Marriage and divorce are not cold business transactions. Couples who are about to marry or divorce have emotions and intimate relationships that may compromise their ability to negotiate at arm’s length like business people. For this reason, the law of Pennsylvania prior to 1990 imposed two special requirements upon family law agreements, such as prenups and divorce settlement agreements.  Pennsylvania law prior to 1990 required (i) full and fair disclosure of each party’s property, income and statutory rights; and (ii) the agreement had to make a reasonable provision for each spouse upon divorce or death. Many other states imposed these same requirements and still do.

In 1990, the Supreme Court eliminated the requirement a prenuptial agreement or marriage settlement must be substantively fair to each spouse, so long as there is full and fair disclosure (informed consent). Over time, the Pennsylvania courts have continued the relax the special requirements that once distinguished family law agreements from business transactions.  Increasingly, the Pennsylvania courts are treating couples who are about to marry or divorce like business people, fully capable of negotiating deals without letting emotion interfere with their judgment.

Two recent decisions by the Pennsylvania Superior Court examine the parameters of full and fair disclosure in family law agreements. Like most Superior Court decisions, these are the opinions of a three judge panel, which may or may not represent the views of a majority of appellate judges across the state. The first is a published precedent that may be cited in court, the second is an unpublished opinion without precedential value in court.

In Lugg v. Lugg, 2013 Pa.Super. 67 (April 1, 2013), a husband and wife cohabited for 13 years and raised three children when they decided to negotiate a post-nuptial agreement. A post-nuptial agreement is an agreement between spouses who contemplate divorce in their future or plan to stay together but separate their assets, liabilities and financial obligations. In this case, the wife offered to waive full and fair disclosure, as well as her right to seek child support. Husband’s counsel drafted an agreement and submitted it to wife’s lawyer, but wife decided to negotiatedirectly with husband instead. After several weeks of negotiations, Husband pressured wife to sign the post-nuptial agreement, as well as a deed surrendering her interest in the marital residence. Husband filed a divorce complaint two weeks later, and wife asked the court to rescind the post-nuptial agreement for lack of full and fair disclosure. The trial court refused to rescind the agreement.

In her appeal, Wife argued that a contracting party cannot waive his or her right to full and fair disclosure when signing a family law agreement. A three judge panel of the Superior Court disagreed, holding that full and fair disclosure can be waived, some long as the waiver is voluntary and in writing. The Superior Court held that wife was not the victim of fraud or misrepresentation because she knew that she was giving up the right to disclosure. The Court also dismissed wife’s claims of duress and legal misconduct.

In Serfass v. Serfass, No. 1888 EDA 2012 (unpublished, April 4, 2013), the wife challenged the validity of a prenuptial agreement when her huband initiated a divorce after 17 years of marriage. The wife claimed that the disclosure was not sufficiently specific, when it described an asset as “Ownership Interest $511,000.00” without identifying the company or asset by name. Husband claimed that the dollar amount accurately represented the aggregate value of his interests in several companies. The trial court upheld the agreement, and the Superior Court affirmed. In its decision, the Court referenced a well-established principle that “disclosure may be imprecise only to the extent that it does not obscure the general financial resources of the parties.” Since wife did not meet her burden to prove fraud or misrepresentation by clear and convincing evidence, the Court had no grounds to invalidate the prenup.

In Pennsylvania, crafting an effective family law agreement – whether it is a prenup, settlement agreement or otherwise – requires full and fair disclosure. It is well-established here that the courts will not inquire into the underlying fairness of the bargain, so long as both contracting parties were well informed of the assets, liabilities and income involved in the deal. Typically, this requires the parties to exchange account statements and tax returns, or create a spreadsheet or detailed list.

Perhaps Lugg demonstrates the principle that divorcing parties, who likely have personal knowledge of their assets, liabilities and income, do not need the formalities of spreadsheets and lists to meet the requirement of full and fair disclosure. Both Lugg and Serfass illustrate the high standard that spouses must meet to prove fraud when challenging the family law agreements. Does Lugg mean that contracting parties can waive full and fair disclosure when negotiating prenuptial agreements, where they likely have limited knowledge of each other’s assets and income? Perhaps, if Lugg is followed by other courts in other contexts. Still, it might be unwise for family lawyers and their clients to adopt this practice, particularly if there is any chance the parties might migrate to a jurisdiction where full and fair disclosure and/or reasonable provision are legally required. And what if Lugg is confined by future courts to its unique context or overruled by subsequent precedent? The prenups that were drafted without full and fair disclosure might be unforceable. It’s not worth the risk.

As a child support lawyer, I am frequently asked why the Pennsylvania child support guidelines don’t consider a parent’s expenses. Sometimes paying child support makes a parent “see red.”  Parents may experience personal budget deficits when they have to add child support to the list of bills they pay each month. And the court doesn’t seem to care. What gives?

The child support guidelines do not (generally) consider expenses. That’s because every parent’s willingness to spend money is different. Two parents with the same income might have very different spending habits. It would be impossible to have consistent results if the courts looked at spending.

In the 1980′s the Pennsylvania courts implemented uniform child support guidelines, the “formulas” that are applied to calculate child support. The child support guidelines are income-driven, with almost no consideration of the expenses or needs of the parents or the child. The guidelines were enacted to create uniformity and consistency, or in the words of the law, to ensure that similarly-situated people are treated equally. Everyone with the same income level should pay the same child support.

The Pennsylvania child support guidelines were developed (and are updated every few years) under the Income Shares model. The Income Shares model is a survey of in-tact families, to determine what percentage of their income is spent on the basic necessities (housing, food, clothing). The Income Shares model tells the court how much a typical family spends on their children at each income level; that’s how the basic child support is determined.

Basic child support doesn’t include health insurance, medical expenses, private school tuition, summer camp or extracurricular activities, because those expenses were never considered in the Income Shares survey. (It also doesn’t consider discretionary spending, like toys, video games, vacations, and Chuck E. Cheese.)  The Pennsylvania courts felt that those expenses should be allocated to parents in proportion to their incomes, and added to the basic child support obligation. Sometimes, the health insurance premiums or extracurricular activities cost a lot in comparison to the basic child support, especially in cases where there is shared custody of children. The Pennsylvania method of calculating child support isn’t perfect, but no one  has developed a better system, so it goes on.

A recurring issue in divorce litigation is the treatment of marital assets that generate income, such as pensions, rental real estate and businesses. Pennsylvania case law establishes clearly that these assets can be divided as property in equitable distribution or counted as income for alimony, but not both. A recent decision published by Adams County Judge Robert G. Bigham applies this law and logic to IRA distributions, in Sealander v. Sealander, 48 Adams Co. Leg. J. 356 (April 12, 2013).

In Sealander, the wife waived her interest in husband’s IRA retirement account when she signed a marital settlement agreement in October 2011. Nine months later, (ex-)husband initiated a support modification proceeding when he began to provide medical insurance coverage for the children and (ex-)wife no longer had child care expenses. During the modification hearing, (ex-)wife argued that the court should treat the IRA distributions that (ex-)husband received in 2011 and 2012 as income. Husband argued that his income did not include the IRA distributions because they were already divided in equitable distribution.

A cow can provide milk or meat, but not both. The same is true in family law: an income-generating asset can be treated as a source of income for a support order, or it can be treated as property that is divided between spouses in equitable distribution. In his opinion, Judge Bigham thoroughly reviewed the case law that prohibits this form of double dipping. He also cited the statutory definition of “income” in child support cases, which includes income derived from property, but not the value of the property itself.

Not all family lawyers agree upon a strict prohibition on double dipping. Some lawyers, for instance, believe that double dipping should be permitted when income-generating assets could provide a source of child support. On one hand, children do not receive any share of the marital property when it is divided in divorce, so they do not benefit twice from an income-producing asset. On the other hand, the owner pays twice and has no control over how the child support payment is spent by the other parent.

Some valuation experts argue that no double dip exists when the income-generating asset does not diminish in value. Commercial real estate is a good example of this: If rental income is used to pay alimony for a few years, and then the property is sold to be divided in equitable distribution, the sales price probably isn’t less than what the owner could have received by selling the property in the first place. The owner suffers no detriment by paying alimony from the rental income, so there is no double dip. I haven’t seen this argument made in any of the published decisions yet.

The Pennsylvania custody law, promulgated in 2011, lists 16 factors that a trial court must consider when determining which parent shall have custody of minor children. Already, in the brief time since the law’s passage, the Superior Court has emphasized repeatedly that the courts must consider and articulate all of the relevant factors in its decisions. See M.P. v. M.P., 54 A.3d 950, 956 (Pa.Super.2012). Several of those factors touch upon which parent has historically and will prospectively provide care for the child, from preparing meals and washing clothes to arranging medical appointments and play dates. The custody law does not specify how much weight is to be assigned to each of these 16 criteria, however.

In M.J.M. v. M.L.G., 2013 PA Super. 40 (March 1, 2013), the Superior Court considered the appeal of a mother who lost primary physical custody of a 6 year old child to the child’s father, in the context of a highly acrimonious and litigious custody action. Prior to the most recent proceeding, Mother had succeeded in restricting Father to supervised visitation and settled a dispute that allowed her to relocate the child from Greensburg to Fairmont, West Virginia. Both parents initiated mulitple contempt proceedings and accused the other parent and their families of child abuse. A custody trial ensued, resulting in a trial court order directing Mother to reliquish primary custody to Father in time for school enrollment, with a promise of a more complete explanation to be issued within a week. Mother filed an appeal.

On appeal, the Superior Court held (1) that the trial court was not required to issue its detailed explanation simultaneously with its decision; and (2) while a thorough analysis is required, the court is not required to address every detail with citations to the evidentiary record in its decision.

The Court also refuted Mother’s argument that her role as the child’s primary care taker was not adequately considered. Citing extensive case law, the Court held that the “primary caretaker doctrine” was applicable primarily in cases where both parents were equally fit; and in this case, the trial court had reservations about the quality of care Mother was providing. Furthermore, the primary caretaker doctrine was not explicitly listed or given special consideration among the 16 statutory factors that a trial court must consider under the 2011 custody law. The Court concluded that “the primary caretaker doctrine, insofar as it required positive emphasis on the primary caretaker’s status, is no longer viable.”

This decision seems consistently with what many lawyers perceive as a shift toward shared physical custody and the equal rights of both parents in custody proceedings. Once, in cases where both parents were equally fit, the law provided an advantage to the parent who had been historically more prominent in the child’s rearing, but today the law provides a more even playing field. This is not to say, however, that the court must start from a presumption of shared physical custody, particularly in a case where one parent is more fit, or other statutory factors weigh heavily in favor of one parent.

When the Pennsylvania Supreme Court announced its decision last year in K.E.M. v. P.C.S., 38 A.3d 798 (Pa.2012), it changed the face of child support paternity law, applying a “best interests of the child” standard in cases involving paternity by estoppel. An age-old concept, “paternity by estoppel,” means that a man who acts as though he is the father of the child may be held legally and financially responsible, even if there is no paternity test to prove his fatherhood, or as in this case, the DNA test  proves that he is not the child’s father.

An unpublished decision of the Superior Court, P.A.P. v. T.A.P., No. 1932 MDA 2012 (April 4, 2013), illustrates the point. In this case, Mother and her husband had two children, divorced and then remarried. Another child was conceived while Mother was having an extramarital affair. She swore to her husband that she used protection with her boyfriend, so he trusted her. For the first three years of the child’s life, Mother’s husband stayed in the marriage and treated the child as his own. They eventually separated and filed for divorce when the child was 4 years old. A few months later, the husband secretly performed a genetic paternity test and learned that he was not the father. He didn’t cut off contact with the child, but reduced his custodial time. He continued to take the child to family functions, went to her school events, and claimed her as his child on his tax returns. The child continued to call him “Daddy” and knew no other father.

When Mother sued her ex-husband for child support, he objected, knowing that he was not the father. He asked the court to perform paternity testing to prove it, but the court refused to perform testing. The Superior Court affirmed, finding that Mother’s husband was not legally permitted to deny his paternity after acting like the child’s father for so many years. The concealment of Mother’s affair did not rise to the level of “fraud” that would excuse her husband from denying paternity, especially since he continued to treat the child as his own after he learned the truth.

Some clients and lawyers question why I am so meticulous in specifying certain details when I settle divorce cases. A recent unpublished decision of the Superior Court brilliantly illustrates the hazard of vague settlements involving marital property, justifying my fastidiousness. In Rissmiller v. Rissmiller, No. 124 MDA 2012 (February 26, 2013), Husband and Wife entered into a settlement agreement providing that Husband would convey half of the marital component of his federal pension benefit to his wife. Husband commissioned an expert to draft a Qualified Domestic Relations Order to transfer half of the marital component of his CSRS (Civil Service Retirement System) plan to his ex wife. She then asked for a QDRO that would pay her benefit in the form of joint and survivor annuity (rather than an annuity based upon Husband’s life expectancy, terminating her benefit when he should die). She even offered to pay for the survivor benefit from her share of the pension, and also requested to be designated as a beneficiary of the pre-retirement survivor benefit. Husband refused, so Wife filed a petition for enforcement, asking the trial court to enter her QDRO or schedule a hearing to get the issues on record. The trial court refused to schedule a hearing, denied Wife’s petition, and ordered the parties to enter a QDRO without a survivor annuity. Neither party appealed. A few months later, Husband filed a petition for the entry of a QDRO after Wife proferred a QDRO that removed language preserving Husband’s Cornbleth offset. Husband’s petition was granted, and Wife appealed, asking the appellate court to enter her QDRO with the survivor benefit. On appeal, the Superior Court held that Wife waived the issue by failing to appeal the first order.

What details should be specified in the settlement agreement when dividing a retirement benefit? While it varies from case to case, all of the following details must be investigated and agreed upon, to the extent they are relevant:

1. The name of the plan. In these days of internet account statements, it is common for employees to produce records that do not adequately identify the name and value of the plan. Every QDRO requires the exact plan name, so this detail cannot be overlooked. In fact, one major hospital plan in my area reports two separate retirement plans (a 401(a) and 403(b) plan) on its internet statements as though they are one plan, which can be deceiving. I always insist that employees obtain paper account statements from their benefits department or plan administrator, rather than internet reports.

2. The dollar value or percentage. One common mistake is to agree upon a dollar amount that represents a share of the total present value of an annuity pension (e.g., $30,000 from a pension that will pay the employee $500 per month, which has been valued at $100,000). Implementing these types of settlements can become a fight over details when the plan refuses to figure out how to carve out the proper share of the monthly annuity.

3.  The date for the value to be used in dividing the account. It generally takes from six weeks to six months for most retirement plans to implement a settlement agreement and distribute funds to the non-employoee spouse. During that time period, the stock market could soar or crash. The market risk must be allocated between the parties, either in proportion to each party’s share of the account, or entirely by one party.

4. The form of payment. In pensions, as in physics, matter is neither gained nor lost. When a pensioner elects a survivor form of payment, the survivor benefit must be purchased with a reduction of the employee’s benefit, unless the survivor benefit is subsidized.  With some pensions, the non-employee’s benefit terminates when the employee dies unless a survivor benefit is elected. With other pensions, the plan can segregate the non-employee’s benefit to a separate annuity that will pay over the non-employee’s lifetime regardless of the employee’s death. And some plans offer “survivor” benefits that are really life insurance, not survivor benefits. Don’t wait until it’s too late, like the parties in the Rissmiller case.

“Be careful what you ask for. If you tell the authorities that your ex committed child abuse and cannot prove it, your credibility might be doubted when you really need it later.” That’s the advice I would give to the Father who successfully appealed in T.H. v. M.H., No. 1204 WDA 2011 (February 25, 2013), a non-precedential opinion of the Superior Court of Pennsylvania. The Father in that case appealed when his Protection from Abuse action was dismissed by a Washington County judge who found that he should have initiated a custody action instead. The pivotal issue was the trial court’s refusal to allow the teenage daughter to testify about the abuse she may have suffered. The trial court must have suspected that Father’s PFA action was really a custody case in disguise, an end run around the procedural obstacles to switching custody from Mother to Father.

On appeal, the Superior Court held that Father had a due process right to call witnesses, including his daughter, in support of his PFA case. While the court may have a right to limit the number of witnesses whose testimony is similar or cumulative, this rule should not preclude the testimony of a willing child witness who had relevant, admissible knowledge. Denying Father the right to call his daugher to testify in support of abuse that she may have suffered, the Court held, was a denial of Husband’s due process rights.  The case was remanded to the trial court for further hearings.

A recent grandparent custody case developed a schism among the judges of the Superior Court in an unpublished opinion, two judges voting in favor of the grandparents and one judge dissenting. In M.M. and M.M. v. A.M. and B.M., No. 2308 EDA 2012 (February 20, 2012), a custody dispute pitted the mother of an 8 year old child against the child’s grandparents, who had been Mother’s adoptive foster parents. The child was born when Mother was 16 years old and spent its entire life up to that time with the grandparents. By the time Mother was 24 years old in 2012, she had graduated high school, completed a pharmacy tech certificate, and was engaged to be married. She had custody of two other children by different fathers. Mother had gradually expanded her visitation to overnight custody on alternating weekends and 2-2-5-5 during the summer, and now she sought primary physical custody of her child.

The Superior Court affirmed the trial court’s decision to maintain custody with the grandparents, holding that Mother was genuinely interested in her child’s best interests but not sufficiently mature, and also placing substantial weight on the status quo and continuity. The controversy among judges arose in its application of the statutory presumption that honors the parents’ constitutionally-protected interest in raising their own children, creating a evidentiary burden that is “tipped hard” in favor of parents in custody cases against grandparents.

Two judges found that the overall weight of the evidence on the grandparents’ side was sufficient to overcome the rebuttable presumption in favor of Mother. However, in a dissenting opinion, Judge Christine Donohue wrote a scathing criticism, rebuking the other two judges for failing to appreciate the gravity of a parent’s constitutional right. In particular, Judge Donohue highlighted a sentence in the trial judge’s opinion stating that giving Mother an advantage over the grandparents “was our law many, many years ago. That is not the law anymore.” Judge Donohue indicated that our Legislative made that advantage part of our law today by enacting an explicit presumption in its 2011 amendments to the custody statute. Judge Donohue criticized the other judges for placing too much weight on Mother’s history and the status quo, without adequately considering her current circumstances and the importance of maternal bonding.

In an unpublished decision, the Superior Court recently declined an invitation to rewrite a marital settlement agreement in order to avoid the possibility of future disputes over the use of funds committed to a children’s trust. In Hvidzak v. Hvidzak, No. 37 WDA 2012 (February 22, 2013), the Father and Mother entered into a marital settlement agreement in which they agreed to establish two trusts for the benefit of their children, from which their child support obligations would be satisfied. A dispute arose over the proper language of the trust instruments, which were eventually signed by the parties and ratified by a bankruptcy judge. Subsequently, Mother sued to vacate the agreement, claiming that there was no meeting of the minds as to Mother’s authority to use the trust funds for her own benefit. Mother refused to fund the trust from her distribution of marital property, as agreed, until the Court would issue an order clarifying that she had unfettered discretion as to how to spend the trust funds.

The Superior Court began with citations to the law providing that settlements will be honored, whether written or verbal, unless they have been procured by fraud, duress or mutual mistake. The interpretation of a settlement agreement requires a court to discern the objective intent of the parties. In this case, the language of the settlement agreements and trust instruments demonstrated to the satisfaction of the appellate court that the trust funds were intended for the benefit of the children, even if they might incidentally benefit Mother. Yet, the Superior Court refused to vacate the settlement or rewrite the instruments to provde Mother with absolute assurance that she might not be liable for a breach of fiduciary duty if she misspent the trust funds. The Court refused to consider the opinions of two trust experts who opined that the language of the trust instruments might leave Mother exposed to a future lawsuit if she should overstep her authority.

Perhaps grandparents and extended families have always played a major role in the rearing of children, but their involvement has become more prominent in an era of fractionalized and blended families. The Superior Court has enunciated the standards applicable to the custody rights of grandparents in a recent unpublished decision. In K.M. Jr. v. R.R., and J.L. and D.R., No. 1482 MDA 2012 (March 8, 2013), the father of a 9 year-old daughter attempted to retrieve her from the custody of her maternal great-grandmother, who had moved suddenly to Pennsylvania from Staten Island, where he still resided. Father, who had conceived the child when he was 16 years old, petitioned for primary physical custody, presumably because he was now old enough to assume primary caretaking responsibilities.

One of the key issues in the decision was the weight to be placed upon the statutory presumption that children should be raised by their parents, who are legally favored over grandparents and other third parties who seek physical custody of minor children. The Court also considered the preference of the child and the grandmother’s advancing age and health problems.

Pennsylvania’s custody law, recently modified in 2011, simultaneously confers standing to grandparents and great-grandparents if they meet certain criteria and imposes a presumption that strongly favors the child’s parents in cases involving grandparents and other third party litigants seeking custody. The presumption is rebuttable if the grandparent presents “clear and convincing” evidence that the child would be better off with grandparents. In this case, the trial court found that great-grandmother woke up at 4:00 a.m. every morning to make the child’s breakfast, ensured the child’s success in school and activities, and strongly encouraged the child’s relationship with both parents by accompanying him on a mass transit bus every other weekend to visit Father in Staten Island (which must be a 2 to 3 hour trip each way).

Importantly, the Court assigned substantial weight to a consent custody order granting primary custody to the grandparent, which was agreed subsequent to the grandmother’s move. The fact that Father had agreed to grant primary custody to maternal great-grandmother after she left New York undermined his request for primary custody just one year later.