(973) 403-9200
2005
There are many diverse clauses that should be included in any Matrimonial Settlement Agreement (hereinafter “MSA”). The determination of these clauses is fact and issue sensitive. However, it has become apparent that certain important provisions are often omitted, even when specifically called for by statute, rule or case law. This article will address what the authors believe to be the most important clauses (or grouping of clauses), under the major categories of any MSA. Obviously, all of these clauses may not be applicable in every case. However, a quick review of this list before finalizing an agreement will be helpful.
I. CUSTODY
1. Designation of Primary and Secondary Caregiver Under Pascale.
2. Automatic Change of Custody to Non-Custodial Parent in Event of Death of Custodial Parent.
3. Parental Access to Medical and Educational Information.
II. CHILD SUPPORT
4. Notice Provisions Regarding Child Support Pursuant to Rules of Court or Statute.
5. Attachment of Child Support Guidelines Worksheet and Statement Explaining Deviation from Guidelines.
6. Bi-annual cost of living increase and tri-annual review of Child Support.
7. Termination of all Child Support Obligations Upon Death of Obligor.
8. Allocation of Child Dependency Deductions.
III. INSURANCE (LIFE AND HEALTH)
9. Requirement that Health Care Insurance Company Make Payments Directly To The Health Care Provider Pursuant to N.J.S.A. 2A:34-28 and use of a Qualified Medical Child Support Order (QMCSO).
10. Life Insurance to Secure Child Support, Alimony and/or pay-outs of Equitable Distribution.
IV. ALIMONY
11. Alimony Basic Assumptions (i.e., present income of parties, marital lifestyle, ability to meet lifestyle with financial settlement) Crewslanguage.
12. Alimony Waiver with Anti-Lepis/Anti-Crews language.
13. Taxability of Alimony (Meeting Requirements of I.R.C. §71(b)(1)(D)) and the case of Gonzales v. Commissioner, 1999 WL 778531 (U.S. Tax Ct.), 78 T.C.M. (CCH) 527, T.C.M. (R.I.A.) 99, 332, 1999 RIA T.C. Memo 1999-332). Re-characterization of pendente lite support payments as taxable.
14. Reassessment of Rights & Obligations of Parties in Event of Change of Tax Laws.
15. Obligation of Obligee to Notify Obligor of remarriage or Other Substantial Change in Circumstances.
16. Retirement of Obligor.
V. EQUITABLE DISTRIBUTION
17. Security for pay-outs of Equitable Distribution (Letters of Credit, Stock Pledge Agreement). Use of a partnership as collateral.
18. Refinancing joint liens to remove transferring party as obligor.
19. Indemnification of Non-Owning Spouse for Business Liabilities & Resignation of Non-Owning Spouse as Officer of Business.
VI. STOCK OPTIONS & RESTRICTED STOCK
20. Callahan Trust for Stock Options & Restricted Stock.
VII. PENSIONS
21. QDRO Language to Meet Requirements of Tax Reform Act of 1984.
VIII. TAX RETURNS
22. Filing of Tax Returns & Indemnification for Previously Filed Joint Returns
23. Allocation of Mortgage Interest and Real Estate Tax Deductions.
IX. BANKRUPTCY
24. Bankruptcy Clause (Non-Dischargeability of obligation and Characterization of Certain Obligations as “in the nature of Alimony and Child Support”).
X. ALTERNATE DISPUTE RESOLUTION
25. Arbitration.
26. Mediation (Custody & Economic).
XI. CONFIDENTIALITY OF AGREEMENT
1. Designation of Primary and Secondary Caregiver Under Pascale.
The Supreme Court decision in Pascale provides a wealth of information and guidance with regard to the roles of parents in various custodial arrangements. For this reason, where appropriate, it is important to make specific reference to this case. A sample clause follows:
The Parties shall have joint legal custody of the children of the marriage, namely Hansel, born May 15, 1988, and Grettal, born April 28, 1990. The Wife shall be designated the primary custodian and the Husband shall be designated the secondary custodian in accordance with the definitions of those terms in the Supreme Court case of Pascale v. Pascale.
2. Automatic Change of Custody to Non-Custodial Parent in Event of Death of Custodial Parent.
Although N.J.S.A 9:2-5 does not provide for an automatic transfer of physical custody to a non-custodial parent in the event of the death of a custodial parent, it is advisable to include a specific provision in the MSA regarding this. A sample clause follows:
In the event of either party’s death, the surviving party shall immediately have sole and exclusive custody of any children born of the marriage under the age of majority and any children shall physically reside with the surviving party. The surviving party specifically agrees to maintain the children’s relationships with the grandparents and relatives related to the deceased party.
3. Parental Access to Medical and Educational Information.
Each party (especially the non-custodial parent) should be assured of receiving and/or having reasonable access to critical medical and educational information of his/her children. Sample clauses follow:
Health Related Information & Records
Each parent shall have the right to communicate with any physician, therapist or other professional who may examine, treat or submit any reports concerning the children. Each parent shall be entitled to complete information from any such health care provider or mental health care professional attending to the children for any reason whatsoever and shall be provided with copies of any reports (whether oral or written) given by the professional to a parent within 24 hours of receipt. Where it is not the practice of the physician to supply these reports (oral or written) directly to both parents, the parent receiving any relevant information shall send a copy of any and all reports or communicate an oral report to the other within twenty four (24) hours of receipt of same.
Education Information & Records
Each party shall be entitled to complete information from any teacher, tutor or school giving instructions to the children. Each parent shall get copies of all reports from any school which the children may attend and for all events for which parents are invited to participate. Either party receiving any notices of school schedule, teacher notes or report cards with respect to any child shall have an affirmative obligation to supply the other parent with a copy within 24 hours of receipt. Any verbal communications discussed with only one parent must be conveyed to the other parent. (For example: If a teacher tells one parent that a child is not doing well in school, and there is no written document evidencing this, then that parent is affirmatively obligated to tell the other parent within 24 hours of receipt.) All schools which the children attend shall have each parent’s address and telephone number, and both such addresses shall be shown as official addresses for purposes of school records. The schools shall be notified of the custodial arrangement between the parties, to wit: joint legal and physical custody.
or
The provisions above may be combined in a simpler clause as follows:
Both parties shall have full access to any and all educational and/or medical records (e.g., report cards and doctor’s reports) or information relating to the children. Both parties shall have the right to obtain this information directly from the educational institution or medical care provider. Both parties are entitled to attend any and all parent/teacher conferences, school functions and/or extracurricular activities.
4. Notice Provisions Regarding Child Support Pursuant to Rules of Court and Statute.
There are various child support provisions that are either statutory or provided by Court Rule. These clauses should be included in all MSA’s that contain provisions for the payment of child support or alternatively attached to the MSA as an exhibit. The following are examples
Income Withholding.
In accordance with N.J.S.A. 2A:17-56-7, et seq., the child support provisions of a court order are subject to income withholding on its effective date and constitute a judgment. The income withholding is effective upon commissions, earnings, salaries, wages, and other current or future income of the payor. Any payment of child support shall be fully enforceable and entitled to full faith and credit and shall be a judgment by operation of law on the due date. Also see R.5:7-5.
Interest Charge.
Notice is hereby given pursuant to the New Jersey Rules of Court that all support payments shall be made through the probation department of the county in which the obligor resides and shall be subject to a late interest charge at the rate prescribed by Rule 4:42-11 unless the court, for good cause shown, otherwise orders. Also see R.5:7-5(g).
Child Support Judgment.
Any payment or installment for child support is a judgment by operation of law on or after the date it is due (N.J.S.A.2A:17-56.23a). The judgment has the effect of a lien against the obligor’s real or personal property. This may adversely affect the obligor’s ability to obtain credit or transfer real property.
No Retroactive Modification.
No payment or installment of this order for child support, or those portions that are allocated for child support, can be retroactively modified downward by the court, except for the period during which the party seeking relief has a pending application for modification in compliance with N.J.S.A. 2A:17-56.23a.
Child Support Arrearage.
Pursuant to N.J.S.A. 2a:17-56.22, child support arrearages shall be reported to Consumer Credit Reporting agencies as a debt owed by the obligor. Child support arrearages shall be reported to the Internal Revenue Service and the State of New Jersey, Division of Taxation, for off-set against any income tax refund/homestead rebate due to the obligor.
Suspension of a State of New Jersey License.
If arrears equal or exceed six months of support or Court Ordered health care is not provided in six months or a warrant is outstanding for payors arrest and remains outstanding, the obligor’s license may be revoked pursuant to R.5:7-5(e).
5. Attachment of Child Support Guidelines Worksheet and Clause Explaining Deviation from Guidelines.
R.5:6A requires that every order or judgment for the payment of child support have annexed thereto a Child Support Guidelines Worksheet and a statement explaining and deviation from the guidelines, if such is the case. A sample clause follows:
The parties have attached the support guidelines worksheet as Exhibit ____. The parties acknowledge that the Husband is paying less support than the amount set forth in the worksheet because:
a. Wife by this agreement, is receiving a disproportionate amount of the assets (Wife 65%; Husband 35%);
b. Husband is paying a disproportionate amount of the extracurricular activities and private schooling of the children;
c. Wife’s alimony has been increased to create favorable tax treatment.
6. Bi-annual cost of living increase and tri-annual review of Child Support.
A proposed clause can be added as follows:
Basic child support and/or the addition of a health insurance provision shall be subject to a bi-annual cost of living increase pursuant to R.5:6B (premised upon the change in the Cost of Living Index in the New York/New Jersey Metropolitan Area) and tri-annual review, pursuant to the Child Support Guidelines and related statutory and court rule procedures. In addition, such support may be adjusted by the court, as appropriate, upon application.
7. Termination of Child Support Upon Death of Obligor.
Pursuant to Kiken v. Kiken, 149 N.J. 441 (1997), college obligations survive the payors death unless the agreement provides otherwise.
All obligations of a party related to a child shall terminate upon the occurrence of the earliest event:
A. That child’s emancipation (as defined below);
B. The child’s death;
C. The death of the payor;
D. The transfer of full physical custody to the husband
8. Allocation of Child Dependency Deductions.
The parties can agree in their MSA to the allocation of the child dependency deduction. What is important is that the custodial parent be required to execute Form 8332 (Release of Claim to Exemption For Child of Divorced or Separated Parents), if the non-custodial parent is going to have the right to take the deduction in any future year. A sample clause follows:
The Husband shall be permitted to take the dependency deduction for both children until they are emancipated. This entitlement shall begin in 1999 and continue until their respective emancipations. The Wife specifically releases her claim to the exemption in accordance with 26 U.S.C. §152(e)(2). The Wife shall execute Form 8332 (Release of Claim to Exemption For Child of Divorced or Separated Parents) or an equivalent document to effectuate the terms of this provision. The Wife shall execute the release for all future years (see Temp. Reg. §1.152-4T(a), (Q-4)). The Husband shall attach the release form to his returns on which the exemptions are being claimed in accordance with 26 U.S.C. §152(e)(2)(B). If Federal or State law precludes the husband from declaring a child or children as a dependent, the husband shall notify the wife by January 15th of each year and the wife shall declare the child or children as dependents.
9. Requirement That Health Care Insurance Company Make Payments Directly To The Health Care Provider Pursuant To N.J.S.A. 2A:34-28b And The Use Of a Qualified Medical Child Support Order (QMCSO) .
N.J.S.A. 2A:34-28b requires that if the non-custodial parent is required to provide health care insurance, the payment of benefits for any covered services under the insurance shall be paid directly to the health care provider. The statute also mandates that every child support order issued or agreement entered after March 21, 1993, provide notice of the right of the custodial parent to have health insurance benefits paid directly to the health care provider. Sample clause follows:
Pursuant to N.J.S.A. 2A:34-23b, the payment of benefits for any uncovered services through the Husband’s medical insurance as required herein, shall be made directly to the health care provider. This provision shall serve as NOTICE to any such insurance carrier who shall be required to comply herewith.
or
Husband will sign any and all documentation required of his medical insurance provider to allow Wife the ability to deal directly with the insurance company, including, the right to file all claims on behalf of the Child and collect reimbursement payments. In the event the insurance company refuses to accept direct claims forwarded by Wife, Husband’s attorney will prepare a QMSCO to effectuate this right.
Another provision relates to the use of a medical child support orders (i.e., QMCSO). A qualified medical child support order is defined as any judgment, decree, or order (including a settlement agreement incorporated into a Judgment of Divorce or an order issued by an administrative process) that does one of the following:
1. Provides for child support related to health benefits with respect to an employee’s child or requires health coverage of a child in an employer-sponsored health plan or under an individual policy of health insurance as ordered under a state domestic relations law or
2. Enforces a state medical support law enacted under Section 1908 of the Social Security Act (SSA) (which requires states, as a condition of receiving federal assistance for Medicaid, to enact and enforce laws providing for medical support orders with respect to a group health plan.
In other words, it creates or recognizes the existence of an alternate recipient’s (usually a child) right to receive benefits that a participant or beneficiary is eligible to receive under a group health plan and require that the insurer send notice to the alternate recipient (child) to designate a representative (the custodial parent) to receive copies of all notices with regard to the coverage provided under the QMSCO. (ERISA § 609(A)(5)(B)(iii). Pursuant to the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) as amended by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA ’96) and the Balanced Budget Act of 1997 (BBA ’97), a state-ordered medical child support order (MCSO) is not necessarily a qualified medical child support order (QMCSO). Thus, before a plan can honor an order, it must meet the requirements for a QMCSO just as a Domestic Relations Order must meet certain statutory requirements in order to be qualified as a QDRO.
A QMSCO shall be entered by the parties directing that the Husband (or Wife) shall provide health insurance for the benefit of the minor children. As required by statute, the Order shall provide the name and last know mailing address for the participant/Husband and the name; the address of each alternate recipient (the children) covered by the order; a description of the coverage that is to be provided by the plan to each alternate recipient or the manner by which coverage should be determined; the period for which the order applies (until each child’s 22nd birth date); and a statement that the order does not require the plan to provide any type of form of benefit, or any option, not otherwise provided under the plan.
10. Life Insurance to Secure Child Support, Alimony and/or pay-outs of Equitable Distribution
Life insurance provides a level of financial security to the dependent spouse and children in the event of the untimely demise of the payor spouse. When addressing insurance to secure support, appropriate trust provisions should be considered. Be mindful that if the insured is also the owner of the policy, the proceeds of insurance, upon death, will be included in the insured’s estate.
Life Insurance for Children
The Husband shall maintain an initial amount of $600,000 on his life and may obtain and pay for life insurance on the Wife’s life naming the unemancipated children of the marriage as equal beneficiaries thereon. Each policy shall be owned by an appropriate Life Insurance Trust. The other spouse shall be named as the Trustee of the Life Insurance Trust on behalf of the minor beneficiaries. Husband’s counsel shall prepare the Trust documents and submit them to Wife’s counsel for approval. The Trust shall provide that the trustee may utilize the corpus and interest for the health, education and welfare of the emancipated children. The Husband may meet his obligation under the provisions hereof by life insurance provided through an employer. The Husband shall pay the premiums for the life insurance policies directly to the Trustee of each trust for payment of premiums to the insurance provider. If the Husband defaults on said insurance obligation, his estate shall be liable for the amount of insurance that should have been provided.
Life Insurance for Wife
The Husband shall maintain an initial amount of $700,000 in life insurance net of estate taxes for the benefit of the Wife for as long as he has an obligation to pay alimony. The death benefit amount shall be reduced to $400,000 after the Wife’s Rehabilitative Alimony ends on September 1, 2004.
Upon request from the Wife, the Husband shall provide proof to the Wife each year on April 15th that all premiums are paid on the life insurance policy provided for the Wife and that no liens or encumbrances have been placed upon the insurance. Further, the Husband shall endorse the life insurance policy so that the Wife may obtain this information directly from the carrier and shall provide proof to the Wife of the endorsement no later than April 15, 2002.
The Husband shall promptly submit to any physical examinations and promptly execute appropriate applications as required to obtain said insurance. The Husband shall provide to the Wife a copy of any applications submitted by him to obtain said life insurance.
At Wife’s election, she may obtain additional life insurance on Husband’s life, at her cost. If Wife so elects, Husband shall submit to any physical examinations and execute appropriate applications in support of same. The Husband shall provide to the Wife a copy of any applications submitted by him to obtain said life insurance.
or
Both the insurance to secure child support and alimony shall be established by decreasing term policies. At Husband’s cost, the death benefit level shall be re-examined every two years (commencing on the second year anniversary of the full execution of this Agreement) to reflect the amount of the secured obligation outstanding at that juncture. This re-examination shall take into account all child support obligations. The first reduction assessment shall occur on September 1, 2004 to coincide with the end of Alimony.
Insurance can also be used to secure future payments of Equitable Distribution. These clauses should be similar to the foregoing, but reduce or terminate upon the payment of said property pay-out.
11. It is incumbent upon family law practitioners and the Court to provide. where appropriate, details as to the underlying assumptions upon which the support structure has been agreed upon or ordered. These assumptions will be relevant to post-judgment applications. Such a provision may be addressed in two separate provisions, as follows:
The Alimony provided for herein was premised upon the Husband’s earned income of $400,000 per year and the Wife’s current earned income of approximately $5,000 per year. The Wife’s income is expected to be $35,500 per year as a full time elementary school teacher commencing September 1, 2004.
Crews Provisions
Both parties’ acknowledge that the property division and support structure provided herein allows each party to maintain a lifestyle, now and in the future, commensurate with the “standard of living” enjoyed during the marriage, including the fact that Rehabilitative Alimony will terminate on September 1, 2004.
or
The parties acknowledge that the money the Husband is required to pay hereunder and the equitable distribution to be made by the Husband to the Wife as specified herein will provide (along with utilization of her own earning capacity) the Wife with a fair, suitable and proper sum for her support and maintenance; this support is commensurate with the financial means and social position of the parties and it will enable the Wife to maintain herself at the marital lifestyle thus satisfying the standards set forth in Crews v. Crews.
or
Agreement on Standard of Living
The parties represent that they have been advised by their attorneys of the decision in Crews v. Crews, 164 N.J. 11 (2000). Wife represents that the standard of living that she enjoyed during the marriage is reflected in her most recently filed case information statement and that the amount of alimony provided for in this Agreement, coupled with her ability to earn, will not enable her to maintain a reasonably comparable standard of living. Wife acknowledges that she has accepted the amount of alimony provided herein based upon the Husband’s actual income or current ability to pay and not based upon receipt of any other consideration.
The Husband disagrees and represents that the amount of alimony, in connection with everything else paid under this Agreement, coupled with Wife’s ability to earn, will enable Wife to enjoy a standard of living that is reasonably comparable to the standard of living she enjoyed during the marriage.
The parties agree to settle their pending matrimonial matter notwithstanding the fact that they are in disagreement over this issue. The parties acknowledge that in the future it may be necessary for them to participate in a plenary hearing in which one issue may be determining the marital standard of living, in the event that a motion is made by either party regarding support. Both parties acknowledge that they have been advised by counsel that it may be difficult or impossible to establish their respective positions concerning the marital lifestyle at a future hearing due to the passage of time, the unavailability of witnesses and/or records, and other circumstances that may arise. The parties acknowledge that they have been advised by their attorneys of their right to have a hearing at this time with regard to the issue of determining the marital lifestyle, and have elected to voluntarily waive that right in furtherance of their desire to resolve this matter expeditiously and without incurring additional counsel fees and costs.
The parties also acknowledge that they have not agreed upon the proper method for determining and defining the marital standard of living. In particular, the parties have not agreed whether a determination as to marital lifestyles should include an examination of the budget for any particular year during the marriage, as opposed to an examination of a compilation of years or some other methodology. The parties agree to forego resolution of this issue, and expressly reserve same for a future plenary hearing, should that become necessary.
or
CREWS RESERVATION FOR CHANGED CIRCUMSTANCES
Wife agrees the overall settlement, including payment of child support, allows her to enjoy a standard of living comparable to the marital life style. If, however, the child support terminates, is modified downward, or inflation adversely affects the value of the support Wife receives, then Wife would no longer be able to enjoy a standard comparable to the marital lifestyle.
12. Alimony Waiver with Anti-Lepis/Anti Crews language (Consideration).
Both parties hereby waive, now and forever, any and all claims for alimony, maintenance or any other form of spousal support. The Husband’s waiver of alimony shall be co-extensive with the Wife’s waiver of alimony as otherwise set forth herein. The parties have, with full knowledge of their present circumstances and with consideration of all future circumstances, bargained for the alimony waiver provision herein, which was an essential element of this Agreement, and acknowledge that they are bound by this Agreement and by the transactions set forth herein. The parties further acknowledge that this provision contemplated existing case law and any foreseeable modifications in that case law or changes in their circumstances. The parties acknowledge that a major dispute prior to settlement was the parties’ conflicting views on the Husband’s obligation to pay alimony
In consideration of the terms and provisions of the Agreement, the parties each, now and in the future, irrevocably waive all claims of spousal support inclusive of alimony, against the other.
Specifically, the Wife waives any rights she may have under the Lepis decision to later argue that subsequent changes in circumstances render this agreement either unfair or inequitable. Each party has been advised of theLepis changed circumstance standard. It is the specific intention of the parties to introduce concepts of collateral estopple into this agreement to prevent the Wife from seeking modification of the alimony waiver without which the Husband would not have agreed to obligate himself to make the economic compromises set forth in this agreement.
Both parties’ acknowledge that the property division and support structure provided herein allows each party to maintain a lifestyle, now and in the future, commensurate with the “standard of living” enjoyed during the marriage.
The parties further acknowledges that their respective alimony waivers shall not, under any circumstances, be modifiable and that the Husband has altered his position on certain economic issues (including equitable distribution) in reliance upon the Wife’s representations regarding her alimony waiver. The Wife further warrants and represents that she acknowledges that but for this promise, the Husband would not have altered his position and that notwithstanding any language contained in Lepis v. Lepis, the alimony termination shall be non-modifiable and that this provision is irrevocable even if any of the circumstances referenced herein occur. Further, both parties’ waiver of alimony, maintenance or other form of spousal support, shall be non-modifiable under any and all circumstances, whether contemplated or not. The parties agree that they contemplate the following possible changes of circumstances to either party, which they agree is not an exhaustive list, which may occur: (1) the loss of employment or the inability to secure employment by either party; (2) an increase or decrease in the income or the value of assets of either party, no matter how dramatic, and no matter what its nature, cause, scope or duration including major changes in the stock market; (3) the subsequent acquisition of assets by either party, including the accumulation of earned and unearned income, awards and judgments of courts, inheritances and/or gifts; (4) the subsequent loss or dissipation of assets due to market conditions, imprudent investing catastrophic event, spending or any other cause; (5) any increase or decrease in the cost of living, no matter how severe; (6) the decline in the medical or mental condition of either party; (7) the increased or decreased needs of either party; (8) disease or accident causing a disability that would prevent employment or increased medical bills and health care; (9) any other event foreseeable or not, contemplated or not; or (10) the increase or decrease in the value of any stock including but not limited to_______________ Corporation; (11) the failure of either party to maintain the standard of living that existed during the marriage. This anti-Lepis/anti-Crews clause is an essential aspect of this Agreement.
This language can still be applied by minor modifications even if there is a provision for Limited Duration or Term Alimony.
13. Taxability of Alimony (Meeting Requirements of I.R.C. §71(b)(1)(D)) and the case of Gonzales v. Commissioner, 1999 WL 778531 (U.S. Tax Ct.), 78 T.C.M. (CCH) 527, T.C.M. (R.I.A.) 99, 332, 1999 RIA T.C. Memo 1999-332). Also, Re-characterization of pendente lite support payments as taxable.
The are very specific requirements that must be met by MSA’s if the parties expect the intended tax treatment of Alimony to occur. It is particularly important, both in pendente lite and final orders to provide that alimony will terminate upom the death of the payee. The taxability of payments from one spouse to the other is governed by §71 of the Internal Revenue Code (“IRC”), although other sections of the IRC, such as 215 (which allows for the deduction to the paying spouse) are applicable in divorce actions. According to §71(b)(1), payments from one spouse to the other are alimony if:
1. The payment is in cash;
2. The payment is made pursuant to a written divorce or separation instrument;
3. The instrument does not designate such payment as not being alimony for tax purposes;
4. After the divorce is final, the paying and receiving former spouses may not be members of the same household;
5. The obligation to make the payment does not survive the receiving spouses’ death;
6. Payments to third parties made on behalf of the receiving spouse must be evidenced by a writing.
A sample clause follows:
Taxability of Alimony
Permanent Alimony to be paid by the Husband to the Wife shall be fully taxable to the Wife and included as taxable income on her Federal, State and local income tax returns. Said Permanent Alimony shall be fully deductible by the Husband on his Federal, State and local income tax returns. This Agreement shall be deemed as complying with the Internal Revenue Code (I.R.C. §71(b)(1)(D)) and the case of Gonzales v. Commissioner, 1999 WL 778531 (U.S. Tax Ct.), 78 T.C.M. (CCH) 527, T.C.M. (R.I.A.) 99, 332, 1999 RIA T.C. Memo 1999-332), requirements for purposes of securing the aforementioned tax treatment.
If the parties can agree to file joint income tax returns for the year 2002, there is no need to characterize the support paid to date as taxable alimony. However, in the event said joint tax returns are not filed for 2002, then the payments made to date to the Wife must be characterized as taxable support. The parties acknowledged that the Husband has paid to the Wife the sum of $38,247 as support in the year 2002. The parties agree that this amount shall be characterized as “Alimony” and shall be included as taxable income on the Wife’s Federal, State and local income tax returns for the year 2002 if not jointly filed with the Husband. Consequently, the Husband shall be entitled to deduct said amount of alimony on his Federal, State and local income tax returns for the year 2002.
14. Reassessment of Rights & Obligations of Parties in Event of Change of Tax Laws.
If tax laws change, it should be clear that a modification may be required. A sample clause follows:
The parties acknowledge that the intended tax treatment of this Permanent Alimony is an essential part of this Agreement. Should there be any change in the Internal Revenue Code or other tax laws which affect the intended taxability of this Permanent Alimony, said occurrence shall constitute a substantial change in circumstances justifying a modification of the amount of said Alimony.
15. Obligation of Obligee or Obligor to Notify The Other Party of a Substantial Change in Circumstances.
It is important to impose upon a supported spouse the affirmative obligation to advise the supporting spouse of his/her remarriage, cohabitation or other substantial change in circumstances. Further, alimony should terminate upon the payees remarriage, whether void or voidable. The agreement can also provide that both parties have an affirmative obligation to advise the other of a change in their financial circumstances. Sample clauses follow:
If either party receives inheritance or gifts in excess of $100,000 or earned or unearned income which exceeds 20% of the earned and unearned income that existed at the time of their MSA, he/she shall notify the other party in writing within 60 days of their changed circumstances.
The Wife shall have an affirmative obligation to advise the Husband of her remarriage whether void or voidable within twenty days of the event.
16. Retirement of Obligor.
If the payee spouse with not agree that retirement automatically terminates the alimony obligation, there are other alternatives. A sample clause follows:
The parties agree that the Husband’s involuntary retirement from ABC, Corp. shall constitute a prima facie change in circumstances for purposes of Husband’s application to terminate or modify his alimony obligation. The parties acknowledge that had they remained an intact family, the Husband was likely to leave the work force at age 60. This is one of many factors that the parties (or Court of competent jurisdiction) shall consider. The parties specifically agree that they, or any court, shall consider all income and assets from all sources, including but not limited to previously distributed assets in reviewing their respective financial circumstances in the event of a changed circumstance application. The parties acknowledge that the Husband must retire from ABC, Corp. at age 60 and may retire with full benefits at age 58. Voluntary retirement prior to age 60, unless for health reasons which reasonably impair his ability to perform his job duties and responsibilities, shall not be considered such changed circumstances. This provision in no way constitutes a waiver of the Wife’s right to contest any action by the Husband for a reduction or termination of alimony. In the event of said application, the parties shall exchange the following data prior to said application: Income tax returns for the prior three (3) years and asset summaries accompanied by the appropriate verifying data. If either party has remarried, he/she need only submit redacted financial disclosure to eliminate the disclosure of the new spouse’s financial information.
17. Security for pay-outs in Equitable Distribution (Letters of Credit, Stock Pledge Agreement, Use of Partnership as Collateral).
In addition to life insurance provisions and mortgages against real property to secure Equitable Distribution, there are other security provisions that should be included in an agreement if there are provisions for the future payment of Equitable Distribution. Obtaining security for an Equitable Distribution pay-out avoids malpractice claims and protects the creditor spouses interest in the event of a bankruptcy proceeding brought by the debtor spouse to discharge the Equitable Distribution pay-out. The following are sample clauses:
To secure that the payments and obligations of the Husband provided in this Agreement are paid by the Husband and received by the Wife, the Husband shall maintain sufficient life insurance (see Article 7.1) and provide a collateral assignment of his partnership interest in ABC, CORP.,, XYZ, Corp.,, and 123, Corp.,. These collateral assignments annexed hereto as Exhibit ___ shall be in recordable form and executed in the form attached. The Husband acknowledges and represents that all partners will sign this form. The collateral assignment for ABC, CORP., Realty and Monmouth Ocean shall continue until such time as all the obligations in this Agreement have been paid. The collateral assignments for ABC, CORP.,, XYZ, Corp.,, and 123, Corp., shall expressly provide that there shall be an assignment of the Husband’s income or distributions as additional security.
SECURITY IN STOCK OF HUSBAND’S BUSINESS
To secure that the payments and obligations of the Husband provided in this Agreement are paid, in addition to Article 13.1 security, the Wife shall have a security interest in the Husband’s share of Hollywood’s stock for a period of five (5) years. As additional security the Husband shall pledge and assign his shares of stock in Hollywood to the Wife. In the event of his default she shall be entitled to his distribution, income and/or dividends paid as a result of the Husband’s ownership of Hollywood shares. In the event of a sale of the Husband’s shares of Hollywood’s, even if he is not in default, the Wife shall receive the first $500,000.00 in net after tax proceeds regardless of whether these proceeds are paid at closing or periodically over time. Before a default can be declared the Husband shall be provided with thirty (30) days written notice as provided for in Art. 3.5. This gross proceeds of sale shall be paid to Larry Lawyer, Esq. pending determination of the amount of tax due on the sale. The Husband shall be obligated to provide written notice by certified mail to the Wife of any proposed sale. The notice shall be mailed to the Wife no later than seven (7) days after execution of a contract. The Wife shall have an equitable lien on the Husband’s shares of stock and the Husband shall be enjoined and restrained from encumbering his stock or selling this stock without paying off this security except for transfers provided for in this Agreement to the children. This security interest, however, shall be subject to the following conditions:
a. In the event the Husband sells, transfers, assigns or gifts all or any portion of his Hollywood’s shares to any child, the shares shall be transferred subject to the security interest and further subject to the five(5) year limitation provided herein (see Art. 13.2(b)). The Husband shall have an absolute right to sell, transfer, assign or gift to the children without the Wife’s consent, all or any portion of his shares, however, the Wife shall be notified of the transfer and shall execute any documents required by the Husband’s attorney to effectuate a transfer of ownership to the children subject to her security interest.
b. Any restriction on the Hollywood’s stock shall irrevocably terminate five (5) years from the effective date of this Agreement.
At the expiration of five (5) years when the security provided by the Hollywood’s stock is terminated, then and in that event, if the Husband is still indebted to the Wife under this Agreement, the Husband may provide substitute security to the Wife to assure his performance of his obligations under the is Agreement to the extent of 150% of the amount due. By way of example, if the Husband remains indebted to the Wife in the amount of $100,000.00 at the expiration of the five year period then, and in that event, he shall be required to deliver to the Wife, in a form satisfactory to her, security having a value of $150,000.00.
Upon satisfaction of the Husband’s obligations under this Agreement, any security provided either by the Husband or the children to assure his obligations shall be cancelled and discharged of record, and the Wife shall sign any document request by the Husband’s attorney evidencing this cancellation and discharge.
The Agreement shall only be effective upon execution by all of the children of the underlying security agreements.
In the event there is an inconsistency between this Property Settlement Agreement and the annexed security agreements, the Property Settlement Agreement shall control.
At any time subsequent to the execution of this Agreement, the Husband shall have the right to obtain a release of any lien or encumbrance against any property granted the Wife under this Agreement provided he supplies evidence that the then existing or additional security proposed has a value of 150% of the amount due. The word “value” as used herein shall mean property (real or personal) which if liquidated pursuant to the security instrument referenced in this Agreement, would yield to the Wife 150% of the then balance due. If they are unable to agree, the parties shall participate in binding arbitration. Carry Counselor, Esq. shall be selected as the arbitrator.
LETTERS OF CREDIT
Letters of credit are the easiest and best way to secure future obligations. The following is a sample clause:
The Husband shall secure the Wife’s interest in the unpaid balance of ________ plus interest of ____% (calculated between the date of the full execution of this Agreement and ___________) by way of a Clean Irrevocable Stand-by Letter of Credit, hereafter “LOC”, providing for payment immediately on presentment in the amount of $__________, attached hereto as Exhibit ___. Said LOC shall be retained by __________ in escrow released to Wife on ________, or thereafter, if the aforementioned sum is not paid in full. If, for any reason, all amounts due to the Wife are not then paid, she may record this Agreement as a Judgment against the Husband in favor for the amount of the unpaid balance provided the Letter of Credit was presented and was unpaid. In the event that the Husband does not pau all sums due on or before ________, he shall pay a $______ per diem penalty to the Wife until all sums due are paid in full, plus reimburse her for any and all reasonable attorney’s fees and other related costs incurred by her in collecting all sums due. If the Husband makes full payment by _________, the “LOC” shall be deemed null and void and returned to the Husband forthwith.
18. Refinancing joint liens to remove transferring party as obligor.
Provided the Wife is qualified to obtain a mortgage, the Wife, at her expense, will refinance the mortgage held with regard to the former marital residence within three years hereof. If the Husband wishes to have his name removed from the mortgage earlier than three years, the Wife must agree to the new interest rate provided it is less or the same as the existing rate and Husband shall pay for the cost of refinancing. During the period that the Husband continues to be listed as an obligor on the mortgage related to the former marital residence, the Wife shall not only timely pay all mortgage related obligations and immediately notify Husband of any failure to do so, but she shall also maintain the premises in good condition.
19. Indemnification of Non-Owning Spouse for Business Liabilities & Resignation of Non-Owning Spouse as Officer of Business.
If the parties are co-owners or business, appropriate provisions should be included in the MSA, to wit:
The parties acknowledge that the Wife-Husband are owners of all outstanding stock of XYZ, Corp.., a New Jersey Corporation, operating a retail coffee establishment doing business as a franchise know as “JJ’s Sports Shop” in the **** Mall on ***. (Hereinafter the “Company”) The franchise was acquired for $500,000. The Husband disclaims any ownership in the company and any rights incident to or arising from the Franchise Agreement. The Husband shall immediately tender his stock and resign from the Board of Directors and resign as V.P. of the corporation. Wife shall indemnify and hold Husband harmless for any past or future liabilities of the business including leases and Franchise agreement.
In consideration of the terms and provisions of this Agreement, the Husband hereby waives and shall convey (as requested by the Wife) any and all interest(s) that he may have in the aforementioned “Business Interest”, including, but not limited to, all rights under the franchise agreement, good will, accounts receivable, inventory, equipment, leasehold rights, all cash on hand or held in bank and investment accounts (including the ********* Investment Account #***********), fixtures or any other aspect of economic value owned by the business. In implementing and agreeing upon the overall distributive plan the parties have not agreed upon nor utilized a specific value for JJ’s Sports Shop or the Husband’s distributive interest therein. Nonetheless, they reaffirm the overall agreement reflected herein which they consider fair, appropriate and equitable notwithstanding their inability to agree upon a specific value for distribution concerning this Business Interest.
Transfer of Interest. The transfer of the Husband’s interest shall occur simultaneous with the full execution of this Agreement and shall be considered the “Transfer Date” for purposes hereof. The Husband shall fully cooperate with the Wife in executing any documents necessary to memorialize and finalize his transfer of all right, title and interest in the Business Interest to the Wife in accordance with the foregoing provisions. (Hereinafter the “Transfer Documents”). Counsel for the Wife shall prepare any required Transfer Documents.
20. Callahan Trust for Stock Options & Restricted Stock.
The Deferred Distribution Method is the most commonly implemented method for distributing options and restricted stock. Moreover, this method was utilized in one of the earliest New Jersey cases dealing with stock options incident to divorce. SeeCallahan v. Callahan, 142 N.J. Super. 325, 328 (Ch. Div. 1976). The Callahan court ruled that options acquired during a marriage were subject to equitable distribution even though (1) the options were potentially terminable; (2) the husband had to make an expenditure to exercise the options; and (3) the options were subject to various SEC regulations.[1] See id. at 327-29. In so holding, the court impressed a constructive trust on the husband, in favor of the wife, for a portion of the options. See id. at 329. The court reasoned that imposition of a constructive trust would result in the most equitable outcome to the parties without creating undue financial and business liabilities. See id. It should be noted that all of the options were granted during the course of the marriage. See id. at 327. Although not specifically stated, however, it appears that some or all of the options were not fully vested because they were subject to divestiture under certain circumstances. See id. at 330. This may be why the wife was awarded only 25% of the options at their maturation. (See section below regarding determining distributive shares.)
There are many provisions that must be considered when devising “trust” like language to be included in an MSA. An example of some of these clauses follows. Other provisions may be needed depending upon the exact nature and content of the Stock Option or Restricted Stock Plan involved. The following is a sample provision:
The parties acknowledge that the Husband has received various awards of stock options, restricted stock and portfolio grants through his employment with ABC, Corp.. The following is a summary of the outstanding stock options, restricted stock and portfolio grants awarded to Husband as of July 2001, which are subject to Equitable Distribution:
The above chart delineates each option grant based on the respective vesting dates. The above chart does not include the 13,825 stock options awarded to the Husband in February 2002. Since the awards received by the Husband in a certain year are for work performed both in the preceding years and work to be performed in all subsequent years up until the applicable vesting periods, the Complaint for Divorce in this matter was filed on May 23, 2001, it is hereby agreed that 17.5% of the 13,825 options awarded in January 2002 shall also be included in the group of unvested options to be distributed incident to this Agreement. This would add 2,419 stock options from the February 2002 award to the pool of unvested stock options in which the Wife shall receive.
Husband also received restricted stock awards (RSA) as a result of his employment with ABC, Corp.. A summary of his outstanding RSA’s as of July 10, 2001 (none were awarded in 2002) is as follows:
The RSA’s held by Husband begin to vest in 2004 and are not fully vested until 2006. At the time of each vesting date , the then fair market value of the shares will be taxed to Husband as ordinary income. At that time, the Wife shall be entitled to receive 25% of the vested RSA’s upon tendering to the Husband the total tax due on her share of the then vesting RSA’s at the agreed upon rate of 44%. Thereafter, the Husband shall transfer title to the Wife’s share of the RSA’s within ten (10) days of his receipt of same.
Additionally, as part of his income, and as part an employment retention device, the Husband received Portfolio Grants.
A target incentive is awarded annually. The Husband represents that the value of the ultimate award increases or decreases based on the Husband’s performance over a three or four year period. In addition, the ultimate payout is strictly conditioned upon ABC, Corp.’ financial performance and total shareholder return as compared to the Standard and Poor’s 500 Index over a three or four year performance period, depending on the year of grant. The target incentive listed below is the initial value of the award at the time of grant.
The payments have historically been made in cash and the ultimate award has been larger than the target incentive. Based on the payouts received by Husband including the 2002 grant that has been set and shall be paid in September, 2002, the average pay-out was 2.52 times the target incentive.
The vesting period of the portfolio grant had historically been three years. The PG’s awarded in 1999 will pay $55,000. Beginning in 1999, the vesting period was increased to four years and a supplemental award was received in 1999 to compensate for the additional vesting year. This will effectively provide a bonus to Husband in 2003.
The above chart does not include a Portfolio Grant received by the Husband in February 2002 with a target value of $30,786. Since the awards received by the Husband in a certain year are for work performed in the preceding year together with performance over the subsequent year vesting period and the Complaint for Divorce in this matter was filed on May 23, 2001, it is hereby agreed that 17.5% of the ultimate pay-out of the Portfolio Grant awarded in February 2002 shall also be included in the group of Portfolio Grants to be distributed incident to this Agreement. For example, the Wife’s share of the PG to be paid in September 2002 (i.e., $55,000) shall be paid as follows: $55,000 times Wife’s share (25%) equals $13,750. This figure shall then be reduced by the agreed upon marginal tax rate of 44% ($6,050), resulting in a net payment to the Wife of $7,700.
All of the aforementioned stock options, restricted stock and portfolio grants awarded to Husband as stated above shall be distributed in accordance with the “Callahan Trust” provisions that follow. The Parties acknowledge that neither party shall have rights with respect to the grants of stock options and restricted stock and portfolio grants that were paid out or inured to the benefit of either party subsequent to the date of the filing of the complaint for divorce as referred to above.
The parties agree that the Wife is hereby granted an equitable and constructive interest in the aforementioned stock options, restricted stock and portfolio grants granted to Husband by ABC, Corp., as noted above. As part of this Agreement, subject to the ABC, Corp. policy procedures and restrictions in place, Wife is entitled to fifty percent (50%) of the vested stock options. Further, the Wife is entitled to 25% of the unvested Stock Options, Restricted Stock (“RSA’s”) and Portfolio Grants awarded prior to the Complaint for Divorce. For the stock options and Portfolio Grant awarded in 2002, the Wife is entitled to 17.5%. As to the stock options, the Wife is entitled to direct Husband to exercise on her behalf a total of fifty percent (50%) of the vested stock options, and twenty-five percent (25%) of the unvested stock options (except for those awarded in 2002, in which the Wife’s share is 17.5%), culminating in a total of 7,552 vested options and 18,681 unvested options from the total of 93,978 stock options and 1,500 RSA’s which represents 25% of the 6,000 RSA’s, as set forth above and subject to policies, procedures and limitations of ABC, Corp. which are in full force and effect at the time of the request of the exercise by either party.. These options, PG’s and RSA’s vest across various dates, as noted in the above chart. Husband shall hold the options, PG’s and RSA’s allocated for Wife as a fiduciary and in constructive trust for her, subject to the following provisions as well as the policies, procedures and limitations of ABC, Corp. governing the stock option plan. As to the restricted stock and portfolio grants, the Wife shall receive her share of these benefits immediately upon Husband’s receipt of his share subject to deduction of 44% for applicable Federal, State and local taxes.
For example, Husband shall hold in constructive trust the 3,801 of the 7,602 options awarded on February 23, 1998, through and including their vesting date of February 23, 2001, until their expiration date of February 22, 2008. The Husband shall act as a fiduciary to the Wife with respect to these options and shall not act in any manner contrary to his duties therein. However, voluntary or involuntary termination of employment for any reason shall not be construed as a breach of his fiduciary obligations pursuant to the terms of this paragraph.
Husband shall hold in constructive trust for the Wife the following portions of the options, both vested and non-vested, until she so directs him to exercise these options. The Wife has sole and complete control over the exercise of the stock options allotted to her (as limited by the provisions of the stock option plan, and/or ABC, Corp. policies, practices and procedures in effect at that time.
| Date of Grant | Type | Number of Options Awarded | Percentage Allotted to Wife | Portion set aside for Wife |
Vested Options |
||||
| 2/24/97 | NQSO | 1,167 | 50% | 584 |
| 2/24/97 | NQSO | 1,167 | 50% | 584 |
| 2/24/97 | NQSO | 1,167 | 50% | 584 |
| 2/23/98 | NQSO | 2,534 | 50% | 1,267 |
| 2/23/98 | NQSO | 2,534 | 50% | 1,267 |
| 2/23/98 | NQSO | 2,534 | 50% | 1,267 |
| 2/22/99 | NQSO | 4,000 | 50% | 2,000 |
Non-vested Options |
||||
| 2/23/98 | SRNQSO | 9,900 | 25% | 2,475 |
| 2/23/98 | SRNQSO | 9,900 | 25% | 2,475 |
| 2/25/98 | SRNQSO | 9,900 | 25% | 2,475 |
| 2/23/99 | NQSO | 4,000 | 25% | 1,000 |
| 2/24/99 | NQSO | 4,000 | 25% | 1,000 |
| 2/28/00 | NQSO | 4,450 | 25% | 1,112 |
| 2/28/00 | NQSO | 4,450 | 25% | 1,113 |
| 2/28/00 | NQSO | 4,450 | 25% | 1,112 |
| 2/26/01 | NQSO | 4,667 | 25% | 1,167 |
| 2/26/01 | NQSO | 4,667 | 25% | 1,166 |
| 2/26/01 | NQSO | 4,667 | 25% | 1,167 |
| 2/26/02 | NQSO | 13,825 | 17.5% | 2,419 |
The following provisions shall govern the exercise of the Wife’s share of those options:
i) Notice and Instructions: When the Wife wishes the Husband to exercise the stock options allocated to her herein, or any portion thereof, she shall send written instructions to the Husband at his then current E-Mail work address. The current E-Mail work address: higgins@xxx.com. In order to carry out the terms of this agreement, Husband agrees to keep Wife informed of any changes in his email address by notification in writing to Wife at her email address at doris.poppins@xxxxx.com with such a change. The written instructions from Wife to Husband shall include the exact number of stock options that she wishes Husband to exercise on her behalf and shall designate the particular grant (i.e., “flight”) from which the shares are to be exercised. The parties may agree to alternative notice provisions if one or both emails become unavailable.
ii) Taxes: The parties understand that the income tax withholding in conjunction with the exercise of stock options or receipt of RSA’s or Portfolio Grants for Wife will be reported on Husband’s earnings statement at the end of each year. (Caveat: If, however, any of the stock options, RSA’s or Portfolio Grants, in which the Wife shares, can be taxed at her tax rates, pursuant to present or future tax laws (e.g. Rev. Rule 2002-22), then her tax liability shall be limited to the amount computed on her own individual tax returns.) If, however, the Wife’s share of the income associated with the Stock Options, RSA’s and Portfolio Grants cannot be transferred to the Wife, the parties agree that the Wife is obligated for her share of the taxes owed on the “taxable amount” resulting therefrom. This shall be effectuated by the Husband, at the time of exercise or receipt of benefits due to the Wife, deducting, 44% as the Wife’s complete and full tax liability for the taxes related to the options exercised, or RSA’s/Portfolio Grants received. The Husband shall be fully responsible for all other taxes owed with regard to said assets and indemnify the Wife fully for same. To the extent possible, the taxes attributable to any option exercise on Wife’s behalf shall be deducted from the proceeds distributed to her from a same-day sale..
iii) Same-Day Sales Rights (Cashless Exercises): Husband shall make available to Wife any, cashless or other exercise rights that are available to him for the exercise of stock options. The Wife shall be liable and responsible for any and all actual costs associated with the exercise of such rights as mandated by the Husband’s employer, including but not limited to administration fees, documentation fees, and service fees.
iv) Exercise of Options and Sale of Stock: In the event Wife instructs Husband to exercise the options and sell the stock allocated for her (i.e., via a same-day sale, cashless exercise or otherwise), the Husband agrees to instruct the stock brokerage firm to remit the net proceeds of the sale of the stock on Wife’s behalf, by a wire transfer to an account as directed by her. The Wife shall be responsible to provide any and all current account data including ABA and routing information at the time of each exercise request to insure the accuracy of such transfers. The “net proceeds of the sale” of stock options are defined as the proceeds available after deduction of the state and federal taxes at the agreed upon marginal rate of 44%.[2] When possible, Husband will enable Wife to take advantage of all cashless transaction rights for the exercise of options. Thus, Wife shall have the right to exercise options less the net value of the strike price without putting forward cash for the exercise of the options, to the extent this right is granted to the Husband through ABC, Corp.. However, the Wife shall pay all applicable fees and out-of-pocket costs incurred by the Husband in connection with the exercise of such right.
v) Limitations on Amount of Options Exercised: The Wife acknowledges that the exercise of stock options by the Husband for his benefit as well as hers, is now subject to certain ABC, Corp. policies that requires senior executive approval of such exercise, if said exercise exceeds 40% of all vested stock options. At this time, the senior executive in his or her sole discretion may expressly withhold approval for a period of 90 days subsequent to a scheduled meeting to review the exercise. For this reason, the Wife expressly agrees not to exercise more than 20% of the total vested options (calculated as all of the vested stock options in which the Husband has an interest as of the date of her request to exercise) . However, should the Husband be granted the right to exercise more than 40% of all vested stock options, the Wife shall have the right to exercise 50% of the amount in excess of 40% of all vested stock options to which permission was granted.
vi) Exercise of Options and Distribution of Stock to Wife in Kind: In the event Wife wishes Husband to exercise the stock options allocated for her and receive the stock in kind , the Wife shall deliver to Husband all funds necessary for the exercise of the specified stock options prior to the exercise, including the agreed upon 44% federal and state income taxes attributable to the exercise,[3] if any, at the time of exercise of the specified stock options applied by the taxable amount together with any and all applicable fees and out-of-pocket expenses, required to be paid to the Husband’s employer as a result of said exercise. This delivery shall be made in the form of a wire transfer to an account as outlined in accordance with the aforementioned procedures. In the event that the company will not authorize the issuance of stock in the name of the Wife, then the Husband shall cause the stock to be issued in his name, as the trustee and the fiduciary for the benefit of the Wife and shall immediately thereafter transfer the stock into the Wife’s name. Any stock transfer or related cost associated with the exercise of the options for the wife’s benefit or the transfer of the stock into the name of the Wife, shall be borne solely by the Wife.
vii) Damages for Untimely Exercise of Options: The Husband shall be liable for any intentional delays in the exercise of options requested by Wife pursuant to the procedures set forth herein and subject to ABC, Corp. processes and procedures. .
viii) Exercise of Husband’s Options: In the event that Husband desires to exercise his share of the ABC, Corp. stock options, he will provide written notice to the Wife at the aforementioned email or residential mailing addresses at least 24 hours prior to the exercise of the options.
ix) Termination of Husband’s Employment (Claw- back Provisions): The parties expressly acknowledge the existence of portions of the ABC, Corp. policies and procedures, which are called “Claw- back” provisions. These Claw- back provisions may require a disgorgement of the total gain realized on the exercise of stock options within a certain stipulated period of time before an employee’s termination. It is acknowledged that these terms may change from time to time. The Husband shall provide Wife with a copy of the current applicable “Claw-back” provisions and any changes to such “Claw-back” provisions. Therefore, it is the parties’ intention as to the distribution of the specific stock options, restricted stock and portfolio grants listed above, that they each be bound by the actual claw- back provisions that may be in effect at the time of the triggering event (i.e., the Husband’s termination of employment with ABC, Corp.[4]). Further, it is the intention of the parties that should the husband involuntarily or voluntarily terminate his employment with ABC, Corp., that the claw- back provisions shall equally apply to the Wife should said company make a final, internally non-appealable decision to required the return of gain received (i.e., profits on the exercise of stock options), exercised within the “claw-back period” and the Husband actually returns his total gains . In that event, the Wife shall be obligated to do the same within 15 days of the Husband’s return of the total gain .[5] She shall return promptly her total gains to the Husband so that such total gains may be returned to the company. The amount to be returned shall be calculated in accordance with the policies and procedures of ABC, Corp. in place at that time. (Example: Presently, the funds to be returned are the gross profit (i.e., fair market value of stock on date of exercise less strike price, exercise fees and other allowable fees), not the net amount received from the exercised stock options.) The Husband shall return these total gains to ABC, Corp. in accordance with ABC, Corp.’ stated policies, procedures and limitations in effect at that time. The Husband shall be obligated to provide the Wife with any documentation that he receives from ABC, Corp. with respect to compliance with this policy. To the extent that the Husband loses any stock options, portfolio grants or restricted shares or rights for stock options, portfolio grants or restricted shares due to a change in employment, but receives stock options, portfolio grants, restricted shares or other form of compensation directly or indirectly attributable to the loss of such stock options, portfolio grants or restricted shares, the Wife shall be fully compensated for her lost rights and shall share in said recompensed stock options, portfolio grants or restricted shares or other form of compensation in the same proportions as with the original ABC, Corp. stock options, portfolio grants or restricted shares subject to forfeiture due to the Husband’s termination of employment. stock options, portfolio grants or restricted shares. Housing allowances, and moving expenses shall not be construed as compensation for lost stock options.
x) Notice of Termination of Employment: In the event Husband’s employment at ABC, Corp. is terminated, Husband shall notify Wife within 24 hours of said termination of employment, by telephone and/or email, followed by immediate written notice (within 48 hours of termination), mailed to Wife’s residential mailing address.
xi) Failure to Comply with Notice Provisions: In the event Wife loses the right to have Husband exercise any stock options on her behalf as a result of Husband’s intentional failure to comply with the notice provisions herein, the Court shall have reserved jurisdiction to determine the amount of the monetary loss, if any, resulting to Wife as a consequence of said failure and shall order reimbursement to her by Wife of that monetary loss, plus counsel fees and associated costs.
xii) Re-Pricing: In the event ABC, Corp. declares a re-pricing of the exercise price of the stock options, or makes any other adjustments to the options allocated to Wife in this agreement, Husband shall notify Wife of the adjustments, or re-pricing within 15 days of his knowledge of such event by telephone and/or email Husband shall not exercise any right to re-price any of the stock options allocated for Wife unless and until Wife has given Husband written instructions to do so. As soon as ABC, Corp. notifies Husband of the opportunity to re-price such stock options, Husband shall notify Wife of the opportunity and provide her with copies of all documents from ABC, Corp. pertaining thereto.
xiii) Reload Options: To the extent that the Husband is granted or has any reload rights in the existing options listed in paragraph 45 above, the Wife shall also share in those rights up to her proportionate share allocated to her herein. However, provided that the Wife has and presents to the Husband ABC, Corp. stock in the amount required for reload at the time of the requested stock option exercise. It is expressly agreed and understood that the Wife shall have no reload options granted for any post complaint period.
xiv) Reservation of Jurisdiction: The Court shall have reserve jurisdiction to enforce the terms of this section subject to the then existing stock option plan terms and conditions regarding the exercise of said options and all applicable retention agreements of ABC, Corp. in place at the time of the exercise. The Court shall also be able to make any further Orders as necessary to carry out the intent of the parties with respect to this section in the event of changes in the stock option plan for loss of options due to the voluntary termination of employment with ABC, Corp. or any other unforeseeable event that the parties have not contemplated as part of this Agreement, relating to the designation of the parties’ option rights subject to distribution under this Agreement. Death: In the event of the death of the Husband, all rights of the Wife shall be preserved subject to the rules, policies, and procedures with respect to said options. The Husband’s estates is hereby bound to honor the obligations imposed upon the Husband pursuant to this Agreement. The Estate shall, at the direction of the Wife, exercise the Options prior to any accelerated expiration if any, resulting from the Husband’s death.
21. QDRO Language to Meet Requirements of Tax Reform Act of 1984.
There are various provisions that are required to correctly distribute retirement assets under the Tax Reform Act of 1984 and other applicable laws. Such provisions relate to defined benefits plans, defined contribution plans, state plans, etc. Entire books have been written on such clauses and many Plan Administrators have a preferred form of Domestic Relations Order. As such, it is not feasible to provide every clause that should be included in a MSA and/or QDRO but rather basic sample clauses should be used as a starting point and modified to address specific plans
It is our recommendation that the necessary language needed to transfer qualified plans (i.e., ERISA type plans) be either incorporated into the MSA or in a form QDRO attached to the Judgment of Divorce as an exhibit.
The Internal Revenue Code, §414(p)(1)(B), defines a QDRO as “any judgment, decree or order (including approval of a property settlement agreement) which (i) relates to the provision of child support, alimony payments , or marital property rights to a spouse, former spouse, child, or other dependent of the participant; and (ii) is made pursuant to a State domestic relations law (including a community property law). If the proper language is set forth in the MSA, that Agreement, which has been incorporated into the Judgment of Divorce, can qualify as a QDRO. This is essential in the event that one of the parties predeceases the other prior to the entry of the actual QDRO. Therefore, at the very minimum, every MSA should contain and every QDRO must contain the following language:
Ø The name and last known mailing address (if any) of the participant and each alternate payee covered under the order;
Ø The relationship of the alternate payee (i.e. former spouse) to the participant;
Ø The amount or percentage of the participant’s benefits to be paid by the plan to such alternate payee, or the manner in which such amount or percentage is to be determined;
Ø The number of payments or period to which such order applies; and
Ø The specific name of each plan to which such order applies. (See IRC §414(p)(2))
The Agreement and/or QDRO should also include a recitation of the limitations of the Order as follows:
Ø The Order cannot require the payment of benefits in a form not otherwise provided by the plan;
Ø The Order may not direct that a joint and survivor annuity be established for the divorced spouse and his or her subsequent spouse;
Ø The Order may not require the plan to provide increased benefits on the basis of actuarial value; and
Ø The Order may not provide for the payment of benefits already awarded to another alternate payee pursuant to a prior QDRO. (See§414(p)(3))
It is also suggested that, in advance of drafting the MSA, you obtain the Plan documents for the plan(s) against which you will be drafting, the Plan’s QDRO requirements and a sample form of QDRO from the appropriate Plan Administrator. Review of such documents will assist you in understanding the particular plan, against which you are drafting the QDRO, and will educate you as to what provisions must be included for that particular plan and what provisions may not be accepted. For example, some Plan Administrators will not adjust a specified sum or percentage, as of a date certain, for market appreciation and depreciation from the specified date through the date of distribution. If you did not submit your proposed language to the Plan Administrator for pre-approval and the MSA contains such language, you will be left with a post-judgment issue that may require the retention of an expert to make the calculation or may require that the offending provision of the MSA be renegotiated.
The best practice is to first put the Plan Administrator on notice that there is a pending divorce and that the retirement asset may be subject to equitable distribution. Next, obtain all of the relevant discovery (there may be plans that have not previously been disclosed), as you would with any other asset and then prepare and submit a proposed QDRO for pre-approval. During the time that the QDRO is being reviewed, the Plan Administrator must “separately account for the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.” (See §414(p)(7)(A). This will prohibit, for example, the Participant spouse from taking a loan against the plan until such time as the order is actually qualified so as to protect that portion of the account that has been designated as the alternate payee’s. The pre-approved QDRO should be attached to the MSA and entered simultaneously with the Judgment of Divorce. All too often, practitioners neglect this area, which results in post-judgment issues, litigation and sometimes years of delay in having the QDRO entered, qualified by the plan and effectuated. This delay may subject you to a malpractice action if one of the parties remarries or dies before the QDRO is entered or if the Participant retires and makes elections contrary to the terms of the MSA, which may not be altered after the plan goes into “pay status”.
Keep in mind that a QDRO may also be used to secure child support and alimony payments and to satisfy support arrears. However, the use of a QDRO for ongoing support payments is problematic for a number of reasons including but not limited to the fact that many plans require that the Order be renewed each time a payment was due and because the Plan Administrator can only make payment from a defined benefit plan at certain times as specified by the Plan (i.e., the earliest retirement age of the participant). The use of a QDRO is a much more effective tool for the collection of support arrears, the amount of which has already been fixed by Court Order.
Proposed language for the equalization each party’s defined contribution plan where there are no pre-marital contributions:
The parties each have a 401K plan. In order to equalize the accounts, each party shall receive (either a specified % of dollar amount) of the accrued balance in the other’s account as of (an agreed upon cut-off date, usually the date of the Complaint), which sum or percentage shall be adjusted by the Plan Administrator for that plan, for market gains and losses, if any, from the agreed upon date through the actual date of distribution or such other date as permitted by the plan. (Note – sometimes the will only make the calculation through a date specified in the plan – i.e., the last day of the month preceding distribution). This equalization shall be accomplished by way of a QDRO, which is attached hereto and incorporated herein as Exhibit “A”.
Proposed language for the distribution of the Husband’s share of the Wife’s defined contribution plan (Husband does not have one) where there are pre-marital contributions:
The Wife has a 401K plan through her employment. The Husband shall be entitled to receive $_________ [6], which sum shall be adjusted by the Plan Administrator, for market gains and losses, if any, from _____________(the agreed upon date, usually the date of the Complaint) through the actual date of distribution or such other date as permitted by the plan. This equalization shall be accomplished by way of a QDRO, which is attached hereto and incorporated herein as Exhibit “A”.
Proposed language for the distribution of a defined benefit plan:
The Husband is a participant in the ABC Retirement Plan. The Wife shall receive 50% of the marital portion of the Husband’s accrued monthly benefit at the time of retirement in accordance with the formula approach delineated inMarx v. Marx, 265 N.J. Super 418 (Ch. Div. 1993) as follows:
Number of months married, employed by
ABC and in the Plan through the filing date
(_______ to ______) or ___ months
Total Number of Months employed by
ABC and in Plan x 50% x Monthly Benefit at
Retirement
The payments shall be based on the life expectancy of the Wife. The Wife shall be entitled to the Qualified Pre-Retirement Survivor Annuity, to protect her interest in this plan in the event that the Husband predeceases actual retirement and the commencement of monthly benefit payments. After the DRO is qualified, the death of the Husband shall have no effect on the payment of the benefit assigned by the Husband to the Wife.
The DRO shall further provide that the Wife shall have the right to elect to receive benefit payments under the Plan at any time, as otherwise permitted by the plan. The Plan shall pay benefits to the Wife in any form permitted by the Plan which is selected by her, provided that the form she selects does not adversely affect the selection by the Husband of a form of benefit payment.
If applicable, the Wife shall be entitled to receive her proportional share of all COLAs, ad hoc or other increases or adjustments, adopted by the Plan in accordance with the Plan provisions, in accordance with the formula set forth in paragraph ___ above.
The Wife shall include in her gross income, for the tax year of receipt, all retirement benefits that she receives pursuant to the Husband’s assignment of benefits, and, accordingly the Husband shall not include such benefits in his gross income. The Wife shall be treated as the sole distributee under IRC Sections 72 and 402 of any payment or distribution that is made to her under the Husband’s assignment of benefits. (See Defined Benefits Domestic Relations Order (“DRO”) attached hereto as Exhibit “A”)
22. Filing of Tax Returns & Indemnification for Previously Filed Joint Returns.
There are many variations possible for how to deal with past tax returns. This is, as is most other provisions, dependent on the factual circumstances of the parties and a point of negotiation. The following represents a detailed series of clauses that can be utilized.
LIABILITY
AUDITS
Except if a conflict exists between Husband and Wife related to claims brought by the IRS or the IRS gives notice of an intention to levy on Wife’s assets or income, from and after the date of the execution of this Agreement, Husband shall have complete control over the payment, settlement, audit, litigation or other disposition of any dispute involving any tax obligation or liability of the parties assumed by Husband pursuant hereto. The Husband shall have the right to conduct and control all negotiations, audits, litigations, and proceedings with respect thereto. Wife will notify Husband immediately of any claim made with respect to any such obligation or liability and will not, except with the prior written consent of Husband, voluntarily make any payment, or settle or offer to settle, or consent to any compromise in connection with any such obligations or liabilities. Wife will cooperate with Husband in any manner requested by Husband in connection with any negotiations, audits, litigations, or proceedings involving any such obligations or liabilities.
23. Allocation of Mortgage Interest and Real Estate Tax Deductions.
If the parties do not file joint income tax returns for 2002, the Husband shall be permitted to declare the real estate taxes and mortgage interest deductions with regard to the former marital residence on his 2002 tax returns up to the last day of the month in which this Property Settlement Agreement is fully executed. The Wife shall be permitted to declare the real estate taxes and mortgage interest deductions with regard to the former marital residence on her 2002 income tax returns commencing with the month next following the full execution of this Property Settlement Agreement. After 2002, the Wife shall be solely permitted to declare the real estate taxes, mortgage interests and other deductions with regard to this property.
24. Bankruptcy Clause (Dischargeability and Characterization of Certain Obligations as “in the nature of Alimony and Child Support”).
The interplay of family law and bankruptcy presents the legal world with a collision of competing policies.[7] Family courts are concerned with the financial protection of the family,[8] and have a significant interest in seeing their orders regarding alimony, child support, and equitable distribution enforced. In bankruptcy, however, the predominant policy of the law is to afford the debtor a fresh start.[9]
As long as the debtor has not engaged in fraud or other improper conduct, a discharge of debts will generally be granted.[10] Certain debts, however, are non-dischargeable,[11] including debts for alimony and child support or other obligations that are in the nature of support or alimony.[12] Certain other debts incurred in connection with separation or divorce proceedings, such as equitable distribution, are subject to a equitable treatment in the bankruptcy court.
With a view toward balancing the “fresh start” policy of bankruptcy with the need to enforce interspousal agreements, the 1994 Bankruptcy Reform Act represents a Congressional response to the evolving view of marriage as a joint enterprise, and acknowledges the interplay between spousal support and distribution of assets.[13]
There are many situations where the threat of bankruptcy by an obligor spouse is real or anticipated. In these situations, it is necessary to craft language expressing the intent of the parties to guard against the discharge of obligations in bankruptcy after an MSA is executed. A sample clause follows:
The husband has warranted and represented that it is more likely than not that subsequent to the execution of this Agreement he shall file a bankruptcy petition in which he shall seek to discharge certain financial obligations. This Agreement has been entered into based upon that representation. As a result the parties have carefully considered the impact of bankruptcy on their respective rights, duties and obligations under this Agreement. It is for that reason that the parties have designated certain payments to be made by the Husband to the Wife as non-dischargeable and in the nature of alimony or support. Such payments represent obligations which the parties have considered to be directly related to maintenance of a certain lifestyle by the Wife which she could not maintain if these were discharged. The lifestyle to be maintained was a specifically bargained for item and which the parties deem appropriate given all of the facts and circumstances. Accordingly, the parties agree the Article IV payments the Husband is required to make for the Wife pursuant to this Agreement, regardless of how they may ultimately be characterized, are payments designed to provide the Wife with cash flow to maintain this bargained for lifestyle shall not be dischargeable in any bankruptcy petition filed by the Husband.
In reaching this Agreement, the parties have carefully considered not only the need of the Wife for these payments to maintain the bargained for lifestyle, but the economic sacrifices made by the Wife during the marriage which make it necessary for her to receive economic assistance from the Husband to maintain the lifestyle. The parties have also carefully considered the reasoning of the In Re Gianakas bankruptcy decision and have agreed to incorporate its reasoning and contents to reflect their contracted intent as if set forth at length herein. The parties have further agreed to incorporate concepts of promissory estoppel and collateral estoppel to prevent the Husband, in any subsequent proceeding, from asserting that the payments he is required to make hereunder are dischargeable. Specifically, the Husband shall not be permitted to list any of the payments he is required to make to the Wife or on her behalf in this Agreement as dischargeable payments under the Bankruptcy Code in any petition filed by him, a representation upon which the Wife is relying. Should the Husband violate the representations and obligations set forth in this Article and succeed in bankruptcy, the Wife will be entitled to counsel fees and the right to seek increases in support in order to make her whole.
Alternate Dispute Resolution (“ADR”) has become increasingly popular in recent years. The wisdom of ADR is so persuasive that the authors believe it should be incorporated into almost every MSA unless extraordinary circumstances dictate otherwise. The amount of time, money and anxiety that is usually saved with ADR, versus court litigation, makes such provisions very attractive. There are various forms of ADR, however the two basic forms are “Arbitration” (binding or non-binding) or “Mediation”. There are, however, limitations on the ability to arbitrate custody, child support and other issues effecting the best interest of children. In these instances, perhaps “Mediation” rather than “Arbitration” may be chosen. However, as to most other issues, arbitration may be preferable. Sample clauses follows:
25. Arbitration.
Should any dispute arise between the parties concerning the interpretation or implementation of this Matrimonial Settlement Agreement, unless an emergent situation arises, the parties shall be required to submit their dispute to Binding Arbitration in accordance with the following provisions before making application to court. To initiate these provisions, should a dispute arise, one or both parties shall serve upon the other, via certified mail, return receipt requested, a Notice Of Intent To Trigger Arbitration. Once the Notice Of Intent To Trigger Arbitration is received by the other party, they shall adhere to the follow protocol.
Binding Arbitration
The parties after full and complete discussions with their counsel, have elected to enter into Binding Arbitration and upon advice of counsel have been made fully aware of their rights not to enter into Binding Arbitration and to have certain (or all) portions of their matter heard to completion by the Superior Court, Chancery Division, Family Part of ______ County.
Neither party to this Agreement shall have the right or power to revoke this submission without the consent in writing of the other party hereto.
Issues to Be Arbitrated
The parties agree that the following issues shall be submitted to the Binding Arbitration process:
(A) Custody (with proviso);
(B) Time-sharing (with proviso);
(C) Equitable distribution;
(D) Alimony;
(E) Child support (with proviso);
(F) Professional fees;
(G) Any other issues.
The following issue shall not be arbitrated and shall be determined by the Superior Court, Chancery Division, Family Part of _____ County after the conclusion of arbitration process and a decision is rendered:
(A) _________________________
(B) _________________________
Choice of Arbitrator & Responsibility for Associated Fees
The parties hereby agree to appoint _____________ __________, and _________________________________ to be the Arbitrator(s). Each party shall promptly sign the Retainer Agreement of the Arbitrator, if so requested. If said Arbitrator shall refuse or be unable to serve, then the parties shall agree, in writing, upon a substitute Arbitrator. If the parties are unable to agree in writing within fourteen (14) days of notice of the above agreed upon Arbitrator’s refusal or inability to serve, to a substitute Arbitrator, then they shall each submit three names to the Court and the Court shall select the arbitrator. (OR) If the parties cannot agree upon an arbitrator(s) they can each select one arbitrator and the third arbitrator shall be decided by both parties submitting three names to the Court and the Court selecting the third arbitrator, (who may or may not appear on either party’s list.)
The Arbitrator shall determine how his or her fees shall be allocated between the parties. However, until such determination is made, the parties shall equally divide the initial retainer and all subsequent fees of said Arbitrator. Therefore, the Arbitrator’s retainer shall be advanced by the parties 50% to be paid by the plaintiff and 50% to be paid by the defendant. The advance of money is without prejudice to the rights of either party and therefore is subject to allocation by the Arbitrator. If the case is settled or terminated for any reason, the arbitrator shall retain an amount to cover the time he or she actually expended, plus actual expenses incurred out of the retainer money, and return the balance, if any, to the party or parties making the retainer payment in proportion to their contributions. If the retainer is exhausted, the parties shall replenish the retainer with a sum of money that will reasonably secure future fees due the arbitrator or make other suitable arrangements. The allocation of any replenishment of the Arbitrator’s retainer shall be in the same proportion as the initial retainer, unless determined otherwise by the Arbitrator.
Fees of the Arbitrator shall be charged at the Arbitrator’s customary hourly rate. The Arbitrator will be reimbursed for out-of-pocket disbursements, for photocopy fees, facsimile fees and messenger service fees, if needed.
Standard for Appeal of Arbitrator’s Decision
Standard for Appeal:
(A) The Arbitrator’s decision shall be final and binding upon both parties and shall not be appealable, except in accordance with N.J.S.A. 2A:24-l et seq. The parties upon the advice of counsel have been made fully aware that they are giving up their right to appeal by entering into Binding Arbitration, except in accordance with N.J.S.A. 2A:24-1 et seq. Nevertheless, the legal principals of Rule 4:50-1 regarding modification of Judgments or Orders shall be applicable to the arbitrator’s decision once incorporated into a Judgment.
OR
(B) The Arbitrator’s decision shall be appealable as of right as would any Final Judgment of the Superior Court of the State of New Jersey.
Notwithstanding the above, the parties recognize that they cannot by agreement relieve the Court of its obligation to safeguard the best interests of the child(ren). Therefore, the standard of review agreed to herein by the parties may not apply to the standard of review for issues related to the child(ren).
Incorporation Of Arbitrator’s Decision Into Judgment
The parties agree that they shall be bound by the Arbitrator’s decision, and said decision shall be incorporated into a Judgment and shall be specifically enforceable in the Superior Court, Chancery Division, Family Part of Ocean County, without limitation on the Court’s remedies.
Pendente Lite Relief
The Arbitrator shall have authority to rule upon applications by either party for pendente lite relief or applications for the enforcement of existing pendente lite or post-judgment Orders previously entered. The Arbitrator may award fees and costs incident to said applications, in his or her discretion, in accordance with the factors delineated within R.5:5-3 and New Jersey case law.
Enforcement by Arbitrator of Arbitration Process
The parties, their counsel and the Arbitrator understand the importance of resolving this matter expeditiously. They will each remain accessible, promptly return the phone calls and answer correspondence. They will cooperate in all discovery. They will cooperate in scheduling conferences and hearings.
The Arbitrator shall have leave to assess sanctions, counsel fees, costs, and other relief to a litigant for failure the other party’s failure to comply with the process of arbitration (as detailed herein) or any ruling or directive of the Arbitrator, (including enforcement of pendente lite or post-judgment Orders).
The Court shall have leave to assess sanctions, counsel fees, costs, and other relief to a litigant for failure to comply with the arbitrators’ decision and in order to obtain compliance with the arbitrators’ decision.
Scheduling & Scope of Hearing (Subsequent Written Agreement)
The arbitration shall be scheduled in accordance with the directions of thc: Arbitrator after giving consideration to the schedules of both counsel. A schedule of hearing dates shall be set in advance for the convenience of the litigants, counsel and the witnesses. The matter shall be arbitrated day to day until completed to the extent practicable. The arbitration shall be conducted at the Arbitrator’s office located at _________________________________.
After the Arbitrator is chosen and retained, the parties and the Arbitrator shall discuss and agree upon the following issues:
(A) Determination of exchange of witness lists, pre-marking documents, stipulations and a schedule of hearing dates to be set in advance for the convenience of the litigants, counsel and the witnesses;
(B) Whether the Rules of Evidence shall be strictly or loosely enforced;
(C) Will a record be made of the proceedings. If so, the manner in which it will be recorded, i.e., by audio-tape, videotape, stenographic device or any other means. Notwithstanding what the parties decide in this regard, the Arbitrator may tape record all or part of the proceeding for his own use. Said recording shall not be deemed an official record.
The agreements reached by the parties and the Arbitrator shall be reduced to a Subsequent Written Agreement which shall be signed by the parties, their counsel and the Arbitrator. All parties and the Arbitrator shall be bound to comply with not only the terms hereof, but also the terms of the Subsequent Written Agreement.
Discovery & Experts
The Arbitrator may conduct discovery. The Arbitrator may request that either or both parties produce certain information or documents. The Arbitrator may request that either or both parties subpoena third parties.
All discovery propounded up to the date of this Order may be utilized, and the discovery responses and answers shall have the same force and effect as if this proceeding was being conducted in the Superior Court of New Jersey. Any remaining discovery to be undertaken by either party (or the Arbitrator) shall be completed within sixty (60) days of the entry of receipt of one party’s Notice Of Intent To Trigger Arbitration. The Arbitrator shall enforce any issues regarding the production and/or limitation of discovery. Counsel for the parties and the Arbitrator shall have the power to serve Subpoenas and Notice in Lieu of Subpoena pursuant to Rules 1:9-1 and 1:9-2, and the Arbitrator is hereby empowered to enforce the subpoenas including but not limited to the power to assess penalties or fines or other relief for failure of the properly subpoenaed party or witness to appear and/or produce records, and the Arbitrator’s determination in this regard shall be enforceable on application to the Superior Court.
The Arbitrator may request that either or both parties retain third party professionals to render expert opinions regarding valuation issues, accounting issues, mental health issues, or any other issue typically involving expert testimony in divorce litigation. The Arbitrator shall allocate the cost for such outside professionals between the parties, as he or she deems fit. All expert reports shall be provided to the Arbitrator (and both parties) at least twenty (20) days before the date of the hearing.
Choice of Law
The Arbitrator’s decision shall be made pursuant to the laws of the State of New Jersey.
Findings of Fact & Conclusions of Law
The Arbitrator shall render a written decision which shall include reasonably detailed Findings of Fact and Conclusions of Law upon which the arbitration award is based within thirty (30) days of the conclusion of the arbitration.
All Orders entered heretofore shall have the same force and effect as if this proceeding was being conducted in the Superior Court of New Jersey. The arbitrators decision shall be incorporated in a judgment or order of the court.
Settlement Discussions
In the event the parties, at any time, request that the Arbitrator participate in settlement discussions, they waive their right to disqualify the arbitrator from rendering a final and binding decision.
26. Mediation (Custody & Economic)
Mediation may address custody and economic issues. As with Arbitration, this form of ADR is usually preferable to litigation. We will present clauses first as to custody and then as to economic issues. The “Custody Mediation” provisions are an example of a more elaborate series of clauses and can be adapted to deal with economic issues as well. The “Economic Mediation” clause in simpler and can also be adapted to deal with child-related issues.
Custody Mediation
Notwithstanding the incorporation herein of the Judgment Fixing Custody and Parenting Time, the parties intend to implement an Alternative Dispute Resolution protocol regarding time-sharing issues. Specifically, if any dispute shall arise between the parties on issues concerning decisions of a Joint Legal Custody nature, parenting time, or other related issues, the parties agree to submit their disputes to a mediator to assist them in the resolution of any disputed issues pursuant to the protocol set forth below. Specifically, it is the intent of the parties to submit to a Mediator any issues related to compliance or implementation of the parenting plan delineated within their Judgment Fixing Custody and Parenting Time attached hereto as Exhibit “A” and any issues that may need to be addressed by the Joint Legal Custodians. In the event that mediation is unsuccessful, then either party may apply to the Court for relief as referenced below.
Should either party make an application to the Court, except in an emergency, related to custody and time-sharing issues inconsistent with the protocol outlined herein, counsel fees and costs of bringing said application shall be borne by the breaching party.
Selection of Mediator
In the event that a dispute arises between the parties regarding time-sharing, they shall agree to select a mediator from the approved list of mediators issued by the _________ County Family Court or such other list of mediators as the parties may agree. If an agreement cannot be reached as to the selection of a mediator, the Court shall select the Mediator.
Role of Mediator Related to Parenting Plan
The role of the Mediator is as follows:
The Mediator will first attempt to resolve any disputes by mediation. If a dispute cannot be amicably resolved, then either party may make an application to a Court of competent jurisdiction. The parties acknowledge that the decision making authority shall reside with the Court and not the Mediator.
Cost of Mediator
The party initiating the mediation shall pay the initial retainer for the Mediator, if any, subject to possible reimbursement pursuant to the following sentence. The allocation of the Mediator’s fees (including the initial retainer, if any) shall be in the discretion of the Mediator who shall take into account the good or bad faith of either party’s position.
Role of the Parties
The parties shall cooperate with the Mediator to resolve disputes and to comply with the Parenting Plan.
Protocol for Mediator
Both parties shall cooperate with the protocol that is outlined below:
Except in the event of an emergency, if any parenting time dispute shall arise between the parties, as previously outlined herein, the parties will abide by the following procedure:
i. A party with a dispute shall notify the other party by mail that an issue requires resolution. The party shall set forth the nature of the problem and a proposed resolution, if applicable.
ii. The other party shall reply within 48 hours of receipt of the mailed notice as to his/her position with a proposed resolution of the problem, if applicable.
iii. Thereafter the parties will have three additional days to resolve the dispute between themselves.
iv. If not successful then (1) the parties shall agree upon a mediator (or have one appointed) and either party or both parties may advise the Mediator that a dispute exists. (2) the parties shall mutually cooperate and immediately schedule all meetings required by the Mediator to help resolve the dispute if possible.
Economic Mediation
Except in the event of an emergency, if the parties are unable to resolve any financial issue that may arise between them in the future or incident to the enforcement or interpretation of this Agreement, they agree to employ Economic Mediation before resorting to court intervention. This Economic Mediation shall be non-binding and shall be conducted in accordance with the Rules of Court. Therefore, the results of said Economic Mediation, statements of the parties or mediator, shall not be introduced or referred to in any court proceeding, should one become necessary to resolve the dispute. The parties shall divide the cost of said Economic Mediation based upon the ratio of gross earned and unearned income as reported on the prior years Federal tax return. In other words, if the mediation is scheduled for March, 2005, the parties will look to their incomes for 2004 to determine this ratio. At the time of the execution of this Agreement, the ratio is as follows: Husband 2/3 and the Wife 1/3 . The parties hereby elect to utilize ______________, Esq. of the law firm of _________________ located at ___________________ as the Economic Mediator. Should _____________ be unwilling or unable to serve as the Economic Mediator, then the parties shall agree upon a substitute Economic Mediator who shall be an experienced matrimonial law attorney with training and/or experience in Economic Mediation.
Certain high profile litigants are very concerned about the confidentiality of their MSA. Accordingly, it is advisable to incorporate by reference and not attach the agreement to the judgment for divorce. To provide further confidentiality, the following provisions are proposed:
A. The Husband and Wife hereby agree and represent to one another as follows:
1. The terms and provisions of this Agreement shall be confidential except for such discussions which the Husband and Wife may have with their respective advisors, attorneys, accountants and family members.
2. Both parties shall specifically direct their attorneys and agents not to discuss the terms of this Agreement or any facts or documents related to this case with any third parties and not to disseminate or in any other way disclose to their parties any documents which are part of the court records.
3. Any documents or information given by one party to the other, that parties’ attorneys and agents, or otherwise obtained by the parties’ attorneys and agents, concerning the other party’s financial condition, business interest or holdings shall be deemed confidential unless they were previously disclosed to third parties prior to the execution of this agreement.
4. Except for purposes of preparing tax returns, or as may be required in any court proceeding, or unless a document is of a public nature other than documents in the court file), the parties, their agents, attorneys and accountants shall not divulge, disclose or discuss any provision, term or condition of this Agreement or deliver any document in the file of any attorney, expert or consultant to any third party including but not limited to any member, employee, agent or the like, of any newspaper, radio station, television station, law publication or any other periodical or media organization. This provision shall in no way inhibit the Husband or the Wife or their advisors, attorneys or accountants from discussing any matter among or between themselves. The fact that any document or detail of this case has already been disclosed, or has previously been of a public nature, does not relieve a party of the strict obligations of this Agreement.
B. Paragraph A and its four subparagraphs shall control unless a party, agent or attorney is required to produce this agreement or a document which was the subject of this litigation by reason of court administrative proceeding, subpoena or arbitration hearing under this Agreement or for the purpose of the filing of any tax return as may be required by law. In the event that such a demand is received, notice shall be immediately given to the other party and the party or attorney or agent receiving the demand shall assert the attorney client privilege, if either party to this Agreement so desires.
C. The parties acknowledge that all pleadings, motions, cross-motions and other papers heretofore filed with the court in connection with the matrimonial litigation have heretofore been matters of public nature because of said filing, however, the parties through their counsel will request that the court file be sealed. In the event the court does not seal this file, the parties shall not release records or documents which are part of this court file to any persons or entities whatsoever.
D. The within Agreement shall be incorporated by reference in a Judgment of Divorce but shall not be attached.
E. It is expressly understood and agreed that the exclusive remedy for Husband and for Wife in the event a breach by either party or their counsel, experts or agents of this Confidentiality Agreement and all of its subparts occurs shall be by action or motion instituted by Husband against Wife or by Wife against the Husband, as the case may be. In addition to seeking damages, injunctive relief may also be sought in the event of a breach. The defaulting spouse, moreover, shall indemnify the other party and hold that party harmless as to any damages, including reasonable attorneys fees, which that party has suffered.
PRACTICE POINTERS
1. That term “Property Settlement Agreement” is outdated. Our agreements relate to much more than “property”. We suggest that a comprehensive divorce agreement be uniformly referred to as “Matrimonial Settlement Agreement”.
2. After the “Wherefore” clauses in the beginning of your MSA, every paragraph which follows should be “auto-numbered”. Do not restart numbering under new headings, sub-headings or new “Articles” (if same are used). In other words, the first numbered paragraph should be #1 with the numbers proceeding in increasing numerical order until the end of the document. Otherwise, you have more than one #1, #2, #3, etc and reference to paragraphs becomes confusing.
3. When you respond to a proposed MSA from adverse counsel, in addition to your letter commentary, return a “marked” up version of the Agreement so that your opponent knows exactly what changes you wish to make to the MSA. In the best of all worlds, have your adversary send you a disk or e-mail the MSA so you can highlight your changes directly into the document. This is done by tracking your changes and will appear as redlined or blacklined text.
4. Make sure that no provisions of the agreement are inconsistent or in conflict with one another.
5. Do not blindly incorporate boiler plate language without considering the facts and circumstances of your case.
6. If possible, ask another lawyer in your firm to review the agreement. This exercise will disclose confusing and ambiguous provisions that must be clarified.
7. If you set forth a narrative or formula to calculate an obligation, give an example to avoid confusion or multiple interpretations.
8. Wherever possible, set forth the intention of the parties and any future events contemplated by the parties.
9. Extensively review the agreement with your client prior to sending it to your adversary.
10. If your client is emotionally distraught or disabled, obtain a letter from his/her mental health expert, that the client understands and appreciates the nature of the settlement.
11. Wherever possible, attach to the MSA the form of documents that will be executed in the future. For example: QDRO, trust agreements related to life insurance, schedule of stock options that will be distributed, security instruments.
· Special thanks to Lee Ann McCabe, Esq. for her valuable assistance.
[1] Certain SEC regulations required the employee option holder to forfeit “any profits [. . .] from the sale of stock within a specified period from the date of purchase.” Id.
[2] If the income becomes taxable to Wife on her individual tax returns pursuant to Paragraph XX (ii) and the Husband has no liability for her share of the asset, then the Husband shall remit the gross pre-tax amount of Wife’s share without deduction for taxes.
[3] See prior footnote.
[4] If the Husband knows or intends that he is going to voluntarily terminate his employment with ABC, Corp., or commences interviews with prospective employers, he shall advise the Wife in writing as soon as possible so that the Wife may be guided accordingly in terms of exercising her rights as to the stock options in a timely manner to avoid, to the extent possible, the effects of the claw back provisions. The Wife shall keep such disclosure confidential.
[5] However, should the Husband receive from ABC, Corp. some other money, stock, option, portfolio grant, restricted shares, compensation, benefit or other consideration which is attributed strictly to the return of the total gain, , then the Wife shall share in said money, stock, option, portfolio grant, restricted shares, compensation, benefit or other consideration to the extent that she was entitled to share in the stock options, restricted stock and portfolio grants.
[6] If using a figure, it would represent an agreed upon sum which provides for 50% of the account balance that accrued between the date of marriage and the date of the filing of the Complaint and which takes into consideration the gain on the premarital portion. This figure is usually calculated by an expert unless the parties are willing to stipulate to a number.
[7] See Judith K. Fitzgerald & Ramona M. Arena, Bankruptcy and Divorce 1 (2d ed. 1994) (“When bankruptcy laws and divorce settlements and orders meet, they frequently clash.”).
For a thoughtful discussion of some of these issues, see generally, David N. Ravin et al., Bankruptcy and Divorce, in 2; Gary N. Skoloff & Laurence J. Cutler, New Jersey Family Law Practice 1973 (8th ed. 1996); Joseph M. Weinberg, The Bankruptcy Reform Act of 1994 — A Pitfall For the Unwary, 15 N.J. Fam. Law., (July 1995), at 86; Honorable John D’Amico, Jr. & Joseph M. Weinberg, Bankruptcy Law for the Matrimonial Practitioner, 142 N.J.L.J. 562 (Nov. 13, 1995).
[8] See In re Hursa, 87 B.R. 313, 316 (Bankr. D. N.J. 1988). See also Daeschler v. Daeschler, 214 N.J. Super. 545, 554, 520 A.2d 777, 781‑82 (App. Div. 1988) (“[W]e are satisfied that the protection and advancement of vested family interests affordable by means of a creative, effective and flexible equitable distribution plan is a desideratum far outweighing any claim of a levying creditor to the … minimal execution value of the debtor spouse’s interest in a tenancy by the entirety.”)
[9] Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). See also Kenneth D. Kemper, The Effect of Bankruptcy on Matrimonial Obligations Under the Old and Amended Bankruptcy Code, 244 PLI/Est 97, 99 (1996) (noting the conflict “between the rights of the receiving spouse to collect the sums agreed to or awarded for support, including both arrears of support and current support, and the rights of paying spouse to have a ‘fresh start’ and freedom from the obligation”). But see Hursa, 87 B.R. at 315‑16 (enumerating features of the Bankruptcy Code which are sensitive to family concerns).
[10] See 11 U.S.C. § 727. “This section is the heart of the fresh start provisions of the bankruptcy law. Subsection (a) requires the court to grant a debtor a discharge unless one of eight conditions is met.” House Report No. 95‑595, 95th Cong., 1st Sess. 384 (1977).
[11] See 11 U.S.C. § 523(a).
[12] These obligations are nondischargeable under the terms of 11 U.S.C. § 523(a)(5).
[13] At common law, men had an ongoing duty to support their wives and children. This duty was largely based on the presumption that women were less equipped to be self‑supporting. Sheryl L. Scheible, Defining ‘Support” Under Bankruptcy Law: Revitalization of the “Necessaries” Doctrine, 41 Vand. L. Rev. 1, 8-10 (1988). These traditional notions about support are gradually being eroded as women enter the work force in increasing numbers. See id. at 10 (stating that “[t]emporary support, in the form of rehabilitative alimony, frequently is promoted to encourage and facilitate self‑support and to eliminate a perpetual drain on a former supporting spouse”).With its emphasis on equitable distribution rather than alimony, contemporary family law shares with bankruptcy law a “fresh start” philosophy. See id. at 1, 3 (“[C]urrent family law policy attempts to afford former spouses a fresh start by promoting finality and peaceable resolution.”).