Equitable Distribution

When spouses divorce, their property must be divided between them. Many divorcing spouses accomplish this division of property themselves, without court intervention. When divorcing spouses are unable to divide their property, the courts may assist through a three-step process known as “equitable distribution.”  Equitable distribution requires the court to identify, evaluate and distribute marital property.

What is marital property? The Pennsylvania Divorce Code establishes the presumption that marital property includes “all property acquired by either party during the marriage [without regard to title], including the increase in value …of any non-marital property acquired [prior to marriage or by gift, bequest, devise or descent].” In other words, the court does not look to whose name is on the property, but when it was acquired. Property acquired from the date of marriage to the date of separation is presumed to be marital property, unless it falls into one of the nine exceptions provided by law. Among the exceptions, the most significant are: (1) pre-marital property; (2) property excluded by prenuptial agreement; (3) gifts and inheritances received during the marriage; and (4) property acquired after separation. Property which is not marital property is often called “separate property” or “nonmarital property.”

Separate property which has been placed into joint names during the marriage may be “transmuted” into marital property. However, a spouse may be able to “trace” separate property from one account to another during the marriage, thereby preserving separate property. 

The marital portion of income streams, such as pensions, trusts, and stock options, includes all income earned from the date of marriage until the date of separation. The court may impose a constructive trust upon marital property transferred by one of the parties into the title of a third person.

How is marital property valued? To evaluate marital assets, the court generally determines “fair market value.” Although the court utilizes the date of separation to identify marital assets, the presumptive date for valuation is the date of trial. A party who contributes non-marital property to the marital estate may be entitled to a credit, which declines over time, to compensate for the non-marital contribution. Additionally, a party who utilizes post-separation income to maintain marital assets may be entitled to credit.

The value of a marital asset may be reduced by the amount of the owner’s real or hypothetical income tax liability or selling expenses. The value of a business includes “goodwill” value if the business is not dependent solely upon the reputation, skills or labor of the proprietor.

How is marital property divided? After marital property is identified and evaluated, the court must weigh the eleven statutory factors to determine equitable distribution. Contrary to popular belief, the court does not start with a presumption of a 50%-50% distribution. The court must consider the parties’ incomes, their abilities to rebuild their assets and income in the future, their custodial responsibilities and other factors. The court may not consider marital fault in dividing property. Where a spouse has furthered the education or career of his or her spouse, he or she may be entitled to a larger share of the marital estate as “reimbursement equity.” The court must consider the parties’ non-marital assets, but not potential gifts from family or inheritances to be received in the future. In evaluating and distributing marital property, the court may make inferences against a spouse who intentionally reduces his income or divests assets to evade distribution. Also, the court has discretion to distribute property in kind or compel one spouse to buy out the other spouse.

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