Whose Money is it Anyway?
Whenever people start to think about divorce, they think about all the money they have—or don’t have—and why their spouse should or should not get any of it. Many of our firm’s blog entries, as well as those on other sites, discuss specific assets or they discuss why people may not get what they think is fair. If you understand the reasoning behind the rules (written by legislators far, far away) what may happen to you makes a bit more sense.
The first idea to grasp is that marriage is a legal partnership. No matter if both spouses work, both are unemployed, or only one works, this partnership arose on the day of the wedding and will end at death or the filing of a divorce Complaint. Because both husband and wife (or both partners in some states) are equal, whatever is earned or saved during the marriage belongs to both of them.
For example, if one married partner earns $100,000 per year and from that amount saves $30,000, all the money saved is marital. It belongs to both partners (as does all of the money earned). If the other partner earns $25,000 per year and uses all or almost all of that money to pay the mortgage on the couple’s condo, all that money and the couple’s condo are marital.
There are exceptions. Anything that is owned before the marriage takes place is not marital. But in Pennsylvania, the increase in value of the non-marital asset from date of marriage until date of filing of the Complaint in Divorce belongs to both spouses. So too, the increase in value of a business that was started before marriage, or the increase in value of one partner’s Picasso which she inherited from her mother. Because the marriage is a partnership, Pennsylvania will view any increase in value during that partnership as belonging to both spouses , no matter whether the increase during marriage is passive (it earned interest in the bank) or active (a spouse grew the money by cleaning up and re-modeling an investment property). How the asset is titled does not matter. The $5 million Picasso may belong to one partner if she inherited it, but all of the increase belongs to both of them. So if it was worth $5 million on the date of marriage, and now it is worth $7 million, $2 million will be divided between the spouses
This is why it does not matter in Pennsylvania if the asset is owned only in one person’s name, which always is the case with retirement benefits. You must look at when the money or the asset was acquired or grew. If it was during your marriage, each of you has the right to some of that money!
The other thing you need to know is that there is the concept of an understood agreement during marriage. Let’s take a look at that spouse who earns $100,000 per year. The parties agreed that he would put $30,000 each year into her 401K. Even without the agreement , it is marital. But they never agreed that she could use $1,000 a month to go shopping with her girlfriends. However, for the past 17 years, she has been doing so. When her partner wants to end the marriage, that $12,000 per year she spent shopping becomes disputed. However, the law presumes that this was agreed to. Remember the partnership idea? If one of the partners did not like the arrangement, they could have liquidated the partnership (divorced).
The last idea to remember is that in Pennsylvania, there is no presumption of a 50-50 split of marital assets, as has been explained previously on our blog. Each state has its own ideas as to what is a marital asset and how these assets should be divided. Our blog discusses Pennsylvania law. Whether in or out of Pennsylvania, it’s a good idea to speak to a lawyer about how the law of your state applies to your situation.