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Preparation for Divorce

Originally published in the 422 Business Advisor, and written by Kristen Doleva-Lecher

In Major League Baseball, a respectable batting average exceeds .300. For all you non-baseball fans, this means the batter will get a hit a few more than three out of the ten times he’s up to bat. Unfortunately in our society divorce has a higher batting average so to speak — statistically about five out of ten first marriages will end in divorce.

The emotional toll of divorce is of obvious and immediate concern to anyone facing that prospect. Almost as significant as the emotional toll is the impact a divorce will have on one’s financial situation. Obviously each divorce, like each marriage, is unique; however there are ways in which one can prepare and educate him or herself when facing divorce.

There are two key terms that are often heard in association with divorce: equitable distribution and alimony. Pennsylvania is an “equitable distribution” state, as opposed to a “community property” state. This means that all marital assets and debt will be distributed equitably (but not necessarily evenly) to each spouse in the event of dissolution of marriage, based on a number of factors spelled out in the Pennsylvania divorce law. Examples of assets which are frequently subject to equitable distribution are:

• Homes and other real estate

• Retirement plans

• Bank accounts

• Stocks, bonds, and mutual funds

• Personal property such as home contents, antiques or collectibles

• Business interests

• Vehicles

• Inheritances

• Life insurance policies

• Stock options

• Tax refunds

• Personal injury or workers’ compensation settlements

Pennsylvania divorce lawyers engage in a careful analysis of what is and what is not “marital property” when attempting to determine how any given marital estate should be split. In general, marital property includes any assets acquired by a couple between their date of marriage and date of separation, including the increase in value during the marriage of premarital property. Many assets can be excluded from consideration, however, and any particular situation should be reviewed with an experienced family law attorney.

In addition to equitable distribution of assets, divorcing parties frequently bring claims for spousal support, alimony pendente lite, or temporary or permanent alimony. In general, spousal support can be claimed by a lower-earning spouse while the parties are separated, and alimony pendente lite (“for the course of the litigation”) can be awarded when one party has actually filed for divorce. Temporary or permanent alimony can be awarded for a time after the parties’ divorce is final.

The amount of spousal support or alimony is determined by many factors spelled out in the Pennsylvania divorce and support laws. The earnings and earning capacities of the parties are the most significant factors used to determine both entitlement to and the amount of a support award. Spousal support and alimony pendente lite awards, if the parties cannot agree, must be litigated at first in the county Domestic Relations offices.

Typically, the Domestic Relations conference officer at a support hearing uses pay stubs, W-2 forms or 1099 forms as well as tax returns to determine the income of the parties. Several factors come into play as to what qualifies as income and sometimes parties are not as forthcoming as they should be in disclosing their earnings, but discovery tools are available to litigants to expose required financial information.  Occasionally expert testimony is needed to help the court determine earnings or earning capacity.

Alimony, unlike spousal support, is determined either by the agreement of the parties or by the master or judge as part of the divorce process. In determining an alimony award, a main question is whether the party seeking alimony is incapable of self-support through appropriate employment. Other factors include the ages and health condition of the parties, the expectancies and inheritances of the parties, the length of the marriage, the standard of living of the parties established while married, the relative education of the parties, and relative needs, assets and liabilities of the parties.

It may be helpful in the event of an impending divorce to have access to copies of pertinent financial information so that the process of proving assets and income becomes easier. Some of these documents may include:

• Bank account, brokerage, and retirement account statements

• Recent tax returns

• Recent pay stubs

• Real estate appraisals

• Insurance appraisals

• Life insurance policies

• Health insurance policies and cards

• Wills and Powers of Attorney

• Trust documents

• Information regarding both spouses’ accountants or tax preparers

• The approximate family income for the previous year

As mentioned above, no divorce is the same. If you find yourself contemplating divorce, remember that your situation may not be at all similar to that of your neighbor or co-worker. A long and expensive divorce can and does happen, but today many people choose to settle their issues on their own or engage in voluntary mediation or arbitration to resolve their disputes, rather than going to court. Litigation is costly on both parties in terms of time, money, and emotional strain. On the other hand, working through a divorce amicably can save you time, money, and stress. Settling a divorce without litigation or court involvement offers the parties more control in their negotiations. Agreements reached outside of court can be memorialized and ordered and enforced by the court.

We all wish that batting averages will some day be higher than the divorce rate in Pennsylvania. However, with careful planning and good advice from experienced divorce counsel, you can avoid one of life’s curveballs, and reach home safely.

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Financial Tips in Anticipation of Divorce

Originally published in the 422 Business Adviser, and written by Kristen Doleva-Lecher

By: Kristen Doleva-Lecher
September 28, 2015

Many factors can determine whether a particular person will obtain a relatively good or relatively poor financial outcome after a divorce.  Not all of these factors are in people’s control. Good planning, however, can certainly help make life easier if divorce is being considered.

Clients often ask about “legal separation” from their spouses. Pennsylvania does not recognize “legal separation” per se but does place importance on the parties’ “date of separation.” The date of separation is important because it marks the end of what is considered marital property — the time period of joint marital assets and debt. This date is a key factor in determining the parties’ assets and debts.

Lawyers often disagree about the precise date of separation, and it is not always easy to determine. Sometimes it is easy to pinpoint, such as when one of the parties moves out and files for divorce. Sometimes, however, it is harder to assess, such as when the parties remain living in the same home but separate their finances and no longer share bank accounts or pay bills together. Of course, some couples stay married for years and never share bank accounts and always pay separate bills. Each case must be evaluated individually.

The splitting of assets and debts in Pennsylvania is determined by an Equitable Distribution model versus a Community Property model. A Community Property model of distributing martial assets and debts simply assumes that property acquired during the marriage will be split 50/50, while the Equitable Distribution model does not assume a 50/50 split but rather a distribution based on what is equitable or fair, taking into account a number of guidelines.

Perhaps the most important advice for a person contemplating divorce is to immediately make a budget. The transition from a double income household or to having to sustain two independent lifestyles on one income is often overwhelming. A monthly budget can be a very useful tool and can also give peace of mind.

If separation has actually occurred, it may be appropriate to immediately file for child support, spousal support, or alimony pendente lite. It is important to keep in mind that support can only be paid once a party files for it; the responsibility of the payor to pay support through the Domestic Relations Office does not begin until the date of filing a support complaint. Most counties in Southeast Pennsylvania will schedule a hearing about one month from the date of filing the complaint for support. Support recipients should be cognizant that support is temporary and should not assume that payments will be made indefinitely. Support, like equitable distribution, depends on a number of variable factors. Especially in today’s economy, what was once a stable income might suddenly change without notice.

It is wise to run a credit report to determine if there are any unknown debts in your name. It is not unheard of for spouses to obtain credit cards and even loans in the name of the other spouse without him or her knowing. Upon divorce, it is best to cancel joint credit cards immediately. While the responsibility for the debt may be allocated during the divorce process and referenced in a Settlement Agreement or the finding of a Divorce Master or Judge, the parties cannot bind the creditor if the obligation is owed by both parties. In other words, just because a divorce agreement indicates that one spouse is liable for a joint debt, a creditor may attempt to collect against both parties if the account becomes delinquent. If your ex-spouse takes the responsibility for paying the joint debt it is a good idea to request continuing card statements to ensure that payments are being made and your credit is being safeguarded.

In a situation where a client believes he or she may someday file for divorce but is not sure when that might be, an option to consider is to stop contributions to a 401(k) or other retirement plan. Until the date of separation, then any assets accumulated during the marriage are marital property subject to equitable distribution. The growth of the 401(k), a marital asset, is itself an asset also subject to equitable distribution. Ceasing contributions enables the cash to be used for personal expenses, vacations, and the like, effectively decreasing the marital estate at the expense of losing out on the time value of potential tax-deferred growth.

Many people today are staying together and living in the same home due to poor real estate values. Home values have significantly decreased and in many cases there is simply no equity in the home. The decision to remain in the home and continue to pay a mortgage with the likelihood that it will take significant time to see any return is a personal choice; however, given an impending divorce, one person need not bear that burden alone. A Settlement Agreement can distribute the loss of the home between the parties, or can provide for a later sale or refinancing once the market recovers, or can seek to indemnify a party who has vacated the house and is no longer paying on the mortgage.

Like most legal issues, divorce can be a daunting process. It can be draining financially and emotionally. Consultation with an experienced family law attorney is wise. If proper steps are taken from the beginning of the process, including a basic legal education in one’s rights and obligations, the whole process can be made considerably less painful.

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