- Retirement accounts
- Name changes
- Airline miles
- Custody
- Spousal support
- Household items
- Debt
- Tax liabilities
- Future income
- Pets
- Medical expenses
- Life insurance
Before you can get your divorce decree, you must go through settlement negotiations. In your divorce settlement agreement, you can address everything from the division of property to the details of child support and spousal support. It’s a lot ... and in the heat of the moment, it's all too easy to forget something important as you discuss these issues with your soon-to-be-ex-spouse or partner.
What is a divorce settlement agreement?
A settlement agreement – sometimes called a “divorce agreement,” a “divorce settlement agreement, ” or a “marital settlement agreement” – is a legally binding contract between two divorcing people. It’s an agreement that specifies the terms of the divorce, including details about the division of assets, marital property, child custody, spousal support, and more. After you complete your divorce settlement agreement, you file it with the court as part of your divorce process.
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Marital settlement agreements are important because they help prevent future legal disputes. Once a marital settlement agreement has been signed, both parties are bound by its terms.
However, people often forget to include specific items in their agreements. Here are 12 issues we think you shouldn’t overlook when drafting your settlement agreement.
12 things people forget to address in their divorce agreements
1. Retirement accounts
Possible legal implications: If you don’t establish how your retirement funds will be divided post-divorce, you could face taxes or penalties, or you could end up forfeiting what’s rightfully yours.
Divorcing couples can use a qualified domestic relations order (QDRO) form to legally establish how marital retirement funds shall be divided in divorce. However, when dividing marital assets in the divorce process, many people forget this process.
If you do not specify who will get ownership of their retirement accounts, you may not get what is rightfully yours. For example, if the person with the retirement plan dies and a QDRO has not been filed, the money would go to the late person’s heirs rather than their ex-spouse.
Keep your retirement plans at the forefront of your mind as you negotiate your settlement, even if you’re far from retirement age.
Quick tips
- When drafting your marital settlement agreement, be as specific as possible about the division of your retirement benefits.
- Don’t just make a verbal agreement or a vague written agreement. Put the details in writing, from the percentage you intend to share to what that translates to in dollars and cents.
- Consult IRS rules on how to do this, or work with a professional who understands tax law to avoid making costly mistakes.
- Update your beneficiaries. If you don’t list the proper people as recipients of your retirement benefits, they won’t get them. Don’t know where to start? Ask your plan administrator for a change of beneficiary form.
Click here to read more about QDROs. Need assistance with your QDRO? Our trusted partner, SimpleQDRO, can help.
2. Name changes
Possible legal implications: If you wait until after your divorce to change your name, the process will likely take longer and cost you more.
After divorce, you might not want to share a last name with your ex-spouse anymore. This change can easily be addressed in your marital settlement agreement. But divorcing couples often don’t think of this before they sign the paperwork. While this may seem trivial, some credit card and bank accounts may be held in marital names, so ensuring that names are accurate and changed correctly and timely is crucial.
So, how do you change your name as part of your divorce? In your packet of divorce paperwork, look for a name change request form. (Note: This form looks slightly different in each state. If you can’t find it online, contact your local courthouse.) File this form with your other paperwork for the judge’s approval.
Tip: Important entities like the Secretary of State and DMV need notification of your name change. For a full list of who to notify about your name change, see our article, Don’t Forget to Notify These 19 Agencies after You Change Your Name.
3. Airline miles
Possible legal implications: If you forget to mention and discuss airline miles in your financial disclosures, a judge may unwittingly close a divorce case without dividing them fairly between spouses.
Often seen as trivial, airline miles can be a significant portion of a divorcing couple's assets, especially if one or both people travel regularly.
Airline miles may have cash value. Perhaps more importantly, they can sometimes be transferred from one person to another as travel miles. This makes them a powerful bargaining chip in divorce negotiations.
How do you divide airline miles?
Think of airline miles as divisible marital property in divorce. How do you divide such an abstract asset? Many airlines quote a cash value for each mile far below the value they would provide if used. If you decided to convert the miles to cash, therefore, you could lose a significant value. Perhaps a better option, offered by some airlines, is to transfer airline miles from one person to another. This way, both people get to keep and use some of the miles.
4. Custody
Possible legal implications: When it comes to child custody, it's important to spell out who will have custody of the children as well as visitation rights for the other parent. A vague agreement, or no agreement at all, could lead to uncomfortable disputes, misunderstandings, and court involvement.
It may be tempting to take a casual approach to child custody with a seemingly amicable ex. But no matter how well you get along, all details about your lives with the kids post-divorce should be put in writing. This includes the parenting calendar, a designation for who is the primary custodial parent and who is the secondary parent, information about who will be paying child support, and much more.
5. Spousal support
Possible legal implications: If spousal support is not included in a marital settlement agreement, it could lead to a costly court battle if one spouse wrongly assumed they'd be getting alimony or if they decide to pursue a divorce decree modification to get alimony.
If you wait until the divorce is final to ask for support, the judge may refuse to consider it. If they do agree to reopen an alimony case, you would have to prove that you experienced a significant change in circumstances and argue your case in court.
Tip: When making alimony decisions, the court must operate within your state’s laws. For example, if permanent alimony is not awarded in your state, you are highly unlikely to get it. But the court looks at individual factors, too, such as how long you were together, each person’s earning capacity and age, and whether one person put off schooling or a career for the sake of the family.
6. Household items
Possible legal implications: If you don’t cover ownership of special items in your settlement agreement, you have little legal recourse if your spouse decides said items are “theirs.”
Divorcing couples often argue about who gets to keep certain items they shared during marriage. To avoid this, it's important to specify in the settlement agreement who gets which items, especially those of extreme value, like family heirlooms.
If you forget to specify who will get certain items, it can create more stress and expense later on. You may have to return to court if you can’t work out an issue among yourselves.
How to divide your items amicably
Ideally, spouses would list their items on paper and amicably divide them, keeping in mind whether the state is a community property state (50/50 division) or an equitable distribution state (items are to be divided fairly but not necessarily 50/50).
If this appeals to you, you can use Hello Divorce’s free downloadable property division spreadsheet. If you’re still struggling to divide items you might decide to have big-ticket items appraised and hire a mediator to help you strike a fair deal.
Need help understanding your home-related options?
Download Divorce & Your Home, our free three-step home solution with tips and worksheets to help you understand and make the most of your home's equity.
7. Debt
Possible legal implications: If you don’t specify a debt payment schedule (and who’s paying it) in your settlement, one person could get stuck with it all.
In a settlement agreement, it's important to specify who is responsible for which debts incurred during the marriage. This can help to avoid tension and conflict between ex-spouses after divorce. Your settlement can be used to assign debt to the right people in the right amounts.
Who can help?
A certified divorce financial analyst (CDFA) is specially trained to help divorcing couples find creative and amicable financial solutions. At Hello Divorce, we offer CDFA services for flat fees to make this part of the divorce process as easy and painless as possible.
Want more information? Read our article, 7 Ways to Make Asset and Debt Division as Fair as Possible.
8. Tax liabilities
Possible legal implications: Leaving your tax-filing plans out of your divorce settlement could lead to disagreements about who is responsible for which taxes.
A divorcing couple may file their taxes together one last time, but they don't have to. Either way, it’s important to be on the same page about taxes. Will you file jointly or separately? Who will handle which payments and debts?
If you have joint debts and liabilities after divorce, you may feel overwhelmed by the prospect of dividing these fairly. If you bury your head in the sand, of course, you run the risk of facing fines for late payments. At the same time, you may not feel equipped to figure this out with your ex, and you probably don’t want to leave it up to a judge to decide.
A hopeful alternative is working with a CDFA. This is a trained professional who can look at your big financial picture and help you and your ex find a solution that’s affordable and fair.
9. Future income
Possible legal implications: If one spouse goes on to make significantly more money than the other, problems or disagreements regarding spousal support or child support could erupt down the road.
Divorcing spouses often forget to account for future income potential when dividing assets in a settlement agreement. This can be especially problematic if spousal support and child support are at issue.
Consider drafting a flexible divorce settlement agreement that allows for shifting incomes in the future. A CDFA can help you create this. Or, you might also choose to have your divorce agreement reviewed by a Hello Divorce attorney (read about our flat rate options here) or another attorney before submitting it to the judge.
10. Pets
Possible legal implications: In most states, pets are viewed as property. If you don’t specify pet custody arrangements in your settlement, a judge could step in and award a pet to one person with little consideration for the other.
Pet custody can be a hot issue in divorce because, for many, pets are family. Divorcing couples must decide what happens to their shared pets. It's important to specify who will be responsible for their care and what would happen if one party were to decide they no longer wanted custody of the pet.
You might also consider drafting a joint custody agreement for your pet. Sometimes called a “Pet Pawrenting Agreement,” you can view our free pet parenting agreement template here.
11. Medical expenses
Possible legal implications: Medical debt incurred by one spouse during the marriage would likely be the responsibility of both people unless stated otherwise in the settlement agreement.
Medical expenses for shared children could be distributed unevenly or unfairly if the settlement does not specify how child medical debt will be handled.
It's important to specify who will be responsible for paying which medical expenses. This is especially important if during marriage health insurance was provided through one spouse's job and if minor children receive their healthcare through that health insurance plan.
12. Life insurance
Possible legal implications: A policy purchased during the marriage would likely be considered joint property. In divorce, it would need to be split according to state property division laws of the state. If beneficiaries aren’t changed and someone dies, the outcome may not be what both spouses prefer.
Oft-forgotten in divorce settlements is the division of life insurance assets. It's important to include this to make sure both parties are protected financially.
If a couple wants to see something other than a traditional split of the cash value of a life insurance policy, they would need to specify this in their settlement. If beneficiaries need to be changed, this needs to be taken care of as soon as possible as well.
