This course follows along with a sample separation agreement which can be downloaded here.
Paragraph 13 in the agreement references a distributive award. Not every agreement is going to have a distributive award. This would only be the case when two spouses have agreed that in order to balance the property distribution, or maybe to pay somebody one half of the equity in the house, or maybe to find a way to reach an agreement in some way shape or form, one person has agreed to give a cash distributive award to the other person.
The idea behind this is that this is a way to balance the assets to 50/50. You don’t have to agree to a 50/50 distribution, a lot of people do agree to 50/50 but you’re not required to do so. So it might be that you’ve agreed to a 50/50 property distribution just by, you keep the assets in your name and your spouse keeps the assets in his or her name, and therefore there would not be the need for the distributive award.
The distributive award should be non-taxable because this cash that’s being distributed is money that is intended to pay somebody one half of the property that they already own. So once again, the distributive award is not a requirement, but it is something that we often do to balance the property to 50/50.