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

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. 

The husband in that case had his worker’s compensation proceeds included as a marital asset even though it was paid out to him approximately a year after the parties separated. The Court determined that the timing of the injury determined whether the workers compensation was subject to equitable distribution and not when the settlement agreement on the injury was entered into. He appealed on the basis of the old law (Pudlish v. Pudlish) and Section 3501(8) of the Divorce Code which addresses payments based on a claim accruing prior to the marriage or after the date of separation.

In what will be (or has been) one of many examples of Focht shaping equitable distribution outcomes, the court upheld the trial court’s decision that the Focht case explicitly overruled the old law (Pudlish v. Pudlish) and recommends that the appeal is without merit and should be dismissed. The order requiring husband to pay the wife $33,600.00 was upheld, as well as the court’s rationale in determining that specific amount.

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The Pennsylvania Superior Court recently decided its first case addressing the allocation of frozen pre-embryos between divorcing spouses. The pre-embryos were created as part of the parties’ in vitro fertilization process shortly after wife was diagnosed with breast cancer and would likely be unable to reproduce after treatment. The appeal was brought by the husband from the trial court’s decision to award wife the thirteen (13) pre-embryos in equitable distribution. The parties in Reber v. Reiss (2012 PA Super 86; 2012 WL 1202039 (Pa.Super.))

The Superior Court, like the Master and trial court before it, employed a balancing test to weigh husband and wife’s respective positions on how to equitably divide the pre-embryos. Other states have used a variety of methods to decide similar issues; states such as New York, Texas, and Oregon take a contract approach and examine the language of the fertility clinic contracts. Those courts found that the agreements addressing the disposal of the pre-embryos in the event of divorce or death to be enforceable agreements. Massachusetts, however, took a slightly different tact and found that the agreement the parties addressing the disposal of pre-embryos in the event of their separation was never intended by the parties to be an agreement between the two of them, but between the parties, together, and the clinic. Consequently, the Massachusetts Supreme Court declined to enforce the agreement. Many other states, like Pennsylvania, however, have opted to employ a balancing test to determine which party should keep the pre-embryos.

The “balanced approach” used in Pennsylvania was defined by the Tennessee Supreme Court in 1992 (the first state to employ this test to fertility issues) as an analysis that required the court to “weigh the interests of each party to the dispute…in order to resolve the dispute in a fair and responsible manner.” Davis v. Davis, 842 S.W.2d 588 (Tenn.1992). New Jersey applied the balancing approach in 2001 when deciding that wife’s “right not to procreate or be forced into parenthood outweighed husband’s right to procreate where husband could still procreate without wife’s involvement.” Reber v. Reiss, 2012 PA Super 86 (Pa.Super. 2012) citing, J.B. v. M.B., 783 A.2d 707 (N.J.2001).

In deciding the Reber case, the Superior Court first examined the language of the informed consent the parties signed with respect to the storage of the pre-embryos. Husband’s position was that the agreement required the destruction of the embryos at the end of three years, however, the Court ruled that the agreement was actually between the parties and the cryopreservation facility, rather than an agreement between husband and wife to destroy the pre-embryos. Husband’s appeal also raised issues as to whether the trial court had abused its discretion in accepting wife’s testimony that she could not conceive in any other method besides IVF without sufficient medical testimony to substantiate her claim. The Master disregarded her testimony on the issue, however, the trial court accepted her testimony as sufficient to prove she was incapable of having children after her extensive cancer treatments and that the parties participation in IVF was designed to allow them the chance to have their own biological children.

The Superior Court’s balancing approach then considered wife’s age (40) and the distinction between wife’s interest in procreation versus achieving any type of parenthood recognizing “that the ability to have biological children and/or be pregnant is a distinct experience from adopting.” The Court viewed interests in using the pre-embryos as compelling and the options that provides her with what is likely her only chance at parenthood.

Husband’s interests where examined in light of the facts which led to the existence of the pre-embryos, namely, he implicitly agreed to procreate with wife by agreeing to undergo IVF; he voluntarily provided sperm to Wife for the IVF process; and the use of the pre-embryos was never made on the contingency that the parties remained married. Though the trial court declined to delve into the financial aspect of the case, argument by counsel highlighted in the Superior Court’s holding reflects wife’s willingness to forego child support, craft a financial structure which would protect husband from paying child support, and identify friends and family as being capable and willing to step in to raise the child should she pass away. The Court examined husband’s argument that it violates public policy to force him into procreation, but the Court could not find a policy to that end, nor case law to guide them on this issue. 

Ultimately, the Superior Court upheld the trial court’s decision that wife’s interests outweighed husband’s and that the pre-embryos represent wife’s only opportunity to achieve biological parenthood and parenthood in any capacity. That interest outweighs those of husband and she was awarded the thirteen (13) pre-embryos through equitable distribution, thereby establishing precedence in Pennsylvania for applying a balancing test approach to the equitable distribution of pre-embryos.

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Family law has seen an evolution of facts in cases that are directly tied to the economy. One of the more common has been the long-term separation in the same house, but another has been the motivation of business owners to pursue a divorce. Anecdotally, we have seen cases in which the plaintiff is an entrepreneurial business owner who has opted to take advantage of the economic downturn to seek a divorce and secure ownership of their company through equitable distribution. Not surprisingly, a good businessperson who can build a successful company can also see the upside to divorcing in a recession: a depressed business value means they can buy-out their spouses interest for less.

A recent article posted by Reuters and reprinted from Entrepreneur.com offers ways to “divorce-proof” a business.

Some of the suggestions make more sense than others under Pennsylvania's equitable distribution laws, but it makes the point that good business planning does not stop with the business; it should also include contingencies for things like divorce, death, or incapacity. These events should be considered early on in the creation of the business and at the time of marriage.

The best way to keep your business after a divorce is to create a good plan before you get married.

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The common understanding of an alimony pendete lite (or “APL”) award is that it is a relatively strict economic analysis based on incomes. Due in large part to the prominent reference to “alimony” in this term, it is commonly assumed that APL is treated like alimony in the sense that it is taxable income to the recipient (true) and terminable based on co-habitation (false).

The Pennsylvania Superior Court highlighted this latter fact in a recent ruling in the Childress v. Bogosian case. In that case, the Wife was awarded APL though she was “partially” cohabitating with her boyfriend. The hearing master made a recommendation that Husband be awarded 55% of the marital estate and 60% of the real property that he acquired. The master also applied a retroactive 20% downward deviation in APL due to Wife’s cohabitation and terminated Wife’s APL award that year. 

Wife filed exceptions to the Master’s decision and the trial court granted her exception related to the termination of the APL award, reinstating the award for an additional two years until the Decree was finally entered. Husband then appealed the case and that issue, among others, to the Superior Court.

The Superior Court’s perspective on this issue is that APL is designed to “maintain the standard of living enjoyed during the marriage, so that both parties have equal financial resources to pursue the divorce even though one party has the major assets.” Citing precedence, the Court also noted that “APL may not be denied on the basis that a spouse is cohabitating with another.”

In upholding the trial court’s decision to extend APL payments two years and not take into consider Wife’s cohabitation as grounds for terminating APL, but justifying the downward deviation. The court also recognized the element of husband’s direct impairment of wife’s finances by his willful failure to pay APL payments during the pendency of the divorce.

Unlike in an alimony award co-habitation by an APL recipient will not result in a termination of the support award, but one could expect the facts related to the contribution by the recipient’s paramour will be taken into consideration.

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I would like to highlight a recent victory by one of our outstanding New Jersey family law attorneys; Jennifer Millner, Esquire, a partner in our Princeton office, won an appeal to New Jersey’s Appellate division over an issue arising from valuation of a military pension. 

Because the Husband’s Air Force pension was based upon an accumulation of points based on his rank, there is an identifiable difference between the marital component of his pension at the time they entered into their Marital Settlement Agreement and the benefit he received based on the years of post-divorce employment and point accumulation he had due to subsequent promotions and post-divorce efforts.

The trial court applied a very straightforward coverture fraction to value the pension, however, on appeal, Ms. Millner, with the assistance of Robert Epstein, Esquire and Eliana Baer, Esquire, successfully argued for the application of a coverture fraction that recognizes the distinction between the marital and post-marital impact of the Husband’s employment. The Appellate Division “[agreed] with the [husband’s] statement that the active duty and reservist components of his earnings are discernable, as one can not only calculate the points earned through the two distinct periods of military service, but also obtain the demarcated salary for each rank held.”

Jennifer’s summary and links to additional information on this important victory case can be found at Fox Rothschild’s New Jersey Family Law Blog.

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In this changing economy, how will the courts value your business? Will the Court use the date you separated from your spouse or the date that the assets and debts are divided?

Unless one of the limited exceptions exists, the courts will value a marital business as close to the date of distribution as possible. While the Divorce Code does not explicitly state the date to use to value the marital assets, the courts hold that using the date of distribution value effectuates economic justice between the parties. Sutliff v. Sutliff, 543 A.2d 534, 536 (1988); Smith v. Smith, 904 A.2d 15, 18 (Pa. Super. 2006); Nagle v. Nagle, 799 A.2d 812, 820 (Pa. Super. 2002) citing Diamond v. Diamond, 519 A.2d 1012 (Pa. Super. 1987). In Sutliff, the court stated that “a valuation date reasonably proximate to the date of distribution must, in the usual case, be utilized” because “it is inconceivable that the requirement that the distribution be made in such proportions as the court deems ‘just’ could be satisfied without reference to the current values of the assets.” Sutliff v. Sutliff, 543 A.2d 534, 536 (1988).

The court recognized the importance of using the date of distribution value, as opposed to the date of separation value, by commenting, “to distribute property without regard to those fluctuations would be illogical, and would undermine the legislative intent of making the equitable distribution process responsive to the contemporaneous needs and financial situations of the parties” Sutliff v. Sutliff, 543 A.2d 534, 537 (1988). This is particularly important in this economic climate given that the values for most assets have decreased.

Additionally, the court can only value the marital assets on the date of separation when limited circumstances exist. Smith v. Smith, 904 A.2d 15, 19 (Pa. Super. 2006); Litmans v. Litmans, 673 A.2d 382 (Pa. Super. 1996). The court confines the exceptions to situations where (1) one spouse consumes or disposes of marital assets or (2) there are other conditions that make a current valuation difficult. Smith v. Smith, 904 A.2d 15, 19 (Pa. Super. 2006) citing Benson v. Benson, 624 A.2d 644 (Pa. Super. 1993).

For example, in McNaughton v. McNaughton, 603 A.2d 646 (Pa. Super. 1992) the court valued the marital real estate as of date of distribution, but valued the husband’s marital business at the date of separation because the husband controlled the business, the business was difficult to value after separation, and the husband influenced the business’s value by lowering its value. See also Benson v. Benson, 624 A.2d 644 (Pa. Super. 1993).

Additionally, in Adelstein v. Adelstein, 553 A.2d 436, (Pa. Super. 1989), the husband owned one-half of a corporation, but after the date of separation, the other owner received additional shares of stock (without consideration), granting him a much larger ownership percentage of the corporation. The court noted that the existence and nature of marital property is determined as of the date of separation and that an attempt by shareholders to rearrange their respective interests did not affect the ownership interest that existed on the date of separation. Thus, the court valued the husband’s ownership interest as one-half of the corporation as of the date of separation and would not support the husband’s efforts to minimize his ownership interest.

So, unless one of the limited exceptions exists, the court will value a marital business as of the date of distribution.

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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.
 

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