As with all other aspects of their divorce, couples in mediation are empowered to decide together the fairest way to divide their estate, rather than having judges, attorneys and the divorce court decide for them. This is the essence of mediation.
When it comes to dividing marital property, I always inform couples at the start of their mediation, equitable distribution does not always mean 50/50. Equitable distribution represents what is adequate and realistic for each party, based on their budgeted financial needs, future financial plans, earning capacities and so on. Once we work together to analyze the respective finances and future needs of each, it becomes more clear to the couple how the estate should be most fairly divided on a percentage basis.
Let's take a closer look at how we work together in mediation to divide property fairly:
As part of this financial analysis, I provide the couple with some guidance and perspective around the specific factors listed in the PA equitable distribution statute (Title 23, Pa. Code, Section 3502(a)) so they have some point of reference when agreeing on the fairest division of their estate. Most cases in PA divorce court end up anywhere between 50/50 and 60/40 (with some exceptions) and our mediated divorce settlements are generally consistent with this outcome.
Here are the 13 factors of equitable distribution in PA and how they are typically considered in mediation.
1. Length of Marriage
I tell my clients that the length of the marriage is one of the more important factors that a court will consider. Usually, the longer the marriage, the greater the claim you may have for a larger share of the estate if you are the spouse with less ability to build assets and have a lower earning capacity. Of course, there are no guarantees and the court should be evaluating the needs of each case on its particular facts and circumstances. I tell them that a short term marriage in the eyes of the court is anywhere between 1 to under 10 years, mid-term marriage between 10-20 years, and a long-term marriage at 20 yrs +.
2. Previous Marriages
Your previous marriage may have a bearing on the court’s analysis in equitable distribution of marital property. For example, you may have a previous monetary obligation such as an ongoing alimony and/or child support payment, or a college tuition obligation.
These expenses are discussed in divorce mediation and factored into the overall financial picture for each of you.
3. Age, Health, Station, Amount and Sources of Income, Vocational Skills, Employability, Estate, Liabilities and Needs of Each Spouse
The amount a spouse makes, the maximum amount they could make based on their education and vocational background, and the amount needed to retire are all considerations in equitable distribution of marital property. Factors like age and employment can affect the amount needed at the spouses’ particular time in life to continue living at a similar standard. The health of each spouse can be a large factor in how much you need in the future and your ability to work and earn.
Mediation allows you to come to an agreement on the practicalities surrounding these factors and address other deeper needs that a court may oftentimes overlook.
4. Contribution to the Education, Training or Increased Earning Power of the Other
If during the marriage, your or your spouse contributed to the other’s ability to work, train and advance their career, this is a definite consideration in property division. The idea is that if you made this contribution, you may have even sacrificed your own ability to increase your earning capacity. For example, you stayed at home and were the primary caretaker of children for a period of time. It may be appropriate for a court to award you with a greater piece of the marital estate. Sometimes a spouse may have paid for the other’s educational degree during the marriage and can ask the court for a reimbursement of that cost.
Whatever the case, the mediator will ask you some detailed questions to gain a better understanding of what these particular dynamics were during the marriage so that they can understand why these factors are important to the court and to its reasoning in the statute.
5. Potential to Earn
This relates to your maximum earning capacity upon a divorce. The court is concerned with providing adequately for both spouses according to need. You might have more of an ability to earn based on certain skills or education you possess and might not need as many assets as your spouse, for example.
In mediation, similar to the court, I focus on the plan and the future financial needs and expectations of each spouse. These relative needs will become apparent during the mediation as the financial matters are discussed. Of course, a spouse’s earning capacity is open to opinion and debate. In mediation, spouses are entitled to give their opinions on this. Then we can work together to find some common ground on what you each consider to be a fair earning capacity to apply to both. This will set the tone for your divorce settlement.
6. Medical, Retirement and Other Insurance Benefits
Benefits like health insurance and retirement benefits can play a role in determining a fair division of property. In mediation, I focus on which spouse will have access to a greater amount of these benefits than the other after divorce. Health insurance, being as costly as it is these days, can be a huge part of your budget after divorce, and one which you or your spouse did not have during the marriage, if they were on the other spouse’s policy.
Also, if one spouse, based on future income disparity, will have the ability to build more retirement than the other, a court will tend to award more retirement assets to the other, if they exist in the estate.
In mediation, I do not overlook these important factors. Instead, I will itemize the cost of insurance to each spouse after the divorce and carefully look at the retirement portion of the estate so that spouses can determine if one needs to receive a greater portion than the other.
7. Contribution to the Value or Dissipation of the Assets
How you increased or decreased the value of property can be taken into account as well. Whether you sustained employment during the marriage, carried the household bills and acquired assets, or if you took care of the marital home as a homemaker, you equally maintained and increased the value of the marital assets in the eyes of the law.
Also, proof of wasteful spending by a spouse during the marriage can decrease the amount of property they will receive in equitable distribution.
In mediation, most spouses are resigned to the divorce and are less inclined to look into the past of the marriage in trying to quantify who contributed more to sustaining the assets than the other (tit for tat). By letting these issues go, you are able to focus on those matters that are most important to address in your settlement.
8. The Value of the Assets to Each of You
Because marital property is not just an amount of money, the specific division of assets can be tailored to how much each of you need. For example, if you have primary custody of children and nowhere to live, a house may be more valuable to you than your spouse.
You can also account for sentimental value and determine what items should belong to each of you.
The mediator will ask each of you which types of assets are most important for you to have at the time of divorce, whether they be liquid cash assets, equity in a home, or illiquid assets such as brokerage investment and retirement accounts.
In mediation, you can divide your marital assets based on what each person truly needs.
9. Standard of Living During the Marriage
Marital property is divided so that you and your spouse can approximate the standard of living you had during the marriage. However, “standard of living” can be interpreted differently.
In mediation, each spouse can determine what they need to maintain as best they can their previous standard of living and craft their agreement around that.
I always tell my clients that divorce is not a wish list for either spouse. As such, spouses have to be more realistic about their financial futures than ever before, and especially in the first 1-5 years after divorce, to allow them each to adjust to the new normal, financially speaking, with life in two separate households.
10. Where You are Economically
Your current salary and what assets you will be taking can factor in as well, especially considering taxes. If a spouse is taking non-liquid assets, then it might be fair and appropriate to award that spouse more property to compensate for potential taxation of those funds if they are subsequently withdrawn in cash.
Also, mediation allows you both to take into account the market fluctuation of assets instead of the fixed value at a certain date in time. You can also establish contingency clauses in your agreement that can modify the agreement if an asset decreases significantly in value in the interim or requires a debt to be payed off.
Mediation allows spouses to account for market fluctuations instead of an asset's fixed value at a certain date in time in the court process.
11. Primary Custody
If you or your spouse will have primary custody of a child or children, you may not be able to work and earn at fullest capacity for a significant period of time after the divorce. This, of course, can affect your future earning capacity, and as such, could be one factor that justifies a greater piece of the marital estate to your spouse.
If such a circumstance exists, the mediator will point it out and then you are both free to give it whatever weight you agree it deserves in the settlement.
12. Tax ramifications associated with each asset to be divided
There are often tax consequences that arise from the transfer of property in a divorce. An experienced mediator, although not a tax expert who can render tax advice, should be keenly aware of these potential tax issues and pitfalls because they can have a huge impact on the financial settlement.
The mediator will initially make you aware of these potential pitfalls and may make suggestions as to how to best divide the property. This will result in the least amount of tax bite to your marital estate so that more assets can be preserved. This also results in more property available to be divided among you both.
13. Expense of sale, transfer or liquidation associated with a particular asset, which expenses need not be immediate and certain
Sometimes, if a particular asset is being sold as part of the estate, there may be tax consequences of the sale, as well as fees, penalties and other costs. Some of these costs may not be immediate to the divorce. For example, let's say you acquire a property with significant equity in the divorce. Although you may have taken what you believe is great value, you may not consider that if you plan to sell the home down the line, you may incur significant capital gains taxes ( unless you are exempt under the exceptions in the tax code.)
This makes the asset less valuable to them over time, but you may not have considered this at the time of your settlement.
An experienced mediator will point this out during the sessions so that you can enter into such agreements with your eyes wide open.
About the Author
Cris Pastore, Main Line Family Law CenterCris Pastore, Esq. is co-founder and managing attorney-mediator at Main Line Family Law Center, a divorce mediation firm with seven offices along the Main Line and Center City, Philadelphia. A practicing attorney for over 20 years, Cris has focused exclusively on divorce mediation since 2007, when he grew increasingly frustrated by destructive nature of the court-contested divorce process. Cris has made it his personal mission to revolutionize this area of practice to preserve family relationships and help families emerge healthy and whole. Follow Cris at @healthy_divorce.
Topics: Healthy Legal Options