In Pennsylvania, the term “equitable distribution” is the legal term for the process of dividing the marital assets and marital debts. If a husband and wife are unable to agree about the division of their marital assets and/or marital debts, the spouses may elect to engage in the formal court process for equitable distribution. The decision of whether to negotiate a settlement or to go through the court process and possibly a trial often involves a cost-benefit analysis.
Separate or Non-marital Property
Pennsylvania law allows separate or nonmarital property to generally escape the equitable distribution process. Nonmarital property includes property that a spouse brought into the marriage and kept separate during the marriage, inheritances received during the marriage and kept separate during the marriage, and property excluded by a valid prenuptial agreement. In addition, nonmarital or separate property may include gifts received by just one spouse during the marriage. However, the increase in value during the marriage of nonmarital property may be considered a marital asset if the increase in value was not excluded from consideration in a prenuptial agreement. Furthermore, if a husband or wife decides to use some nonmarital funds for a common purpose, such as purchasing a home in joint tenancy, that money normally will become marital property.
Marital Assets or Marital Property
Marital assets include property and income acquired during the marriage. A home, business owned by the parties, furniture, retirement accounts, other investments and cars purchased during the marriage are examples of marital assets. In these examples, the thing may be a marital asset even if it was acquired in only one spouse’s name as long as it was acquired during the marriage. Some assets may have both a marital and non-marital component. In that case, the non-marital value of the asset is excluded from the equitable distribution process.
In addition to dividing property, most couples also have debts to divide. Marital debts are debts that were acquired by the parties after the date of marriage and before the date of final separation. Marital debts include such items as mortgages, loans, credit card balances, tax obligations and judgments. A debt may be a marital debt even if only one of the parties contracted for the debt as long as the debt was contracted for during the marriage.
Dividing Marital Assets and Marital Debts
As stated above, equitable distribution is the process of dividing marital assets and marital debts. Because Pennsylvania is an equitable distribution state and not a community property state, our courts divide marital assets and debts based upon principles of equity, or in other words as it thinks is fair. This division of assets and debts does not necessarily mean that they will be divided on an equal basis.
Under Pennsylvania equitable distribution laws, courts consider a variety of factors and need not weigh the factors equally. This permits more flexibility and more attention to the financial situation of both spouses after the divorce. However, it also makes the resolution of property issues less predictable.
Some of the factors that the court considers in equitable distribution include: the length of the marriage, whether either party had previously been married; whether either party has significant non-marital assets including assets excluded by a prenuptial agreement, the age, health, and income of the parties; whether either party contributed to the increased earning potential of the other; the standard of living of the parties during the marriage; the tax consequences of any award and whether either party will be serving as the custodian of any minor children. Fault in causing the end of the marriage is not a consideration in the equitable distribution process.
Marriage Settlement Agreements
Although divorce may be emotional, most cases do not end up in a contested trial. Usually the parties negotiate and settle such things as division of property, spousal support, and child custody between themselves, often with an attorney’s help. It may not be possible to predict with complete precision what a judge would do, but an experienced attorney can give a range of possible results. With that knowledge, parties often prefer to reach their own agreements rather than go through the monetary and emotional expense of a trial. If an agreement is reached, it may be drafted into what is called a marital settlement agreement also called a property settlement agreement. A marital settlement agreement is a contract between the spouses that divides property and debts and resolves other issues of the divorce including child support, spousal support, alimony, counsel fees and costs and child custody.