Basic Information about Property Settlement Agreements
Of all the un-mellowing things you must do during your divorce, the division of your assets based on state law is one of the most painful. If you have a prenuptial or marital agreement, you may be able to avoid this process. However, if you are dissolving your marriage in Virginia and you have not made other arrangements to distribute your assets, then the division of your property at the end of your divorce will be resolved through a legal process referred to as an equitable distribution.
Equitable distribution, or the disposition of marital property, is how the Commonwealth of Virginia determines how to divide all property that has been acquired by either of you during the course of your marriage. The list includes real property, bank accounts, automobiles, stocks, and more. It even includes retirement benefits. To delineate who gets what, the court presides over this legal issue and determines who should get which property and in what amount. Once the court makes a decision , it becomes legally binding. Even if you don’t want the property, you can’t sell it.
To avoid the court’s involvement in dividing up your property, the safest way to go is to create a property settlement agreement that specifies how you will divide marital assets. The terms of your agreement are only enforceable if both parties sign the document. However, once signed, it can be filed with the Court as a part of your final divorce decree. Once a judge approves the agreement, it becomes a legally binding Order of the Court.
A property settlement agreement typically includes the division of all kinds of assets acquired during the marriage, including:
After you execute and submit the agreement to the Court, it will be done and the issues it covers will be beyond the reach of the Court’s power. If you breach the agreement, you can be taken to court for enforcement and potential sanctions.
Elements of a Settlement Agreement
In Virginia, a thorough property settlement agreement will include, at minimum, the following components:
Division Of Property
Within the property settlement portion of the agreement, each party will agree to the right to claim certain property and will specify whether the right was given or reserved. The legal classification of that right may be stated as a "soft title" referring to the right that each party has to claim the property within the context of equitable distribution. Most marital agreements can be litigated and some courts and judges will require the issue of equitable distribution to be litigated within the agreement. A marital agreement will not resolve the issue of equitable distribution and as such, the rights are "soft" because the parties have reserved their rights to litigate the issue of equitable distribution. For example, the parties may be awarded the right to a piece of real estate with the right to a lease to purchase the property within one year from the date of the separation. In that case, the parties may reserve their rights to litigate the issue of equitable distribution, but may agree to give up any right to possess the property if the lease is not extended to them and a relative of the other obtains a lease to purchase the property.
One of the key objectives of a marital agreement is to make the disposition of the property clear so that neither party can come back at a later date with a subsequent claim to seek additional relief. The agreement should list the value and provide for either written or specific compensation for each asset.
Another important component is to agree upon the equitable values of the assets. It should be made clear that the values of the properties are provided only for this purpose and are subject to fluctuation in value until the time of the ultimate division and award.
Debt Responsibility
The agreement will require the parties to divide responsibility for debts and agreements as to how the debts are to be paid. This applies to the handling of monthly expenses. The parties should also address how they are going to handle extraordinary expenses, such as a casual agreement or requirement to consult before obtaining major medical care or making other large expenditures.
Spousal Support
The parties will often agree to a particular amount, the duration and the commencement of the spousal support. The court does not have to accept the agreement. One of the major advantages of settling spousal support is the parties’ ability to create a waiver to modifiable spousal support. There are a variety of styles and types within the realm of contractual spousal support. Parties can waive, by agreement, the right to seek spousal support in a future action. This is probably the most important reason for resolving spousal support prior to the litigation process, and it should be done even if the parties have no capital or income. Either spouse has the right to seek spousal support for the rest of their lifetime unless they contractually agree otherwise.
The written agreement, if acknowledged before a notary public, must be made by the parties and acknowledged before a notary public, and will be enforceable. Acknowledged cannot be obtained from the court prior to day of court. The agreement does not have to be signed in front of the Court, only the notary.
These agreements require a frank disclosure of income and assets and valuations of all properties. Depending upon the assets of the parties, the courts can order the parties to obtain appraisals of real estate, personal property, or other tangible assets. The court shall appoint a commissioner to go into the home of the parties and prepare a detailed report which sets forth a value for each item of the property owned by the parties. A detailed inventory to be performed can be a very revealing experience for the parties. Parties have resorted to filing state claims for delivery of personal property, and the court makes orders to prevent frustration of that process.
Virginia State Laws regarding Property Settlement Agreements
Virginia’s equitable distribution statute (Va Code §20-107.3 (1997) (There have actually been several changes since 1997 – do not get too hung up on the details of this code section, but it is definitely worth review)) ("Code") serves as the foundation for how courts will divide marital assets. The Code’s purpose is to inform the courts as to the various factors that should be considered when distributing property in a divorce. It provides a list of relevant conditions and circumstances that a court may consider in order to ensure that the ultimate property distribution made will be fair and equitable.
However, while the Code provides a guide for the courts, Virginia family law courts tend to have a liberal approach to the equitable distribution of marital property. Judges have significant discretion in determining how marital property should be divided between spouses. Within the Code’s guidelines, each judge has broad discretion to consider all circumstances of the marriage when dividing assets.
Furthermore, under Virginia law, the Code allows the parties to agree to a different distribution of assets. Va Code §20-155. Once an agreement by the parties has been made, it is the parties’ job to show the court that the agreement is fair and equitable. If a spousal agreement of the division of marital property is deemed fair and equitable, it will be approved by the court as part of the final decree.
Creating an Enforceable Agreement
When it comes to separating assets in divorce cases, the property settlement agreement (the "PSA") is the final word on what each party is entitled to. In other words, it’s the Bible of your divorce! What goes in that document is not easily changed by a judge. Therefore, it is important that what goes in the document is not only a fair division of this or that asset but that it is written with legal precision and care.
First and foremost, make sure that every single (and I do mean every single) asset – down to the last penny – is accounted for in the agreement. All gross income and all property, tangible or intangible, should be listed and ascribed to the party that it belongs to. If it is a marital asset, then that party gets 50%. If it is separate, then the party entitled to it gets 100%.
Second, be sure to use the correct legal language. For example, suppose a car is being transferred from one spouse to another. The correct verbiage would read something like: "Husband hereby assigns and transfers to Wife all of his right, title, and interest in and to the 2005 Ford Focus, VIN number 1ABF1234CDEF56789, which is presently registered in his name, and Husband agrees to sign any and all documents necessary to effectuate said transfer." See the difference? While both are indicating that the car is being transferred from Husband to Wife, only the second sentence above uses the correct legal language and is the one that would actually transfer the car. While it may seem nitpicky, legal language does matter and will make a big difference in enforceability later on down the road.
If parties are doing it themselves, the PSA should state the law according to Virginia Code and reference the code section and numbers. For example, if the parties must share business interests, then Virginia Code § 8.01-250.A(1) should be referenced. That way, if anyone tries to challenge the division later, they will run into a brick wall with the law. Remember, you can’t get blood from a stone. If there is no money, there is no money and the parties must be prepared to walk away even if the judge disagrees with them.
The last thing to remember about property settlement agreements is that they must be notarized and properly recorded. The recordation process is what gives the PSA legal standing after the divorce. Without recordation, a creditor could come after anything entitled to you during a divorce proceeding. (The exception to this rule is personal property, like cars and furniture, as these transfer automatically upon a court order or PSA.) To avoid that scenario, always file your PSA or divorce decree with the Circuit Court of your jurisdiction. Even if you never have to refer to it again, at least it is out there if you need it.
Mistakes to Avoid when Finalizing Your Agreement
Common mistakes that people make when they are creating a property settlement agreement in Virginia include:
- They do not spend enough time preparing the financial disclosures. The Virginia Supreme Court requires that the parties exchange a number of financial documents including (not an exhaustive list): copies of all tax returns, all W2’s, 1099’s, K1’s, year end profit and loss statements, balance sheets, audits, write offs, etc. It is very important to ensure that the financial information provided to you is accurate and complete. It is also important to get a sense of the other spouses compensation structure, so that you can determine whether you believe it is accurate.
- They fail to exchange the financial disclosures before the separation agreement is signed. Sometimes parties will start to exchange certain documents , but the case never goes to trial or settlement gets achieved first so that there is no time to finalize the exchange. It’s important to make sure that you have all of the documents exchanged because this will be required in order for the agreement to be valid and for the Court to accept it.
- Unrealistic expectations. When one spouse believes they deserve to get everything or the other spouse believes that their spouse will never pay them. Keep in mind when entering into the agreement that the Judge may not accept it, so they need to be willing to be reasonable. We generally advise our clients to use the "worst case scenario" analysis. What the judge might require were the case go to trial is what they should keep in mind. From there you can work to achieve a more favorable outcome for you.
The Importance of Mediation in Virginia Settlements
Mediation is a powerful tool in the property settlement process, particularly in Virginia, where judges may order mediation if deemed appropriate. Even if the court does not order it, parties can still request or agree to participate in family mediation as a way to more peacefully resolve property division matters. The benefits of mediation for property settlements include the following: Mediation is a suitable alternative to potentially lengthy litigation and its associated uncertainties. When parties are highly oppositional and communication has deteriorated such that they cannot even discuss basic issues, mediation is often a good option and can bring about some positive results. However, there are circumstances where litigation is a better option than mediation. In particular, if there are safety concerns, domestic violence or if one of the spouses exhibits totally unreasonable behavior. If mediation has already been attempted without success, further attempts at the process may be a waste of time and resources.
Enforcement and Modifications of Your Virginia Property Settlement Agreement
If one spouse fails to abide by the terms of the agreement, the other spouse (the innocent party) has a few options. Under Va. Code Ann. § 20-155, the innocent party can seek enforcement of the terms of the agreement in the same way an Order entered by a family court can be enforced. The innocent party can also plead breach of contract and request a monetary award. Since an agreement is a contract, it does not need to be incorporated into the Order to be enforceable by a breach of contract action.
In general, Rule 1:1 of the Supreme Court of Virginia means that one can modify property settlement agreements only by mutual agreement or by Order of the court entered within six months from the date of entry of the decree of divorce. However, there are certain situations where the court will allow modification of the property settlement agreement.
If the parties made an agreement to transfer real property, when the transfer is made, then that provision of the property settlement agreement is complete. See Batten v. Bethel, 28 Va. App. 384, 386, 507 S.E.2d 678 , 679 (1998).
During pendency of litigation, a new spouse who is not a party to the case, may acquire an interest in the real estate at issue. The clerk is required to provide notice to the non-party spouse and the person who purchased the real estate, pursuant to Va. Code Ann. § 20-107.3(A). When the third party applies to the court to sell the real estate and the court grants the application, the court must give any lienor (i.e., a party with a monetary interest in the property at issue) notice of the pending sale pursuant to Va. Code § 20-107.3(B). The statute does not mandate that the clerk provide notice to a non-party in order to exercise jurisdiction over the non-party for purposes of ordering a sale. See First Nat’l. Exchange Bank v. Northern Neck Bldg. Supply, Inc., 218 Va. 758, 239 S.E.2d 99 (1977).
The agreement itself will likely include a dispute resolution provision. If the parties can agree, the provision may provide for an alternative to litigation, such as mediation. This allows parties time to resolve issues without seeking judicial enforcement.
Leave a Reply