Dividing Assets & Liabilities

Identifying and Handling Assets Acquired Before the Marriage

Property that each spouse owned before the marriage, as well as property given to or inherited by one spouse during the marriage, usually remains that spouse's separate property. It may, however, be considered as part of the total circumstances in determining a fair allocation of the marital property. Non-marital assets are defined in 23 Pa. C.S. §3501(a)(1)-(8).

If non-marital property is not kept separate from marital property, it may lose its separate characterization and become subject to division.

Example: If one spouse had a bank account containing $5,000 before the marriage, but during the marriage the spouses both made deposits and withdrawals from the same account, the amount in the account at the time of divorce or separation will probably be deemed marital property, to be divided between the husband and wife. If, on the other hand, the spouse with the $5,000 account deposits only other non-marital money, such as inheritances to him or her alone, in the account throughout the marriage, all the money in the account will probably remain with that spouse upon divorce.

Therefore, property acquired prior to the marriage is not marital property and under the Divorce Code, which only empowers the court to equitably distribute marital property, it may not be distributed. Estep v. Estep, 326 Pa. Super 404, 474 A.2d 302 1984). In Estep, the court noted it is the responsibility of the Legislature, or the parties themselves by agreement, to provide for the inclusion of premarital property accumulated in anticipation of marriage. Id.

The increase in value of non-marital property is marital property subject to distribution. 23 Pa. C.S. §3501.

Division of Marital Assets - Business, Property and Vehicles

The division of marital assets is governed by 23 Pa. C.S. §3502.  The statute lists 13 factors which are relevant to the equitable division of marital property.  The court is instructed to "equitably divide, distribute or assign, in kind or otherwise the marital property between the parties without regard to marital misconduct." 

The inability of the court to consider marital misconduct in the context of the division of the marital estate is a difficult concept for many people to accept in this process.  They feel as though there should be an element of punishment for the offending spouse.

The task in dealing with the division of assets can be categorized in three steps:  (1) what are the marital assets [1] (and debts) and what are they worth?; (2) what percentage should each party receive?; and (3) how will the parties receive their percentage share?

Defining the marital assets and debts and determining their worth is the process of defining the marital estate.  The attorney needs to assist his or her client in identifying their "property." 

In many cases the parties can stipulate to the value of many of the assets in the marital estate by agreeing to use an objective standard for valuation of a particular asset.  That may be a real estate appraisal for the marital residence or a pension valuation report for a spouse's retirement plan.  It may be a business valuation report or a personal property appraisal. 

Another issue that affects the value of the marital estate is the date of separation.  The date of separation can significantly affect the value of the marital estate based upon changes in market value (real estate, 401(k) plans). 

23 Pa. C.S. §3103 provides a definition regarding separation.  

"Separate and apart." Cessation of cohabitation, whether living in the same residence or not. In the event a complaint in divorce is filed and served, it shall be presumed that the parties commenced to live separate and apart not later than the date that the complaint was served.

While the language "not later than the date that the complaint was served" provides an absolute end date for the marriage, it does not eliminate the possibility that the parties "separated" long before the time the complaint was served.  The inference of the presumed date of separation shifts to the opposing party the burden of producing evidence to disprove the presumed fact; failure to meet this burden of production will normally result in a decision in favor of the party invoking the presumption.   McCoy v. McCoy, 2005 Pa. Super. 411, 888 A.2d 906 (2005).

After the parties (or the court) have determined the value of the marital estate, the percentage of distribution for each party must be established.  The statutory factors used in determining that percentage are:

 (1) The length of the marriage.

(2) Any prior marriage of either party.

(3) The age, health, station, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties.

(4) The contribution by one party to the education, training or increased earning power of the other party.

(5) The opportunity of each party for future acquisitions of capital assets and income.

(6) The sources of income of both parties, including, but not limited to, medical, retirement, insurance or other benefits.

(7) 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.

(8) The value of the property set apart to each party.

(9) The standard of living of the parties established during the marriage.

(10) The economic circumstances of each party at the time the division of property is to become effective.

(10.1) 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.

(10.2) The expense of sale, transfer or liquidation associated with a particular asset, which expense need not be immediate and certain.

(11) Whether the party will be serving as the custodian of any dependent minor children.

The court may consider each marital asset or group of assets independently and apply a different percentage to each marital asset or group of assets. 

The final task for the attorneys and the parties (in a negotiated settlement) or the court (in a litigated case) is to determine how the distribution will be accomplished.  Will the parties have to liquidate assets (i.e. sell the marital home)?  Will one party obtain a loan to purchase the other party's interest in an asset?  Can payments be made over time and what are the potential tax consequences?  How to handle the parties' creative solutions (allowing assets to remain jointly titled or removing names from ownership but not obligation)?