Dividing Assets in a Divorce: Crafting Effective Settlement Agreements

This is part four of a four-part series.

Click for part one, part two, and part three.

In the final stages of a divorce (assuming the parties are able to settle outside of court), the settlement agreement must be carefully negotiated and drafted to each parties’ advantage. The language in a settlement agreement is particularly important because many provisions outside of alimony and child support are non-modifiable. This means one party is generally unable to change a provision or even successfully petition the court for a change after the divorce is concluded. I have previously written about problems clients face after a divorce here.

One key aspect of settlement negotiations concerns the language surrounding the parties’ marital residence and mortgage. If the parties have agreed to let one spouse remain in the home, the other spouse may need to quit claim his or her interest in the home. Additionally, the spouse who keeps possession of the home should be required to refinance the home into his or her sole name after a set period of time. A tricky problem for the parties, however, is dealing with possible contingencies stemming from an inability to refinance the home. At our firm, we carefully review the parties’ circumstances and discuss these types of scenarios with our clients during settlement negotiations.

Alimony is tax-deductible to the paying spouse and taxable income to the receiving spouse. Therefore, parties must consider how to use its tax treatment to their advantage. For example, if the wife has a low income or if she is unemployed, it may make sense for the husband to pay her alimony in lieu of another type of property transfer (i.e. a transfer from his retirement accounts) to reduce potential tax liability.

By the time divorce settlement negotiations come to a close, each party is ready to move on with his or her life. Each party should speak with their attorney about how they can afford to bring a swift end to their obligations to their former spouse after the divorce decree is signed. When crafting a settlement agreement, there is a certain intangible value to each spouse ending his or her obligations as soon as possible. While this is certainly limited in the case of child support, each party must contemplate the value of concluding their obligations to one another in a timely manner.

Please contact my law office for information specific to your case. The above is for general information purposes only.