Divorce Agreement Checklist Essentials: Key Considerations

What is a Divorce Agreement

Divorce agreements are legally binding contracts that provide a means for spouses to divide their assets, custody of their children and establish child support and alimony payments among other obligations. In some cases, the agreement will also divide real estate properties, including a home, and outline how this will be done. In many cases, the judge will approve the divorce agreement and incorporate it into the divorce decree. This means that a couple is legally bound by the terms of the contract.
The unfortunate reality is that most people going through a divorce will not have seen a variety of different divorce agreements, so they may not know what should be in the agreement . There is no such thing as a perfect checklist that covers every situation, but a comprehensive checklist can make it easier to navigate the process.
A divorce agreement checklist can include pieces of information such as assets and debt; child custody, visitation and support; pet and property concerns, including who can keep the pet, where it will live and who will be responsible for vet bills; insurance policies; tax issues; and alimony concerns such as duration and specific amounts.
We have prepared a divorce agreement checklist that asks basic questions to help you understand each area of information. These questions tell you what to consider when negotiating the agreement with your spouse or interested parties. A comprehensive agreement takes time and effort – and often negotiation.

Determining Marital Property Assets and Debts

Once you’ve covered the clear issues that are easy to reach agreement on, you then move onto the more difficult topic of how to divide the joint marital assets and liabilities. Essentially, every marital asset and liability has to be identified by both during the divorce process. A thorough disclosure of every single asset/lability that either party has is essential and relevant to dividing and allocating them. It is also important that both of you fully understand all of your assets before dividing them. Asset identification and proper valuation is key to reaching a fair and reasonable agreement. While many couples clearly understand most of their family assets, it is important to make sure you haven’t missed anything.
While many couples have joint bank and investment accounts, credit cards, and a primary home, there are many other assets that have important value. For example, documenting or identifying any of the following may be critical to your situation: an ownership interest in a business, your annual income, pension, insurance, stock, 401(k) investment accounts, educational accounts, treasured items of sentimental value or possible inherited property, etc. Your job is to not only identify all of your assets and liabilities, but properly value them as well and allocate them according to your agreement.

Custody and Visitation

One of the primary concerns for clients in divorce is the future welfare of their children. For many parents, child custody issues occupy a central place in the process and often times have greater emotional stakes than the division of property or other economic issues.
All lawyers agree that the best interests of the children are of paramount importance, but beyond that general principle, there can be a great deal of friction between parents in a divorce. This is especially true in regard to the parenting arrangements and visitations schedule.
Often, these arrangements can be amicably worked out between parents. Depending on the ages and maturity of the children, parents can share residential and physical custody and split time with children up to 50/50. When done well and with the children in mind, this can be a good option for parents to work out.
Other parenting plans put the children with one parent primarily while the non-custodial parent has visitation. Visitation schedules can be worked out between parents to be flexible or in a set pattern, such as every other weekend, with one long visit on alternate weekends. These plans are entirely premised on the best interest of the children, and not on other factors.

Alimony

Deciding on spousal support (alimony). In order for a court to award a spouse spousal support ("alimony"). The spouse receiving spousal support must be in need of financial assistance. Once that spouse qualifies as needing spousal support, the court must analyze whether the other spouse can provide spousal support. A heavy burden is placed on the requesting spouse to prove he or she needs spousal support.
Types of spousal support (alimony). There are three types of spousal support the court can award during the divorce proceedings. The first is temporary spousal support, which provides spousal support to a requesting spouse during the pendency of the divorce proceedings. The court will set the amount and duration of the temporary support order. While it is in effect, a temporary spousal support order is just as enforceable as a final judgment of spousal support. A court cannot order a spouse to pay permanent alimony that pre-dates the divorce filing. For example, if the parties were married for ten years and lived apart for the last five years of the marriage, the court could not order a spouse to pay permanent alimony for the past five years of living apart. This is because a court cannot make a determination of support over a time period when no divorce proceedings were pending. For a temporary spousal support order that pre-dates the divorce filing, a court may only award support for the time period after the divorce proceedings began. Because of this, courts will often time temporary spousal support awards for a period of six months after the entry of the divorce decree, in order to give the requesting spouse the time needed to get financially stable.
Permanent alimony is different from temporary support in that it is more expensive and goes into effect after a court issues a final decree of divorce. As with the temporary spousal support order, the court has the discretion to determine the duration of the permanent spousal support order. However, the law in many jurisdictions provides for a cap on the duration of the permanent support order. Also, the court must give a justification as to why the duration of the permanent support order exceeds the statutory cap. Temporary spousal support is modifiable, whereas permanent spousal support is not modifiable for a specified period of time.
Spousal support agreements. Some states allow parties to create a spousal support agreement that provides for the amount and duration of spousal support that will be paid. While the court has the power to modify temporary spousal support awards, a court has no power to modify agreements that the parties entered into voluntarily, where the agreement clearly and deliberately manifests the intent of the parties not to be subject to modification. This is because contractual agreements are not meant to be modified. If the parties agree on spousal support, the court will likely approve the parties’ agreement if it is based on full and accurate information supplied by both spouses, without undue influence or coercion.

Child Support

Child support considerations will need to be taken into account in your divorce agreement. Child support is what a parent must pay to support the child of a previous or ended relationship.
Guidelines
When it comes to the amount of money to be paid for child support, many states use their own set of guidelines and calculations to determine both the amount to be paid per child and the duration of the payments. A couple can choose to agree on using the state guidelines for child support during the divorce negotiations, or they can agree to deviate from those guidelines.
Payment amounts and duration of payments
There are many considerations that go into the exact amount of payment involved and for what duration the payments will last. One of the most important aspects of this calculation is the cost of raising the child. Many people think that the cost of raising a child is simply how much it costs to feed them, clothe them and house them, however, child support payments also cover medical care , childcare, both day and after school, and if needed, educational costs, college funds and more. The idea behind child support is to ensure that the child has the same quality of life, regardless of the housing and living situation of their parents after divorce. The calculations of child support include income and cost factors such as:
• Daycare costs
• Health insurance and medical needs of the child
• School expenses
• Travel costs to see the child if a parent is not nearby
• Extracurricular activities
• The child’s individual needs
Some states have guidelines published that show what these costs usually add up to, to help determine these factors by date of birth. Personal circumstances such as having a special needs child or a child with a chronic illness can alter the scope of these calculations. In the most extreme cases, payment amounts can be agreed upon or ordered outside of guidelines, continuing until the child reaches the age of 24.

Health and Medical Insurance

If you or your spouse are going to be the custodial parent for the children, you need to have insurance coverage. If you are selling insurance, such as life insurance, you may want to take out a term policy to cover future obligations of child support, college, etc. Or, you may want permanent or universal insurance to cover other potential estate planning needs. I highly recommend that both parties contact their insurance agent to discuss in detail the advantages to each party.
Health insurance coverage for children: If you are divorcing and you have children, generally, the custodial parent (the one with the majority of time with the children) will continue to have the children on his/her health insurance plan. You need to contact your insurance company or your employer’s insurance provider to see if there is a change in provisions in coverage because of the divorce. If you are changing jobs, you may have to change plans. You should make sure that you have your children added to the new plan. The effect of a divorce on your life can be quite overwhelming and you can’t forget to add the kids to your plan so make sure you do this.
You also need to make sure that your spouse drops the children from his/her insurance plan. Many times the spouse will voluntarily do this. If not, then, an attorney can address this in the Divorce Agreement.

Retirement Plan Effects

Retirement accounts and pensions can be some of the most valuable assets which will be a part of your divorce. While usually considered marital property in Colorado, retirement funds are usually valued as of the date of marriage, and then the appreciation after that up to the date of the divorce is divided between the parties. So for example, if you and your spouse were married for 10 years, the value of the retirement account when you were married and divorced would be divided equally, whereas the appreciation during the marriage would be divided proportionately (usually equally.)
There are many different types of retirement accounts, but all of them can be ordered to be split through the use of a Qualified Domestic Relations Order (QDRO). A QDRO is used to divide retirement benefits administratively so that each party can have direct access to their share. Essentially, the QDRO notifies the plan administrator of the court-ordered obligation as well as any relevant information about the target parties to help ensure a clean division of the assets.
QDROs can be time consuming, and the drafting of one is a very specialized skill. Therefore, it is best to consult with a divorce attorney knowledgeable with QDROs, who can then work with a pension specialist or drafting attorney with the assistance of your lawyer to get the best result possible with the least headache.

Effect on Taxation

In addition to non-tax considerations, the marital settlement agreement should consider the potential tax implications to both parties of the terms of the divorce. A change in filing status for the year of divorce and thereafter may result in a higher tax; therefore, it is essential to consider the potential tax implications. Generally, if the parties have minor children and they have been separated for the last six months of the year, the custodial parent may file as head of household for that tax year. Another area to consider the tax implications is with respect to the deduction for alimony and spousal support. The person who pays alimony or spousal support will be able to deduct the amount of such payment per month on his or her individual tax return but the person who receives spousal support or alimony will have to include the monthly amount of alimony he or she receives along with other monthly income when filing an individual tax return , and pay tax on that monthly alimony or spousal amount. In divorces that occur prior to December 31, 2018, the alimony or spousal amount received is taxable to the person who received it. For divorces after December 31, 2018, no person is allowed to deduct this type of payment from their income because the Tax Cuts and Jobs Act of 2017 eliminates this as a tax benefit. Equally important is the tax implications of the division of assets. Individuals may choose to receive as part of the settlement offer a lump sum distribution of the assets. If the individuals take the lump sum distribution, the person who receives the distribution pays taxes on the asset based on the value of the asset at time of divorce, whereas the person who transfers the asset will not have to pay taxes until the asset is sold in the future. Minimizing the tax implications to the parties should be considered when the time comes to divide the marital property.