Practice Areas - Equitable Distribution
I f the divorcing parties accrued assets and/or debts during the marriage that require division, the divorce concludes with the “equitable distribution” process. Unlike states that divide the assets and liabilities of a divorcing couple on a 50%/50% basis, Pennsylvania has statutes and procedures governing the division of the marital estate of the parties. This process is called “equitable distribution”. There are 13 factors that are considered in determining how these assets/liabilities are to be divided. These factors are as follows:
- The length of the marriage;
- Any prior marriage of either party;
- The age, health, station, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties;
- The contribution by one party to the education, training or increased earning power of the other party;
- The opportunity of each party for future acquisitions of capital assets and income;
- The sources of income of both parties including, but not limited to, benefits such as retirement, medical insurance or other such benefits;
- The contribution or dissipation of each party in the acquisition, preservation, depreciation or appreciation of the marital property, including the contribution of a party as homemaker;
- The value of the property set apart to each party;
- The standard of living of the parties established during the marriage;
- The economic circumstances of each party at the time the division of property is to become effective;
- The Federal, State and local tax ramifications associated with each asset to be divided, distributed or assigned, which ramifications need not be immediate and certain;
- The expenses of sale, transfer or liquidation associated with a particular asset, which expense need not be immediate and certain; and
- Whether the party will be serving as the custodian of any dependent minor children.1
These factors will determine the distribution of the marital estate that the parties accumulated during the marriage. While they may look objective, the application of them is often subjective and varies from judge to judge (or master to master). These are matters of utmost importance to the financial futures of parties.
Often parties enter into agreements prior to marriage that specifically set forth what each one will be awarded in the case of a divorce. Unless the parties have such an agreement, marital property (i.e., property acquired during the marriage), with some exceptions such as inheritances, is subject to equitable distribution.
It is incorrect to assume that because one spouse worked outside of the home or had a higher paying job, he/she is entitled to a greater share of the retirement assets he/she accumulated during the marriage. Retirement assets include defined contribution plans (such as a 401(k) or 403(b) account), defined benefit plans (pensions), IRAs, ESOPs (employee stock ownership plans), profit-sharing plans, etc. Retirement assets are marital and subject to division to the extent that they were earned during the marriage.
Some retirement funds can be distributed to the other spouse without tax consequences by simply rolling them over into another acceptable retirement account. Division of more complicated retirement accounts like 401(k)s, 403(b)s and defined benefit plans (pensions) usually must be accomplished by an order called a Qualified Domestic Relations Order (“QDRO”). For example, if a party is entitled to 50% of his/her spouse’s 401(k) earned during the marriage, a QDRO is prepared, approved by the plan administrator and signed by a judge, thus making it an order of the court. The order is then submitted to the plan administrator and 50% of the marital portion of the 401(k) would be segregated and put into that party’s name as the alternate payee.
Assets accumulated prior to the marriage or after separation are not subject to equitable distribution. However, there are caveats to this. For example, if there is an increase in the value of a premarital asset during the marriage, the portion representing the increase in value that took place during the marriage will likely be subject to division. In addition, if marital funds are utilized to acquire an asset after separation, that asset will be subject to division to the extent that marital funds were used in the purchase.
Assets and liabilities may be split on a 50%/50% basis. However, if there is economic disparity between the parties, the assets and liabilities are often split on a 55%/45% or 60%/40% basis. Sometimes alimony is indicated. (See the "Alimony" section under the “Resources” tab for a detailed discussion of alimony.) After familiarizing themselves with the facts and issues of each unique divorce, most knowledgeable and experienced matrimonial attorneys are able to predict the range in which the division of assets and liabilities will likely fall. However, to ensure that a party obtains the optimal result within that range, he/she needs an attorney who is skilled in the art of negotiation, knows and understands the relevant statutes and procedures, is adept at navigating the ins and outs of the county, court personnel and opposing counsels, is a highly skilled litigator and is a fierce advocate.
1 23 Pa.C.S.A. 3502