When the topic of divorce comes up, one of the first considerations is the division of property. However, before you can “divide” anything, you need to identify, characterize, and value the assets that make up the marital estate. The steps below can help guide you through this process.
Identify all assets that you or your spouse own together or separately. Make a list, and err on the side of being inclusive, as you can always remove items from your list that you later decide are not assets.
Assets include tangible items, such as homes, businesses, cars, boats, jewelry, furniture, and collectibles. They also can include non-tangible items, such as bank accounts, stock options, trusts, life insurance policies, patents, copyrights, retirement plans, and profit-sharing plans.
Next, you need to “characterize” (describe) each asset as “marital” or “non-marital.” An asset’s character plays an essential role in the process of dividing and determining the value of property in divorce.
Generally speaking, “marital property” in Pennsylvania includes all assets acquired by either spouse during the marriage (anytime between the date of the marriage and the date of separation).
“Non-marital” assets (also referred to as “separate property”) include the following:
Generally speaking, courts have the authority to divide and distribute marital property between the spouses in a divorce, but spouses typically get to keep their separate property.
The date of separation is crucial in characterizing property, because property obtained after the date of separation is generally non-marital.
In Pennsylvania, a couple is separated when they begin to live “separate and apart.” This means that the spouses no longer have sexual relations with one another, and they don’t hold themselves out to the world as a married couple (e.g., they don’t attend public functions as a married couple). Spouses don’t necessarily have to live in different households to be separated, but that type of separation may be a little more difficult to prove.
Once you’ve pinned down the date of separation, you’ll need to determine purchase dates. Assets acquired before marriage are separate property. For example, if one spouse owned an expensive watch before the marriage, the watch belongs to that spouse separately through the marriage and after divorce (but keep reading below for a caveat).
And, as stated above, assets purchased after the date of separation are generally considered separate, unless a spouse used marital funds to obtain that asset. If so, it will be considered marital, and valued as part of the marital estate.
Next, you’ll need to find out what each asset is worth. This step can be tricky, as the value of an asset is impacted by a number of factors.
Generally, courts use current value. For example, the current value of a bank account is the balance on the most recent statement. For assets such as homes and cars, courts use current “fair market value,” which means the amount you could get if you sold the asset now; this is not necessarily the amount you originally paid for it. You can usually look at recent sales of comparable assets. For assets that are harder to value, like collectibles, you may need to hire an appraiser.
Although an asset acquired before marriage is considered separate property, it may have a marital part or value to it. For example, if one spouse owned an expensive piece of art before the marriage, the artwork itself belongs to that spouse. However, the increase in value of the artwork during the marriage is considered part of the marital estate. To compute the marital value of the artwork, you would start with the value of the piece on the date of separation, and subtract its value as of the date of marriage.
In addition, marital assets may have a separate property component that must be computed before knowing the true marital value. For instance, if one spouse established a retirement plan during the marriage, but continued to make contributions after the date of separation, the plan has now become “co-mingled,” which means it’s made up of both marital and non-marital property.
To figure out the marital value of the co-mingled plan, you would generally deduct the separate property contributions from the current value, taking into account any interest that may have accrued.
If you’re not sure how to value a retirement plan, you may need to hire an expert, such as an actuary who can figure it out (as in the case of pension plans).
Finally, even though courts won’t divide separate assets in a divorce, courts can consider their values when deciding how to divide marital property (see factors below). For example, if one spouse inherited a large amount of money, the court may consider those separate property resources when deciding how to divvy up the marital estate.
Divorcing couples may follow the steps above and agree on how to divide their property. In Pennsylvania, spouses can enter into a “property settlement agreement” (PSA) that memorializes their agreed-upon terms. Couples then submit their PSA to the court, so it can be incorporated into their final divorce decree.
If spouses can’t agree, they’ll end up in court, where a judge will decide.
If spouses have a valid prenuptial agreement that addresses the division of property in the event of divorce, courts will follow the terms of the pre-nup.
If there is marital property not covered by the agreement, or if there is no valid pre-nup, the court will divide marital property by “equitable distribution.” This means the court will order a division it believes is equitable (fair): not necessarily equal.
Pennsylvania courts consider several factors when determining equitable distribution, including:
In Pennsylvania, courts don’t consider marital misconduct, such as adultery, when dividing property, unless the misconduct had a financial impact on marital property. For example, if one spouse emptied a marital bank account buying gifts for a lover during the marriage and without the other spouse’s consent, a court may reduce the percentage the “offending” spouse gets from the marital estate to compensate for the unauthorized spending.
Debts must be divided in divorce as well. You’ll need to identify, characterize, and value all debts. Be sure to make a list, and consider all credit card debts, loans, mortgages, promissory notes, and liens.
Debts are characterized and valued similar to assets, but there are some differences. Debts incurred during marriage are generally considered marital debts, unless a spouse can show that it’s reasonable to assign the debt exclusively to the other spouse.
Debts incurred before marriage, are generally “separate” and assigned to the spouse who incurred them (unless the couple jointly incurred the debt before marriage). In addition, if a debt was incurred before marriage for a marital purpose (e.g., loan for wedding costs), there is a chance a court would characterize it as marital. Thus, the balance of premarital debts is generally irrelevant, except to show the amount of indebtedness one spouse has. Debts incurred after separation are treated in the same manner.
You may want to consult with an experienced family law attorney that can inform you of your rights and obligations in a divorce. This doesn’t mean that you can’t come to an agreement with your spouse without an attorney, but you should have an attorney review any proposed PSA before you sign it to ensure that your rights are protected and you understand the terms of the agreement.
If you find yourself battling your spouse over many issues in your divorce, you’ll probably need an attorney to help you resolve disputes and represent you in court, if necessary.