In a case of first impression the United States Court of Appeals has ruled that claims for punitive damages are justiciable under Pennsylvania Uniform Fraudulent Transfer Act 12 Pa. C.S. 5104. In so holding, the Court has predicted Pennsylvania state courts would decide that a plaintiff could claim punitive damages under Section 5107 of the Act because the statute allows “any other relief the circumstances may require.” 

Although this was a civil action brought in federal court between diverse individuals, the case is actually a family law based claim.  In 1999 Plaintiff and Defendant secured a divorce in California.  The decree provided for payment of both spousal and child support.  While Defendant paid “some” child support over the course of the next nine years he never remitted any of the support due to Plaintiff in her own right.  In 2006 the Defendant re-married.  In 2008, the Plaintiff sued for the sums due her under the decree.  A judgment for just under $550,000 was entered by Plaintiff against Defendant in Pennsylvania state court in August, 2008.

Just prior to his re-marriage the Plaintiff acquired a property in Chester County from his Mother. Days after the marriage he conveyed the interest into a tenancy by the entireties with his new wife.  He also did the same with shares of his corporation.  The 2008 case by Plaintiff sought a re-conveyance of the real property to Defendant individually.  The District Court ordered that remedy in January 2010.  One month later it ruled that the corporate conveyance was also invalid.  Finally, in July 2010 the Court held that punitive damages were available and assessed them in an amount equal to the $550,000 arrearage.  An appeal to the Third Circuit was stayed for some time by Defendant’s Chapter 11 filing in the U.S. Bankruptcy Court.  That Court denied discharge of the Plaintiff’s claims.

The basics of the claim of fraudulent transfer were clear.  The Defendant’s new wife was an insider; she provided no consideration for her interest acquired.  The Court found that she knew of the claim at the time of marriage and the conveyance in her favor.  The conveyance of the business interest and real estate interests into the entireties effectively left the Defendant without any assets in his sole name.

As for the matter of punitive damages, the Court noted a 2001 email from Defendant to Plaintiff that he would never pay her again.  His California lawyer wrote in 2005 that his client had made his assets impenetrable from Plaintiff’s claims.  It was this conduct which prompted the Trial Court to find a specific intent to defraud.  It was compounded by litigation strategies that appear to have included threats to attorneys and groundless legal actions directed at the Plaintiff. (Opinion at p.29)

While it is an accepted principle of law that punitive damages typically require legislative authorization, the District Court and the Third Circuit found that the reference to “any other relief” in the remedies segment of the PUTA was sufficient to permit punitive damages.  At page 26 of the opinion the Court notes that punitive damages are an accepted equitable remedy, citing  Nebesho v. Brown, 846 A.2e 721, 728 (Pa. Super. 2004).  It is further noted that Section 5110 of PUTA embraces principles of law and equity related to fraud and misrepresentation.  Noting that Maine, Missouri, Ohio and Utah have all decided that the Uniform Act allows punitive damages, the appellate court held that Pennsylvania would adopt this interpretation of Section 5107.

While similar holdings have been made in prior district court cases decided in Pennsylvania (opinion at 32), the Court of Appeals has now added its endorsement to the mix.

It is not uncommon for clients to ask their counsel what can be done to insulate a spouse from collection of sums due in a domestic relations context.  For those, answering the question Klein v. Weidner et al. is a game changer.  U.S. Court of Appeals for the Third Circuit. 10-3218. Published 9/3/13.

Earlier this year, Mark Ashton, a partner in our Chester County office, wrote about the Pennsylvania Supreme Court decision, Focht v. Focht. This case is significant because it overruled Pennsylvania’s prevailing caselaw addressing how to determine whether a lawsuit and personal injury settlement are marital or non-marital assets. The old law looked to the timing of when the proceeds were received as determinative of whether or not it was subject to equitable distribution. The Focht decision established that it was when the cause of action accrues which determines whether the eventual settlement proceeds or judgment are marital assets or not.

This decision was recently cited in the July denial of an appeal from a Northumberland County decision, Glosek v. Glosek, CV-2005-1695. 

Continue Reading Cases Citing Recent Decision as to When Lawsuit Proceeds Are Marital Begin to Roll In

Jenice Armstrong of the Philadelphia Daily News wrote a column about Beth and Daniel Shak’s divorce. The Shaks divorce was finalized in 2009, but recently Mr. Shak filed a petition to enforce the parties’ settlement agreement and is seeking 65% of Mrs. Shak’s extensive (and expensive) shoe collection. Mr. Shak contends that this collection is an asset that was not disclosed as part of the parties’ property settlement agreement and that Mrs. Shak did not provide a “full and fair” disclosure of this collection nor did she list it in an inventory of her assets.

Continue Reading Expensive Shoe Collection Brings Divorced Couple Back to Court

The practice of family law is where practicality meets emotion with diverse consequences.  For some, divorce comes upon them like a changing tide; for others, it is an emotional tsunami.  People fall apart for various reasons, but the two most common are: “I like someone better,” and “I can’t live like that.” The former has to do with love; the latter with money.

Bala Cynwyd psychologist Maggie Baker’s new book, Crazy About Money: How Emotions Confuse Our Money Choices And What To Do About It (2010: HW Press), dissects the caverns of emotion that money has carved in the American psyche.  As a student of history, what amuses me about the topic is how new and pervasive money management has become in America.  Until 60 years ago how money was managed wasn’t much discussed.  Nobody really had any worth talking about. 

But today lots of people have money.  And they fret over it.  People who don’t have money also fret over it.  Baker’s book isn’t about the money.  It’s about the fretting.  And in paging through it, one comes to recognize how emotional a subject money has become.  Often it is the catalyst for divorce when couples realize that their approach to asset accumulation is completely divergent.  Typically, for men, money is a source of power.  Some like it parked in their garage; some drive 15 year old cars because power is better displayed in the pages of their monthly brokerage statement. Women tend to see money as a source of security, although for some a pair of pumps can be as exhilarating as a Porsche 911 and we see a fair amount of unbridled spending for anything related to “the children.”

 Baker’s book reminds us that these habits come from our emotional framework and our financial history.  They are very deeply rooted but they can be changed if we are willing to invest time trying to understand our history and open our eyes to how we perceive our financial world.  I daresay that couples who feel powerless because of irreconcilable financial differences actually can save a marriage if they jointly explore what those differences are and where they come from.  It might save your marriage and deprive the voracious lawyers of a fee.  Oops, did I say that?

Divorce lies at the confluence of Character and Money; two streets that don’t intersect snugly. Time and again, as lawyers we are asked to “expose” the character of the other spouse so the Court may fully appreciate what a lowlife you chose as your life partner.  Read that last sentence a second time and realize its inherent inconsistency.  With some limitations we will attempt to do what you ask because we are the lawyers and this is your divorce that we are handling. But before spending a king’s ransom on this illusory goal, take some time to think about a couple of factors.

First, since 1980 Pennsylvania is a “no fault” jurisdiction.  Marital misconduct, weird behavior, kinky obsessions do not matter. The evidentiary term is that these things are irrelevant. There is one exception. Marital misconduct is supposed to be a factor in deciding alimony. The Divorce Code says so.  But ask trial judges and hearing officers how they evaluate marital misconduct and more often than not the response is a shrug. “If husband cheated on wife but husband testifies that wife would not have sex with him for years before the event, what am I supposed to do?” How much is adultery worth?  Judges feel comfortable trying to assess things like how much a person can earn and what expenses or needs are reasonable but if a wife belittled husband in front of their friends for ten years, should she get less.  So the result is that while marital misconduct is “relevant” in deciding and alimony award, it usually means very little.  There is one exception and it actually affects asset distribution as well. If one spouse burned through assets while in the course of “entertaining” a love interest, those assets are often treated as an advance to the spouse who spent them.  We have represented both the victims and the perpetrators in these cases.  Most recently, a husband lost his job and, while telling his wife that he had secured alternate work as an independent contractor, the fact s turned out to show that he was spending their life savings while he flew around the country and entertained a number of different women. Not modestly either.  Limousines, four star hotels and daily floral deliveries all turned up on the credit cards. By the time we added all of these indulgences and tallied them as advances to the husband, Wife ended up with 90% of the remaining assets.  Husband decided that he preferred not to sit through a trial where these various trips and engagements would be explored in detail and the case settled.  But this is the exception and not the rule.

In most cases, what we hear is that one spouse refused to work, or spent money too freely or demanded that the couple buy the stupid timeshare in the place that no one ever goes to. If this behavior represents a complete shift in character it may get some consideration from a court.  But, more often than not, when lawyers try whining about these issues to judges they are told (outside the open courtroom) “So what do you want me to do; he married her and they stayed together for ten years in a state of perfect antipathy.” After all, it’s no fault.

So the argument that the court will side with one party versus the other once a court gets the flavor of just how evil your ex has become really tends to be oversold by clients. At the end of the day, the real factors that matter are how much each party can expect to earn between now and retirement, how much there is to divide now and what each party contributed to creating the marital pot. Parties obviously love to fight over the last subject with the higher earning spouse pointing out that he or she made most of the money. But, if the other spouse stepped away from the economic wheel of fortune to raise children, most courts will view that as a major contribution on par with 10 hour work days and constant business travel. Character does matter, but not in the way that most litigants would like it to.

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.