Divorce Property Division in Pennsylvania

by |

Divorce Property Division in Pennsylvania | Trunorth Divorce

Which Assets and Liabilities Will You Keep in the Divorce Settlement?

A necessary part of divorce in Pennsylvania is dividing marital property, both assets and debts. Property division is not as straightforward as it might sometimes seem, and the consequences of potential mistakes can be quite costly. What each spouse keeps and how it impacts their future financial health is dependent on

  • Proper specification of what portion of each asset and debt is marital vs separate
  • Your choice of divorce process and the extent to which the court gets involved
  • Proper valuation of each type of asset
  • The impact of taxes
  • Whether the division will allow each spouse to meet both short-term cash flow requirements and long-term net worth goals

Separate vs Marital Property

Definitions. It is marital property, not your individual separate property, that is subject to division. Assets are marital property when they have been acquired during the marriage. In Pennsylvania, they also include the increase in value of any asset that was owned individually before marriage. For example, if the value of the home you alone bought and owned was worth $200,000 when you were married and the current value is $500,000, the marital portion is $300,000.

Examples of marital assets include your home, vacation properties, rental properties, furniture, jewelry, bank and brokerage accounts, retirement accounts and pensions, executive compensation, personal property, and autos. Marital debts are handled similarly to marital assets and they include mortgages, auto loans, personal loans, student loans and credit cards.

Exclusions. Typically excluded from marital property in Pennsylvania is what’s been specified as separate in a pre or post-nuptial agreement, gifts, inheritances, medical malpractice or accident settlements, and debt accrued in marital deception (e.g., affairs, gambling).  Also excluded from marital property is the growth of an individual’s asset, e.g., an employee retirement plan, which occurs after the date of separation.

Commingling. Commingling refers to mixing funds from separate assets with marital funds. Commingling of property may make what was originally separate property entirely marital. For example, if you inherited $100,000 and then deposited it in a joint bank account, it’s no longer considered separate. In some cases it is still possible to distinguish what portion of a commingled asset remains separate based on “separate property tracing.” If that’s applicable to your case, you will need a divorce financial analyst to help you with this, as it is not straightforward, and most lawyers and courts will take the path of least resistance and rule that the commingled asset is entirely marital.

Passive vs Active Appreciation. In separating marital from separate property the court may consider whether the growth in the value of an asset that was separate at the time of marriage was passively or actively created by the spouse who originally held the separate property. Passive appreciation in an asset (e.g. economic circumstances contributing to a retirement fund’s growth) makes it more likely that it will be treated as marital. Active appreciation (e.g., resulting from active management of a business) will substantiate a claim that it remains separate property.

Transmutation of Assets. In some Pennsylvania counties a court may also reduce the amount of an asset’s separate value over the duration of the marriage (called transmutation of separate assets). Using our prior example, if the value of the home you’d owned before the marriage was worth $200,000 and the current value is $500,000 and you’ve been married for several years, the marital portion may be deemed to have increased to $350,000 as its separate value has converted to marital over time.

Hidden Assets. One may believe that their spouse has been secretly funneling money to a separate account. In such cases, you will need a forensic expert to trace these assets. Fraud is the one thing that can overturn a divorce settlement after the divorce decree has been entered.

How Pennsylvania Approaches Property Division

Pennsylvania is an equitable distribution state, not a community property state. This means the legal system doesn’t necessarily see an equitable distribution as a 50/50 split. Instead, the courts will divide property per factors including the age of the parties and their ability to add to their future retirement, monetary and nonmonetary contributions made by each party to the marriage, the circumstances of the divorce, duration of the marriage, alimony awarded, and any other factor the court considers necessary or appropriate. In other words, a 60/40 or even 80/20 split of property is acceptable in Pennsylvania.

The Role of Your Choice of a Divorce Process

How division of property is achieved can be dependent on how you go about your divorce.

Litigation. If you litigate and allow the court to decide, then the judge or hearing officer will divide your property based on their view of equitable distribution. Because there is a fair amount of subjectivity involved, you will have little control over how the hearing officer or judge will rule. Your attorney may be telling you it will turn out one way and the decision might just be entirely another.

Represented Negotiation. If you and your spouse both hire attorneys and have them negotiate on your behalf, you are still relinquishing control and you’re going to spend a lot of money on lawyer fees before you get to an agreement, money that could remain in your own pockets. In attorney negotiation, your lawyers will talk to you, to your spouse, then to each other, file petitions and motions to posture, talk to you and your spouse again, and on and on—all at an outrageous billable rate.

Mediation or Collaborative Divorce. If you want to control how your property is divided and keep more of your own money, you should instead consider mediation or, possibly, a collaborative process that is committed to resolving your divorce outside of the courts. Mediation involves working with a “neutral” who will facilitate your negotiations and help you find a settlement that will work best for the both of you. The goal using a collaborative process is much the same, but it involves two attorneys, a financial specialist, a divorce coach, and, if applicable, a child specialist. In mediation or collaborative, you make the decisions.

If you mediate with a Certified Divorce Financial Analyst (CDFA®), or have the support of one in collaboration, you get assurance you’ve properly identified and valued all your marital assets and guidance on the impact of various settlement options on both the short and long-term horizon, including capital gains and income taxes, liquidity, and asset growth rates. The relative benefit of mediation over collaboration is that is typically far less expensive than Collaborative Law.

The Cost of Mistakes

Mistakes in settlement agreements are too frequently made. You certainly don’t want to discover that you didn’t get or keep what you were entitled to. Keep in mind that property division, once you have your divorce decree, can’t be modified unless there is evidence of fraud on the part of either party.

Conclusion

You only get one chance to get it right and we’re here to help you get an optimal divorce settlement in Pennsylvania. Download our free 29-point divorce financial planning guide and then schedule a short call and we’ll explore your best path forward.

Take Control of Your Future

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Berni Stevens, a Mediator and Certified Divorce Financial Analyst® (CDFA®.)

Berni provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Berni will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

Schedule Your Complimentary Divorce Strategy Session Today!

 

How is Alimony in Pennsylvania Determined?

by |

Alimony in Pennsylvania is but one financial aspect of divorce. There are many which you should have a qualified divorce financial professional review. 

Alimony is a generic term that actually refers to three types of support payments. They are made by the higher earning spouse to the lesser earning spouse:

  • Spousal Support – Awarded to the lesser earning spouse. This is pre-divorce and before either party files a divorce complaint. Can be awarded even if the parties are living in the same house so long as they are separated, i.e., living separate and apart.
  • Alimony Pendente Lite – Support after the divorce complaint is filed and before the divorce is final.
  • Alimony – Payments made once the divorce is finalized for a set period of time per the divorce settlement.

Spousal support and alimony pendente lite are calculated in the same way. Alimony in Pennsylvania is determined by a number of factors but it is often calculated with the same formula.

Basic Calculations

No Minor Children: Spousal support and alimony pendente lite is calculated before child support. It is based on net income. If there are no children, the amount is the difference between 33% of the obligor’s (higher earning spouse’s) and 40% of the obligee’s (lower earning spouse’s) net income. For example,

Obligor’s Monthly Net Income is $15,000; 33% is $5,000

Obligee’s Monthly Net Income is $10,000; 40% is $4,000

Difference = $1000 = Monthly Support

With Minor Children: The same basic formula but the percentages are changed to 25% and 30%, respectively. To illustrate,

Obligor’s Monthly Net Income is $15,000; 25% is $3,750

Obligee’s Monthly Net Income is $10,000; 30% is $3,000

Difference = $750 = Monthly Support

Additionally, there will be a separate amount calculated for child support that will be added to the monthly alimony.

Post-Divorce Alimony Considerations

Many courts use the formulas above. These amount may be modified based on a number of factors, the most important of which are:

  • Difference between spouses’ earnings
  • Ages and health of the parties
  • Sources of income
  • Expectancies, e.g., inheritances
  • Financial needs of the parties
  • Marital misconduct (rarely considered)

Duration of Post-Divorce Alimony

How long alimony will be paid is a discretionary decision that is based on the factors above. The rule of thumb, though, is 1 year for every 3 years of marriage. So, if a couple has been married for 20 years, the lesser earning spouse would expect to receive alimony for 6 – 7 years. If, however, if the lesser earning spouse is near retirement at the end of that period, the court may extend until he or she is able to collect Social Security and/or access retirement funds.

Alimony Buyouts

The vast majority of men and women view alimony with disdain. Who wants to have to write a check to their ex-spouse month after month? Likewise, does anyone like waiting for and worrying about the monthly check they’re expecting from their ex? What happens if the payor dies, loses their job, or becomes disabled? Is he or she going to be obsessing about whether their ex is cohabitating with a new partner? One alternative is to add an offset to the distribution of the assets equal to the present value of the expected alimony payments. So long as there are sufficient assets to cover the amount, this is a win-win for both parties and eliminates the ongoing angst of monthly payments.

Read more on divorce financial considerations here. Alimony in Pennsylvania It can be a messy affair and a CDFA, like those at TruNorth Divorce Solutions, can help you sort out the details.

 

 

 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

How is Child Support in Pennsylvania Determined?

by |

Note: This article has been updated with the Pennsylvania child support guidelines that took effect on January 1, 2022.

Of the many financial considerations in divorce that a couple must address is “how much child support?” Child support in Pennsylvania (and 36 other states) is centered on the Income Shares Model, which is based on the concept that children should receive the same proportion of parental income that they would have received if the parents lived together. That amount is found to be related to the level of household income and the number of children for food, housing, transportation, clothing, $250 in annual  medical expenses for each child, and miscellaneous items that are needed and provided for by their parents. This amount is expressed by the child support guidelines.

These guidelines may be adjusted by the court based on additional information regarding special needs and obligations, e.g., private schooling or extraordinary medical expenses. In fact, there are many complexities in child support. Nonetheless, child support begins with monthly net income. The current schedule for monthly child support in Pennsylvania for up to $30,000 combined monthly net income can be found here.

If monthly combined net income is above $30,000 the amount may be increased based on how much it costs to maintain whatever lifestyle the child has become accustomed to without burdening the custodial parent. Generally, when combined monthly parental income exceeds $30,000 (after deductions), the court orders parents to pay the highest basic support obligation for their number of children, plus a percentage of the amount over $30,000.

  • One child: $3,608 plus 4.0 percent of the combined monthly parental income over $30,000
  • Two children: $4,250 plus 4.0 percent
  • Three children: $4,951 plus 4.7 percent
  • Four children: $5,530 plus 5.3 percent
  • Five children: $6,083 plus 5.8 percent
  • Six children: $6,613 plus 6.3 percent

Parents’ Individual Payments. Child support in Pennsylvania is paid to the custodial parent. If shared custody, support is paid by the parent with the higher net income. When the parents share custody such that the support-paying parent has more than 40% of overnights with the children, a reduction is made accordingly.

Earning capacity may be considered if higher than actual income. Each parent’s contribution takes into account a “self-support reserve” that represents the poverty level of one person as well as an assumption that the children will spend up to 40% of their time with the support-paying (aka “obligor”) parent.

Net Income. Net income is based on a six month average of a party’s income and includes income from any source, including employee wages, businesses owned, pensions and other retirement, estates and trust, social security, tax refunds, awards and verdicts, and alimony that is intended to finance the support-receiving parent (aka “obligee”). Gross income is reduced by mandatory payments, e.g., taxes, FICA, and union dues but not discretionary deductions, e.g., retirement contributions. It may be further lessened by alimony paid to a former spouse or child support for other children of the obligor parent.

Basic Child Support Calculation

The basic child support calculation is determined by

  1. The child support guidelines that take into account the parents’ combined net income and the number of children (see the PA Child Support Guidelines)
  2. The parents’ respective percentages of net income
  3. Adjustments for shared custody
  4. Additional expenses, e.g., child care, health insurance, medical over $250 per child
  5. Other adjustments, e.g., alimony, other children, extraordinary medical expenses, a new spouse’s income. A basic calculator can be found here.

Example Calculations

Example 1: Basic Calculation. Consider the hypothetical case of Keith and Audrey. Keith is the primary physical custodian of their child and has a monthly income of $2,500 after deductions. Audrey has a monthly income of $3,500 after deductions.

Keith and Audrey add their monthly net incomes together to get $6,000. The basic child suppport obligation for one child is $1,172.

Keith divides his monthly earnings of $2,500 by $6,000 to get 0.4167, meaning he earns 41.67 percent of the combined income. Audrey divides her earnings of $3,500 by $6,000 to get 0.5833, or 58.33 percent.

Audrey, the parent with partial physical custody, multiplies $1,172 by 0.5833 to find she must pay Keith $684 per month.

Example 2: Shared Custody. Audrey spends three days a week with the kids (40 percent of parenting time), she does not qualify for a reduction. However, If she spends 50% of yearly overnights with the children, she will qualify for a reduction: She takes her portion of the combined monthly income, 58.33 percent (from Step 3) and decreases it by 20 percent to get 38.33 percent. She multiplies the new percentage by the combined basic support obligation from Step 4 to get her reduced amount: $449 (.3833 X $1,172).

Example 3: Low Income. For low income situations, the guidelines ensure that parents have a minimum amount of income on which to live. Consider Paul, who has a monthly net income of $1,500 and must pay support for two children. The support schedule shows the obligation based on his income alone and number of children is $352 due to his low income status.

If the other parent has a monthly net income of $2,500, that will make their their combined monthly parental income $4,000. According to the chart, their combined obligation is $1,340. With 38 percent of the income (see Step 2 for calculation instruction), Paul’s individual obligation would be $509 per the guideline formula.

Paul, though, will pay $352 per month in support, the lesser of the two results.

Example 4: High Income. Fern and Roger have two children and a combined monthly income of $35,000. They find the highest support obligation on the schedule for their number of children is $4,250.

Next, they multiply $5,000, the amount over $30,000, by .4 (4%) to get $200.

They add $200 to $4,250 to determine their adjusted combined support obligation is $4,500.

To calculate the amount he must pay as the partial parent, Roger multiplies $4,500 by his percentage of the monthly income, which is 52 percent (see Step 3). Roger owes Fern $2,250 monthly (4,500 X 0.52) before deviations for shared custody and other expenses.

Do you want to learn more on important financial considerations during divorce? Download our complimentary divorce financial planning guide.

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com

How to Get a Divorce in Pennsylvania

by |

Most “How to Get Divorced” articles take a rather narrow view, i.e., the legal process. Obviously, these articles are typically written by lawyers. 😉

How to get divorced can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process. Not surprising, given that there are two spouses, years of history, hot emotions, finances, children, a home, secrets and lies, hidden agendas involved.

Given all this, though, let me try to keep this “how to get divorced in Pennsylvania” piece as simple as possible for this medium. Here are what we consider to be three essential components.

#1: Financially Prepare and Protect Yourself Before You Start the Divorce

  • Open a separate checking and credit card account at a new bank
  • Check your credit report and score and then periodically track
  • Establish private communication, e.g., P.O. box, email account
  • Gather and copy financial and legal documents—tax returns, statements for loans, bank and retirement accounts, investments, wills, trusts, deeds, car registrations, insurance policies—and store them outside of the marital home

 #2: Talk to Professionals

Most think to first call a lawyer after they talk to a few of their friends and family members. Let me suggest otherwise. Friends and Cousin Amy are great for support but they aren’t likely stellar for advice on how to handle one of the most important and costly events of your life. While well-intentioned, their cases and knowledge of others’ situations are different than yours and you will need the advice of a professional for accurate advice.

You’re best first stop is not with a lawyer but with a far more neutral and resourceful individual: a reputable divorce coach. She or he can help you assess your situation and choose the best path forward and how to execute. They can also help you with setting objectives for how you want to handle the divorce on a personal level, i.e., how to be your “best self.” They can help you better work with a lawyer or mediator, saving you money and significant angst. They are more than anything, the quarterback on your divorce team who can help you assemble the right individuals for the jobs you’ll need to get done.

Lawyers, of course, are a critical component for their knowledge of the legal process. They will often unnecessarily steer you, though, to costly litigation, without regard for what will be best for you and your spouse. Many lawyers are now moving into mediation as its become more popular with divorcing couples, but keep in mind that lawyers aren’t necessarily the best choice for mediation. They are also not equipped to handle the emotional, practical, or complex financial issues of divorce, so make sure you talk to more than just a lawyer early on in the divorce process.

Mediators are a good information source as you consider mediation as a divorce process. Other professionals to consider are a Certified Divorce Financial Analyst® (CDFA®) to discuss optimal or creative financial settlement options, or a therapist who may be able to provide extended emotional support.

# 3: Familiarize Yourself with PA Divorce Law and County Procedures

a. Legal Separation

In Pennsylvania, there is no legal separation. You are married until you’re divorced. However, you can create a legally binding separation agreement during your period of separation that covers such things as child support, spousal support, joint bills, parenting plan, health insurance, loans and other debts, etc.

b. Residency

One spouse must have been a resident of PA for a minimum of six months to file for divorce in Pennsylvania.

c. Types of Divorce, Waiting Periods, and Filings

You can file a fault-based divorce, which will typically be contested and take years, or a no-fault divorce.

A no-fault divorce can be under mutual consent, wherein you will wait a minimum of 90 days after filing assuming you both sign affidavits of consent. If one of you, though, is not willing to sign, you must then live separate and apart for one year to establish grounds for divorce. Note that you may live in the same home and be considered to have lived separate and apart as long as you are not living as a married couple.

Filing takes place in the county court’s prothonotary’s office. You will then have to serve your spouse the papers and you will have to have an Affidavit of Service as proof your spouse received them. After the required waiting period, you will file final papers, applying for the divorce decree that will state you are officially divorced.

Divorce filings are handled by county court. Filing can take place where either of the spouses resides or where both spouses agree it can be filed. Each county has its own procedures and fees and should be researched prior to filing.

d. Support, Settlement and Custody Agreements

It’s important to note that if you have financial and custody issues to work out before the divorce is finalized you must do so before the waiting period is over or the decisions will be deferred to the court. The court will look to the filing spouse for their preferences.

If you both hire attorneys and litigate in the courts, you will likely spend a minimum of $30,000 – $40,000. Mediation can reduce fees to less than $10,000. Courts will appoint legal representation for those in need or you can negotiate the financial and custody terms yourselves.

So, that, in a nutshell is “How to Get a Divorce in Pennsylvania.” It’s a bit more nuanced than this as, stated earlier, divorce can be a multi-faceted, complicated, entangled, frustrating, non-linear, jumble of a messy process, right?

 

 

Get A free Consultation

Schedule Now

484.321.6990

hello@trunorthdivorce.com