Nolo's Essential Guide to Divorce - Emily Doskow [156]
Cynthia and Howard knew that they had two options: keep their own retirement assets and even out the financial disparity using other assets, or continue to own the pension jointly and share it when it came time for distribution. Cynthia felt the same about this as she did about most other things-she preferred a clean break now to a continued relationship. She also preferred the certainty of taking the value out of Howard's pension now. They were both a long way from retirement, and she felt that waiting to receive the benefits later carried some risks for her.
She also saw that the amount she was entitled to, even offset by the likelihood that she would keep her own 401(k), might be enough to help her afford the house, if Howard would agree. His half share of the equity in the house was worth approximately $75,000 (half of the $150,000 equity). The value of her share in his pension was $95,000, and the value of his share of her 401(k) was $35,000, so that he "owed" her $60,000 in retirement money if they agreed to cash out now.
Cynthia asked Howard to reconsider his position on the house buyout. She offered to give up her rights in his pension as partial payment for the buyout, and said she felt they could shuffle the other assets and debts to make it work. He said he would think about it, and after a difficult but helpful discussion with his best friend, he decided to let go of his interest in the house. By the time they returned to mediation the next week, Howard was prepared to agree to the buyout, but he wanted to be compensated for giving up the future appreciation that he was certain the house would bring.
Cynthia still disagreed with him about the certainty of the appreciation, but she was willing to agree to some compensation as long as there was no risk to her. The current market value of the house was about $295,000. She suggested that if she sold the house in the future for more than $350,000, she would give Howard $5,000 to compensate him for the appreciation. If it sold for more than $400,000, she would give him $15,000. Howard quickly agreed to this, and they added the term to their draft agreement.
They also returned to the issue of the brokerage account. Cynthia had considered Howard's position and decided that his point was valid and that he should get credit for at least some of what had been in the account before they moved in together. She proposed that they treat only $50,000 of the account as marital property, and the other $10,000 as Howard's separate property. Howard accepted this proposal as well.
Taxes
What legal document would be complete without a section on taxes? Your MSA should include your decisions on the following tax-related questions:
• Whether you'll file income tax returns separately or jointly for the previous and current tax years, or how you'll decide
• who will take the dependent exemptions for your children, or how you'll decide
• how you'll share any refund you get for the last year you file jointly, and
• how you'll pay any tax you owe for the last year you file jointly.
You may have other tax issues. Make sure you include them and clearly state who is responsible for what taxes.
Howard and Cynthia prepared their marital settlement agreement in August, and while they knew something about the tax consequences of their decisions, they did not yet know what their tax liability for that year would be. They agreed that they would share jointly in the cost of having their taxes prepared by a professional (in the past, they had prepared their own tax returns), would file in the way (jointly or separately)