Equitable Distribution

Hopefully all of us know that Pennsylvania is an “increase in value state” meaning that under Section 3501(a) of the Divorce Code, the increase in value of non-marital assets during marriage (to final separation) is a marital asset subject to division. There are two sides to this equation in cases where a spouse brings a premarital home to the marriage. The first is the increase in value that may be brought about by market demand for real estate. In laymen’s terms, your spouse bought her house four years before marriage for $200,000. It was worth $225,000 on the day of marriage and at separation, it was worth $275,000. Voila, $50,000 increase in value that is subject to distribution.

The other side is increase in value brought about by reduction in the principal balance due on the mortgage of the non-marital home. This requires some documentary investigation but today more and more counties make copies of the mortgage instruments available on line. Obviously, the best way to show this is to have all of the mortgage documents including the note as the note specifies the interest rate. But our clients tend to either discard these documents or bury them deep in attics and garages.

If you can get a copy of the mortgage on line, there is a decent chance it might refer to the mortgage rate. It will tell you whether you are dealing with a 15 or 30-year term. If you cannot find the rate, try looking at a website called http://mortgage-x.com. It will provide national monthly averages for 1 year ARMS and 15/30 year conventional financings on a historic basis. Obviously, it does not have your particular mortgage but it is going to be reasonably close.

Armed with that information, then go to http://bankrate/com. and look for an amortization table. Plug in the mortgage amount, the term and the interest rate and it will give you an amortization table from which you can determine the balance due on the mortgage on the date of marriage and the date of separation. The tables default to an assumption that you are getting the mortgage the day you went to the website but print it out and then, by hand correct it for the actual dates relevant to your case.

Is this admissible in a formal sense? Well, to ask the question is to answer it but unless we start demanding that every mortgage company come to every courtroom where there is a claim for increase in value, it will get you pretty close to where you need to be.

 

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.

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// 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 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.

One of the difficult aspects of taking a complex case to trial is not the subject matter, necessarily, but the Court’s ability to schedule several consecutive days of trial.  Due to case volume, the court administrators can rarely carve out two or more consecutive days of trial without significant advance notice and, often, direct instruction and assistance from a judge’s chambers. As a result, a judge’s schedule may require you to have a week-long trial spread out over several weeks or months. Not surprisingly, attorneys, witnesses, and even the judges can lose some of the thread of arguments presented in such a disjointed fashion.

An alternative to trial is to take the case to arbitration.  An arbitrator is a third-party hired by the litigants to basically serve in the role of a judge-like finder of fact. The parties sign an arbitration of agreement and usually stipulate to certain ground rules for how they will handle the arbitration. For instance, some parties make the arbitration “binding;” in other words, the arbitrator’s decision becomes the law of the case. 

Another advantage to arbitration is to help limit costs through the arbitrator’s assistance in narrowing issues and avoiding some of the costs of broad discovery. Because the arbitrator is hired by the parties, he or she works on the litigants’ schedule – the arbitrator can set aside a full week for trial at a time that works for all involved and take the time to really hone in on issues without being at the mercy of the court’s availability. Rather than prolonged discovery schedules and waiting for trial, the arbitrator can help move the case to swift conclusion.

Eliminating the pressure of having to fit a two day trial into an afternoon before a judge helps the parties and the courts. Arbitration is one of many forms of “alternative dispute resolution” and by diverting cases off the Court’s docket and into arbitration, the parties are helping to free up the Court to adjudicate other cases.  There is the added advantage of the parties that unlike a court proceeding, the parties can agree to make the record and information disclosed within the mediation confidential.

Finally, utilizing an arbitrator is often like hiring a mediator. Having already reached an agreement to arbitrate and move the case out of court, it may also be possible for the arbitrator to help facilitate other agreements between the parties, be they discovery rules, stipulations of fact, or interim relief.  Agreements often lead to other agreements and once the parties start to work together, it may be possible to resolve the entire case. 

Even where settlement seems impossible, by moving their case into a venue where they will help set the schedule, parties will know that on a definite date they will have had their “day in court” and can expect a decision from a finder-of-fact. The certainty of those two elements, alone, may be its most attractive benefit.

That is, essentially, the question asked by a recent New York Times op-ed piece written by Sarah Elizabeth Richards. The argument goes that children may have been part of a couple’s overall plan, not unlike one spouse going to graduate school while the other works, or someone giving up their career to stay with the kids. In this instance, the thought is that a marriage may span the reproductive years of a woman; upon the divorce, she may find she lost the opportunity to have a family. The case referenced in the article is in New Jersey, but the general premise could be applied anywhere.

The New York Times op-ed offers a brief “slippery slope” possibility of how far a woman could go in seeking redress for spending her best years with someone and she’s not far off in one point – people (not just women) demand numerous concessions in a divorce. Can a woman ask for cosmetic surgery costs be paid for at equitable distribution? Sure. Can a man ask to be compensated for the cost of reversing a vasectomy so he can have kids with his girlfriend? Absolutely. Will a Court, sitting in equity to divide the marital estate, award those types of requests? Probably not. Or at least not without a reason so compelling that I would not feel comfortable even taking a guess at it in print or otherwise.

The similarity between Ms. Richards’ anecdotal case and cases elsewhere is that most states have relatively little or no existing law on dealing with assisted reproductive issues.  Pennsylvania dealt with the equitable distribution of pre-embryos in a divorce, and my colleague, Julie Ganz, recently moderated a panel discussion on the drafting and reviewing of written agreements for gestational carriers, egg donors and sperm donors. Many of these issues end up being contract driven; as these conflicts become more common and are addressed in the Courts, I also foresee provisions dealing with these issues becoming prevalent in prenuptial agreements, as well.  Assisted reproductive issues – unlike the cosmetic surgery – are very much on the Court’s radar. It is an emerging area of law and the epitome of the blending of competing and complimentary interests in a divorce: financial, emotional, and contractual.

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

My friend’s husband died just over six months ago, and although it was not unexpected, what was unexpected was the state of the finances after he passed.  He had handled the finances during the parties’ marriage, and my friend knew little of the parties’ finances.  How much do you know about your family’s finances?  Do you know who holds your mortgage, if there is a car payment and when it is due?  Do you know the passwords to your on-line accounts – are there on-line accounts?  Do you know where your important financial records are located?

Now is the time to educate yourself.  Look at your tax returns, bank, brokerage and credit card statements, safety deposit boxes, and other important financial documents to get a general understanding of your finances.  Talk to your spouse about the bills, and perhaps offer to help.  

A great way to consolidate your financial holdings is through mint.com.  It’s free, and you can even set up a budget for yourself.  You can upload all of your accounts to mint.com, and it will update your accounts every time that you log on.  It will also keep track of big purchases and let you know when you are over your budget. 

Not only are current financials important, but make sure that your estate planning is done, as well.  If it was done a long time ago, take the time to review it with your spouse and/or estate attorney and make any updates that might be needed.

It is important to be aware of your finances in the event that you and your spouse separate and/or divorce.  Knowing your state of financial affairs will make a difficult situation easier and help you make the transition into independently managing your personal finances and estate.

 

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 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.))

 

Continue Reading Superior Court Upholds Distribution of Pre-Embryos in Equitable Distribution Case