Divorce Settlement Agreement Defined
A divorce settlement agreement is a contract between you and your spouse that specifies the terms of your divorce such as investment, insurance, social security, support payments, and child custody. These documents usually involve three parts: a parenting plan/divorce plan, division of assets and liabilities, and the spousal support/simplified child support arrangement. The parenting plan/divorce plan section will include decisions about where each parent will live and when your children will be with each parent. The sections concerning the division of assets and liabilities will apportion your property according to the equitable distribution doctrine, meaning each spouse typically leaves the marriage with about half the value of all marital property . Simplified child support calculations are possible for most cases thanks a presumptive formula that accounts for gross income and estimated expenses. And unless there are grounds for it, the amount of spousal support is also usually simply based on a formula. Divorce settlement agreements are extremely important because of the weight your judge will give them during the divorce process. Once signed and approved, they may not be revoked or modified except by order of the court. An attorney can help you understand the long-term implications of every part of these documents to prevent problems.
Divorce Settlement Agreements: The Key Components
The key components that are commonly included in divorce settlement agreements are the division of assets and liabilities, child custody and support, spousal support/alimony, medical benefits, tax considerations, and retirement accounts.
Spousal support, otherwise known as alimony or spousal maintenance, is a tool that can be used by spouses to assist the other spouse financially after divorce. The amount depends on the couple’s standard of living and other relevant factors. The amount of spousal support can be negotiated between the parties until a final agreement is made. It is also important to note that because spousal support ends upon the following: remarriage of the dependent spouse, cohabitation of the dependent spouse with another person on a resident-basis, the dependent spouse attaining age 67, or the supporting spouse’s death.
If children are involved in the litigation, child custody and support are critical components of a divorce settlement. A divorce settlement does not resolve issues involving child custody. However, parents can agree on child custody and/or ask a judge for a ruling. Additionally, in a divorce settlement, former spouses can agree on paying child support by creating a child support agreement. The agreement can divide parental responsibilities and services, such as medical care, health insurance and education. It can also address the non-custodial parent’s right to notice of major decisions, right to participate in major decisions and right to review records relating to education, health care and general welfare.
After a divorce, the tax consequences of alimony become relevant. The few rules that existed under prior tax law have changed with tax reform. Beginning with 2018 through 2025 taxes, alimony is no longer deductible for the payer or includable for the recipient for divorce or separation instruments executed after December 31, 2017, or executed prior to that date and modified after that date.
Finally, retirement assets can also become a topic of negotiation. Employers can offer many different plans, which means there may be a variety of asset valuations. The results can make division of retirement benefits complicated. To be fair, assets should be calculated on "present value" and include how the dividends or earnings will be calculated.
Guidelines for Drafting Settlement Agreements
Marital settlements are a resolution of the big picture issues that matter most in the dissolution of a marriage – assets, debts, spousal support, parenting time, child support, basic lifestyle during a pending or final divorce. The settlement agreement is the biggest point in time document that everyone will focus on.
There are many variables that can impact how long the process takes, yet the following highlights can be found in each case I have worked on. They are my best efforts to create a memorable and understandable outline of the total process so that clients can comprehend the steps to drafting a settlement agreement.
- In Illinois, an attorney drafts a Petition for Dissolution of Marriage and one party serves (delivers) the other party with this document.
- A Respondent files an Appearance and Answers within 30 days. They can request "temporary relief" from the court at the time of filing in regard to maintenance/spousal support, child support, child custody, visitation and a variety of other issues including division of assets and liabilities during the pendency of the divorce.
- Both parties meet with their attorneys to collect information, meter out expectations and create a timeline for the divorce process.
- Lawyers collaborate with their clients and draft a formal and detailed Marital Settlement Agreement. Generally, it identifies whether a lawyer or mediator will handle issues. Whether mediation is an appropriate avenue is up to the parties themselves. Occasionally, mediation does not work and the separation process will return to the attorneys who will be the interface between both parties.
- At times, a judge will interview both parties to understand the situation before making any decisions. An attorney must understand the process to draft divorce agreements that benefit both spouses. Children are also invited for an interview to help a judge determine custody and visitation.
- A case is heard by a judge if the parties do not reach agreement and they ask the judge to "decide issues." A judgment is then entered, and once a judgment is entered, the court doesn’t want to hear from the parties unless it’s to request a modification or bring a case back to remedy.
- After a judgment is entered, the court does not follow through on settlement issues. If there are money issues, collection action must be handled outside the court system. The parties rely on each other and interaction can be messy.
Mistakes to Avoid
When preparing your divorce settlement agreement, there are some common mistakes you should take care to avoid:
- Not including child related issues in your settlement agreement. If you have children and you are getting a divorce or obtaining a legal separation, a child custody and support agreement must be part of your settlement agreement. These matters cannot be separated and are usually the most contested issues in a divorce. All child related issues should be part of your divorce settlement agreement, including legal custody and physical custody and visitation schedules. Without an agreement that includes these issues, you will need to go back to court to obtain orders concerning them in the future.
- Not including case specific issues in your settlement agreement. Your settlement agreement should include issues that are peculiar to your marriage or situation. For example, if you paint for a hobby, then arrangements for your paints, easels, and canvasses should be included on your settlement agreement. Or if you invested in a horse show stable together, be sure to address it in the agreement.
- Not including a dispute resolution provision in a divorce settlement agreement. A divorce settlement agreement is best created when it includes an automatic dispute resolution mechanism such as mediation. It should provide for the parties to seek assistance from a neutral third party before going back to court. It could simply state that the parties agree to first attend mediation before returning to court. You may want to consider other forms of alternative dispute resolution, such as collaborative law or a private judge to work out problems between you before commencing a new action in court.
- Not including tax issues in the settlement agreement. Tax considerations are often glossed over in a divorce settlement agreement. However, the parties should consider tax implications for every term of their agreement and be certain to include any adverse tax consequences as a part of the agreement. In addition, you can and should include provisions relating to demonstration of the following aspects to your divorce settlement agreement:
- Not understanding the difference between a divorce settlement agreement and a final judgment of divorce. The final judgment of divorce is a formal ruling of the court that ends your marriage. It often takes the form of a divorce decree or a judgment of divorce. This part of the divorce process is just the legal end of your marriage and jurisdiction of the court. Separate issues will be addressed in the final judgment or decree of divorce that are detailed in the divorce settlement agreement. However, you should not rely upon the final judgment or decree of divorce to address other issues that are raised in a divorce settlement agreement. In principle, the divorce settlement agreement is often the more important part of the finality of your divorce. It is also important to note that the final judgment does not establish a waiver of the right to appeal by either party. In this case, for example, either party has the right to appear the court for incorrect calculations, improper notices, or any other errors. In addition, any agreements made after signing the divorce settlement agreement should be presented to the court through a motion or a consent so that the court can maintain its jurisdiction over the matter.
Divorce Settlement Agreement Legal Requirements and Considerations
The legal requirements associated with divorce settlement agreements and why they are significant to enforceability of the ultimate judgment (settlement agreement) entered with the Court. Typically with a divorce settlement agreement if one of the parties believes that the other party has not lived up to his or her obligations under the agreement, the party can file a motion with the court in an enforcement action to compel the other party to meet his or her obligations under the agreement. However, there are still some cases where the agreement entered into by the parties was not properly done and therefore is unenforceable. One way that most people would think to make an agreement enforceable is to have the agreement in writing and signed by both parties. In many cases, an oral agreement may be enforceable and can be enforced by a court. However, for the purposes of this blog, we will focus on written agreements. Written agreements should have a finality clause in them that both parties agree to all the terms that are in the agreement and that once the agreement is signed and approved by the Court it will be binding upon both parties. Furthermore , parties sometimes include what is known in New Jersey as the "Special Civil Part" provision well known within the family law bar in New Jersey as the "Lepis" provision (based upon a NJ case called Lepis v Lepis) that a party upon notice to the other party can have an enforcement action brought in small claims court (now known as the Special Civil Part). However, even with the "Lepis" provision, some parties do not abide by the agreement. Notwithstanding, if the agreement is detailed enough to cover possibilities, if there is a breach of the agreement, the aggrieved party can use the court system to make sure that the agreement will be fulfilled. One word of caution is that although there is no requirement in New Jersey to send the agreement off to be notarized prior to being filed with the Court, I always suggest to my clients that after signing the agreement, to take it to be notarized. Of course, this always means that if there is a dispute over the agreement, negotiating abilities between the parties is usually gone and the next stop is litigation. Ultimately, the court most likely will be involved with determining whether the agreement will be modified or not.
Preparing and Concluding a Settlement Agreement
Before a divorce settlement agreement can be made official, the court must approve that agreement. The fortuitous things is that, in the overwhelming majority of instances, a judge will approve a divorce settlement agreement. In some, relatively rare, circumstances the judge may not approve the agreement. When that happens, our Cape May County divorce lawyers are ready, willing and able to either negotiate the points of disagreement with the other party or to successfully conduct a trial during which the terms of disagreement can be settled. Once the judge approves the agreement, it becomes the order of the court and must be complied with the same way any other order of the court would be complied with. If the parties fail to comply with the order we are glad to take further action to ensure that the court’s order is complied with. In unusual circumstances (in which the failure to comply with the court order is ongoing or egregious), contempt motions can be filed with the court. There are often complicated steps that have to be taken to ensure that a divorce agreement is finally implemented. For example, if a house is being sold as part of the divorce agreement, the agreement must be sent to the real estate attorneys representing the parties and/or the title company handling the closing. In addition, if one or more bank accounts are salary-diverted (where salary is automatically deposited into a joint bank account which is then divided equally between the parties), arrangements must be made with the employer to direct the appropriate sum after the divorce date to the employee’s new bank account. Our Cape May County family lawyers are glad to assist with all of these steps (and any others that must be undertaken). Finally, the wage withholding is a final step that often occurs upon a divorce agreement. Accordingly, for a certain period of time after divorce you may have to provide your ex-spouse with the W4 that your employer will require.
When to Get Outside Help
When the situation involves complex assets, there are unique circumstances such as a business, a private equity fund, a closely held family business, or a professional practice, you need a lawyer to navigate the issues and advocate for your rights. This is not something on which you want to go it alone. In fact, doing so can be a recipe for disaster.
This is also a no brainer: do not finalize your divorce settlement agreement without the advice of counsel . At the very least, your lawyer should have reviewed and counseled you on the terms of the agreement and advised you on the enforceability/collateral consequences of the terms in that document before you sign your name. A prior blog post entitled "Never Sign Before You Review, With Your Lawyer, a Settlement Agreement" addresses this topic.
What if you are confronted with a complex custody situation? What if your spouse is a narcissist? These and other "red flags" to a simple divorce are situations where you really need to have a lawyer review your situation and recommend a strategy.