settlement agreement Archives

An Optimal Divorce Settlement Agreement

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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.

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Top Three Divorce Settlement Agreement Mistakes

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When it comes to divorce, there are many areas where we feel vulnerable. When it comes to the divorce settlement agreement or property agreement, we rely on the advice and judgment of our trusted advisors. What would you rather hear: “everything will be okay, don’t worry,” or “things will be okay but you’re going to have some tough choices to make?” I feel strongly that there are too few divorce professionals who truly tell it like it is. They either tell you what you want to hear so you’ll continue paying their outrageous hourly fees or they simply don’t know any better. Either way, they’ll lead you to some stupid, easily avoidable mistakes.

Here are a few things that I see repeatedly after settlements are agreed to and the judge has signed off on the divorce. Remember, unlike alimony and child support, property settlement agreements are final—you don’t get to go back again to re-do them!

These divorce settlement mistakes can be very costly and easily avoided by using the right professionals to support you in your divorce.

Mistake #3: The settlement doesn’t consider taxes—at all!

We all know that Uncle Sam will dive into our pockets at every opportunity. When it comes to divorce settlement agreements, not all assets are alike and tax implications do make a difference! What people often find is that the tax burden on their half of the marital assets is significantly higher than their spouse’s, making their “half” of the assets worth significantly less than they thought. Don’t expect your attorney to know this! Attorneys are not trained as accountants or divorce financial analysts and a lot of them don’t bother to warn you of that. Buyer beware.

Mistake #2: Pension is split “50/50”

Over and over I see divorce decrees that order pensions split 50/50 but no one has any idea what will happen when payout begins or what that means under various circumstances. When do you start collecting? Is there an option to take a lump sum? Will there be a cost of living increase each year? What if you or your spouse dies? Will it keep paying? Will it double? When I ask these questions, no one has ANY IDEA what the answers are. These are questions that should be asked during the valuation of the pension and preparation of the divorce settlement agreement. How can you possibly agree to a settlement without understanding something so crucial to your retirement? Again, do not expect attorneys or non-CDFA^® mediators to be of much help here.

Mistake #1: Marital home is kept by one spouse who is unable to afford it

One of the most common divorce settlement mistakes I see time and time again is one spouse keeping the marital house they really can’t afford. I understand how one can get emotionally tied to the family home and want to stay. Before really considering this option, though, you must do a realistic budget that takes into account upkeep, property taxes, improvements, homeowner’s insurance, replacing the water heater, fixing the roof after the tree falls, etc. I have witnessed where one or two years down the road the spouse who “won the house” has run out of cash and realized that they can’t sell a window to put food on the table, they can’t refinance because now they don’t have enough income to do so, and they have no choice but to sell. The selling costs are about 7% and there’ll be capital gains taxes after the sale – all of which would have been split 50/50 with the ex if they had sold the house as part of the divorce. Ugh, that was not the smartest decision, right?

These are but a few of the financial divorce settlement mistakes that are avoidable but too often made in divorce settlement agreements. Truthfully, you can’t be expected to know all the ins and outs, nor should a lawyer. Just realize you don’t know what you don’t know and that lawyers are in generally the same boat. You can hire a CDFA^® on an hourly basis to supplement your lawyer or mediator’s proposed settlements or use a CDFA-Mediator who can advise you and your spouse on both the short and long-term implications of the decisions you are making. Either way, just make sure you’re fully informed before you sign the papers!