Phone: 412-471-9000

Posts tagged "Marital Property"

You are Here: Home » Archives for December 12th, 2011

Tracing Nonmarital Property

by bvertz on Dec 12, 2011 • Comments Closed • , , , ,

A recent Superior Court decision, Childress v. Bogosian, 2011 WL 61616 (2011), illustrates the challenge of tracing nonmarital property in divorce. Under Pennsylvania law, the property owned by a spouse prior to marriage, or acquired by gift or inheritance during the marriage, or acquired after separation, is generally nonmarital property if it has not been converted into marital property by re-titling it in joint names. Still, the law creates a presumption that property acquired during the marriage is marital property, so if a spouse wants to overcome that presumption, he or she bears the burden of producing sufficient credible evidence.

Married people frequently re-invest their nonmarital property in other assets during the marriage. Funds might be withdrawn from a bank account and deposited in a different account. A certificate of deposit or bond might mature, and the proceeds might be reinvested in other assets. Premarital money or inheritance might be used to purchase real estate or other tangible assets. Generally, the property that is acquired in exchange for nonmarital property is still nonmarital if it has not been retitled in joint names.

“Tracing” is the process of proving that property acquired during the marriage was derived from a nomarital source, such as premarital property, gifts or inheritance. Tracing requires a chain of evidence from the original nonmarital property to the new property that was acquired in exchange for the original property. Sometimes there are gaps in that chain of evidence.

In Childress, the spouses lived in a residence that was previously owned by husband’s mother. When she died, husband inherited the home. Husband’s real estate appraiser provided an opinion of what the home was worth when he inherited it, which was more than listed in the deceased mother’s estate; and wife’s appraiser testified to what it was worth at the time of separation and subsequent trial. The court did not accept husband’s appraisal for the trial date, because his appraiser “artificially” limited her search for comparables to a maximum price range. The Superior Court affirmed.

Husband also owned a vacation home, which was purchased during the marriage using the proceeds of husband’s premarital home. In measuring the increase in value from marriage to separation, the trial court started with the value of the proceeds that husband received when he sold his premarital home during the marriage. Note that the premarital home might have increased from the date of marriage to date of sale, but this was not the subject of this appeal.

Husband objected that the trial court did not consider his investment in home improvements, which enhanced the value of the vacation home. In its opinion, the Superior Court held that husband did not adequately prove that he used nonmarital funds to make those improvements. [Note that if he had done so, the court also might have questioned whether to give a dollar-for-dollar credit for those investments, since $1 of repairs or improvements might not result in $1 increase in the home's value.] While husband did produce cancelled checks and other evidence of what he spent, he did not prove that those expenses were paid with his nonmarital funds.

The Superior Court did not consider husband’s further argument that he should have been given credit for paying down the principal balance of the mortgage loan after separation. Husband argued that the trial court should have taken judicial notice of an amortization table that he attached to a brief for the equitable distribution master and trial court. Since the issue was not specifically raised in the appeal or addressed by the trial court’s opinion, the Superior Court declined the opportunity to weigh in. Normally, the marital component of nonmarital property is measured from the date of marriage or date of acquisition (whichever is later) to the date of separation or date of trial (whichever results in the smaller value).

Lump Sum Divorce Payment: Exempt Property in Bankruptcy

by bvertz on Sep 9, 2010 • Comments Closed • , , , ,

In Re Miller, 424 B.R. 171 (M.D. Pa. 2010)

Wife/Debtor filed a chapter 13 bankruptcy petition, in which she attempted to classify an “income maintenance award” of $88,500 received in a divorce decree as property exempted from the bankruptcy estate.  The divorce decree provided that Wife was to receive $88,500 cash in order to effectuate a 67%/33% division of marital property.  Next, Wife’s former divorce lawyer filed a proof of claim for unpaid legal fees and objected to Wife’s schedule of exemptions, claiming the lump sum cash award was not exempt under 11 U.S.C. § 522(d)(10)(D).  The Chapter 13 Trustee also filed objections to Wife’s exemptions, asserting the same grounds as her former lawyer.  Wife and her former lawyer stipulated that the forty-seven page report by the divorce master was incorporated into the divorce decree at issue.

In the report, the divorce master specifically stated that the husband’s obligation to Wife was for “necessary living expenses, including the mortgage, taxes, insurance, and upkeep on the marital residence” and that it “‘should not be dischargeable in bankruptcy.’” In awarding 67% of the marital property to Wife, the master found Wife had no job skills, and at the time, was making $1,300 per year cleaning houses.  The master awarded Wife alimony for the period of two years so that she could obtain additional education and employment during that time.  At the time when the matter came before the bankruptcy court, however, Wife had not received additional education and was not employed.

The bankruptcy court began its’ analysis with a discussion of 11 U.S.C. § 522(d)(10)(D), which provides “alimony, support or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor…may be exempted under subsection (b)(2) of this section.”  The court noted exemptions are broadly construed, and the burden is on the party objecting to the exemption to prove the exemption is not available. The court considered three possible approaches to determining whether the obligation in Wife’s divorce decree was in the nature of support.

The court first considered In re Gianakas, 917 F.2d 759 (3d Cir. 1990), which held that federal law, not state law, determines whether a divorce obligation is in the nature of support, maintenance or alimony. The Third Circuit in Gianakas set forth a three-part test to determine the nature of whether an obligation is alimony, maintenance or support.  Yet, the bankruptcy court in Miller noted that Gianakas had addressed the discharge of a debt under 11 U.S.C. § 253(a), not a property exemption claim  under 522(d)(10)(D).  Further, Gianakas dealt with the dischargeability of an obligation under a consentual agreement rather than a court-imposed divorce decree.

Before applying the three factors set forth in Gianakas, the Miller court discussed two alternative approaches to defining support obligations in the context of a discharge determination from other federal courts.  The court reviewed the Fifth Circuit’s decision in In re Evert, 342 F.3d 358 (5th Cir. 2003), which set forth four criteria for determining whether divorce-related debts were exempt under § 552(d)(19)(D).  The Evert court held that if:

in the agreed divorce decree there is 1) also a meaningful separate alimony provision, 2) the obligation in question is described as being part of the property division, 3) the label given to the obligation in question is matched by its actual characteristics, and 4) the evidence does not suggest the parties conspired to disguise the true nature of the obligation in order to subvert the bankruptcy or tax laws, then the label given by the state court is sufficient and there is no need to look behind it to determine whether it is really alimony or a property settlement.

Evert, 342 F.3d at 368.  The Evert court concluded that the Gianakas factors should be applied only when the settlement agreement is ambiguous.  The Miller court, however, disagreed with Evert holding that a bankruptcy court must accept the state court’s characterization of an obligation unless the marital settlement agreement is ambiguous.  For these reasons, the Miller court rejected the Evert approach.

The Miller court next considered the approach taken by the District Court for the Eastern District of Michigan in In re Harbaugh, 257 B.R. 485 (E.D. Mich. 2001).  The Michigan court relied upon the legislative history of § 552(d)(10)(D) in holding that the parties’ intent behind the marital settlement agreement or the intent of the court issuing the order should be paramount in characterizing a divorce obligation.  The Harbaugh court found “Congress intended for section 552(d)(10)(D) to exempt only those monies, and potentially other equivalent awards, that concern general spousal sustenance” and therefore, the court should exempt only those payments from “the bankruptcy estate that (1) are intended by the parties or the state court to support a spouse and (2) are, in the judgment of the bankruptcy court, reasonably necessary for such purpose.” Harbaugh, 257 B.R. at 491.

The Miller court eventually endorsed the three-part Gianakas test to determine whether a divorce obligation is an exempt property under 11 U.S.C. § 522(d)(10)(D). In doing so, the Miller court pronounced its intent to avoid inconsistency with the standards by which dischargeability is judged under § 253(a). Applying the first part of the Gianakas test, the bankruptcy court first considered “the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary.” Miller, at 177, citing Gianakas, at 762-63. Wife’s former divorce lawyer argued that the lump sum cash obligation was not support because it was set forth in a section of the master’s report entitled “Discussion and Conclusions of Law with respect to Equitable Distribution.”  Wife conceded that the sum was awarded in this section of the report, but asserted that he substance of the master’s report indicated the award was for the purpose of support.

Applying the second and third factors in Gianakas, the Miller court considered the “parties’ entire financial situation” and “the function served by the obligation at the time of the divorce or settlement.”  Miller, at 177, citing Gianakas, at 762-63.  The court held that it was “crystal clear” that the lump sum distribution to Wife was not only “related to” her support but “founded upon that need.” The court also noted that Wife’s lawyer, by stipulating to the master’s report, had thereby stipulated that the award was necessary to support Wife.  Considering the parties’ financial situation, the court noted the disparity between the parties’ incomes and earning capacities, as Husband earned far more than Wife at the time of the master’s report and at the time of the court’s opinion.  The court also noted the fact that the award was intended to pay for the necessities of life while Wife obtained additional education and employment.  Based on these factors, the court concluded the divorce obligation “was intended by the state court to serve as support and was not a division of property.” Miller, at 178.  Based on this finding, the court allowed Wife to exempt the $88,500 award from the bankruptcy estate and overruled the objections of Wife’s former counsel and the Trustee.

Massachusetts Authorizes Post-Nuptial Agreements

by bvertz on Aug 4, 2010 • Comments Closed • , , , , , , ,

The Supreme Judicial Court of Massachusetts ruled recently that agreements between spouses who plan to continue their marriage but wish to define their legal rights and obligations in the event of divorce are enforceable in that state. Some states (notably Ohio) do not permit spouses to execute agreements waiving their marital rights unless they are actually pursuing divorce, and the law of many states is unsettled. In its recent decision, the highest court of Massachusetts joined the ranks of states (including Pennsylvania) where such “post-nuptial” agreements are permissible.

Post-nuptial agreements may combine certain elements of prenuptial agreements with features of marital settlement agreements. Post-nuptial agreements may divide marital property between spouses, protect their separate property, and establish or restrict spousal support and alimony, like settlement agreements. Post-nuptial agreements can also protect family businesses, inheritance, and other separate property to be acquired in the future, just as prenuptial agreements do.

In Ansin v. Ansin-Cravin, 457 Mass. 283, 929 N.E.2d 955 (2010), the husband and wife entered into a post-nuptial agreement two years before their eventual divorce. The post-nuptial agreement in that case gave the parties a chance to attempt marital reconciliation while removing the financial risk of taking “one last chance”. The couple had been married for nineteen years at the time of their agreement. At that point, the husband separated from his wife and advised her that he would not return unless she would sign an agreement. She hired legal counsel, investigated the nature and value of their assets, and negotiated the terms of the agreement.

Having signed the agreement, the husband and wife reconciled for nearly two years. Ultimately the reconciliation did not last, but the parties were able to avoid the stress and expense of protracted divorce litigation by having an agreement in place (at least, they would have avoid those pitfalls if the wife had not challenged the validity of the agreement). The Massachusetts court applied the same standards to post-nuptial agreements as many states employ when judging the validity of prenuptial agreements and settlement agreements: (1) availability of independent legal counsel; (2) full and fair disclosure of financial resources; (3) absence of fraud or duress; and (4) reasonableness of the provisions for each spouse.

Pennsylvania has long recognized post-nuptial agreements, and for good reason. When entering into a post-nuptial agreement, full and fair disclosure is an essential element; and it may be important to engage legal counsel. While formbooks and software programs may contain “boilerplate” prenuptial agreements, post-nuptial agreements are very different and require the skill of an experienced family law attorney.

Exclusive Possession of Marital Residence

by bvertz on Jul 7, 2010 • Comments Closed • , , , , ,

A thorny issue that arises early in many divorce proceedings is the question of who may live in the marital residence during the separation period. Generally speaking, the courts will not evict either spouse from the marital residence during separation if they are living together peacefully and have not voluntarily moved away. This principle leads some devious spouses to seek questionable or even fraudulent protection from abuse (PFA) orders. Spouses who have quick tempers must avoid confrontations that can provide legitimate grounds for a PFA order, which are granted when a victim can prove “a reasonable fear of imminent bodily harm.” Some judges will grant PFA orders even where the only grounds are a verbal threat or demonstrative act (such as smashing or throwing an object in the presence of a spouse).

In theory, the courts are authorized by statute to award exclusive possession of a marital residence on an interim basis pending equitable distribution. 23 Pa.C.S. § 3502(c); Laczkowski v. Laczkowski, 496 A.2d 56 (Pa.Super.1985). In practice, exclusive possession is most often awarded to the spouse who remained in the home while the other spouse willingly vacated. If the residence is nonmarital property or titled in the name of one spouse, the titled spouse may have an advantage. The level of conflict between the parties, the ability of a spouse to afford alternate housing, and the effect upon custody arrangements are other likely considerations. An exclusive possession order does not preclude the court from awarding the residence to the excluded spouse in equitable distribution. See, e.g., Kokolis v. Kokolis, 82 Pa.D. &C.4th 214 (Allegheny Co.2006), affirmed, 927 A.2d 663 (Pa.Super.2007). Yet, practically speaking, it can be very difficult for a spouse who is evicted from the marital residence to return. This is one of the first issues that a spouse should discuss with a lawyer at the beginning of any divorce proceeding.

Credit Cards and Divorce

by bvertz on Jun 26, 2010 • Comments Closed • , , , ,

Divorcing spouses often ask me about credit card debts and loans. While a divorce court may assign responsibility for paying credit card debts and loans that were incurred during the marriage, the court generally lacks jurisdiction over the creditors. In other words, the divorce court cannot force the credit card issuer to collect from one particular spouse if both spouses were cardholders.

If both spouses’ names are on the credit card accounts or loans, then creditors may choose to collect from one spouse or the other or both, at their discretion. Surely, the divorce court can hold a spouse in contempt if he or she failed to meet his or her court-ordered responsibility to pay the debts, but that is cold comfort when the other spouse’s credit rating has been ruined and debt collectors are calling on the phone.

My thoughts? (1) Use marital funds to pay off marital debts. The divorce courts may give full credit, partial credit or no credit at all if one spouse uses his or her post-separation earnings to pay marital debt, but the courts will grant full credit if marital assets are used to pay marital debt. (Just be cautious about impairing cash flow for current expenses.) (2) The spouse who has greater income may have a greater ability to pay debts. (3) If the debts are excessive and income is minimal, consider bankruptcy.

This article contains some good information about credit cards and divorce.

Do Not Let Divorce Dissolve Your Family Business

by bvertz on Jun 8, 2010 • Comments Closed • , , , , ,

While doing research on corporate control issues recently, I came across the following article, published by The Wilmington Trust, a venerable private wealth management firm:

Imagine attending the next board meeting of your venerable family firm, only to be seated across from your former spouse’s new partner, who is 15 years your junior. With the divorce rate high, the liklihood of these situations occurring is increasing. But when it comes to protecting your family business from such potentially disagreeable divorce fallout, it’s important to take some precautionary steps:

  • Develop a corporate culture that separates ownership from authority and control.
  • Employ legal tactics and structures to prevent a divorce from deadlocking the business.
  • Establish mechanisms (including participation in family business associations) to keep the channels of communication open and prevent small conflicts from becoming big.

Corporate Culture
Too many families confuse a stake in the business with authority and control. Here is one textbook example from Paul Karofsky, director of the Northeastern University Center for Family Business: “A century-old company, in which ownership was diluted among 18 grandchildren, gave everyone an identical salary, private office and luxury car regardless of their job with the now-defunct company. It would have been much more appropriate to provide salaries and benefits commensurate with their job descriptions and to distribute dividends based on their ownership and profits.”

The model for separating ownership from control in a mature family company, such as the one with 18 owners, is akin to a public company. At Staples®, where just about everyone owns stock — from truck drivers to senior management — no one has grounds to complain when a truck driver, who bought Staples stock 20 years ago, owns a bigger stake in the company and has a higher net worth than his newly hired, better-paid branch manager.

Legal Tactics
When children marry and their spouses enter the family with a presumption of status in the company, the stresses can severely impede business success. Add divorce, and the business could be doomed. As the founder, or senior family member, you have a responsibility to protect the company from being deadlocked by an irate ex-spouse following a child’s divorce. When the children are young and unmarried, it is relatively easy to insist on prenuptial agreements to prohibit spouses from owning stock. To encourage acceptance among the adult children and their betrothed, make it clear that the lack of stock ownership bears no relationship to a financial settlement in the event of divorce.

Obviously, prenuptial agreements cannot be required if marriages have already taken place or in situations where spouses feel justified in owning part of the business. For example, two sisters started a small, mail-order company to sell gardening tools. One sister’s husband offered to set up and run the website, which became hugely profitable. Meanwhile, the other sister’s husband helped out with the books and eventually joined the burgeoning company as CFO. The small business grew into a sophisticated corporation, with no one addressing any of the tough issues such as divorce, death, succession, and so forth.

In an emerging business, such as the gardening tool company, the owners and their spouses must recognize that their obligation to the business far outweighs their individual need for control. Since the spouses are already active in the company, one solution is to create a trust which will own and control all of the stock. In addition to family members, the trust should have one or more outside trustees, preferably a corporate trustee, to break any deadlock. Without a trust in place, shareholders can seek, and will likely receive, a remedy from the courts if a deadlock threatens the business. Unfortunately, having the courts make business decisions is costly and cumbersome, and everyone can wind up with bruised feelings. Trust documents should be re-examined and revised periodically to make sure they continue to serve business and family interests.

Family Business Associations
Family Business Associations can assist in facilitating communication, resolving conflict, and providing management, legal, and other insights. In addition, these organizations offer family business owners, including spouses and children, an opportunity to share their problems and solutions in a non-threatening, peer-to-peer forum.

In a Nutshell

  • The divorce rate is high, but the probability of divorce increases when the number of family members involved in the business grows.
  • Disputes over power, money, and control at home will be played out in the business.
  • Be alert to status issues, both within the company and community.
  • Clearly distinguish between ownership and jobs, but do not go overboard by being unduly tough on an heir apparent.
  • Communicate and revise the trust and other agreements to cope with advancing age, marital status, involvement, health, and the like.
  • Establish an exit strategy, such as a Texas Shootout, which allows one partner to set the price for his or her half of the business and the other partner to either buy or sell at that price.
  • Employing spouses offers substantial benefits, including participation in business travel, the company pension plan, health plan, and Social Security. But roles and compensation for spouses must be well defined, recognizing that other family members and employees will notice every scintilla of preferential treatment.
  • Assess your strengths as the business grows; if running the business day-to-day is not your forte, consider hiring an outside CEO or general manager.

Developing an ongoing relationship with your financial institution and a family business forum is well worth the effort. No corporate job can compare to a well-run family business when it comes to flexibility, financial reward, and an opportunity to work with people whom you know, love, and trust.

Source: The Wilmington Trust

Buy-Sell Controls Value of Medical Practice in Texas Divorce

by bvertz on May 5, 2010 • Comments Closed • , , , , , , , , , , , , , ,

Texas has once again proven itself to be a haven for the affluent divorcee. In Mandell v. Mandell, 2010 WL 1006406 (March 18, 2010), the Texas Court of Appeals held that a professional spouse’s 25% interest in a medical corporation was limited under the terms of a buy-sell agreement to a nominal fixed price payable to shareholders upon divorce. The decision was summarized at BVLaw Blog as follows:

In a case of first impression, the Texas Court of Appeals considered a buy-sell agreement that purported to bind shareholders and their spouses in the event of divorce. As a further complication, the husband had signed an employment agreement with the private medical association—but neither he nor his wife had signed the shareholders’ agreement.  This unsigned agreement limited the value of a divorcing shareholder’s interest to the equity buy-in price (in this instance, a mere $11,000 for a 25% share in a business with an estimated $3 million to $5 million book value).

I share BVLaw Blog’s incredulity, but my analysis is somewhat different.

In the opinion, the Texas appeals court emphasized that the doctor, who signed the stock purchase agreement during the marriage three years before separation, tendered a check for his buy-in but never signed the shareholders agreement (which was referenced in the stock purchase agreement); and his shares were never issued. After separation, the corporation returned the shareholder’s fixed buy-in payment. At that point, the trial court  might have held that the shares were never acquired, and only the buy-in payment itself was community property.

Yet, during the pendency of the divorce litigation, the wife filed motions compelling her husband and the corporation to complete the transaction. The doctor returned the fixed sum to the corporation, and the corporation issued the shares. When the wife attempted to introduce expert testimony to prove the fair market value of the shares, she was met with a motion in limine, which was granted. The trial court held that the wife was bound by the terms of the agreements.

In Texas, the fair market value of a business is presumed to be zero if the shareholders are contractually obligated to sell back their shares upon retirement, death or divorce. A divorcing spouse may present evidence of book value or comparable sales to rebut the presumption, but in this case, the court held that the net asset value was the property of the corporation, not the shareholders.

It might be signficant that Texas is a community property jurisdiction. Since the marital community exists throughout the marriage in those jurisdictions, it could be said that the doctor’s wife was in privity with her contracting husband when he signed the stock purchase agreement. Furthermore, property in Texas apparently cannot be owned simultaneously by one legal entity (a corporation) and another legal entity (the marital community). These principles might not apply in common law (marital property) states, such as Pennsylvania, where it might be argued that the spouses were neither in privity nor intended third party beneficiaries of such contracts, and where marital property is merely a fictitious estate rather than a legal entity.

Hidden Assets in Divorce

by bvertz on Feb 13, 2010 • Comments Closed • , , , ,

The South Carolina Family Law Blog contains a great list of frequently-overlooked or hidden assets in divorce. Some of the more interesting items are:

1.Frequent flyer mileage
2.Security deposits (e.g., utilities, car lease)
****
8.Unused vacation, sick leave
****
10.Income tax refunds
11.Income tax capital loss carry-forwards
****
24.Burial plots
****
30.Cash
****
34.Options to purchase property
35.Unpaid commissions on deals set to close
****
39.Taxes prepaid

In our area, don’t forget about subsurface mineral rights, another overlooked asset.

Pennsylvania: Alimony Factors

by bvertz on Feb 3, 2010 • Comments Closed • , , , , , , , , ,

What factors inflence a spouse’s eligibility for alimony after divorce under Pennsylvania law?

Under Pennsylvania law, post-divorce alimony “is a secondary remedy . . . available only where economic justice and the reasonable needs of a party cannot be achieved by way of an equitable distribution award and development of an appropriate employable skill.” These are the well-known words of the Superior Court of Pennsylvania in its Opinion in Nemoto v. Nemoto, 620 A.2d 1216 (Pa.Super.1993). Most of the important concepts in alimony jurisprudence are covered in this sentence. First, the trial courts must attempt to divide marital property in a way that avoids the need for post-divorce alimony. Why? Because the courts encourage a complete cessation of financial ties between divorcing spouses. If enough property (particuarly income-generating property) can be conveyed to a divorcing spouse, then that property can fulfill all of the spouse’s economic needs without the financial “umbilical cord” of alimony.

  • The value of the assets and liabilities distributed to each of the parties must be considered before awarding alimony. 23 Pa.C.S. § 3701(b)(10), (16); Fee v. Fee, 496 A.2d 793 (Pa.Super. 1985).
  • In its determination of alimony, the trial court must consider the income generated by a spouse’s marital and nonmarital assets. Ressler v. Ressler, 644 A.2d 753 (Pa.Super. 1994).

Second, our Courts encourage spouses to maximize their earning capacity and income potential through appropriate employment. In the first decade of the Divorce Code, enacted in 1980, the law provided that alimony could be awarded only for rehabilitative purposes, such as paying for college or vocational training. Alimony was not permitted in Pennsylvania prior to 1980, and the legislators who enacted the  Divorce Code worried that spouses would lose their incentive to become self-supporting if they could easily receive post-divorce alimony. The alimony law has been revised since 1980, allowing alimony for other reasons, such as meeting the budgetary shortfall of a spouse who is incapable of self-support. Still, the old law remains a strong influence among judges and lawyers in Pennsylvania. Several attempts to modernize the alimony law have failed, primarily because they might reduce a spouse’s incentive to go back to work. 23 Pa.C.S. § 3701(b)(1), (9), (17).

  • The Court imputed an earning capacity to a dependent spouse who devoted her time to an unproductive start-up business instead of seeking gainful employment. Thomson v. Thomson, 519 A.2d 483 (Pa.Super.1986).
  • An award of alimony for ten years was deemed excessive when a college education leading to a self-supporting job would require just four years. Barrett v. Barrett, 614 A.2d 299 (Pa.Super.1992).
  • In cases where there is no evidence of an impediment that would prevent a spouse from becoming self-supporting, the court is authorized to limit an alimony award. Adelstein v. Adelstein, 553 A.2d 436 (Pa.Super.1989).
  • In cases where a spouse’s earning capacity was limited by a medical disability or the disability of a custodial chid, Soncini v. Soncini, 612 A.2d 998 (Pa.Super.1992), the court may decline to impose a full time earning capacity upon a dependent spouse, justifying an award of alimony.

Finally, the law looks to the reasonable needs of a spouse. After a divorce, each spouse must have sufficient cash flow to meet his/her monthly household expenses. Yet, judges realize that two households cannot exist as cheaply as one combined household. The marital standard of living is just one of the seventeen statutory criteria for alimony awards, and in practice, it is one of the least influential. The expenses associated with custody of a child is more influential in an ex-spouse’s request for alimony. Just as important is the ability of a dependent spouse to become self-supporting through appropriate employment and the financial hardship that alimony may cause to the payor. When determining the amount and duration of an alimony award, the courts scrutinize the budget of a spouse seeking alimony carefully. 23 Pa.C.S. § 3701(b)(7), (8), (13).

  • The Court will not allow an award of alimony that would divert twice as much income to the alimony recipient as the payor, which would allow her to enjoy a better standard of living than she had enjoyed during the marriage Ressler v. Ressler, 644 A.2d 753 (Pa.Super.1994).

Marital misconduct is just one of the seventeen factors in awarding alimony, and it has remained one of the least influential since the enactment of the Divorce Code. 23 Pa.C.S. § 3701(b)(14); Nuttal v. Nuttal, 562 A.2d 841 (Pa.Super.1989).

Dividing CRATs and CRUTs in Divorce

by bvertz on Jan 19, 2010 • Comments Closed • , , , , , ,

A recently-issued IRS ruling (Rev.Rul.2008-41) addressed the issue of whether a charitable remainder annuity trust (CRAT) or charitable remander unitrust (CRUT) can be divided into two equal trusts upon divorce. A charitable remainder annuity trust is a trust in which the grantor receives income in the form of an annuity payment until his or her death, after which the trust principal is donated to charity. The annuity may not be less than 5% nor more than 50% of the trust principal. A CRUT is the same thing, except that the income payments are a fixed percentage of the principal.

Rev.Rul. 2008-41 established that it is possible to divide a CRAT or CRUT into two equal trusts whose terms are identical to the original trust, except that each spouse is the income beneficiary of one of the two resulting trusts. The resulting trusts are qualified as CRATs or CRUTs under IRS regulations, and no excise tax is triggered by the division of the trusts.

A more detailed article on this subject is available from our friends at Strategic Valuation Group in Warren, Ohio.

This post is not intended as tax advice and should not be used to avoid tax penalties by our readers, who should seek tax advice that is specific to their individual circumstances.