Agreeing on Legal Consequences


This course follows along with a sample separation agreement which can be downloaded here.

Likewise in paragraph 21, under this paragraph, separately from your statutory rights to inherit, you might be listed under a will, a trust, or life insurance, or you might be listed as a beneficiary on your spouse’s retirement plans. And this paragraph is saying that both of you are going to waive the right to continue to be the beneficiary under one another’s retirement, life insurance, wills, or trust.

Although we have this in here, it is still very important that you change the beneficiary designations if you want to do so on life insurance as well as retirement plans. With a signed separation agreement you should easily be able to change the life insurance and retirement plan designations, but you need to make sure that you do that if you would like to do so. Sometimes people, when they have children in common, want to continue to maintain their spouse as their beneficiary, but we want to instead, under these provisions, we’re recommending that you consider changing those beneficiary designations.

Paragraph 22 discusses the effect of reconciliation on a separation agreement. So what this paragraph says is, what happens if you sign a separation agreement, you separate, but then you reconcile, and then you separate again. Do we use the old separation agreement? Is it gone? Or are you able to use pieces of it? What’s happened after that separation agreement after reconciliation?

There’s actually many ways that we could address reconciliation in this agreement. This is one way. So any time you sign a separation agreement, you want to look very carefully at all of these separation provisions. But one way to address it is to say that the things that have already happened, like the property transfers that have already happened, those are the things that have been “executed”.  Those things will stay in place. The things that have yet to happen, so ongoing payments for alimony and child support, those things are up for negotiation.

That’s one way to resolve it, but there are many other ways that you can address reconciliation in this document. The effect of reconciliation is a very common paragraph to have in a separation agreement, and something to consider when you’re negotiating your separation agreement.

Now, paragraph 23 talks about transfers of property incident to divorce. This relates to the tax provision in the federal tax code, and it references section 10-41 of the internal revenue code, and that section says that transfers of property between spouses incident to divorce will not be considered taxable. So the idea is if you’re transferring property, it might be cash or it might be an account or it might be stock, even if you’re transferring it from one person’s name to another, we’re not gonna consider that a taxable event in and of itself because it is property and so theoretically, because it is marital property, both spouses owned a piece of that property already.

However, once the property is transferred and then there’s a sale, for example once stock is transferred and then there’s a sale of stock, the person who then sells it would have a capital gain or a capital loss, some kind of taxable event.

So it’s very important to think about when you’re making transfers of property. Are you transferring stock that still has hidden gain or does it have a hidden loss in it? Are you transferring retirement assets? When you’re doing that, make sure you’re not taking money out of the retirement plan because taking money out of the retirement plan is a taxable event. If we do a transfer of property otherwise from spouse to spouse, it’s not going to be. So keep that in mind when you are drafting a separation agreement.

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