Frequently Asked Questions (FAQs)
What kinds of decisions are involved in divorce?
All of your decisions fall into 4 areas:
- how you will share your assets and debts (equitable distribution)
- the parenting arrangements for your kids (custody)
- how you will share the costs of raising the kids (child support)
- spousal support
Scroll down to “The Decisions” for more information.
What's the difference between mediation and arbitration?
A mediator helps the two of you identify the issues that need to be resolved and then helps you make your decisions. A mediator might offer creative alternatives to help you decide, but he or she does not make any decisions for you.
An arbitrator, on the other hand, does make decisions for you. Each of you would discuss your issues, and then the arbitrator would present what he or she feels is the best solution. Usually, the parties agree ahead of time that they will be bound to the decisions of the arbitrator.
What's the difference between mediation and collaborative law?
In collaborative law, the two of you meet along with your attorneys – all four of you together. The goal of the attorneys is to work together to help you get through your decisions more efficiently. It’s for couples who feel they need legal representation throughout the negotiation process but want to avoid litigation.
Some forms of collaborative law require a child therapist, a financial advisor, and perhaps other professionals to participate in the process.
You and your attorneys would agree in advance not to litigate. If either party chooses to go to court, both attorneys would be required to resign from the case, and you would hire different attorneys. (Of course, your goal is to avoid court.)
Collaborative law is not mediation. It does not involve a neutral party (a mediator). Its primary focus is based on matrimonial law. In mediation, while the mediator should make you aware of law, the primary focus is on what the two of you feel is fair and would work best.
And, of course, there’s the cost: paying two attorneys instead of one mediator for negotiating the terms of your divorce.
How should I choose a mediator?
Call your prospective mediator and interview him/her over the phone.
You have to feel comfortable with your mediator. Do you sense that he/she conveys the proper principles to you?
Experience is vital. Ask how many years he/she has been mediating.
If you believe that your case involves an unusual circumstance, mention it and see if you feel comfortable with the response. Don’t expect solutions to be offered during the interview, but listen for the approach that the mediator would take.
Make sure the mediator who you are interviewing is the mediator who will be handling your case.
Are there different styles of mediation?
Most approaches to mediation can be grouped into three styles: Facilitative, Evaluative, Transformative. When we are mediating a divorce, we use a “Facilitative” approach while borrowing some from “Evaluative” and “Transformative.” When we are mediating a commercial or civil complaint, we tend towards the Evaluative approach.
Facilitative: The mediator is helping the two parties make their decisions based on their individual definitions of fairness. The mediator helps the parties find common ground, proposes alternative approaches to resolving the issues, explains advantages and disadantages of various options. He/she will provide information but does not give advice, recommendations, or opinions. Basically, the mediator is helping the parties figure out what is fair but keeping in mind that each party has to make his/her own decisions and be solely responsibile for them.
Evaluative: The mediator plays a stronger role, making recommendations and giving opinions, stressing the pluses and minuses of proposals, pushing the parties to a decision.
Transformative: This approach tries to change/improve the relationship between the parties, concentrating on how they communicate and interact. When each party has a strong understanding of the other party’s issues and points of view, then they can come to agreements much easier.
You will see bits of each of the three styles in every mediation, but the mediation will tend towards one of the styles. And, as you might expect, the mediator’s own personality has a major effect on the process.
How many mediation sessions will it take? What's the cost?
The pace is set by you. We do not have a preset number of sessions. It depends upon (1) the complexity of your situation, (2) whether there are children, (3) how prepared each of you is for making decisions, (4) how well you communicate with one another.
For example, certainly there are more decisions to be made if you own a home rather than rent one. If you don’t have young children, only half the amount of time is needed. There are many decisions to be made concerning your children. Almost all of the decisions are easy to make, but there are lots of them, and they take time.
Each session lasts 2 to 3 hours, and we usually meet once per week or maybe every two weeks. But, again, you set the pace. If either of you is feeling that you need to stop after one hour, that is fine. And, if we are on a topic and progressing well, you might want to continue longer to finish it uninterrupted.
Most of our cases that involve children need 3 or 4 sessions to complete everything. The majority of our clients who have children spend between $2000 and $4000 on divorce mediation. [Military and low-income families receive a reduced rate.]
If you are not mediating and if you are using attorneys to negotiate, you can expect the cost to be more than $10,000. Attorneys generally ask for a $5000 retainer – and that’s for each of you.
What should we bring to our first mediation session?
- Basic information: [A form is available on this web site.]
- Full (and maiden) names of all family members.
- Addresses, telephone numbers, e-mail addresses.
- Marriage date, and birthdays of all family members.
- Social security numbers.
- Education, occupation, employer, income, benefits.
- A photo of your family
- Assets & Liabilities: [A form is available on this web site.]
- House: Approximate current market value. An appraisal is not needed at the first meeting.
- Mortgage: Mortgage company, account number, balance, date of balance.
- Retirement and pension plans: (details)
- Loans: (details).
- Credit cards: Bank, account name, account number, balance, date of balance (for every credit card, including those with a zero balance).
- Federal tax returnsW2’s, 1099’s, K1’s for last 3 years.
- Social Security summary of benefits.
- Credit reports from each of the three agencies
Once there is an agreement, does the mediator handle the legal papers for the divorce?
The mediator prepares a very detailed document containing all of the agreements that the two of you make. This document is called a Memorandum of Understanding (MOU), usually around 10 pages long. You would give this document to your attorney, and your attorney would review the agreements with you and, basically, convert your MOU into a Separation and Property Settlement Agreement – a legally binding contract, which must be signed by the parties in front of a notary public. You also have the right to prepare the Separation and Property Settlement Agreement yourselves without the use of an attorney. The time spent in coming to your agreements and the preparation of this document – done in mediation instead of through your attorneys – is where you are avoiding high attorney fees.
One person cannot act as both your mediator and as your attorney. If you were to choose an attorney to handle your mediation, you would have to find another attorney to review and prepare the Separation Agreement. (However, you are not required to use an attorney. You may write the final Separation Agreement yourselves.)
What about privacy?
There are two parts to this question:
(1) We, the mediators, do not share any of your personal information with anyone without your permission. Plus, if you were to go to court in the future to argue a point of the agreement (which we hope you will not do), anything said in mediation cannot be used as evidence in court.
(2) Your final Separation Agreement, which details the terms of your divorce, does not have to be recorded with the court. So, that document is not made public. And later, when you attend your 5-minute divorce hearing, the judge will not be asking you why you are divorcing. At that step, the judge cares only that you have been separated for a year. Nothing embarrassing is said in court, nothing personal is being made public.
What is a Memorandum of Understanding?
At the completion of the mediation, the mediator will prepare a document that details his/her understanding of what the two of you agreed upon. This is called a Memorandum of Understanding (MOU). It is not a contract, even though it might look like one. By state law, a mediator cannot write a contract for you because one person (the mediator) may not represent both sides of a contract. So, you would give the Memorandum of Understanding to your attorney, who would turn the Memorandum into a contract (the Separation Agreement) – or you can do this, yourselves, without using an attorney.
In what kind of cases will mediation NOT work?
- When one spouse is intent on harming the other (emotionally, financially, or physically).
- When one spouse feels abused (emotionally, financially, or physically) and fears retaliation from the other.
- If one of you is unwilling to present all asset documentation, or is hiding any assets.
- If one of you has a goal of financially harming the other person.
- If one of you fears physical harm from the other.
- If one of you simply cannot make decisions or is unwilling to take responsibility for your decisions.
- If one of you disregards temporary agreements in place during the mediation process.
- We’ve seen mediation sometimes fail if one party suffers from manic depression.
In fact, mediation is quite effective in situations where you might think otherwise. For example, if there is a lot of unrestrained anger, mediation is a much better alternative to using attorneys to litigate. Litigation tends to increase the anger, the threats, the attacks, while mediation tends to suppress them.
If a couple is already in a heated battle through their attorneys, totally switching over to mediation – midstream – is very effective in putting a halt to the aggression and helping the couple work together to resolve the issues more peacefully and more quickly.
The negotiation skills of each of you do not have to be equal. It is the mediator’s responsibility to balance the negotiating and to protect each of you from being overpowered by the other.
If we use a mediator and attorneys, won't it cost twice as much?
Using the combination of attorneys and a mediator actually should be cheaper than using attorneys alone. If you were not mediating, the bulk of the attorney fees (probably 90%) would be from trying to resolve the issues between you and your spouse and making all of the decisions. But, that is the part that will be accomplished in mediation. So, you’d be paying one mediator for the bulk of the work instead of your two attorneys. And, the mediator will be less expensive because your negotiations will be much more efficient, using much less mediator time than you would have used attorney time – because the two of you are discussing the issues face-to-face.
Most of our clients who have children spend between $1500 and $3500 on mediation. We have surveyed attorneys, who have told me that the fee to handle a non-mediated case would cost a minimum of $5000 – for each of the attorneys.
If we've already made our decisions, how can a mediator help us?
The mediator would review your decisions with you, for two purposes:
- Have you thought of everything? (For example, have you included a statement about survivorship rights in pension plans?)
- Are there some alternatives to your decisions that you have not thought of?
- Are your decisions equitable? (For example, an inheritance is not a marital asset, and you have the option of sharing it.)
Because you have written up everything yourself, your mediator would not need to write a Memorandum of Understanding. Instead, you could just edit your own document, based on the mediator’s comments.
After the divorce, can mediation still be helpful?
Disagreements can still arise after the divorce. Regardless of whether you used mediation before the divorce, mediation can still be used later. Perhaps one of you wants to change the amount of support being paid. Or maybe some item was omitted from the original agreement. The two of you are allowed to make decisions together without the use of lawyers or mediators or the court. However, if you cannot reach an agreement peacefully, then mediation probably will be able to help you.
Separation instead of divorce: Can we mediate that?
If you are choosing to separate for the purpose of taking some time to figure out if you want to be divorced, this is very different than separating only because you are required to be apart for one year before divorcing. The issues to be decided for a trial separation are very different than those for a divorce. Negotiating a trial separation is a specialty area of mine.
If you are separating for a while in order to determine if you want to get divorced, then an entirely new set of issues is involved. For this, we offer what we call a “structured separation.” The separation period needs to have a process in place that is aimed at helping you determine the answer to the big question: “Do I really want a divorce?” If you simply live apart just to see what it’s like, it is our observation that you will end up getting divorced. We are experienced in helping couples negotiate a plan that lays out the rules during the separation period and helps them study their relationship to see if they can make their marriage work.
Please read more at https://fairdivorce.com/structured-separation/
How do we divide our assets and debts?
North Carolina is an “equitable distribution” state. Basically, that means your assets and debts are to be shared in a fair manner.
In mediation, the two of you get to define “fair.” So, you may choose to do whatever you want with your assets.
- Some might be 50/50
- Some might be 60/40
- For some types of assets (for example, your cars), it might be “I keep mine; you keep yours.”
- You might trade one asset for another.
- Or you might say for an item, “You can keep it. I don’t need anything in return.”
How do we agree on parenting arrangements?
There is a lot to decide. It’s much more than just the overnight and holiday arrangements. What if one of you moves? How about when you start dating someone? Do baby sitters need to be approved? and on and on…
We’ll come up with the questions. We believe the answers are inside of each of you. With our experience over the last couple of decades, we will help you find those answers.
How do we figure out child support?
Basically, you have three choices.
- Use the North Carolina Child Support Guidelines. (During our mediation sessions, we will explain how the Guidelines work, so that you can decide if you want to use them.)
- Do budgets to figure out how much each of you will be spending on the kids, and then come to agreement on how to share the responsibility for sharing those expenses. (During our mediation sessions, we will suggest different ways of viewing this.)
- Come up with any other agreed method for sharing the financial responsibilities of the children. (Remember: This is mediation. You can agree on whatever you want!)
How do we figure out spousal support?
Basically, there are three parts to spousal support (alimony):
- How much?
- When does it end?
- How might it change over time?
But first, the two of you need to agree on whether there will be spousal support. This is not an automatic thing, and coming up with all of the terms is not easy. The state and the courts offer very little guidance on this. There is a list of 16 things to take into account, but it doesn’t say how to take them into account. And there are no guidelines and forms as there are for child support.
In mediation, we will guide you through a process to help you figure all of this out. To our (pleasant) surprise, our clients almost always find it simple to come to agreements as to whether there will be support and what the terms will be.
Here is a NC state statute related to spousal support.
What are the steps? Do we have to state a reason or cause for the divorce? Wait 12 months?
There are three parts to the divorce: • separating, • producing the Separation and Property Settlement Agreement, • filing for divorce and attending the hearing.
Some couples separate and then write their Separation Agreement, and other couples write their Agreement and then separate. It’s up to you. When one of you moves out, you are legally separated; you do not need a document declaring you to be separated. (Note, though, that after one of you moves out, you lose the right to enter the home without permission. However, you do not lose any other legal rights.)
The Separation Agreement lays out the terms of the divorce. It’s actually a poor name for the document. It has (almost) nothing to do with the two of you separating. Rather, it deals with how you will be dividing your assets, sharing your kids, etc. So, the Separation Agreement is really your “divorce agreement.”
Coming up with the terms of your divorce is what mediation is all about.
All of your agreements fall into 4 categories: dividing your assets and debts, parenting arrangements, child support, spousal support. Your agreements will be formally written as a Separation and Property Settlement Agreement. The document becomes a legally binding contract when signed by both of you in front of a notary public. (Note that a mediator writes a “Memorandum of Understanding” detailing your agreements. The MOU then needs to be reformatted as your Separation Agreement. Either you or your attorneys can create the Separation Agreement based on our MOU document.)
The Separation and Property Settlement Agreement does not have to be filed or recorded with the court; it does not have to be made public. An attorney can help you decide whether it would be helpful to file/record it. (Filing the Separation Agreement is not related to filing for divorce. We are using the term “filing” for two different purposes. Filing the Separation Agreement simply means having it recorded with the court. Filing for divorce is actually filing a law suit.)
Actually, you are not required to have a Separation Agreement. However, you do want one, and you want it signed and notarized prior to filing for divorce. Otherwise, you can lose a lot of legal rights.
The third step in getting divorced is to obtain your divorce decree – asking the court to declare an end to the marriage. After the two of you have lived apart from one another for a full year, then either of you can file for divorce. (Note: The one year begins when one of you moves out; it has nothing to do with the date when you sign your Separation Agreement.) Hopefully by this time the Separation and Property Settlement Agreement has already been completed and is in force. So, several months later you will file for divorce.
The divorce hearing is a simple 5-minute affair. The only question that the judge is required to ask is: Have you been separated for a year? The judge does not look at the Separation Agreement; you do not need to take it with you to court. (Note: Alternatively, your Separation Agreement can be incorporated into your divorce decree. The two methods of handling your agreement affects how it is enforced. You should consult with an attorney to decide if the Separation Agreement should be handled as a simple contract or if it should be incorporated into your divorce decree.)
Do you have to state a reason? The short answer is No. One of the following two “grounds” is required for obtaining the divorce decree:
(1) Separation: living separate and apart for one year with the intention of divorcing. You are not required to file for legal separation during this period. -OR-
(2) Incurable insanity.
The courts are giving you the reason for your divorce: you have not been together for a year; there is no relationship. The judge is not going to ask you for the real reason. Nothing embarrassing is said in court, there is no arguing
[If the two of you cannot agree to separate, if necessary you can file and ask the court to declare a “legal separation” (also called “divorce from bed and board”). Your goal in mediation is to avoid this. But if necessary, a court can order a legal separation under one of the following grounds:
(2) Maliciously turning the other out of doors.
(3) Cruel or barbarous treatment that endangers the life of the other.
(4) Offering such indignities to the person of the other as to render his or her condition intolerable and life burdensome (mental cruelty).
(5) Becoming an excessive user of alcohol or drugs so as to render the condition of the other spouse intolerable and the life of that spouse burdensome.
Do we have to have a Separation Agreement?
No. But it is strongly encouraged. This agreement is a written, binding, enforceable contract for how you are dividing your assets and debts, what all of the parenting arrangements are, how the two of you will share the financial responsibilities for the children, and whether one of you will receive spousal support.
Note: If you do not have a Separation Agreement (or you have not filed a complaint with the court) before you file for divorce, the granting of the divorce will permanently cut off any future claims for distribution of assets or spousal support by either party.
Do we have to use attorneys?
The short, technical answer is No. BUT, we strongly encourage you to use attorneys in addition to your mediator… for any legal questions that you might have, for advice from other viewpoints, and to review the terms of your agreement. Some decisions in a divorce can be quite difficult, and it is best to have a few sources of opinions. Getting divorced is one of your few major life actions. You want to be sure that all of the legalities are proper.
Other reasons for using an attorney: •preparing “trusts” • reviewing tax effects • preparing QDRO’s • determining if court orders or consent orders are needed.
Both of you cannot share an attorney. An attorney is not allowed to represent both sides of a case. Also, one person cannot act as both your mediator and as your attorney. If you were to choose an attorney to handle your mediation, you would have to find another attorney to review the agreement (if you choose to use a review attorney).
We ask our clients to select an attorney about halfway through the mediation process, or earlier. Normally, you do not need an attorney when you begin mediation, but you don’t want to wait until the last mediation session to select an attorney. Your attorney is part of your support team, for answering legal questions and for confirming anything that you question.
At our first mediation session, we will discuss how to select an attorney. Most importantly, you must determine whether your attorney is supportive of mediation.
Please note: If you suspect your spouse is hiding or disposing of assets, or if abuse is involved, you should seek the help of an attorney immediately, regardless of whether you will be using a mediator.
AND a piece of advice: Do not accept legal advice from your spouse. The odds are, what you are hearing is not true. Your spouse’s attorney is trying to build up your spouse, not you. Plus, we find that people often misinterpret what their attorneys tell them. While we’re on the subject, don’t take legal advice from friends, either. Get your own attorney.
How do I select an attorney?
Each of you probably will be hiring an attorney, in addition to your mediator. But your attorney’s role is limited to providing legal advice, reviewing your agreement, preparing your final version of your Separation Agreement. Negotiating the terms of your divorce, though, is done with your mediator.
So, you’ll have to interview attorneys to find one who you are comfortable with. You might be able to interview attorneys in a telephone call. We have not found any attorneys in NC who offer a free consultation. Usually, you do not need to have your attorney in place before you begin mediation (unless immediate action is required in order to protect yourself physically or your assets from being drained away). You don’t want to wait until the end of the process, either. We ask our clients to have their attorneys retained no later than halfway through the mediation process.
Here are some questions you can ask an attorney in a telephone interview:
- How many divorces have you handled in the last year? [If you are going to hire an attorney, it must be a matrimonial attorney!]
- How do you feel about mediation? [Any negativity probably means you should call someone else.]
- If we are using a mediator, what would your retainer fee be? [Should be between $1000 and $2000 if you are mediating. Expect $5000 if you are not mediating.]
- What is your hourly rate? [Will probably be between $180 and $300.]
- How do you charge for telephone calls? [Usually in 6, 10, or 15 minute increments.]
How is the attorney paid?
This is something that the two of you should agree on at the beginning of mediation. Are the attorneys paid out of marital assets (which is the same as saying that the costs will be shared equally)? Will one of you pay all of the fees (which would be deducted from that person’s half of the marital assets)? Would the fees be shared up to some limit?
If a trial is necessary (but we hope not), one spouse may be ordered by the judge to pay some portion of the other spouse’s legal fees. The court can award attorney fees incurred for the custody, child support, and spousal support claims but not for the divorce from bed and board, absolute divorce, or equitable distribution claims.
Do we have to appear in court?
This actually varies from county to county in North Carolina. In most counties, the person who filed needs to appear or have an attorney appear for him/her. If one of you will be appearing, then we strongly encourge both of you to appear. Some counties allow the entire process to be handled through the mail with no court appearance. (If only one of you appears, then you would be asking for a “default judgement.” If your attorney goes along, you would be asking for a “summary judgement.”).
Do we have to be a resident of NC? Where do we file? What is the cost?
To file for a divorce, either spouse must have been a resident of the State of North Carolina for at least six months. The divorce proceedings will be in the county where either party resides. [Based on NC General Statutes, Chapter 50, Sections 50-3 and 50-8]
The filing fee for the divorce itself is $225. (Any other filings would be additional, such as recording your Separation Agreement if you choose to do so.)
Military divorces: what are the issues?
From a technical point of view, military divorces cover the same issues and have the same guidelines as any other divorce. There is a significant difference, though, in how retirement and health benefits are handled. Also, different emotional issues need to be considered. And the availability of the parties will affect the timing of the mediation sessions.
Art has a speciality in mediating divorces involving military personnel.
Military families should click here for more information on “military divorces.”
How much child support will I have to pay?
In mediation, the question is not “How much will I have to pay?” A more appropriate question is, “How much is needed from me to help support our children?”
In mediation, we guide you through a process that helps the two of you derive an amount that both of you feel is appropriate and fair.
NC Child Support Guidelines Worksheets: The state provides a “calculator” in the form of worksheets to help you determine an amount for child support. If the two of you leave it up to the court to decide the amount, these Child Support Guidelines Worksheets would be used. However, you can choose to derive your own numbers in place of the Guidelines numbers.
The Worksheets take a very impersonal approach that considers the “average” family. But, your family is not average, and a more meaningful number can be arrived at by the two of you. In mediation, we use the Worksheets only as a guideline – an approximation of what the child support amount should be.
Click here for more information about the NC Child Support Guidelines.
How do we tell the children?
There is no single, easy answer to this question. How to handle this varies from child to child. You will have to figure out the best approaches to take with each of your children. We want to encourage you to ask your therapist or to seek out a child therapist to help you find an appropriate approach.
Articles often appear on the Internet. Try searching for “divorce tell the children”.
What is a Parent Coordinator (PC)?
A Parent Coordinator (PC) is used generally in high-conflict cases. Either the court assigns a PC to a case or the parents agree on using a PC. The PC has the court’s backing to make decisions in specific situations when the parents cannot agree. Usually, the PC is used for small quick decisions and is available by telephone 24/7. The PC cannot make permanent changes to a custody agreement or order without authority from a judge but can make recommendations on his/her own order for changes. The PC is not in a neutral role but is an advocate for the children. Confidentiality is not promised.
Question: Which is more appropriate: a PC, a family therapist, or a mediator? Different situations call for different means.
Are child support and spousal support tax-deductible?
Child support is not tax-deductible. You would be supporting your child whether you were divorced or not. When filling out tax forms, the payer does not deduct it from income, and the receiver does not add it to income.
With spousal support, you have an option. The payer can take the amount as a tax deduction, in which case the receiver must report it as taxable income. …OR… The payer can choose to not take the tax deduction, in which case the receiver does not report it as income. The two of you need to agree, in writing, on which of these alternatives will be used.
Selling the house: Capital Gains
If the two of you own a house together, you will have to decide if you are going to sell it, or if one of you is going to buy the other’s half share of the house.
Here’s a summary of the tax effect:
- Each party has a $250,000 tax exemption from the profit.
- To take advantage of the exemption, you must have been in the principal residence for 2 out of the previous 5 years.
- You can reapply the $250,000 on the sale of another home every 2 years; if sooner, it is prorated.
- If a couple jointly own the house after divorce, and if one of them qualifies for the $250,000 because he/she has occupied the house 2 out or 5 years, then the other spouse also qualifies for the $250,000 exemption.
- If one partner buys half the house from the other during the first year after the divorce, the basis on the original half is the original basis of that half; the basis of the 2nd half is the selling price. In this case, the seller (the owner of the first half) pays no tax.
Social Security: How is it affected by divorce?
From the Social Security Administration (more information is available at www.ssa.gov):
Changing your name on your Social Security card: If you change your name, be sure to tell both Social Security and your employer. This will assure that your earnings will be properly reported by your employer and recorded in our records. You can get a new card from Social Security with your new name.
How divorce affects your future retirement benefits: If you are divorced after at least 10 years of marriage, you can collect retirement benefits based on your former spouse’s Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits based on your former spouse’s record unless your later marriage ends (whether by death, divorce, or annulment). Your ex-spouse will receive his/her full benefits; he/she will not be affected by your action here.
How divorce affects survivors benefits: If your divorced spouse dies, you can receive benefits as a widow/widower if the marriage lasted 10 years or more. Benefits paid to a surviving divorced spouse who is 60 or older will not affect the benefit rates for other survivors receiving benefits.
How remarriage affects survivors benefits: In general, you cannot receive survivors benefits if you remarry before the age of 60 unless the latter marriage ends, whether by death, divorce, or annulment. If you remarry after age 60 (50 if disabled), you can still collect benefits on your former spouse’s record. When you reach age 62 or older, you may get retirement benefits on the record of your new spouse if they are higher. Your remarriage would have no effect on the benefits being paid to your children.
How retirement affects survivors benefits: If you are collecting survivors benefits, you can switch to your own retirement benefits (assuming you are eligible and your retirement rate is higher than the widow/widower’s rate) as early as age 62. In many cases, you can begin receiving retirement benefits either on your own or your spouse’s record at age 62 and then switch to the other benefit when you reach full retirement age, if that amount is higher.
There are many types of retirement plans. Each has its own method for how funds are added to it, who adds the funds, when they are taxed, how they are transferred. All of them, though, have the same considerations in divorce negotiations: The portion of the retirement plan that was earned during the marriage, and all growth of the investment related to that portion, is a marital asset and is eligible for division between the parties. It doesn’t matter when the funds are received – only when they are earned. For example, if someone began employment with a pension plan in the 5th year of a 20-year marriage, and retired 10 years after the divorce, the first 15 years of that pension covering 25 years of employment belong to both parties. However, figuring out the value of those 15 years is sometimes difficult.
IRA: Retirement savings invested by individuals (outside of the workplace).
401(k): Retirement savings invested by employees, usually through payroll deductions.
Defined benefit plan: This is the type of retirement fund in which the employee will receive a fixed amount of income per month after retirement. The amount received is usually dependent upon how many years of employment there were, and how much the employee was earning during the last few years. Generally, private sector funds do not require employee contributions to the fund, whereas public sector funds usually do. Usually, there are penalties in the form of reduced monthly payments if retirement occurs before a certain age and/or a certainly number of years of employment. The employee has no control (and does not need any control) over how the plan might be invested. Income from the plan is taxed when received. Determining the marital value is difficult.
Defined contribution plan: This is quite different from a defined benefit plan. With a defined contribution plan, usually both the employee and the employer make contributions to the employees fund. The employer (and the IRS) sets up rules on how much can be added by the employee and employer. The value of the plan also grows, depending on how the fund is invested. The employee’s contributions to the plan are tax deductible, and are taxed when received after retirement. The following are generally considered to be types of defined contribution plans: 401(K) plans, 403(b) plans, employee stock ownership plans and profit sharing plans.
Cash balance plan: This is very similar to a defined contribution plan. Each year, the employee’s account is credited with a pay credit and an interest credit. The pay credit is a percentage of salary. The interest credit is added each year, as defined by the plan. So, the value of the plan is equal to the amount that is in the fund at any given time. The employee can take the account as a lump sum or an annuity when employment ends, if vested as per the rules of the plan. The payout does not take into account the employee’s age or number of years with the company.
IRS Publication 504, “Divorced or Separated Individuals,” is available at http://www.irs.gov/pub/irs-pdf/p504.pdf. It covers the following:
- Filing status: joint, separate, single, head-of-household
- Exemptions for the children
- Spousal support – when is it not deductible?
- Retirement funds [IRA’s are treated differently than 401(k)’s]
- Transferring assets
- Who gets to deduct the mortgage interest on the house?
- Selling the house
We are discussing divorce and are interested in mediation to avoid excess costs and animosity. We own a house and I'd like to know if we should put the house on the market before we begin mediation.
In a mediation session, we might consider various alternatives regarding the house. There might be an option in which it could work out better financially (or emotionally, for the kids) if one of you were to remain in the house. Because no decisions are absolute yet, we would recommend that the house not be put up for sale until we can look at the whole picture.
Of course the cost, but especially the animosity. Mediation provides an approach to making all of the decisions related to your divorce, with a charge of not making things any worse than they already are — and maybe even improve the relationship. Your children need to see that the two of you can be ok with each other after the split-up.