Friday, November 25, 2005

Wife asks for house worth $2.3 million - Court orders Husband to build house worth about $100,000

In a recent case that reached the Superior Court of Pennsylvania (the appellate court), a wife argued that her former husband was not living up to the terms of their property settlement agreement. The husband, of course, vehemently disagreed and the appeal.

According to the court’s opinion, available on the website of the Pennsylvania Unified Judicial System http://www.aopc.org/OpPosting/Superior/out/a34036_05.pdf, Barbara and Gary Herzog agreed that as part of their marriage settlement agreement (dated September 2000), Gary would build Barbara a modular home of her choice, including amenities such as fencing and landscaping. (As a general rule, I prefer to keep these type of ambiguous terms out of settlement agreements because I believe such arrangements can only lead to further arguments, and possibly, costly litigation. I prefer to draft agreements that end the matter with finality without the need for much further consultation and agreement with the person you are divorcing.)

Barbara first selected a home worth $75,000 and chose various amenities worth about $35,000, for a total price to Gary of $110,000. However, Barbara became dissatisfied with the construction progress and began to look at other homes, worth in the $135,000 to $145,000 range. Gary balked at these prices. Barbara then hired another contractor for her original choice of a modular home and proceeded to pick out improvements worth approximately $2,300,000, such as $893,000 worth of fencing and $950,000 worth of landscaping. Gary apparently became appalled at the exploding price tag and filed a petition in the court to stop a what he apparently felt was a process that had snowballed out of control from the original agreement. Both parties argued various provisions of contract law and the trial court ultimately ordered Gary to build Barbara a house consistent with the first arrangement – the $75,000 home with the $35,000 worth of improvements. Barbara appealed to the Superior Court of Pennsylvania, but the court agreed with Gary. So, unless there is further litigation, it looks like Barbara’s house, with the amenities, will be in the $100,000-$110,000 price range, rather than $2,300,000.

This case most likely involves many other issues and facts and I based my synopsis only on what was available in the court opinion. However, for one party to believe that she was getting a house worth over two millions dollars while the other party believed he was only obligated to spend in the $100,000, there must have existed some significant lack of communication. Additionally, it is now almost 2006 and this woman is no closer to having a home built than she was in September 2000, when the agreement was drafted.

Perhaps a better strategy would have been to negotiate a sum of money that Husband was to pay Wife and then Wife could purchase her own home, without any more consultation with Husband — that would have hopefully provided more finality to both parties and perhaps they could both have moved on with their lives rather than be embroiled in expensive and time consuming litigation for five years.

Please note that these articles are intended for information only and cannot substitute for specific legal advice, tailored to your individual situation.

Friday, November 18, 2005

Grounds for Divorce in Pennsylvania

In Pennsylvania, people can obtain a divorce on either "fault" or "no fault" grounds. Most divorces proceed on "no fault" grounds which simply means that neither party must allege that the other did something wrong. For a "no fault" divorce, a party must allege that there are irreconcilable differences. There are two types of "no fault" divorces, commonly called 3301( c) and 3301 (d) divorces (named after the statute number).

When the parties agree to be divorced

For a 3301 ( c) divorce, both parties generally agree that they want to be divorced. One party files and serves the divorce complaint (the court charges a filing fee). After a ninety day waiting period, both parties sign a 3301 ( c) affidavit, stating that the marriage is irretrievably broken, there is no chance for reconciliation and they wish to proceed with the divorce. The parties can then ask the court to grant the divorce, provided that the economic claims are resolved. Economic claims include issues like how to divide the house, cars, money and other property. If the economic claims are not resolved, the parties can request a hearing on those claims. Therefore, even if both parties agree, it will take a minimum of ninety days just to get to the point where the parties can proceed with the divorce.

When one party does not agree to the divorce

If one party does not agree to the divorce, the other party can proceed with a 3301(d) divorce. This type of divorce requires a two year separation. Once the parties have been separated for the required two years, one party can file a 3301(d) affidavit, alleging the separation and that the marriage is irretrievably broken. The other party is given a time period to respond. Once the two year separation is established, the divorce can proceed.

Fault divorces

Various grounds for fault divorces exist in Pennsylvania: adultery, habitual drunkenness, abandonment, etc. Since these grounds require at least a one year separation, most parties opt to file on no fault grounds and wait for the 24 month separation to avoid the procedures required (and expense involved) to prove the other party’s fault.

So how long will it take altogether?

Even a divorce where both parties agree can usually take four to six months. The complaint must be filed and served on the other party. Each party must wait the ninety days after the date of service to file their 3301 ( c) affidavit. Once those are filed with the court, assuming there are no property claims or issues involving children or support, the parties can file the appropriate paperwork to request that the court sign the divorce decree. There is an additional brief waiting period that the parties can waive if they so choose.

Issues regarding property (house, bank accounts, debt, etc.) will prolong the length of time required to obtain a divorce. When children are involved, it is usually preferable (but not always) to resolve all claims involving children (custody and support), prior to resolving the rest of the divorce issues. If the parties cannot come to an agreement, the time required will depend on the court’s schedule and the number of hearings required to resolve the issues.

4-6 months or 4-6 years?

The bottom line is that some divorces can be resolved in four to six months while others can take years. Although it is tempting to rush through a divorce in order to limit the unpleasantness and expense of the entire ordeal, the issues are usually so important that it is best to take your time so that you can make carefully thought out decisions. These decisions affect you for years to come so, like any important life decision, take your time so that you can consider each issue and its impact.

Please note that these articles are intended for information only and cannot substitute for specific legal advice, tailored to your individual situation.

Friday, November 11, 2005

Can you afford to keep the house after divorce?

In many cases, one spouse will want to keep the house after divorce and buy out the other party’s share. Reasons include: stability, keeping the children in the same school district, attachment to the house or neighborhood, and/or inability (perceived or otherwise) to afford comparable housing. Before making this decision, you should do your homework so that you are armed with all of the information necessary to make such a decision.

The first step is to find out the current value of the house. A realtor can usually provide an estimate of the fair market value at no charge. Fair market value is the amount that you can reasonably expect to get if you sell the home. This number can be used for planning purposes. However, this number will not be exact and may be artificially inflated. To determine a more exact figure, you can obtain a certified real estate appraisal, usually at a cost of $300-$500. This should be done in cooperation with your attorney.

Once you know the value of the house, determine the present equity which, generally speaking is the value minus the debt against the house (first and second mortgages, home equity lines, etc.) In Pennsylvania, if you decide you want to keep the house as part of the overall divorce settlement, you can generally subtract theoretical costs of sale to determine the value for the purposes of equitable distribution. For example, a realtor usually charges six percent for his or her fee and transfer tax, outside of Philadelphia, is usually one percent of the sale price. Therefore, if a house has a fair market value of $100,000, for the purposes of equitable distribution, it may be valued at $93,000. ($100,000 value minus $6,000 realtor commission and $1,000 transfer tax).

If you decide to keep the house, generally, the mortgage will have to be refinanced into your name alone. That means you will have to qualify for the refinancing. You can begin talking to various lenders to determine if you would be eligible. You may also need to borrow more of the equity in order to buy out your spouse’s share. This can only be determined by an overall evaluation of the entire equitable distribution scheme. While it is a good idea to preliminarily investigate different mortgage options, you should not apply for a mortgage until you are ready, as applying for too many mortgages can affect your credit report.

The decision whether to keep or sell the house should be made as a part of the overall global settlement. Consider the assets and debt you expect to obtain in the divorce settlement, your anticipated income and any anticipated support you may receive (alimony or child support). Also consider the tax effects, such as the mortgage interest deduction, which may decrease your tax burden and therefore increase the amount of your income available to you. If you cannot comfortably afford the housing expenses, it might be better, overall, to consider selling the house and replacing it with something more affordable. Take your time with this decision and utilize all of the resources available to you: your lawyer, accountant, financial planner and a trusted friend or family member who is knowledgeable in these matters.

Tuesday, November 08, 2005

How will our credit card debt be handled in divorce?

Most everyone knows that divorce involves dividing assets. However, along with assets, debts must be divided. Many couples have credit card debt: either in one party’s name alone or joint credit card debt.

The first step is to gather as much information as possible regarding the debt: account names and numbers, debt balance as of date of separation, name on credit card, recent statements, etc. A credit report can prove to be an excellent resource for this task. Three main credit report agencies provide reports for a fee:

Equifax- (800) 685 1111 - www.equifax.com
Experian (formerly TRW) - (888) 397 3742 - www.experian.com
Trans Union - (800) 888 4213 - www.transunion.com.

You may obtain a credit report on the following website: www.annualcreditreport.com

Generally, in Pennsylvania, marital debt includes any debt incurred during the marriage, regardless of how titled. As with all general rules, there are exceptions and limitations. If you feel that certain debt should not be marital, begin to gather documentation, such as statements documenting what was purchased. As a drastic example, if all of the credit card debt is due to one spouse’ gambling habit, a court may not consider that debt marital and instead ask the spouse who is responsibel for incurring the debt to repay it.

After separation, in order to keep things orderly, it is a good idea to keep non-marital debt separate. Open a new credit card for post-separation spending. Try not to continue using credit cards that still carry marital debt.

If you are able, close joint credit cards at separation. If your spouse if an authorized user on your credit card, investigate whether he or she can be removed. This may save a headache later by keeping post-separation debt separate and giving you peace of mind that your spouse is not racking up debt in your name.

Sometimes couples choose to pay off debt with marital assets in order to provide for a fresh start. Whatever the plan, continue to pay all minimum payments so that your credit is not affected.