Details! Details! – Don’t Overlook the Details in Your Divorce Agreement
By: Catherine Shanahan, CDFA, Karen Chellew, Legal Liaison & Rosemarie Ferrante, Esq.
My Divorce Solution
Divorce Mediation Center of Ridgefield/ Danbury
You did it! You and your spouse mediated your full divorce agreement. You diligently and cooperatively worked with your mediator and Certified Divorce Financial Analyst (CDFA). The business valuations were analyzed and the tax ramifications of trading a retirement account for a brokerage account or an annuity were understood. You learned more than you ever cared to know about RSUs and how they are divided. You even dove deep into survivor benefits on your spouses’ pension. You are proud that you and your spouse worked together as a team and made decisions that were best for everyone.
How would you feel if all that hard work was formalized into an agreement containing poorly drafted, vague and /or potentially unenforceable provisions?
Believe it or not, it happens all the time.
Be your own best advocate, read your agreement carefully, and do not sign it until you are absolutely sure that it clearly delineates your intentions.
Here are our top 5 details not to overlook to ensure your agreement doesn’t fall victim to the financial pitfalls of a poorly written divorce agreement!
Pension benefits and Qualified Domestic Relations Order (QDROs):
It’s not enough to simply say a pension will be divided equally as of the date of the divorce. Or even that each party keeps his and her own pension(s). Will the plan be divided using a shared interest or a separate interest? Are survivor benefits, early retirement options, and post-retirement COLA’s (cost of living adjustments), clearly defined?
A QDRO preparer and the Plan Administrator will rely on explicit language provided in your agreement to draft the QDRO and administer your portion of the estate. Your agreement must mirror the language that you expect the Plan Administrator to effectuate. And if these details are not spelled out in your agreement, the dreaded “model” language may be used, which may be adverse to your best interests.
Note: there is a cost for preparing most QDRO’s, as well as an additional fee that may be imposed by the Plan Administrator. Make sure responsibility for payment for these fees is also outlined in your agreement.
You’ve decided one spouse will remain in the home, but the mortgage is still in joint names. Refinance provisions have been put in place as part of the divorce agreement so that the spouse leaving the residence will be removed from the mortgage.
We cannot tell you how often the timeline set forth in which the remaining spouse is to extinguish the other from the mortgage is just not attainable. Seek out a mortgage banker before signing your agreement to make sure you and your spouse understand the requirements necessary to refinance. Do not agree to a timeline that is simply not possible to meet.
If the spouse leaving the residence has to remain on the mortgage longer than anticipated, make sure the appropriate language is added to protect both of you, i.e. what if the timeline is not met? What if timely payments are not made? What if a loss occurs to the home, or if an accident occurs on the property, will you be liable?
Retirement loans/ investment gains and losses:
Spouses divide retirement accounts all the time. Often, they back into the “equalization” amount owed to one party from the other after all other assets have been distributed.
Sounds easy enough, right?
Possibly, however, people overlook the fact that distributions often cannot occur until the divorce Judgment is entered, which could be months after the agreement is signed.
Agreeing to divide the retirement assets as of a specific date could alleviate the lapse of time, but what about market fluctuations?
A way to avoid the market risk for both parties is to consider transferring the shares “in kind” or as a percentage of the total account instead of transferring dollar amounts. Otherwise, something that looked like a 50-50% division may look very different when you get your first “post-split” statement.
And do not forget loans on retirement accounts, specifically 401(K) accounts. The CARES Act has made it easier for employees to take loans from their accounts without paying the usual penalties for early distributions, so these are more and more common. Make sure your agreement denotes whether any loans against the retirement account are excluded or included!
RSUs/ PRSUs/ Stock Options:
Restricted stock units or performance based restricted stock options are often misunderstood, or worse, forgotten assets. Discussions of grant price, exercise price, sales price, vesting schedules, qualified and non-qualified units are enough to make your head spin.
It is not enough to just divide the assets, it is imperative to include specific information as to delineate the specific details. None of these issues can be addressed without a thorough understanding of the Plan documents.
Obtaining a detailed analysis, with the help of a Certified Divorce Financial Analyst is imperative. If your agreement is that these assets will be shared “net of taxes,” be sure that your language very specifically provides that the taxes owed will be reconciled between your accountants as your tax brackets will most likely be different. It’s all in the details!
And the taxes:-
A past or current tax bill arrives post-divorce; does your agreement state who is responsible for that unexpected debt?
Does your agreement specify who will be able to take the available exemptions, deductions or tax credits for your dependents?
Which spouse will claim the deductions related to the home?
If you received your portion of RSU’s, stock options or a bonus, was it specified that you are both obligated to reconcile these amounts with the exchange of each other tax returns between your respective accountants?
Is there a provision obligating you to share future tax returns?
Do not overlook these details, and be sure your CPA or CDFA has been involved in explaining these issues thoroughly to you!
Working out the details post-divorce may not be so easy… Take the time to make sure your mediator, CDFA, and your review counsel guides you in the specific language necessary to properly effectuate your agreement. Consider adding frameworks for any potential post judgment disagreements so that you and your spouse have an avenue to take if an unexpected event occurs.
Be aware, the devil is in the details so do everything you can to make sure your team has them covered for you.
Catherine Shanahan is Co–Founder of My Divorce Solution. With over 30 years of experience in the financial industry, Catherine serves My Divorce Solution Clients as a Certified Divorce Financial Analyst (CFDA) and trained mediator. A Professional Daily Money Manager, Catherine is also a former VP of the Bucks County Collaborative Law Group, American Association of Daily Money Managers, Institute for Divorce Financial Analysts (IDFA), National Association of Women Business Owners, advisory council of Support Pay,and the Association of Divorce Financial Planners.
As a mom of five and financial expert, Catherine’s experience with divorce left her wishing for better information, better resources, and a better process for the financial separation that comes with divorce. As a result, Catherine co–founded My Divorce Solution –the company she had needed in her divorce.
My Divorce Solution helps clients secure their worth and protect their wealth with the Divorce Financial Portrait. Our Divorce Preparation Platform is a data driven solution that connects your financial assets to the divorce legal system.
See what you can expect from your divorce with our Free Divorce Assessment.
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Rosemarie Ferrante, Esq.
Rosemarie Ferrante is an attorney licensed in NY and CT who focuses her practice on non-adversarial divorce through mediation and the collaborative divorce processes. Rosemarie’s goal is to make a positive impact on the divorce process by giving couples the resources and tools they need to help their family transition smoothly through the restructuring of their family.
Rosemarie founded Divorce Resource CT to provide public education and awareness and support to those contemplating divorce. In partnership with Hollis Hardiman, CDFA, she offers education, support and wellness workshops for individuals contemplating divorce. The workshops are presented by herself and Hollis and various esteemed mental health professionals and are offered throughout Fairfield County, CT and online.
Rosemarie is a member of the Academy of Professional Family Mediators (APFM) and the International Academy of Collaborative Professionals (IACP). She is a board member for the Connecticut Council of NonAdversarial Divorce (CCND), the statewide non-profit professional organization of Connecticut mediators and collaborative divorce practitioners. She is a founding chapter leader of the National Association of Divorce Professionals (NADP), the first national organization that unites professionals who serve clients going through all stages of the divorce process. Her bar association memberships include the American bar Association (Family Law section), the Connecticut Bar Association (CBA), including the Alternate Dispute Resolution (ADR) and Family Law sections, the Danbury Bar Association and the Fairfield County Bar Association.
Rosemarie is a frequent guest on podcasts where she discusses the benefits of an integrative divorce process in which a team of interdisciplinary professionals best suited for the individual family guides the family through the divorce process to ensure a positive post divorce co-parenting and financial life.
She earned her bachelor’s degree from Cornell University in 1993 and her law degree from Brooklyn Law School in 1996, where she was Primary Notes & Comments Editor of the Brooklyn Law Review. She was admitted to the Connecticut Bar in 1996 and the New York Bar in 1997.