transfer as part of an equitable distribution payment or order was dischargeable.  An alimony obligation could not be avoided because it was seen as a form of support.  In the mid-1990s the statute was amended which called for a balancing of the hardship of enforcing the order against the consequence to the spouse or family member.  This balancing test was applied to both alimony and property distribution obligations.

In 2005 the Bankruptcy Code was amended again with lots of pressure from the credit card industry to limit the power of consumers to avoid obligations of all kinds.  Congress was bitten by the bug and one of the collateral effects was amendment of Section 523 to provide that any form of Domestic Relations Obligation was no longer eligible for discharge.  Section 101 states that a Domestic Relations Obligation includes debts to spouses, former spouses or children in the nature of alimony or support.  Except in Chapter 13 cases any obligation contained in a Property Settlement Agreement may not be discharged. Chapter 13 cases are essentially personal “reorganization” cases. The new statute will allow discharge of a property settlement obligation so long as it is part of a reorganization plan and is not a support obligation.

Failure to pay support obligations can also thwart a bankruptcy.  The statute permits federal courts to dismiss Chapter 13 cases or to deny discharge from debt premised upon an obligor’s failure to comply with a support obligation. The spouse who is owed the money can even ask that your Chapter 13 plan (essentially a work-out of debt) be converted to a Chapter 7 (a forced liquidation of your assets to pay creditors) premised upon failure to pay support on a timely basis.

What does this mean in practical terms?  It means that you have to watch out what you sign up for. You can sign leases, promissory notes, guaranties and credit card agreements by the bushel. At the end of the day you can pretty much avoid those obligations by filing a Chapter 7 bankruptcy or establish a work out plan through Chapter 13.  But if your obligation is to a spouse or your kids, the rules are different and those obligations are going to survive your bankruptcy.  For high income individuals, there is a tendency to overcommit because the person has a long history of significant earnings.  We commonly have client’s tell us: “I know it’s a lot of money to pay but I have always been able to make money and I will find a way to do it this time. “  Historically, we have tried to structure these deals with a heavy emphasis that the obligation is a property based one and not support with the understanding that property based obligations could be eligible for bankruptcy protection.  Since October, 2005 that technique has lost its vitality. So let the promisor beware.

• Email This
• Print
• Comments
• Trackbacks

At most initial interviews we listen to what clients tell us to be the history of the marriage and the asset pool we are addressing and attempt to predict an equitable distribution result.  Sometimes our predictions are very accurate; sometimes they are not.  Perhaps because they are bashful, many clients do not stop to ask us, why is it that the marital estate is not being equally divided in an equitable distribution proceeding in Pennsylvania. A very fair question indeed since a lot of money can compose the difference between an equal (50/50) split and the seemingly extreme 60/40 split.

Pennsylvania adopted equitable distribution of marital property in 1980.  Before that, all property was divided based upon title.  If I owned something it was mine and you had no claim.  If it was in your name, it was yours even if I paid for it, built it, played in it or whatever else.  If property was jointly held, that property was to be divided equally.

The 1980 amendments (which remain the law today) were intended to make for an “equitable distribution”. Title to property no longer really mattered.  If it was acquired during the marriage, the property was marital without regard to who held title.  The 1980 law also set forth approximately 10 factors that the Court was to consider in deciding how to divide the property between spouses.  This is in contrast to the law in community property states (mostly in the Southwestern US) where property is always divided equally.

The factors have been amended in 1988 and again in 2005.  But some are more important than others.  The two biggest factors are ordinarily the length of the marriage and the earnings disparity between the parties. The longer the marriage, the more the earnings disparity comes into play.

Most people today are married when they are young and there is not a large disparity in incomes.  As the marriage progresses, it is fairly common for one party to put a focus on family while the other sustains a focus on career.  The result is often that after several years of marriage one spouse out-earns the other by a factor of 1.5-4x.  Often the family oriented spouse comes through the divorce with a history of no employment for several years.

The disparity in the division of assets ordinarily favors the spouse who is at the economic disadvantage from an income viewpoint. In a 20 year marriage if one spouse is earning $125,000 a year because the focus remained on career while the other is earning $30,000 a year, a court will look at this and focus on the fact that coming out of the lengthy marriage, the advantaged spouse has 3x the ability to accumulate future assets before retirement and, often, the most productive years are behind both of them. If the couple is 50 years of age, the spouse with the $120,000 earnings can reasonable anticipate on another $1,800,000 in income before retirement on a pre-tax basis.  The spouse making $30,000 is looking at an earnings potential more in the $450,000 range.  That is a pretty large spread and, in the minds of most hearing officers and judges, it more than justifies a split in favor of the disadvantaged spouse. Typically, folks with this kind of earnings history might have a marital estate of $350-500,000.  The difference in affording a 60/40 split rather than 50/50 would be $35-50,000 in terms of the shift in equitable distribution, an amount that the advantaged spouse can make up by reason of the earnings disparity in a little more than 1 year. Historically, this kind of case has not resulted in any significant alimony award.  But that trend is changing as we are seeing Courts look more favorably upon alimony as a supplemental remedy.  Court ordered alimony is modifiable and terminates upon remarriage or cohabitation. Our impression is that alimony is being viewed with more favor because of its modifiability.  In the past, a 50 year old with a solid earnings record in the 100,000+ range was viewed as having reliable earnings for the rest of his or her career.  Today, that is no longer a certainty as employers tend to thin the herds of employees by resort first to the most expensive ones.  If the payor spouse loses a job the alimony can be modified or extinguished.  We are seeing more conservative distributions (not as disparate) but they appear to come coupled with lengthier and greater alimony awards.

In most cases, equitable distribution awards actually reference all of the factors found in the Divorce Code. But length of marriage and relative earnings are the big two followed by a sizable non-marital estate and/or the role of a parent as primary caretaker.  The other factors are in play but they tend to be the tail and not the dog in the process of dividing a marital estate.

• Email This
• Print
• Comments
• Trackbacks

We are litigating several cases currently where much of the value that is subject to equitable distribution comes from an increase in the value of assets that were in the hands of one spouse prior to marriage or gifted to one spouse only during the marriage.  In contrast to the view of most other states (including New Jersey and Delaware) Pennsylvania includes the value of this any increase in value of non-marital property that came about during the marriage.  Assuming that you were married on January 1, 2000 or inherited property on that date, as of December 31, 2007 chances are that there was a pretty heft increase in the value of that asset if was invested in real estate or equities.  In some situations, the increase might even outstrip the value of the underlying gift.  A fair example would be if you had inherited shares of the retailer Target in late 2000.  The stock was worth $33 a share.  If you separated in late 2007 the stock was up almost one-third to $50. If you inherited 1,000 shares, the underlying $33,000 would be your non-marital estate and would not be subject to division in equitable distribution.  But the $17,000 increase in the stock would be “in” the marital pot and could be divided either in value or in kind.

When the market last crashed (November 2000-September 2001) many litigants who separated before the tumble found themselves in trouble because the statute referred only to the increase between the date of the gift or marriage (in the case of pre-marital property).  Any subsequent decrease was not referenced in the statute.  So a part could find him or herself subject to an order dividing gain that no longer was around to divide. The 2005 amendments to the Divorce Code addressed that with Section 3501(a.1).  That Section stated that the increase subject to distribution was the lesser of (a) the increase from date of marriage or gift to date of separation or (b) the increase from marriage or gift to the date of distribution.

Target offers a great example.  Mr. X inherits or marries already holding his $33,000 of Target stock.  The couple separates when the price is $50 and Mrs. X lays claim to half or more of the $17,000 increase.  But, alas, the case did not settle on the date of separation and today (11/10/08) Target closed at $36 a share.  If they are dividing the estate tomorrow, the “increase “ is 1,000 shares x $3 a share ($36-33).  The increase in value case is no more.  Need a more extreme example.  If the Chairman of Lehman Brothers married on January 1, 2004 and owned a million shares he had $40,000,000 in premarital assets.  By January 1, 2007 he had doubled his net worth and risked an equitable division of another $40,000,000 in value.  Today his 1,000,000 shares are worth $60,000.  Can he ask his bride to share in his loss? Not the way the statute reads today.  Of course, had he margined his stock to buy a $10,000,000 unit at Trump Tower in Manhattan, we may have some marital debt to divide once the property is sold.

With the markets being as volatile as they are, it is tough to settle cases.  But today it pays to watch the ticker while your in the room dividing.

• Email This
• Print
• Comments
• Trackbacks

In the scheme of things, worrying about car insurance while n the process of divorce may seem unimportant. You likely have other, more pressing issues to address, such as who is getting the house, or the pension, or Thanksgiving with the kids. So long as the existing policy is being paid, it is easy to assume you are covered.

Unfortunately, it may not be so simple. In fact it is imperative that you confirm you are sufficiently covered, especially in certain situations. A quick call to you agent may save a lifetime of expense and aggravation in the event of an accident.

First, if either you or your spouse moves and takes a car, make certain your auto insurance carrier is notified. Most policies list the home address for each car. If the car is no longer garaged at the address listed on the policy, the policy may be canceled or any claims you incur may be denied.

Along the same lines, you will want to ensure that your policy does not require that you and your spouse remain residents of the same household. Many policies provide discounts for married couples, but require that the spouses are living together. If you are no longer living together, as required by the discounted policy, the policy may again be cancelled.

In addition, it may be a good time to review whether you need the same level of coverage as you did when you married. It’s likely that the coverage amounts you chose when married were based on joint assets. You may have different assets now and different coverage needs. It may make sense to raise your deductibles and/or eliminate comprehensive and collision coverage on the car you took from the marriage. Now that you are single or separated, the cost may outweigh the benefit.

One should also look at how to cover children who can drive. The most important consideration is honesty with your insurer. It may be less expensive to list the child’s car as primarily at one party’s home or the other. But you do not want to end up with the child’s car listed as garaged at your home for cost reasons when in reality it is garaged at the other parent’s home. Again, this may create a situation where the policy is cancelled or a claim is not covered. Your insurance agent can help you work through the realities of your particular situation so that you are not at risk of being uncovered but are not paying unnecessarily high premiums either.

Finally, it is a good time to get cars re-titled and separately insured. If there is a battle over what that car is worth agree to change title without prejudice. That preserves your right to assert that the autos should be values differently when divided by a Court.
 

• Email This
• Print
• Comments
• Trackbacks

Although the Bible tells us we should not covet property, the plain truth is that we do and we spend lots of time acquiring what lawyers call personalty. Most of us like to own things and nothing makes us happier than to acquire things that are rare, handsome or both. When couples divorce it often happens that dividing the household contents becomes an enormous side show under the big top called equitable distribution of property. For those inclined to have such battles here is some free advice.

Most of what we own is pretty close to worthless. Buy a sofa for $2,000 and take it home. Put it on your front lawn and you might get $800 for it if it’s still wrapped in plastic. Let your kids jump up and down on it a few times and you can halve the price again. Want is appraised? Plan to spend $100-200 an hour so that you have something to fight about.

Having said that, there are valuable things in life. If there weren’t we would not be able to watch Antiques Roadshow on public television. Just about everyone owns a collectible piece of something. But we also tend to misunderstand value and just how volatile the market is.

The good news is that we are not alone. Even people who profess to be experts on personal property often are wildly wrong. This is especially true if the article in mind is rare or unique. The cleanest way to decide value is at public auction. But public auctions are useful but can have their own limitations.

Take the case of the two major auction houses: Christie’s and Sotheby’s. America’s finest collectibles whether tall case clocks or vintage wines are sold weekly by these houses. They have expert staffs to assist sellers in marketing the consigned items and in helping to determine the appropriate price at which an item will sell. Open their catalogues either in person or on line and they will give you an estimate of what any given item is expected to fetch based upon their century or more of experience.

Usually the pre-sale estimates are close to what the object sells for although in times like these you will see the range of possible sale prices broaden. But even the experts can be left dumbfounded on some of the lots. In January, 2007 Sotheby’s had its annual “big” sale of American Antiques. In January, 2007 one such lot was a New Hampshire tea table estimated to bring $7,000-10,000. It was knocked down at $36,000 even though it had been extensively restored. Also stunning was another New Hampshire piece; a fairly conventional bow front chest of drawers that was estimated by Sotheby’s to bring $3,000-5,000. The hammer did not fall until the piece reached $70,000 and that meant $84,000 by the time the auction house was paid. The surprise of the auction was a fairly important dressing table made for a prominent Philadelphia family in 1765. The estimate was not shabby at $300,000 to $600,000. Bidding stopped at just over $4.4 million. It’s not all uphill either. Another Philadelphia piece, a tilt top tea table was expected to fetch $15,000 to $30,000. The bidding never made it to $10,000 and the reserve was not met.

Chances are you don’t have much stuff of this caliber in your household. But the lesson is that appraisers are often as baffled as we are. If you are trying to figure out value, a good first step is to see what you can learn from Ebay by looking for items similar to yours. If you are an Antiques Roadshow fanatic listen carefully to when the appraiser says what an item could or would expect to obtain at auction and what they describe to be the insurance value. The difference is like that between wholesale and retail. A good portion of the buyers at auction are antique dealers. They don’t pay $5,000 for a piece of silver with the expectation of selling it for the same price. They pay $5,000, polish it, put it in a shop they rent, hire sales people to show it off and ask $12,000 for it while you are roaming through the shops in Carmel or Nantucket. That’s how they make their living. Unless you are willing to do what they do; don’t expect that something is “worth” what you see it for in a retail setting. These principles apply in the free market and in valuing assets in a divorce proceeding as well.

• Email This
• Print
• Comments
• Trackbacks

In a recent case, I saw a Judge direct his sheriff to handcuff a mother and send her to jail for failing to give the father the family photographs so he could make copies. Prior to that hearing, there was a Court Order requiring the mother to do so, and she refused to follow it. Mother thought Father would destroy or lose them, because she didn’t trust him. Father thought Mother was being vindictive and purposely preventing him from sharing in the family memories when their children were young. The Judge felt someone wasn’t following his Court Order – and there were serious consequences.

One of the most sensitive and costly issues to deal with in a divorce is the family photographs, videos and all the other personal property to be divided. Who gets the dining room? The kid’s beds? The pots and pans? The patio furniture? It can cost more to litigate who gets what then to replace the "stuff" – but that’s just not fair.

In the case of Bair v. Bair, decided in May 2007 in Lycoming County, the parties spent a considerable amount of time, which equals money, to litigate personal property. The issue was heard by a Master, then a Judge, then the husband was given a date to retrieve items designated as his. The husband went to the marital residence where he picked up most items, but discovered that some were missing. The husband then filed a petition, the lawyers had a conference with the Judge, and then there was a final hearing. At that hearing, both parties testified about all of the items the husband blamed the wife for taking or destroying. At the end of the day, the wife had to return the following:

• Shop manuals and tool books
• A 4-drawer steel file cabinet
• A 30 ft. chain – or $20.00 if she could not find it
• Missing drawers for a wooden cabinet
• A log splitter – or $425.00 if she could not find it

By my estimation, the litigation fees to obtain these items cost ten times more than the value of them. A better way to deal with personal property division is to hire an arbitrator to make a binding decision. The parties make a list of all items and select the ones they want. The lists are submitted to an arbitrator and there may be a brief meeting to discuss items of disagreement. The arbitrator then makes a decision, that cannot be appealed, as to who gets what. The arbitrator can be a lawyer or a court-appointed master and the costs are significantly less than the litigation in the Bair case.

And, once the decision is final – hand over all of the stuff! It is not worth spending one minute in jail for failing to make copies of the family photographs or losing your spouse’s box of tools.

Editor's Note:  In one case the other lawyer and I actually went to one party's home to retrieve and safeguard an oriental rug - Imagine the cost of our two hourly rates just because these former spouses wouldn't (or couldn't) trust each other.

• Email This
• Print
• Trackbacks

How people managed their money during the marriage often effects their respective views on how they should resolve their economic differences during the divorce.  If one party controlled the money during the marriage, then he or she is likely to want to control its disposition in the divorce. 

For example, if a Husband views himself as the bread winner during the marriage and views Wife as “only” the custodian of the children or the “keeper of the house” (and, therefore, undeserving), he may want to retain control of the monies in the divorce and view the Wife as an unentitled or undeserving partner. 

Another scenario is where a Wife who had substantial monies from an inheritance or gifts from her parents and who supported her Husband and “their” lifestyle during the marriage – why, in a divorce, should she share any of her monies with “HIM”. 

It is always about the money! 

If not, it’s about control. And, control often involves “who holds the purse strings”. 

It is possible that our economy is headed into a recession.  No one knows how severe it may be.  However, divorce lawyers know that when economic times get bad, it is much more difficult to resolve economic issues. Why?  Because, while it always is more expensive to support two households after a divorce, in economically depressed times there are even less resources available to smooth out the economic fissures in a marriage where money was plentiful and covered over the cracks in the relationship. 

Further, this may be compounded when there is a business involved, since the valuation of the business will be depressed in a economy like the one we are experiencingnow. 

Who gets what and how much is central stage.  Money does matter.

• Email This
• Print

Historically, we have often been asked about the valuation of jewelry and coins as part of the equitable distribution process. This has never been a very interesting topic over the years as, in most cases, the mark-up on these personal effects is so high that there is often very little value left after the appraiser finishes charging his or her fee. In particular, with the average $500-$1000 piece of jewelry, it is not uncommon for the mark-up to be 10x the wholesale price of the piece involved. This is reflected in a classic dilemma. Take grandpa’s pocket watch to the appraiser for an insurance appraisal and it may be valued at $1,500. Ask the same jeweler for a quote to buy it, and the number could be one-third or less of the insurance value.

This general conclusion is shifting beneath us and merits some further consideration because of recent trends in commodity prices. Gold as a commodity has historically traded in the $300-$400 per ounce range. It remained in that window from January, 2000 pretty much through July, 2004. Since that date the rise in the price of the commodity started upward marching to $600 an ounce by July, 2006. For the next year, it traded in the $600-700 range. But since that date it has taken off to where it trades at more than $1,000 per ounce as this article is written.

Silver and platinum have risen even more precipitously. Silver was the stepchild of the commodities business since the 1980s when the Hunt Family in Texas tried to corner the market and failed. It remained in the $6.00 per ounce range for almost 20 years. But January, 2004 marked a turning point. Silver shifted into a $6.00-8.00 commodity. And two years later in January, 2006, it began a long steep rise that takes it to its current value of $20.42 (3/14/08). Platinum worked in a $400-600 an ounce range from the early 1990s through 2002. But with the arrival to 2003 it rose very steadily to $1300 an ounce by the third quarter of 2007. Since that time, the metal has rocketed off the chart to $2,150 today. That would yield an annual return of 160% if sustained.

So what does this mean to those of us who have granny’s collection of silver service for 12 or $100 worth of pre-1964 coins. It means that these objects may have real value even without considering the artistic consideration of whether the pattern is Williamsburg Shell or something else. If you bought a sterling golf tankard for $100 ten years ago, its smelting value might have been $40 (8oz x $5.00 an ounce). Today that same tankard is worth $152 even if the scrap dealer just throws it in the smelter to melt and sell. As noted above, these kinds of goods have high mark-ups and usually trade at a fraction of retail. But because the metal used is now so valuable, it may be very worthwhile to consider making the investment in an appraisal.

Bear in mind a couple of details that make all the difference. Gold found in retail goods in the US it typically 10, 14, or 18 carat. Gold is usually marked with its composition. This means it is 42%-75% gold and otherwise a composite of other hard metals. Sterling silver is 92.5% raw material so it is typically close to the commodity price. But, one needs to know the difference between silver and silverplate, as the latter is really another metal (typically copper or brass) plated with a microscopic coating of silver. So, unless the piece has hallmarks or otherwise has the word “sterling” embossed in the metal, chances are you are holding a piece of copper or brass, dressed up to look like sterling. It could still be valuable but that would be as art and not metal.

• Email This
• Print

Divorce results not only in severing a personal relationship, but also terminates an economic one. The division of marital property, or “equitable distribution,” is part of the divorce process in Pennsylvania and results in the distribution of all marital property acquired by one or both parties during the marriage. It is often at that time that a party is first faced with the dilemma of establishing a priority of assets, because they must determine which they wish to take away from the marriage. The economic realities then set in. The future may be wide open, but the party must close the door on tough economic decisions, such as: “Should I try to keep the marital residence, or do I want the pension? Do I want the 401K, or is the vacation home better?” Of course, both spouses may want the same assets and that competition may have to be resolved in a courtroom, but consideration of sound economics before entering that fray is clearly needed.

The dramatic climb in property values over recent years often made it an appealing option to trade the liquid accounts and assets for the investment, both monetary and emotional, represented by the family home. That, however, may now be changing drastically, and the decision may be much tougher than before.

The November 2007 issue of Fortune magazine reflects that home prices in most markets will “fall by double digits over the next five years.” That is a new development in America that may not have been seen since the Great Depression. That decline in value is daunting, especially when compared to the slow, but steady, growth achievable in a conservatively invested and tax-advantaged 401K or IRA. 

A party must now give even more careful thought to short and long-term goals and objectives.  Examples may include:

• Is the desire to keep the home based on (i) personal shelter, comfort, and pleasure, (ii) immediate rental income, or (iii) long-term investment potential? 
• What is the availability and price of alternative housing? 
• Will there be capital gains and taxes, and what impact will the basis have? 
• If there are minor children, what effect does the home location have on the custody scheme? 
• How does the cost of remaining in a prime school district compare to private school options? 
• Is the cost to maintain the home offset sufficiently by the tax benefits, especially when compared with renting a comparable property? 
• Is a comparable property still needed? 
• Is cash immediately required to cover liabilities and, if so, would refinancing be more effective than withdrawal penalties or interest associated with getting money out of a tax-advantaged retirement vehicle or from life insurance cash values. 
• What is the effect of the new, post-divorce tax status going to be on the whole decision-making process, and will the divorce, support, and custody determinations create an entirely new cash flow situation than existed before?

Identifying and addressing all of these issues and finding the answers to these questions as they apply to a given person’s circumstances will lead to wise choices for asset allocation. Planning and realistic appraisal of the economic and legal issues will lead to the best possible outcome from a financial point of view. 

• Email This
• Print
• Trackbacks

We often get calls regarding "divorce planning", a/k/a "How do I hide assets?"

First, plainly and clearly:  You can't hide assets for a myriad of reasons.  

If the misrepresentation takes place in a litigation setting, the failure to disclose assets brings to bear many different consequences, ranging from incurring the ire of the Court to potentially (but not usually) perjury charges.

In negotiating a pre-nuptial agreement or a property settlement agreement, Pennsylvania law requires parties to make full and fair disclosure of their assets. Stoner v. Stoner, 819 A.2d 529 (Pa. 2003); Simeone v. Simeone, 581 A.2d 162 (Pa. 1990). 

So what does that mean?  "Full and fair disclosure" is case specific, but each party to a marital agreement must disclose in full his or her respective assets to enable the other party to make an “intelligent decision” concerning the rights that they will give up under the terms of the agreement. Nitkiewicz v. Nitkiewicz, 535 A.2d 664, 667 (Pa. Super. 1988); Paroly v. Paroly, 876 A.2d 1061, 1066 (Pa. Super. 2005). 

As a practice tip, the courts likely will not invalidate a pre-nuptial agreement where you have overstated your assets, so err on the side of caution when disclosing your assets for a pre-nuptial agreement. 

• Email This
• Print
• Trackbacks

We are often asked by clients how to protect an inheritance received during the marriage in the event of a divorce?  In Pennsylvania, marital assets typically include any asset received by either spouse during the course of the marriage.  Inheritances are one exception to this general rule.

If a spouse receives an inheritance during the marriage, the inheritance is not automatically marital property.  However, any increase in value of the inheritance between the date of receipt of the inheritance and the date of separation would be marital property. 

There are a few ways that you can protect your inheritance from a divorce.

First, when you receive an inheritance, you should place it in a separate account or asset in your name only.  Make sure that you keep documentation to show where the money came from to open the account or purchase the asset, and keep the first statement for the account or proof of purchase price for the asset to prove that you did not use any marital monies for the asset.  By keeping the money in your name alone, you protect it from being divided in a divorce.  If you put the inheritance into a joint asset such as a house boat, or bank account, you risk the inheritance being treated as a gift from you to the marriage.

Another option is to ask an attorney to draft a postnuptial agreement for you and your spouse to sign. This is similar to a prenuptial agreement, except that it would signed after you are already married.  If done properly, the agreement will make sure that any increase in value of the inheritance is protected as well as the underlying inheritance.

Protecting your inheritance requires proper advance planning.  If you wait until a marriage sours, you may be too late to protect your inheritance from the divorce action.

• Email This
• Print
• Comments
• Trackbacks

In Rimel v. Rimel, 913 A.2d 289 (Pa. Super. 2006), the Superior Court addressed an issue of first impression: whether husband was entitled to a social security set-off against the value of his Federal CSRS pension where he had worked not only for the federal government, but also in jobs through which he did contribute to the social security system.

The Court decided that Husband was entitled to such a set-off, but remanded the matter for additional testimony, as the facts had not been developed which would allow for the determination of what amounted to be a "partial set-off".

The Court cited the following cases:

Cornbleth, 580 A.2d 369 (Pa. Super. 1990)

Twilla, 664 A.2d 1020 (Pa. Super. 1995)

The Court distinguished the following cases:

Elhajj, 605 A.2d 1268 (Pa. Super. 1992)

McClain, 693 A.2d 1355 (Pa. Super. 1997)

• Email This
• Print
• Comments
• Trackbacks