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How The Vanishing Credit Works In Bucks County PA Divorces
A frequent issue that arises in Pennsylvania divorce cases is how to handle premarital assets.
The question is how is a premarital asset contributed to the marriage is handled in equitable distribution. In response, the Bucks County Masters Office employs a “vanishing credit” theory. However, it is first important to understand what is classified as a pre-marital asset. Additionally, how these assets are typically handled by most courts?
A premarital asset is one that a party possessed before the marriage. Such an asset is “contributed to the marriage” when it is put into joint names or used to purchase a joint marital asset. A classic example of this is when one party uses premarital funds as a down payment toward the purchase of the marital residence, which is deeded in both parties’ names.
In equitable distribution, the party contributing the premarital asset almost invariably seeks to have the full value of the asset returned to them as separate property. This spouse argues the asset should not be included in the marital estate for equitable distribution purposes. Of course, the non-contributing spouse argues that the entire value of the premarital asset should be deemed a martial asset subject to equitable distribution. This spouse often argues the asset was contributed or “gifted” to the marriage. Thus, the dilemma is how to fairly or equitably handle this issue.
Under Pennsylvania law, once a premarital asset is contributed to the marriage it becomes a marital asset.
This asset is then subject to equitable distribution. Therefore, in this regard, the non-contributing spouse is correct in asserting that non-marital assets contributed to the marriage are marital property. They are thus subject to equitable distribution. However, Pennsylvania law also requires that the court consider a spouse’s contributions to the marriage as a factor to be considered in equitably dividing marital property. Therefore, the contributing spouse has a strong argument that some or all of his or her contribution should be returned in equitable distribution.
While not the official law of Pennsylvania, the Bucks County Divorce Master’s Office most often applies a very fair formula for equitably distributing premarital assets contributed to the marriage.
This is known as the “vanishing credit.”
The formula is named as such because the contributing spouse’s credit essentially “vanishes” over a twenty-year period. In short, the Bucks County Divorce Master’s office considers 5% of a premarital asset converted to a joint marital asset per year and subject to equitable distribution. The remaining percentage will be deemed a separate asset and returned to the contributing spouse in full.
For example, suppose a spouse contributes $100,000.00 of premarital funds to purchase a jointly owned marital residence. Further, assume that the marriage is a ten-year marriage. The parties purchased the marital residence two years into the marriage. The premarital funds were contributed at that time. To calculate the marital component of the contributed funds, the Bucks County Divorce Master’s Office will multiply the number of years elapsed between the contribution of the funds and the date of separation. In this example 8 years, by 5%, which equals 40%. Therefore, The Bucks County Divorce Master’s office will recommend that 40% of the $100,000.00 be considered as martial property subject to equitable distribution. The Bucks County Divorce Master’s Office will further recommend that the remaining 60% of the $100,000.00 be returned to the contributing spouse as separate property.
Of course, if one (or both parties) does not accept the master’s recommendation, they can take the issue of equitable distribution to trial before a judge. However, a judge will likely not apply the vanishing credit, since that is not the official law of Pennsylvania. However, the ultimate decision on equitable distribution by the judge may practically be very similar in result.