See An Equitable Distribution Decanted

In the earliest days of Pennsylvania’s equitable distribution law, there were many reported cases deciding what the concept meant and how the assets should be treated in distribution.

We don’t see enough of those now; cases where the assets available for distribution are spilled on the table and evaluated employing the statutory factors found at 23 Pa.C.S. 3502. Part of that analysis is rote. But the secret sauce is dividing the assets in a way that does justice to the parties and works in terms of practical economics.

So, we have a new case decided this week by the Superior Court affirming a Franklin County equitable distribution in Sandino v. Sandino 729 MDA 2024.

Manuel and Susanne Sandino were married for 15 years. At the time of the 2023 distribution, husband was 50 and wife 39. There are minor children and wife has primary custody of them. She has a high school education and works earning $15 per hour. Husband is a federal employee who also serves in the national guard. Those jobs produce “at least” (?) $103,000 per year. Both parties appear to have been healthy and there were no special contributions discussed.

The assets for distribution were (rounded)

House  $303,000 subject to $160,000 mortgage                                $143,000

Military pension (defined benefit)                                                       243,000

Husband’s FERS retirement                                                                   41,000

Husband’s Thrift Savings Plan                                                               20,000

2 cars, each worth $3,000                                                                         6,000

Stocks $832
Wife’s 401(k)  $72

                                                                                                               454,000

Coloring the case was the existence of a non-marital estate. Husband had inherited assets worth $250,000 at the time of distribution.

We don’t have net incomes for the parties but this writer estimates $7,000 a month for husband and $2,000 for wife. We don’t know the level of child support. We actually don’t know how many kids;  but assuming 2, and the net incomes involved that unadjusted child support should be about $1,675.

The hearing officer decided, and the trial court affirmed a 62/38 distribution in favor of wife. Alimony was denied. Wife was awarded the house, husband’s and thrift savings and FERS accounts. This left $75,000 due based on the present value of husband’s military pension.

The typical ruling would have awarded wife a portion of that defined benefit pension rather than value it on a present basis. This reflects a common problem in modern equitable distribution; absence of liquidity. The only really salable assets was the home equity. And that would have produced liquidity but created a housing problem for the children of the marriage and their mother.

So, what the court did was to let husband keep his defined pension but make a payout of $1,000 a month for 75 months. Wife would have to refinance the house removing husband from the mortgage.

Husband appealed. His issues were that by law deferred distribution of pensions is a preferred remedy rather than a cash out as ordered here, citing Braderman v. Braderman, 488 A.2d 613 (Pa.S. 1985). He also asserted that 62/38 was too heavily weighted to a wife who was 11 years his junior.

To race to the conclusion, the Superior Court found no error and affirmed. We have a mother who is younger but with little chance to build a career path. Husband has 3x the earnings and a quarter million in a separate estate.

The learning experience here is from looking under the hood of this distribution scheme. Unfortunately, many of the building blocks are left unknown in the opinion including the ages of the kids and the level of support. But let’s work off my speculated income and support numbers. Husband walks away with net earnings of $7,000 a month. He will pay an estimated $1,675 in child support and $1,000 equitable distribution payment, leaving him with $4,325 a month to support himself. Wife has the capacity to earn $2,000 a month net which will be supplemented with the child support and the $1,000 distribution payment; $4,675. She will need to refinance the mortgage debt. At 7% over 30 years that will take $1,100 a month plus taxes and insurance. Taxes are about $120 a month in and around Chambersburg for a home of that value and insurance may be close to that. Thus, housing costs of 30% are in line with optimum loan requirements. In other words one of the questions a court faces in crafting a distribution is whether the refinance will “take” with a mortgage broker. Otherwise, the house needs to be sold.

In short, there is craft to this process when done right. Note also that, if our estimates are right, husband and wife walk away with roughly equivalent incomes after support and equitable distribution payments are made. The child support and equitable distributions will terminate. Husband’s payments will free his pension from any obligation to wife when he retires and he will continue to accrue additional benefits so long as he works in the federal system.

As we have noted in another context, this is a case where the parties might jointly profit by not refinancing the house, assuming that mortgage is from the 3-3.5% days. This may slow husband’s home purchase plans in another world but, recall he has $250,000 of separate assets to deploy for replacement housing.

This case merited a more complete rendition of the facts and publication as precedential. It illustrates that analysis of the equitable distribution factors without consideration of an economic plan can yield results that do justice to no one. Here, the hearing officer appears to have understood not just the law, but the need for a plan.