What is a Property Settlement Agreement (PSA) in a Virginia Divorce?

December 9, 2014

marital-settlement-agreementTerms of a Property Settlement Agreement (PSA)

A Property Settlement Agreement (PSA) is a contract between a married couple that sets out the terms of how they will move forward in their lives, during separation and divorce, in the following areas:

  • Parenting Arrangements (also known as Custody & Visitation) – Sets forth the schedule of custodial care. This section also sets forth how child-related responsibilities will be shared. This includes both the decision-making and day-to-day care for the children.
  • Child Support – Sets forth the presumed statutory guideline monthly award (dollar amount) and the actual amount to be paid (which may differ, somewhat, from the presumed guideline amount). This section also clarifies how certain child-related expenses, over and above the monthly child support award, will be covered, e.g. out-of-pocket medical expenses, extracurricular activities, work-related childcare (daycare, nanny, babysitter), camps, tutoring and private school. Some parties also choose to set forth how college tuition and related expenses will be shared between the parties once the child support obligation ends (usually at high school graduation or 18 years of age, whichever comes later).
  • Spousal Support (aka Alimony) – Sets forth the dollar amount of spousal support to be paid (if any) and the duration for which it must be paid. This section also sets forth whether or not spousal support will be modifiable or non modifiable and, in some instances, the specifics of that modifiability. This section also sets forth, where necessary, waivers of the right to petition a court for spousal support at the time of divorce and/or in the future. The Spousal Support section of a PSA must include certain statutory language in order to be acceptable to the IRS. Because the payment of spousal support includes many important tax implications, depending on how the PSA is written, close scrutiny must be paid to this language.
  • Property & Debt Distribution – Sets forth the division and distribution of all marital property. Also clarifies property that has been determined by the parties to be separate (e.g. non-marital) and, as is usually the case, non-divisible. This section also clarifies how the parties’ debts will be handled during separation and post-divorce. In a divorce, the term “property” includes all assets: real estate, automobiles, bank accounts, investment accounts, stocks & bonds, businesses, antiques & collectibles, furniture, artwork, tools, etc. In Virginia, this is often referred to as the “E.D. Section”, which is short for “equitable distribution of property and debt”.

Other Key Components of a Property Settlement Agreement

Property Settlement Agreements in Virginia (and elsewhere) also include other very important information, such as:

  • Date of Separation – the date upon which the parties agree they began living “separate and apart”[1] (which may or may not be the date that one of the parties moved out of the marital residence);
  • No Fault Divorce – a clause that forbids either party to ever proceed with a divorce on contested grounds (e.g. desertion/abandonment, adultery, cruelty);
  • Waiver of Right to Discovery – a clarification (if appropriate) that the parties waived their right to discovery (the court-supervised process of gathering documents and information from “the other side” which is standard in most litigated divorces);
  • Taxes – a predetermination of how certain tax benefits and burdens will be divided between the parties (where appropriate, necessary and permitted by the IRS). Such items include: the dependency exemption for children, the child and dependent care credit, future filing status decisions while still married (e.g. married filing separately, married filing jointly), mortgage interest & real estate tax deductions, and future income tax refunds and liabilities.

There is No Such Thing as “Legal Separation” in Virginia – Property Settlement Agreements Resolve Some of the Resulting Confusion & Risk

In Virginia, there is no such as thing as “legal separation”. The closest that parties can come to legal separation is to actually live separate and apart (see footnote 1) and be in possession of a signed and notarized PSA.

Most attorneys advise their clients to never move out of the marital residence without the benefit of a PSA. The reason for this is two-fold:

  1. Risk – Setting Up Fault Ground of Desertion/Abandonment – Without a signed and notarized PSA, which clearly states that neither party is permitted to file a divorce on fault grounds, the party who leaves the marital residence is at risk of the other party proceeding with a divorce on the fault ground of desertion/abandonment. If the other party prevails, this could affect a judge’s ruling with regard to property and debt distribution. This risk is somewhat “academic”, however, according to many divorce professionals in the Northern Virginia Area, as long as the person who physically moves out of the marital residence continues to provide financial support “back home”. Also, and perhaps most concerning, fault-based divorces set in motion a defensive posture that ramps up the litigation and costs the parties dearly in terms of emotional strain and financial drain.
  2. Risk – Confusion in the Classification of Certain Property and Debt as Marital Property (divisible by a court) versus Separate Property (not divisible in court) – Virginia law states that all property and debt acquired post-separation is to be classified as separate property (non-marital, non-divisible by a court). It is usually best, therefore, for parties to clarify what they have, in terms of their property and debt, at the time of separation. To avoid often confusing, and sometimes very stressful situations later, parties are well-advised, once they have decided to separate, to determine, in detail, how and when their property and debt will be divided and distributed and what the values of their property, and balances on their debt instruments are, at the time of separation. It is also notable, however, that even though judges are required to classify post-separation assets and debts as separate (non-divisible) property, parties may choose to classify some or all of that post-separation property and debt as divisible marital property (as is the law in many other jurisdictions).

Property Settlement Agreements are Binding Contracts

            Once parties sign a PSA, they have entered into a binding contract that is not renegotiated at the time of divorce. The key agreements and pertinent sections of the PSA are incorporated into the Final Order of Divorce (e.g. the custodial care arrangements for the children, the amount of child support and spousal support to be paid, and the specifics of the division and distribution of property and debt). The signed and notarized PSA is filed with court, along with several other divorce documents (including the Final Order of Divorce, aka Divorce Decree). In essence, parties who have a signed PSA, during their period of separation, are operating under a contract; once those same parties are divorced, they are operating under both a contract and a court order (the Final Order of Divorce).

It is notable, however, that all matters related to children (custody, child support), are always modifiable if there is a material change in circumstances. Parties are not permitted to negotiate away this right.

Can a Property Settlement Agreement Ever Be Declared Invalid?

            Property Settlement Agreements, though usually upheld in court, may be declared void (i.e. “invalid”) and, therefore, unenforceable, under the same circumstances as are other contracts. Specifically:

  • No Capacity to Form a Contract – one or both parties lacked the capacity to form a contract (e.g. serious mental impairment);
  • Unconscionability – the contract is extremely unfair;
  • Too Much Pressure – one or both of the parties signed the contract under duress, as a result of coercion, and/or as a result of undue influence;
  • Factual Mistakes – there was a mutual mistake of fact(s)(unless it really doesn’t matter);
  • Illegal – the contract contains a violation of law or public policy; and/or
  • No Full Disclosure – there was a failure to provide all relevant factsthat would allow for informed decision-making with regard to the settlement terms (in a PSA, that usually means “financial facts“).

(Va. Code §8.01-581.26)

The last area is usually of the biggest concern in a Property Settlement Agreement – especially one that is signed without the benefit of formal discovery (the attorney-led and formalized process of collecting and reviewing documents and other information relevant to the case).  If it is determined that essential financial information, which would be necessary for one or both of the parties to make informed settlement decisions, was purposefully withheld, the Property Settlement Agreement will almost certainly be void (no good).

95% of Divorce Cases Settle Without Trial. Why Not Start With Settlement in Mind?

            The vast majority of cases — 95% being the most quoted statistic – never go to trial. That means that, after all the litigation strategy, motions, depositions, discovery, and very expensive legal wrangling, almost all divorcing couples end up settling their case without a trial.

Therefore, when all is said and done, if you are considering a divorce, or are in the process of getting a divorce, you might as well start with a settlement mentality and focus on reaching solutions to your divorce disputes that you both can live with before you engage in expensive and time-consuming litigation.

            The final result of your mutually agreeable solutions to your divorce-related issues will be in the form of an enforceable Property Settlement Agreement which, if written by a qualified lawyer-mediator, will be clear, enforceable, detailed, written in neutral language, and contain a minimum of “legalese”.

If you have any questions about what goes into drafting a Property Settlement Agreement and how Graine Mediation goes about settling divorce cases, call Robin Graine at 571-220-1998.

[1] In Virginia, parties with minor children must live “separate and apart”, without cohabitation (no marital relations) and without interruption, for 12 months before they are permitted to file for divorce. Va. Code §20-91. Without minor children, parties are permitted to get a divorce after only 6 months of separation as long as they have a signed Property Settlement Agreement. The term “separate and apart” is also interpreted, in Virginia, to mean that at least one of the parties intends that the separation be permanent. There is no actual law stating that the parties must live under separate roofs (though that is preferred by the Courts). This lack of clarity is bad enough on its own; but it compounded by the fact that Virginia law specifies that all property and debt acquired post-separation is separate property (aka non-marital and, as a result, is not divisible by a court).

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


Tax Effects of Spousal Support (Alimony)

December 2, 2014

tax-terms

ALIMONY IS TAX DEDUCTIBLE BY THE PAYER AND IS CONSIDERED TAXABLE INCOME TO THE RECIPIENT. Paying spousal support (aka alimony) is one of the best tax deals around for the payer.  According to Section 71 of the Internal Revenue Code (“IRC”) (26 U.S.C ¶71), ex-spouses who pay alimony are able to deduct those payments – dollar for dollar – from their adjusted gross income.  The recipient of alimony is, conversely, taxed on the alimony received just as if it were ordinary income (i.e. salary, wages).  (See Section 215 of the Internal Revenue Code, 26 U.S.C §215).

ALIMONY LOWERS THE PAYER’S ADJUSTED GROSS INCOME (TAXABLE INCOME) AND MAY CHANGE BOTH THE PAYER AND THE RECIPIENT’S TAX BRACKET: At the end of the tax year, a person who pays $2,000 per month in spousal support will have a whopping $24,000 shaved off his or her taxable gross income.  This could have a very favorable effect on an alimony payer’s tax burden, and an unfavorable effect on the recipient’s tax burden, in terms of:

  • the reduction in the taxpayer’s adjusted gross income (dollar-for-dollar in relationship to the alimony paid), which is what the payer will be taxed on; and
  • a change in the payer and/or recipient’s tax bracket.

Simplified Example for Payer Who Earns $100,000 Year in Wages:

$2,000/month alimony payments made

x 12 months/year

=

$24,000 alimony paid over course of 1 tax year

——————-

$100,000 gross income                                   = 28% Tax Bracket

-

$24,000 alimony paid

=

$76,000 adjusted gross income of alimony-payer = 25% Tax Bracket

 

    Simplified Example for Recipient Who Earns $30,000 Year in Wages

$2,000/month alimony payments received

x 12 months/year

=

$24,000 alimony received over course of 1 tax year

——————-

$30,000 gross income of alimony-payer                 = 15% Tax Bracket

+

24,000 alimony paid

=

$54,000 adjusted gross income of alimony-payer         =  25% Tax Bracket

Of course, we all know that preparing one’s taxes involves a lot more than calculating gross income less alimony paid, but you get the idea:  Alimony has very big tax implications.

CHILD SUPPORT IS NOT DEDUCTIBLE/TAXABLE: Child support, on the other hand, is a tax desert.  There is no tax benefit to the payer; and the recipient is not taxed on the child support received.  This is because the lawmakers determined, many years ago, that parents should be supporting their children whether it is in the form of “child support” or simply “supporting your children”.  Thus, no tax breaks for doing what you should be doing anyway. (Don’t start thinking too hard about all the other tax breaks that parents of dependent children are privy too that are off limits to other child-free Americans. Apparently there is a different story there!)

The disparity in the tax treatment of spousal versus child support explains why many cases are settled with the non primary parent paying a whopping amount of alimony, but just the bare minimum child support.

NON-DEDUCTIBLE ALIMONY: While it is fairly rare, the IRS does allow for the designation of alimony as non-deductible by the payer (and, therefore, non-taxable to the recipient). If this is the parties’ desire, it will need to be spelled out very clearly in the Property Settlement Agreement (PSA).  It is also best if the PSA states that the parties understand that the IRS default is the other way around (alimony is deductible by the payer; taxable to the recipient).

SPOUSAL SUPPORT PAYMENTS MUST BE MADE PURSUANT TO A “DIVORCE OR SEPARATION INSTRUMENT” TO QUALIFY AS ALIMONY: It is important to recognize that spousal support payments which are made prior to the signing of a PSA are not properly tax deductible by the payer (nor will they be taxable to the recipient).   The IRS states, in Section 71 of the IRC (26 U.S.C. ¶71), that there must be a “divorce or separation instrument” – which includes a property settlement agreement, court order, separate maintenance order, and final order of divorce/divorce decree – which sets forth the alimony obligation, before any spousal support payments will receive the default tax treatment afforded alimony payments. Spousal support payments made without such a formalized document are considered “voluntary” and, as such, are not treated as alimony by the IRS.

When a divorce case drags on for years, without a signed Property Settlement Agreement, the spouse who voluntarily supports the other spouse is denied the usual deduction for alimony paid (and the recipient is not taxed on the spousal support received).   A signed Divorce Settlement Agreement resolves this issue.

ALIMONY DEFINED: The IRS has fairly specific criteria for what it does and does not consider alimony. Section 71(b) of the IRC (26 U.S.C §71(b)) defines alimony as any cash (not services) payment that is:  

  1.  Received by a spouse or former spouse pursuant to a divorce or separation instrument;
  2. The divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under Section 71(b) of the IRC;
  3. When the parties are legally separated pursuant to a decree of divorce or of separate maintenance, the payee and recipient spouse must not be members of the same household. However, note that this section does not specifically refer to a payer who pays alimony to his spouse, while living under the same roof, pursuant to a Property Settlement Agreement only; and
  4. The alimony must end upon the death of the payee.

BE CAREFUL! The IRS has 2 important peculiarities with regard to classifying “alimony” payments from one spouse/former spouse to the other. These peculiarities:

(1) The Alimony Recapture Rule; and

(2) The Child Contingency Rule.

THE ALIMONY RECAPTURE RULE: Under §71 of the IRC, the IRS has the right to take back alimony deductions if there is a violation of the “Alimony Recapture Rule”. In other words, the IRS can make the payer spouse/former spouse go back and pay taxes on the dollar amount of alimony deducted from the payer spouse’s gross income if the IRS determines, under its Alimony Recapture Rule, that those payments were wrongly deducted.  This can occur whether or not the payer (or his or her attorney) was aware of the Alimony Recapture rule or not.  (Ignorance is not a defense.)

The Alimony Recapture Rule applies when spousal support payments are “front-loaded” during the first 3 years from the first date that alimony is paid (as defined by the IRS, see “Alimony Defined” above).  The purpose of the Alimony Recapture Rule is to discourage divorcing spouses from improperly classifying property settlement payments (such as, for example, monthly payments to a former spouse as part of a  “buy out” deal on the marital residence) as alimony.   In other words, the IRS is trying to prevent “sham” deductions.

Alimony Recapture Worksheet: For most people who are concerned about the Alimony Recapture Rule, the best way to determine whether or not there will be an Alimony Recapture situation during the first 3 years of paying spousal support is by using a simple “Recapture of Alimony” Worksheet provided by the IRS in Publication 504. It is reproduced below:

  1. Alimony paid in 2nd year  _______
  2. Alimony paid in 3rd year   _______
  3. Floor                                       $15,000
  4. Add lines 2 and 3                 _______
  5. Subtract line 4 from line 1 _______
  6. Alimony paid in 1st year    _______
  7. Adjusted alimony paid in 2nd year

(line 1 less line 5)                       _______

  1. Alimony paid in 3rd year  _______
  2.  Add lines 7 and 8               _______
  3. Divide line 9 by 2

(the number 2, not line 2!)   _______

  1. Floor                                      $15,000
  2. Add line 10 and 11               _______
  3. Subtract line 12 from line 6 _______
  4. Recaptured alimony.

Add lines 5 and 13                  _______

 

The above calculation is actually factoring two computations, as follows, to determine if recapture is necessary.

(1) A taxpayer is subject to recapture of alimony payments made if, in the third-post separation year, the alimony paid decreases by more than $15,000 from the second post-separation year.  The excess over $15,000 is subject to recapture.

(2) A taxpayer is subject to recapture in the third year of making alimony payments if the payments made in the first post-separation year exceed the average of the payments in the second and third post-separation years by more than $15,000.

If both of these computations result in recapture, the amount recaptured under the first computation is subtracted from the second year payments for purposes of making the second computation.

THE CHILD CONTINGENCY RULE:  All deductions for alimony made under Section 215 of the IRC (26 U.S.C. §215) are at risk of being taken back by the IRS if the the cessation of those alimony payments are contingent upon any of the following child-related fact patterns:

(A) A child of the marriage obtaining a specified age, marrying, dying, leaving school or a similar contingency; or

(B) At a time which is clearly associated with a contingency of a kind specified in Paragraph (A), above (e.g. graduation from high school).

(26 U.S.C. 71(c)(2))

As clarified in the recent case of Johnson vs. Commissioner of the Internal Revenue Service (7th Circuit, 2014) (http://caselaw.findlaw.com/us-7th-circuit/1302834.html), even if the parties’ PSA clearly delineates which payments are for child support and which are for spousal support, the IRS still has the right to reclassify even agreed spousal support payments as child support if there is any contingency, involving a child, attached to that spousal support obligation.

If the IRS determine that a spousal support award was actually contingent upon a child-related event, it has the right to convert all payments made, from when the payer first commenced making spousal support payments to the recipient, into non-deductible child support.

Details about his fairly complex rule can be found by reading IRS Temporary Regulation 1.71-1T(c), Q&A 17 and 18 at:

http://www.law.cornell.edu/cfr/text/26/1.71-1T

PROFESSIONAL TAX SERVICES REQUIRED: As with all information provided in www.fairfaxdivorceblog.com, nothing in this article is intended to substitute for professional tax or legal advice.  The tax implications with respect to alimony are huge.  Anytime “alimony” or “spousal support” form part of a couple’s divorce settlement discussions, you can be assured that a visit to the CPA is well-advised and a good use of your time and divorce dollars.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


How Does Spousal Support Work in Virginia?

November 25, 2014

Alimony is a creature of both State and Federal Law: Spousal support, also known as alimony, is governed by a combination of state and Federal law. In Virginia, the state law sets forth the criteria (the full statutory list can be found below, in this article) that judges must consider when determining whether or not to award spousal support in a particular case (§20.107.1 Virginia Code). The Federal Law governs the tax aspects of spousal support — which are many.  This article discusses Virginia Law. (More information on the tax aspects of alimony can be found throughout www.fairfaxdivorceblog.com by entering “alimony tax” in the search bar.)

alimony-main

Virginia Code: Virginia statutory law, which includes the laws you can easily see if you look at the Virginia Divorce Code (Title 20, Chapters 6 and 6.1 (§20-91 through 124.6 of the Virginia Code)), speaks generally of the “considerations” that a judge must ponder when deciding an alimony case. However, the listed criteria gives little guide to the courts when making a determination of “how much” and “for how long” spousal support should last. Those answers are often based in the “common law” (precedential cases decided in higher level courts) and the legal culture and practice in the area in which the clients live.

No Absolute Right to Alimony in Virginia: A key fact is that there is no right to spousal support in Virginia. The right to receive alimony is determined on a case-by-case basis.

Key Issues: Whether the alimony question is determined by a judge, or by the parties themselves, the following issues will always need to be determined:

  1. Whether or not there will be an award of alimony;
  2. How much that alimony award will be;
  3. What is the period of time that the alimony award will last; and
  4. Whether or not the alimony award will be modifiable in amount and/or duration.

Pendente Lite Spousal Support Calculation: In Fairfax County, the courts are very prone to award what is called the “pendente lite spousal support amount”. The “pendente lite” is a formulaic amount of spousal support which was originally designed as a way of quickly calculating spousal support in pre-trial, emergency situations, without having to go through a full blown “mini trial” on the issue of spousal support.

However, over time, many of the courts (Fairfax County in particular) have come to rely on the pendente lite formula as a fair barometer of what the spousal support amount should be. Of course, this is dependent on whether the case merits an award of spousal support in the first place (which is always the ultimate question).

 

The pendente lite formula, when there are minor children, follows:

28% payer’s gross monthly income – 58% recipient’s gross monthly income

= pendente lite spousal support calculation

 

The formula, when there are no minor children, follows:

30% payer’s gross monthly income – 50% recipient’s gross monthly income

= pendente lite spousal support calculation

 

Duration: In Virginia, the “rule of thumb” is that spousal support awards are usually set for 50% the length of the parties’ marriage (from the date of marriage to either the date of separation, the date the property settlement agreement is signed, or the date of divorce).   For marriages over 20 years, there is a possibility of permanent alimony. Oftentimes, however, even “permanent” alimony awards have a stop date that coincides with an educated guess as to when the payer will most likely retire.

Modifiability: It is important, when drafting a property settlement agreement, to clarify whether or not an award of spousal support is modifiable or not. If it is modifiable, the terms of modifiability may be spelled out in detail, or the basic statutory language can be used. The basic statutory language is:

The party seeking the modification is required to demonstrate to the court, by “clear and convincing evidence”, that there has been a “material change in the circumstances of the parties, that was not reasonably in the contemplation of the parties when the award was made, or that an event, which the court anticipated would occur at some stage during the pendency of the award, and which was significant in the making of the award, did not, in fact, occur through no fault of the party seeking the modification. (§20-109(B) of the Code of Virginia)

If a property settlement agreement is silent on the issue of modifiability, there is a presumption that the award is non-modifiable.

To the contrary, in instances where the court itself orders the spousal support award, but the court order is silent on the issue of modifiability, there is a presumption that the award is modifiable.

Spousal support award may be modifiable in amount, duration, or both.

Criteria that Virginia Judges Must Consider When Making a Spousal Support Determination: The following is a comprehensive list of all the criteria that must be considered, in Virginia, when a court is making an award of spousal support (pursuant to §20-107.1 of the Virginia Code). Though parties are not required to go through this same list when settling their alimony issues outside of court, it is a good list for most divorcing couples to ponder when making decisions on the issue of alimony:

(1) The obligations, needs and financial resources of the parties, including, but not limited to, income from all pension, profit sharing and retirement plans, of whatever nature;

(2) The standard of living established during the marriage;

(3) The duration of the marriage;

(4) The age, physical and mental condition of the parties and any special circumstances of the family;

(5) The contributions, monetary and non-monetary, of each party to the well-being of the family;

(6) The property interests of the parties, both real and personal, tangible and intangible;

(7) The provisions made with regard to the marital property;

(8) The earning capacity, including the skills, education and training of the parties, the present employment opportunities for persons possessing such earning capacity, and each parties’ current employment status; and

(9) The tax consequences to each party, as are necessary in order to consider the equities between the parties.

 

AUTOMATIC TERMINATION OF SPOUSAL SUPPORT: In Virginia, certain fact patterns revoke a parties’ right to receive spousal support, per statute (§20-109 of the Virginia Code). Those situations are:

(1) Remarriage by the recipient;

(2) Cohabitation of one year or more, by the recipient, with another person, in a relationship analogous to a marriage. This fact must be proved, however, by clear and convincing evidence by the payer before   spousal support will be terminated for “cohabitation”; and

(3) Death of either party.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


How to Get Started in Divorce Mediation

November 11, 2014

phoneAre you considering mediation for your divorce, but don’t know how to get started? Don’t worry. It’s not a difficult process. At Graine Mediation, we start with an Intake Phone call: (571) 220-1998. We are usually able to help you start feeling better about settling your divorce case with that first call.

Before Graine Mediation takes on a new client, we require Intake Phone Calls with both parties. These initial calls are free. They last approximately 20 minutes each. Clients are encouraged to ask the mediator, Robin Graine, as many questions as they have.

The Intake Calls are confidential, which helps clients relax and be able to discuss difficult issues without fear of anything being repeated to the other party. Not only that, but by having the phone call in their own home or environment, free of charge, clients feel comfortable both in their environment and in the fact that they are not being charged by the minute! Our firm believes in generous Intake Phone Calls because it helps to ensure that our potential clients truly wish to mediate, and understand what mediation is. Also, it is part of our job to assess whether mediation is the best fit for each family’s unique circumstances and, if not, to make a more appropriate referral.

During the Intake Phone Call, I enable clients to:

  •    Tell their story;
  •    Sift through the facts of the case and begin formulating clear issues to be resolved;
  •    Focus in on their needs and, if it helps, the needs of the other party;
  •    Formulate clear ideas about what is best for their children (if they have children);
  •    Gather information and answer important questions;
  •    Discuss tasks outside of mediation that may be necessary in order to settle the case; and
  •    Discuss the strengths and weakness of various settlement options (which include everything from the tax implications to the emotional fall-out possible to children and parents).

This call also helps us at Graine Mediation do our job more efficiently. With an idea of the facts and issues in a case, as both parties see them — legal, financial, emotional – we are able to move forward much more quickly in the settlement process than would otherwise be the case. The parties, too, tend to be more goal-oriented and are in a better position in terms of helpful legal, financial, tax and parenting information.

If you have been considering divorce or custody mediation, but just don’t know where or how to start, give us a call at (571) 220-1998. We can help determine whether mediation is right for your situation, or at least get you pointed in the right direction.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


How To Turn Break-Up Stress Into A Meditative Experience

October 14, 2014

Have you ever heard someone say, “I am so stressed out–I’m in the middle of a nasty break-up/separation/divorce”? Maybe you were the one who said it. It’s a reasonable way to feel. There’s so much to consider when ending a relationship, especially one with the legal trappings marriage entails, that it gets overwhelming very quickly. How are the children coping? How are we splitting the house, the bank accounts, the business? Will I still be insured under my ex-partner’s policy? What about my benefits? The list of questions is very close to endless.

Now, have you ever heard someone say, “I’m in the middle of a nasty break-up/separation/divorce–I find it very relaxing”? If you did, you’d probably assume they were being sarcastic. While that statement tends toward hyperbole, know that you really can find something freeing and perhaps even relaxing about the process. It’s all a matter of perspective.

zenFirst, know that no two break-ups are the same. There is no formula that divorce lawyers or mediators can apply to a couple and achieve the same result every time. That means that there are no absolutes, no set-paths, no “perfect” divorces. Once you begin to understand that such a large life transition can’t ever be “perfect,” you can free yourself from the burden of trying to attain that perfection.

Second, realize that life transitions are dynamic and fluid by nature. It can often feel like you are constantly struggling just to keep up, but consider a river. If you try to fight the force of the current by obsessing over all of the inherent problems within a transition, you will quickly tire and drown. But give yourself over to the flow of the river, know that things will–and should–change, and you may find yourself floating lazily before you realize what has happened.

The next time you begin to feel overwhelmed by the flurry of activity and upheaval your break-up is causing, take a step back. Consider the necessity of the movement that keeps you from sputtering to a standstill. Remember that movement means progress. When you give up perfection and give into the transition, you may be surprised where life floats you to next.

Posted by Jane Baber, Mediation Assistant

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


How Mediation Can Help – Even When Divorce Litigation Is Pending

June 10, 2014

Divorce-MediaitonIf you are engaged in divorce, you may be battling your case in the traditional attorney-run court system. If this is your situation, but you yearn for a more civilized, less expensive method of settling your divorce matters, you can consider Mediation at any time in the process.

I see clients and settle cases at all stages of the separation and divorce process. For example:

  • Mediation works well in cases where attorneys are never involved;
  • Mediation works well in cases where attorneys are consulted prior to the mediation, but are not involved in the mediation process;
  • Mediation works well when attorney services are utilized only for review of the draft Settlement Agreement; and
  • Mediation works well when clients are deeply involved in litigation, but want to come up for air and try and settle their case in a more orderly, less contentious fashion.

Most clients don’t know that Virginia attorneys are required to advise their clients that there are alternative methods to resolve their disputes outside of litigation. (This mandate is pursuant to the Comment Section of Virginia Supreme Court Rule 1.2.) If your divorce attorney has not advised of you that there are Virginia Supreme Court Mediators ready to assist you with your divorce settlement needs, ask him or her if there is any reason why Mediation, or any other form of Alternative Dispute Resolution (ADR), is not appropriate for your circumstances.

Certain situations merit consideration of “taking a break” from litigation. You may wish to consider Mediation if:

  • Litigation is doing harm to your children.
  • Litigation is causing emotional turmoil and an inability to focus.
  • There is a need to feel that all “friendly” avenues were tried before either of you “pull the trigger” in court (and unleash a torrent of bad feelings that may last a lifetime);
  • You think if would be a good idea to treat the property and debt issues completely separate from the child-related issues.
  • You and your attorney no longer see eye to eye;
  • There is one single issue that is holding up the entire settlement;
  • Your attorney fees feel like the National Debt.

If you think Mediation is the way to go, give Robin Graine, JD, at Graine Mediation, a call: 571-220-1998. If you just want to learn more about Mediation, or if you want to discuss whether Mediation is right for your case, give Graine Mediation a call. Robin would be happy to answer you questions: 571-220-1998.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.


Mine, Yours, and Ours in a Virginia Divorce

May 6, 2014

How Do Virginia Courts & Mediators View Equitable Distribution When a Husband and Wife Commingle Separate (Non-Marital) and Marital Property?

In Virginia divorce law, there is a lot of confusion when it comes to the division and distribution of property[1] when the divorcing couple does not agree on whether that property is “marital property”, “separate property” or a combination thereof (known as “hybrid property”). This confusion is unfortunate because how property is classified is extremely important in terms of what is on and what is off limits to Virginia judges when they make their “taketh and giveth” decisions. In a Virginia divorce, courts may only order the division, distribution and sale of jointly owned marital property.

The perplexing, often counterintuitive state of the law in Virginia, when it comes to classifying property as “marital” (subject to judicial division, distribution and sale) or “separate” (off limits to judicial orders) is the cause of intense litigation and outrageous attorney fees – which is never good for families.

Some of the biggest court battles, in a Virginia divorce, occur when property has characteristics of both marital and separate property – known as “hybrid property”. With hybrid property, Virginia judges are only permitted to order the division, distribution and sale of that portion of the hybrid property that is classified as marital. The problem is that not all reasonable people agree on how and where that split between the two classifications should take place. In litigation, the final decision, after presentation of the evidence, lies with the judge. In comparison, clients who mediate make those decisions themselves after the mediator has informed them of the law, legal culture and trends in their area.

In this article, I have broken down the Virginia statutory law in this area, which is found in §107.3 of the Code of Virginia. This is the basic law and, though it does not get into some of the complexities and nuances that attorneys sometimes wrangle with in the form of “case law”, §107.3 is robust in its coverage of this area of the law. For a more comprehensive view of how hybrid Real Estate matters are handled, though, see my blog article “The Wild West of Divorce Law as Concerns Real Estate in Virginia”.

In a mediated, versus litigated, divorce settlement, divorcing couples have the option of applying or not applying the legal definitions of and methods of classifying property. A good Virginia divorce mediator will be able to inform you of what the law is, and how it is usually applied in court, but it is ultimately up to the divorcing couple to decide whether or not to apply §107.3 to the various issues in their case.

What guides couples in mediation, in addition to the law, when it comes to classifying property as marital, separate or some of each (“hybrid property”), depends on several factors which include, but are not limited to:

  • the parties’ sense of personal justice and fairness;
  • the parties’ history of financial management, discussion and planning;
  • the parties’ goals both before the decision to divorce and post-divorce;
  • the needs of the children; and
  • the needs and fears of both spouses.

 In mediation, parties make their own decisions about what is “good and right and proper” with regard to the classification, division and distribution of property in a divorce situation – even if their decisions are not in line with what a judge could do. Often times, mediation clients make much better decisions for their unique circumstances than a judge could ever do.

             The material in this article may seem overwhelming and . . . it is! According to many of my clients, the law in this area is not only confusing (until I explain it to them J), but often counterintuitive. Hopefully, after reading my breakdown of Virginia Law in this arena, you will not find it too confusing – but I almost guarantee that some readers will still find it counterintuitive, unfair, ridiculous and/or in need of a revamp. Nonetheless, this is the law.

BASIC DEFINITIONS

Q: What is SEPARATE PROPERTY?

A: Per §20-107.3(A)(1) of the Virginia Code, SEPARATE PROPERTY is that property which was:

  • Acquired BEFORE the marriage;
  • Acquired by INHERITENCE;
  • Acquired by GIFT (to only 1 spouse, not to the couple; not a gift from one spouse to the other);
  • Acquired as a result of an EXCHANGE FOR or from the PROCEEDS of a SALE of Separate Property

Also, in order for that separate property to maintain its classification as separate property, it must be maintained separately (i.e. not “commingled”).

Q: What is MARITAL PROPERTY?

A: Per §20-107.3(A)(2) of the Virginia Code, MARITAL PROPERTYis that property which was acquired by each party during the marriage (and which is not separate property as described in §20-107.3(A)(1)).

Q: Are there PRESUMPTIONS?

A #1: It is PRESUMED that all property (including retirement benefits) acquired by either spouse DURING THE MARRIAGE AND BEFORE THE LAST SEPARATION of the parties (with the intention, by at least one of the parties, that the separation be permanent) is MARITAL PROPERTY . . . unless there is “SATISFACTORY EVIDENCE” (the code’s phrase), pursuant to §20-107.3(A)(2), that it is separate property.

A #2: It is PRESUMED that all marital property is JOINTLY OWNED unless there is a deed, title, or other clear indicia that it is not jointly owned.

Q: Is Jointly Owned Property Presumed to be Marital Property?

A: NO! Per §20-107.3(A)(3)(f), when property is retitled in the parties’ joint names (JT), the retitled property is deemed TRANSMUTED to marital property, except to the extent that contributed property is RETRACEABLE by: (a) a PREPONDERANCE of the evidence, and (b) the act of retitling was NOT tantamount to the making of a GIFT.

NOTE: Virginia Law does not presume that retitling of separate property into the married couple’s joint names, during the marriage, defines that retitling act as “gifting of” that property to the marriage! §20-107.3(A)(3)(h).

COMMINGLING, TRANSMUTATION & TRACING

            (1) Definition – Commingling: The act of contributing one classification/category of property (e.g. separate property) into another classification/category of property that has the adverse classification/category (e.g. marital property).

            (2) Definition – Transmutation: When property is commingled, the contributed property takes on the classification of the receiving property = “TRANSMUTATION” (i.e. it is “swallowed up” and “disappears” into the receiving property thereby losing its prior classification status.

            (3) Tracing per 20-107.3(A)(3)(d): Although commingled property is automatically transmuted to the receiving property’s classification, that contributed property may not transmute to the receiving property’s classification, to the extent that it is RETRACEABLE by a:

  • PREPONDERANCE of the evidence (the evidentiary standard required of the party who did the contributing)

and . . .

  • Was NOT a GIFT. NOTE: Virginia Law does not presume that a commingling event defines the transaction as a “gift” (unlike in many other jurisdictions). §20-107.3(A)(3)(h)

Frye v Frye, Record No. 1829-10-4, May 03, 2011 – VA Court of Appeals; Robinson v Robinson, 46 Va.App. 652, 621 S.E.2d 147, Va.App., October 25, 2005 (NO. 1879-04-2); Theisman v Theisman, 22 Va.App. 557, 566, 471 S>E>2d 809, 813, aff’d on reh’g en ban 23 Va.App 687, 479 S.E.2d 534 (1996); and others: To establish the existence of a gift, such that a spouse’s separate property became marital property for purposes of an equitable distribution, the spouse claiming that there was a gift is required to prove, by CLEAR AND CONVINCING EVIDENCE, the following three elements:

(a) The INTENTION on the part of the donor to make the gift;

(b) The DELIVERY or TRANSFERof the gift; and

(c) The ACCEPTANCEof the gift by the donee.

(4) Newly Acquired Property per 20-107.3(A)(3)(e): When marital and separate property are COMMINGLED into NEWLY ACQUIRED PROPERTY[2] during the marriage[3] (defined below), resulting in the loss of identity of the contributing property, the commingled property is then transmuted to marital property, except to the extent that the contributed (non-marital) property is retraceable by a

  • PREPONDERANCE of the evidence (the evidentiary standard required of the party who did the contributing)

and

  • Was NOT a GIFT.   NOTE: Virginia Law does not presume that acquiring new property, during the marriage, with separate property defines that transaction/purchase as a “gift”. §20-107.3(A)(3)(h).

If the evidentiary burden is met, then the contributed property will retains its original classification. 20-107.3(A)(3)(f)

(5) Retitled in Joint Names per §20-107.3(A)(3)(f): When property is retitled in the parties’ joint names (JT), the retitled property is deemed transmuted to marital property, except to the extent that the contributed property is retraceable by a

  • PREPONDERANCE of the evidence (the evidentiary standard required of the party who did the contributing)

and

  • Was NOT a GIFT. NOTE: Virginia Law does not presume that retitling separate property into the married couple’s joint names, during the marriage, defines that retitling act as “gifting” that property to the marriage. §20-107.3(A)(3)(h) (although the opposite is true is other jurisdictions)

If the evidentiary burden is met, the contributed property retains its original classification. 20-107.3(A)(3)(f)

(6) One Party’s Separate Property is Commingled into the Separate Property of the Other Party per 20-107.3(A)(3)(g): In this type of situation, each party is entitled to be reimbursed the value of their contributed property to the extent that the contributed property is retraceable by a

  • PREPONDERANCE of the evidence (the evidentiary standard required of the party who did the contributing)

and

  • Was NOT a GIFT

(7) The Separate Property of Each Party is Commingled into the Parties’ Newly Acquired Jointly Owned (Marital) Property per 20-107.3(A)(3)(g): In this type of situation, each party is entitled to be reimbursed the value of their contributed property to the extent that that contributed property is retraceable by a

  • PREPONDERANCE of the evidence (the evidentiary standard required of both parties)

and

  • Was NOT a GIFT

INCREASES IN VALUE OF SEPARATE PROPERTY & INCOME CREATED FROM SEPARATE PROPERTY

Q: If INCOME is Produced from Separate Property, is that Income also Separate Property?

A: Per §20-107.3(A)(1) of the Virginia Code, income acquired as a result of ownership in separate property remains separate unless:

  • The income is produced as the result of the PERSONAL EFFORTS[4] of either party . . .

but . . .

  • The income produced, as a result of the personal efforts of either party, is only classified as marital property TO THE EXTENT THAT THE INCOME PRODUCED IS DIRECTLY ATTRIBUTABLE TO THOSE PERSONAL EFFORTS. §20-107.3(A)(3) [the statute does not mention any need for the personal efforts to be “significant” or for the income produced to be “substantial”, in contradistinction to increases in value]

Q: If there is an INCREASE IN VALUE of Separate Property, is that Increase in Value also Separate Property?

A: Per §20-107.3(A)(1) & §20-107.3(A)(3) of the Virginia Code, the Increase in Value of Separate Property remains separate unless:

  • The Increase in Value is due to the PERSONAL EFFORTS of either spouse

                 and . . .

  • The Personal Efforts were SIGNIFICANT

and . . .

  • The Increase in Value must be SUBSTANTIAL

but . . .

  • The Increase in Value becomes Marital Property only to the EXTENT that the INCREASE in Value is DIRECTLY ATTRIBUTABLE TO those PERSONAL EFFORTS (“Active Appreciation”)

See Courembis v Courembis, 43 Va.App. 18, 595 S.E.2d 505 (2004) and Divorce Source article: http://www.divorcesource.com/research/edj/appreciation/04jun61.shtml

Q: If there is an INCREASE IN VALUE of Separate Property due to CONTRIBUTIONS of MARITAL PROPERTY to that Separate Property, is that Increase in Value also Separate Property?

A:   Per §20-107.3(A)(1) of the Virginia Code, the increase in value of separate property, which is the result of marital property contributions, changes the classification of that increased value to marital property

BUT . . .

  • Only to the EXTENT that the INCREASE IN VALUE is DIRECTLY ATTRIBUTABLE to the marital contribution. (§20-107.3(A)(3))

BURDENS OF PROOF

Under §20-107.3(A)(3)

Q: Increase in Value: Who bears the burden of proof when there is a question regarding PERSONAL EFFORTS (during the marriage, i.e. marital efforts) or CONTRIBUTIONS OF MARITAL PROPERTY having the effect of increasing the value of separate property?       

A-1: The NON-OWNING SPOUSE (the spouse without the separate property interest) bears the burden of proving that:

  • the contributions of marital property and/or personal efforts (during the marriage by either or both spouses, i.e. marital efforts) were made;

                   and . . .

  • the separate property increased in value (no increase in value, discussion over!).

Once this burden of proof is met then:

A-2: The burden SHIFTS, and the OWNING SPOUSE (the spouse with the separate property interest) bears the burden of proving that:

  • the increase in value (or some portion thereof) was not caused by the contributions of marital property or by the personal efforts of one or both spouses. §20-107.3(A)(3).

Q: What is the Burden of Proof in terms of Debts Acquired After the Marriage (in Virginia = after Separation) being classified as Marital Debts?

 A: Per §20-107.3(A)(4) – To the extent a party can show, by a PREPONDERANCE OF THE EVIDENCE, that debt acquired post separation was “incurred for the benefit of the marriage or family, the court may designate the debt as marital.”

Q: What is the Burden of Proof in terms of Debt Acquired During the Marriage being Separate Debt?

 A: Per §20-107.3(A)(5) – To the extent a party can show, by a PREPONDERANCE OF THE EVIDENCE, that “the proceeds secured by incurring the debt were used, in whole or in part, for a non-marital purpose” that debt will be classified as separate debt.

COURT RESTRICTIONS ON TRANSFERS & DIVISIONS

 In Virginia, courts have no authority to order the division or transfer of separate property/debt OR marital property/debt which is NOT JOINTLY OWNED. §20-107.3(C). (Remember: Virginia assumes that all property acquired during the marriage is jointly owned, unless otherwise indicated by proper documents (e.g. account statements, deeds, titles, certificates, etc). §20-107.3(A)(2)

PERSONAL INJURY AND WORKER’S COMPENSATION

§20-107.3(A)(3)                                  §20-107.3(H)

The court may direct payment of a % of the marital share (defined below) of any personal injury or worker’s compensation recovery of either party.

  • This is true whether such recovery is payable in a lump sum or over a period of time.
  • The court, however, will only direct that payment be made as such recovery is payable to the injured party. (Same time periods, methods of payment, etc.)

Marital Share defined: The marital share of Personal Injury Payments or Worker’s Compensation is defined as: That part of the total PI/WC recovery attributable to LOST WAGES AND/OR MEDICAL EXPENSES that are not covered by health insurance accruing during the marriage (before separation).

If you are considering divorce, and have a situation wherein separate property has been commingled with marital property, mediation may be the best and least expensive method of working through this issue and coming up with a mutual agreeable solution for settlement. Give Graine Mediation a call at 571-220-1998 to discuss your situation. Mediation is appropriate for most people who are considering divorce unless there is a history of domestic violence, child abuse or concealment of assets. Whether you choose Graine Mediation, or opt for another mediation firm, and there are issues of hybrid (commingled) property, consider choosing an attorney-mediator who knows the law and can guide you through the complexities of this area of Virginia law.

Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator

This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  Internet subscribers and online readers should not act upon this information without seeking professional counsel.

 

[1] “Property” is a comprehensive terms that includes personal property, real property, tangible property and intangible property. That means that the term “property” includes money, investments, houses, land, collectibles, furniture, automobiles, animals, and just about any other “thing” that you can think of (except children!).

[2] Example: Wife comes into the marriage with an inheritance ($). She uses that $, in combination with money she and H earned during the marriage, to purchase a boat (before the husband & wife separated).

[3] During the Marriage” defined:Property acquired from the date of marriage (DOM) through date of separation (DOS) (agreed or adjudicated). If couple agrees, “during the marriage” can also means DOM through date of divorce (not, the legal definition of separation in Virginia…but may be agreed upon by the parties (and is common in many of the jurisdictions)).

[4] Personal Efforts defined: Labor, effort, inventiveness, physical or intellectual skill, creativity, or managerial, promotional or marketing activity applied directly to the separate property of either party. §20-107.3(A)(3)

 


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