An Optimal Divorce Settlement Agreement

by | Apr 14, 2021

One of the most important legally binding contracts that you will sign during the divorce process is your divorce settlement agreement. What exactly is a divorce agreement? And why is it so important? 

It can’t be stressed enough that your divorce settlement agreement should be taken seriously. This FAQ covers the in-and-outs of divorce agreements. We will discuss what should be included in your agreement along with some of the biggest mistakes made during the negotiation process. 

What is a divorce agreement?

A divorce agreement is a legal document that formally puts into writing all agreements made between you and your ex-spouse. The contents of divorce agreements aren’t cookie cutter. These contracts are tailored specifically for you. That is done by you, your ex, and any mediators or lawyers that may be involved.

What is included in a divorce agreement?

The specifics of a divorce agreement vary situationally but typically this document has detailed considerations surrounding but not limited to: 

  •       Division of marital property and debts (retirement accounts, sale of the marital home, etc.)
  •       Child custody and visitation agreements and/or parenting plan
  •       Child support and/or alimony (considers expected expenses like college education)

Does a judge rule on the agreement?

No. A judge must accept and implement the agreement. They do not rule on whether your divorce settlement agreement is fair (equitable). The judge only assesses the completed agreement for legality in terms of both state and federal laws. 

What are the steps in negotiating a divorce agreement?

The first step in the process is to get the proper legal forms. Next you need to fill in any relevant information you can (current addresses, the date of both the marriage and the separation, names of any children, etc.). After the basics have been handled, you can start drafting a proposed agreement.

Take this process seriously! Don’t sign anything right away! It’s imperative to evaluate settlement proposals and to go over the details down to the letter. You will have to make some compromises. Remember, your endgame is to walk away with an agreement that you both can live with. 

How do you create a divorce agreement?

How you go about your divorce settlement depend largely on the circumstances between you and your ex. Not having a third party mediate your divorce is one of the biggest disservices you can do to yourself . If your divorce is uncontested and amicable, you might be able to arrive at an agreement without pulling teeth. Nevertheless, it’s generally recommended that you work with a professional.

Seeking professional services to help negotiate and draft your divorce settlement agreement is in your best interest. The services of a mediator or lawyer bring a level of expertise into your negotiation and serve as a go-between throughout the process.

Should I choose to work with a divorce lawyer or mediator?

Most divorces don’t need to go to court to be resolved. If you are dealing with an amicable divorce, pursuing it through a divorce attorney and the court system will cost you more time and money. 

Choosing a mediator over a lawyer can bring a different type of expertise to the negotiating table. Professional mediation is usually less costly than going the route of hiring a divorce attorney. The average cost of divorce in the US is roughly $15,000 while the average cost of mediation is between $3,500 and $7,500, according to Thumbtack.com.

How can I help the negotiation process?

Divorce is a heavy life event. It brings a mix of complicated emotions and life upheaval along with it. Financial discussions—like the potential sale of your marital home—aren’t easy topics to broach. To move forward, splitting spouses must find common ground and settle on an agreement that is acceptable for both parties. 

It’s in your best interest to put your emotions aside and try to focus on the task at hand. While easier said than done, it’s beneficial to compartmentalize things as best as you can to keep the lines of communication civil and open. Communication and transparency are essential for negotiation.

What are some of the most common mistakes made during the settlement process?

Not updating estate documents, emotional attachments to assets that influence negotiations, neglecting to consider social security benefits or your pension, and failure to adequately assess and detail debts and assets are big missteps on the road to reach a divorce settlement. However, one of the biggest mistakes a divorcing couple can make involves the only other thing that you can’t escape in life besides death: taxes. 

 Not considering the taxes on any sales of joint property or the division of retirement accounts can really throw a wrench into things, and it can certainly mess up your post-divorce financial plan and budget. Accounting for any taxes you will owe ahead of time will save you a headache at tax-time—don’t let the IRS surprise you.

 

Hopefully, this FAQ sheds some light on the reasons why a divorce settlement agreement is important. Have you read  dos and don’ts surrounding the road to reach a settlement and still have questions? Visit TruNorth Divorce Solutions for a free divorce strategy session.

 

 

Do You Really Need a QDRO?

by | Apr 9, 2021

You’re in the last steps of your divorce, you can see the light at the end of the tunnel and you’ve reached a settlement agreement with your spouse. Then your mediator or attorney turns to you and says, “Now we just need your QDRO, and that’s going to be an additional fee.” “Wait, why? What is a QDRO, and do I absolutely need it?”

The QDRO is the final step in your divorce, one you can’t skip because most divorces will ultimately involve a QDRO. QDRO is an acronym for a legal document called a Qualified Domestic Relations Order and is required whenever a divorcing couple needs to divide a Qualified Retirement Account.

A Qualified Plan is usually one being held by an employer and includes 401(k) plans, 403(b) plans, pensions, 457 plans, deferred compensation plans, and some RSU, restricted stock unit accounts.

IRAs or, Individual Retirement Accounts do not require a QDRO. However you can use a QDRO to avoid withdrawal penalties, even with an IRA, during a divorce. Legally, the divorce decree is all you need for an IRA division. For a Qualified Retirement Account however, to assign all or a portion of the accounts to a non-employee spouse, it has to be stated in the divorce decree and the QDRO, must be completed and submitted to the plan for the division to take place.

If you are granted retirement assets from a former spouse via QDRO, this is the only opportunity to take money out of that plan with zero penalties. It will be taxable income and there will be no 10% penalty for the withdrawal before age 59 ½. If you want to be able to do this from an IRA, then you must use a QDRO.
In my practice, I facilitate the preparation of QDROs for my clients by acting as their representative to a QDRO attorney that I have vetted and found to be the most affordable and ethical. Through this practice I have become aware of the multitudes of pitfalls that QDROs present and often, the failure of attorneys and mediators to address the issues in the settlement negotiations. Here is just a short list of some of the subtleties often overlooked.

    • Is the non-employee spouse eligible to receive a lump sum settlement upon retirement?
    • If the employee spouse dies, will the non-employee spouse still receive benefits?
    • Were any outstanding loan balances taken into consideration?
    • If splitting a 401(k), what is the actual date of division? Will the earnings after that date be included?
    • For Pensions, does the plan set up a separate account for the non-employee spouse so they can choose their own payout options and beneficiaries? If not, have you protected the non-employee spouse from early-retirement penalties?

As you can see, the waters of a QDRO are fraught with peril and not for the inexperienced! If that wasn’t bad enough, prices for QDROs can range from $500 to $3,000, all for the exact same document. Each plan is unique and has very specific requirements for the language of their QDROs and it is essential that the preparer have the plan documents in advance to ensure it will meet the requirements. You want to ensure that the QDRO will be PRE-APPROVED by the plan if allowed to prevent rejection and more cost to re-do it correctly.

Once your decree is final, signed by the Judge, then you submit the finished QDRO to the Judge as well. Once it is signed, then and only then is it ready to submit to the plan. At that point, they will contact the non-employee spouse to get instructions for the disbursement or to identify the new account set up on their behalf.
QDROs are complicated. Be sure you have an expert that can guide you through it and make sure you don’t get taken advantage of. It just isn’t necessary to go through more pain and frustration.

If you need an affordable, accurate QDRO, contact us today. We’re here to help.

 

Three Ways to Keep Divorce from Wrecking Your Retirement

by | Mar 29, 2021

While retirement might not be in the forefront of your mind during a divorce, it’s something that needs to be considered, especially if your facing a “gray divorce.” Divorce can have a profound impact on your retirement savings and financial future. Depending on the circumstances of your split, you may see your retirement prospects change dramatically.

So, how do you keep a divorce from wrecking your retirement? TruNorth Divorce has put together a list of three things to best protect your retirement.

1. Work with the right divorce professional

Work with a Certified Divorce Financial Analyst (CDFA®) or a CDFA®-Mediator. CDFA®’s are experts at divorce finance and know how to preserve your retirement. They understand how taxes work with various kinds of assets and how to value a pension. They can predict the tax consequences of transfers between spouses, and help to ensure your retirement moneys will be properly transferred between spouses.

Lawyers do not have this expertise! At TruNorth Divorce our mediators and advocates are not just expert mediators, they are also CDFA’s and trained divorce coaches. The law is typically a non-issue in most divorces—most divorces don’t need to be processed through the legal system. Your settlement agreement, custody agreement, and divorce filings will always be legally compliant and the quality of your divorce far better when you work with TruNorth Divorce than if you work with an attorney alone.

2. Consider the tax implications of your settlement agreement

Not all assets are treated the same by the IRS. Equity in a house isn’t taxed up to $250,000 per spouse (assuming there are no other prior real estate rollovers pre-1997). Withdrawals from an IRA are taxed at your marginal tax rate. Big difference. Likewise, joint funds in brokerage accounts can be subject to capital gains taxes.

Also, the division of retirement account assets during a divorce, specifically, can have unique tax implications and governing regulations. It’s important to look at the particulars of each account and determine its actual after-tax value. A Roth IRA with $50,000 sitting in it is worth more than a 401(k) with the same amount of money. A pension distribution of $50,000, too, will be treated differently tax-wise.

3. Make sure you have a properly executed Qualified Domestic Relations Order (QDRO)

The Employee Retirement Income Security Act of 1974 protects retirement assets in 401(k), 403(b), and Thrift Savings Plans for federal employees and military personnel. For these plans, you will need to draft a qualified domestic relations order (QDRO) so that the asset split becomes legal and for retirement plan administrators to accept and execute it.

A QDRO endorsed by a judge and executed properly provides a means to roll over a portion of a qualified retirement plan without penalty, tax-free. Depending on the circumstances, you may choose to continue contributing to the retirement plan. You could also roll it over into a Roth IRA through a trustee transfer. You can even take penalty-free withdrawals from transferred qualified retirement plans when they are handled within a QDRO—very helpful if you need some extra cash for a house down payment or to retire debt. Without a well-drafted QDRO you could wait years for your retirement account transfer.

Taking the proper steps to accurately assess your retirement assets during a divorce will put the right financial foot forward as you wipe the slate clean and retake sole ownership of your assets. For more post-divorce budgeting tips and all topics divorce, visit our blogsite.

Reach out to a divorce mediator in Maryland if you want a kinder, smarter, and more affordable divorce. If you’re on the fence and you have a list of concerns related to your divorce, don’t hesitate to Schedule a Free Strategy Session to go over your options. 

 

 

Parenting Best Practices in Divorce

by | Feb 28, 2021

Parenting and co-parenting in divorce requires some special attention. None of us wants to bring harm to our own children but there are times when the best decision for everyone in the family is a divorce. While divorce presents its own set of issues to be worked through, it can also give each parent the opportunity to build a stronger relationship with their children and teach them about how to deal effectively with life’s difficult times.

Overall, parenting isn’t easy and this holds as true for married couples as it does for divorced ones. Divorce does, though, bring a new set of challenges. TruNorth Divorce has written before on parenting through divorce. In this piece we want to provide a short list of best practices to help divorcing and newly divorced couples navigate the unique issues that parenting as you transition from a single household to two separate ones.

1. Talk to Your Child(ren) About Your Decision to Divorce

Sometimes, we get so caught up in our own emotions that it’s hard to step outside of them and take the time to check in with our children. Talking to your kids about your decision to divorce can create a safe space in which you can help them better understand your choice, and it can provide them with a platform to express difficult emotions.

Divorce impacts the entire household, and it’s not an easy topic to broach when emotions are still raw. Opening a dialog with your children about your divorce in a neutral and calm way and allowing them to ask tough questions and to express their fears will help your children better accept your decision to divorce and work through their feeling about it in a healthy way.

2. Create a Coparenting Plan

How you decide to move forward with parenting after divorce can have a profound impact on family dynamics and your children. To a significant degree, consistency and harmony between their parents is key to children’s mental well-being in the future.

CustodyXChange.com helps parents build sound parenting plans. Per the experts behind CustodyXChange.com, here are some of the reasons why negotiating a parenting plan can benefit your children:

It allows you and the other parent to state your goals for your children

  • It sets up communication habits between you and the other parent
  • It states the legal consequences if one of you don’t keep to the plan
  • It results in a clear visitation schedule you can both refer to
  • It lessens tension between parents and children because the basic daily decisions are already established
  • It forces you to get familiar with divorce and custody laws in your state
  • It often reduces your legal fees when you don’t have it created by a third party

3. Don’t Put Your Children in the Middle

Make a good faith effort to put any hurt feelings aside and shift your attention to what’s best for your children. Establishing some good ground rules can help minimize the impact of your emotions and will help you focus on fostering healthy communication and collaboration. 

Using children as messengers, sharing negative feelings, and venting or speaking negatively about your ex-partner drags them into the middle of things. Any conflict or issues between you and your ex are just that—between you and your ex. Children want a solid relationship with both parents. Keeping these emotions out things will help you turn your attention to your children’s happiness and wellbeing.

4. Keep Lines of Communication Open

Communication is a substantial ingredient in the recipe for successful parenting, and it’s arguably even more important for divorced parents living separately but parenting together. While you are both full-time parents, the time spent with your children is now divided. Operating in silos can leave your coparent in the dark and create conflict—reiterating how important it is for coparents to be on the same page. The only way to ensure that is through open communication.

Discuss issues that crop up with your former spouse and do so as they arise. Don’t just enumerate the problems, fill your co-parent in on the positives too. Communication between households is crucial to maintaining a united parenting front and making sure that both parents are aware of what’s going on in their children’s lives. One resource you may consider to assist with effective communication is Our Family Wizard, an online custody and co-parenting app

There is no greater common ground between two individuals than the well-being of their children and divorce doesn’t change that. Hopefully, these post-divorce parenting practices can help you negotiate the murky waters of post-divorce coparenting. For more resources on all things divorce, explore our blog.

 

 

Why You Need a Divorce Mediator in Maryland

by | Feb 15, 2021

Most of us feel overwhelmed and rather clueless about which direction to take once we conclude we’re going to get a divorce. Traditionally, the first move had been to call a lawyer but you should pause, take a breath, and then reach out to the right professional to get you going in the proper direction for you and your family.

 Other than a DIY divorce (unadvisable unless you have neither assets nor children), mediation is the least expensive and fastest way to get your divorce. A divorce negotiated through mediation will also help you preserve a civil relationship with your spouse, especially important if you have children, and always important for your self-esteem. If you live in Maryland (or any other state) you should first seek the help of a divorce mediator in Maryland to discuss whether this is a viable option for you. 

The Best Mediator for Your Maryland Divorce

Divorce impacts us emotionally and financially and must be processed within the confines of the law. It’s generally not a good idea to go through this process alone, especially when there are qualified professionals who can help guide you through the process and address each of the facets of divorce, not just legal. 

If you choose a divorce mediator in Maryland, identify an experienced moderator who has not only knowledge of Maryland divorce laws and procedures but also training in divorce financial and emotional issues. The mediators at TruNorth Divorce take a holistic perspective on divorce and are dually certified as divorce financial analysts and divorce coaches. They have also been extensively trained in divorce mediation, including how to process your divorce legally. Don’t expect your divorce lawyer-mediator to be  skilled in all of these areas–the reality is that attorneys aren’t trained in anything besides law and often don’t know what they don’t know. Consider adding in a Certified Divorce Financial Analyst CDFA® and divorce coach to your team if you go the lawyer route.

Reach out to a divorce mediator in Maryland if you want a kinder, smarter, and more affordable divorce. If you’re on the fence and you have a list of concerns related to your divorce, don’t hesitate to Schedule a Free Strategy Session to go over your options.