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<P ALIGN="JUSTIFY">Paula James is an attorney and mediator as well as a nationally-recognized leader in family law mediation. After practicing family law in Austin, Texas for over 10 years, she became convinced that mediation was a better option than the traditional adversarial approach to divorce and became a pioneer in the new mediation movement. Since 1992, she has been a full-time divorce mediator and has mediated over 600 divorces during that time. </P>
<P ALIGN="JUSTIFY">Ms. James has published three books in this field, the most recent being <U>The Divorce Mediation Handbook</U> (Jossey-Bass, 1997). She has served as Chair of the Travis County Family Law Section and of the Family Law Subsection of the Travis County ADR Section. She has traveled extensively around the country training other attorneys and mediators in the art of divorce mediation. And she has created and chaired a host of projects to reduce the financial and emotional costs of divorce.</P>
<H2>Is There a Friendly and Inexpensive Mediator?</H2>
<P>You have two options for keeping your expenses to a minimum:</P>
<P>* <A HREF="#self">doing the legal work yourself</A> and </P>
<P>* <A HREF="#med">mediation</A>.</P>
<P>Doing the work yourself is not an option unless you have a <I>very</I>
simple divorce. The other alternative, mediation, is quickly gaining in
popularity because it gives the couple the advantage of legal expertise
but at a much lower price than the traditional adversarial setting. I'll
discuss both options below.</P>
<P><A NAME="self"></A></P>
<P><B>Simple Divorce</B></P>
<P>If you have a very simple divorce--no children and no property--you may
want to handle your divorce without a lawyer’s assistance. By no
property, I mean no house, no retirement benefits, no business--nothing
other than vehicles, cash and household goods. However, even if you fit
this description, you probably shouldn't attempt your own divorce if you
have significant credit card debts.</P>
<P>In managing your divorce, you will need to prepare several legal
documents--a Petition, a Waiver, and a Final Decree--and you may find forms
for these at the courthouse library or on the Internet. Also, I know that
some commercial enterprises offer these forms; however, my own experience is
that the forms you can buy or downloaded are ussually not properly drafted.
I don't recommend using them.</P>
<P>Even with a very simple divorce, you will probably find that preparing
the documents is complicated and time-consuming. And if you have any
property, significant debts, or children, you should not even try. You may
well end up with paperwork that the judge will not accept--meaning you
went to a lot of trouble for nothing--or you may make such a mess of
things that you'll pay lawyers a great deal of money to straighten it out.</P>
<P>I'm sorry to tell you that the legal system is so complicated that you
probably can't manage this on your own, but that is the truth. </P>
<P>I participated in an effort in Travis County to make forms for simple
divorces available for free at the courthouse, along with an explanation
for their use. I hope that these forms will soon be available at the
Travis County courthouse. </P>
<P>Meanwhile--or if you live in another county-- please contact me if you
would like assistance with a simple divorce.</P>
<P>If your divorce is more complicated--and most are--you might consider
a mediator as a way to keep the fighting and expense to a minimum. </P>
<P><A NAME="med"></A></P>
<P><B>Mediation: Save Money and Avoid a Fight</B></P>
<P><B>What is mediation?</B></P>
<P>Mediation is a way for you and your spouse to sort out the terms of your
divorce by agreement, with a neutral person helping you understand the
legal issues and work through any disagreements. Mediation avoids the
expense and ugliness of a court battle and lawyers haggling over your
children and property. It keeps you and your spouse in control of the
process and gives you the chance to find solutions that work for both of
you. Thus you avoid having a judge decide your future, you maintain a
decent relationship with your spouse, and you save a lot of money.</P>
<P>The courts in Travis County like mediation so much that they now require
ALL cases to be mediated before going to trial. </P>
<P>If you go the traditional adversarial route, each of you will retain an
attorney, who will shepherd you through the legal maze and negotiate with
your spouse’s lawyer. This method has the advantage of protecting you
from direct contact with your spouse in the legal maneuvering of the
divorce. Your lawyer speaks for you, gives you advice, and sees to it that
you get the best possible "deal" regarding your property and
children. Unfortunately this process usually adds up to a great deal of
money and often creates more conflict than you started with. For some
couples it is necessary, but for most it is unnecessarily expensive and
abrasive.</P>
<P>A mediator offers an alternative. If your mediator is a family law
attorney, s/he can offer you a great deal of information about the law,
help you sort through your options and reach an agreement, and then
prepare your paperwork for you. In this process, the mediator remains
neutral, representing<I> neither</I> party.</P>
<P>The mediator may require that you both consult with independent counsel
at some point during the mediation to be sure that you are clear about
your legal rights, have thought carefully through your agreement, and are
adequately protected by the paperwork drafted by the mediator. Even with
this separate legal counsel, you will probably still save a great deal of
money. When you are mediating, you don't need to <I>retain</I> an
attorney; you just <I>consult </I>with a lawyer and pay her or him for
the time of that consultation.</P>
<P>For more information about mediating your divorce, you might check out
<I>The Divorce Mediation Handbook </I>(Jossey-Bass, 1997) by Paula James.
It's available at your local bookstores or through <B><I><A HREF="http://www.Amazon.com">www.Amazon.com</A></I></B>.
</P>
<P><B>How Do I Find a Mediator? </B> <BR>Here are some places to look for a mediator:</P>
<P>* the Yellow Pages--look under attorneys (who advertise as mediators)
and under Mediation Services </P>
<P>* the Internet</P>
<P>* friends who have used mediation</P>
<P>* your lawyer, if you have one</P>
<P>* your therapist.</P>
<P>If you live in Travis county, or nearby, I hope you will also give me a
call. Even if you live elsewhere in the state, I may be able to help. I
have mediated over 600 divorces and written three books on divorce
mediation. The most recent, <I>The Divorce Mediation Handbook</I>
(Jossey-Bass, 1997) is available at your local bookstores or through <B><I><A HREF="http://www.Amazon.com">www.Amazon.com</A></I></B>.</P>
<H2><B>What are my legal rights in a Texas divorce?</B></H2>
<DL>
<DT><A HREF="#cu">Custody</A></DT>
<DT><A HREF="#ti">Time with my children</A></DT>
<DT><A HREF="#cs">Child support</A></DT>
<DD><A HREF="#hm">How much will it be?</A></DD>
<DD><A HREF="#hp">How is it paid?</A></DD>
<DD><A HREF="#end">When does child support end?</A></DD>
<DD><A HREF="#amt">Will the amount change over time?</A></DD>
<DD><A HREF="#col">Does it cover college?</A></DD>
<DD><A HREF="#ch">What if I have children from another marriage?</A></DD>
<DT><A HREF="#pd">Property division</A></DT>
<DD><A HREF="#cp">What’s community and what’s separate
property?</A></DD>
<DD><A HREF="#os">What about property we acquired in another state?</A></DD>
<DD><A HREF="#div">How is it all divided up?</A></DD>
<DD><A HREF="#deb">Who pays which debts?</A></DD>
<DD><A HREF="#pen">What about purchases and debts acquired while the
divorce is pending?</A></DD>
<DT><A HREF="#al">Alimony</A></DT>
<DT><A HREF="#tax">Taxes</A></DT>
<DT><A HREF="#rb">Retirement benefits</A></DT>
</DL>
<P><A NAME="cu"></A></P>
<H3>CUSTODY OF THE CHILDREN</H3>
<P>Most people think "custody" means which parent has possession
of the children most of the time. In Texas, it doesn’t mean that. It
means which parent has the right to make major decisions about the
children--such as which school they go to and what doctor they see. How
the children's time with each parent is allocated is a completely separate
matter.</P>
<P>Traditionally, one parent was named Managing Conservator and one was
named Possessory Conservator. The Managing Conservator had the right to
make these major decisions regarding the children's health care,
education, and so forth.</P>
<P>However, as of September 1, 1995, the legal presumption in Texas is that
the parents should be named <B>Joint Managing Conservators.</B> That
means that the rights and powers of a parent are somehow to be divided
between the parents or exercised by agreement. When Joint Managing
Conservatorship <I>is</I> awarded, the parties or the judge must decide
and write into the decree how those rights are to be exercised.</P>
<P><A NAME="ti"></A></P>
<H3>TIME WITH YOUR CHILDREN</H3>
<P>(In Texas, we call this “Periods of Possession.”)</P>
<P>The parties are free to work out any schedule for each parent's time
with the children that works for everyone. Indeed, the Court encourages
the parents to arrange periods of possession by agreement and to stay
flexible to adjust to circumstances. However, we must put into the decree
a schedule for what happens if the parties can’t agree. It's hoped
that the parents will agree on a written schedule to be placed in their
decree, but if they don't and the judge must order a schedule, the judge
usually orders "standard periods of possession." </P>
<P>If the parents live within 100 miles of each other, this standard
schedule allows for possession by the “visiting” parent:</P>
<UL>
<LI>on the 1st, 3rd, and 5th weekends of each month from 6:00 P.M.. (or
the time school is out) on Friday until 6:00 P.M. on Sunday </LI>
<LI>one week night each week from 6 P.M. (or the time school recesses)
until 8 P.M..(or the time school starts the next morning) </LI>
<LI>alternate Thanksgiving and Spring Break holidays </LI>
<LI>1 week at Christmas </LI>
<LI>time on each child's birthday </LI>
<LI>Mother's Day or Father's Day week-end and </LI>
<LI>30 days in the summer. </LI>
</UL>
<P>If this parent lives farther away, the weekend and week-day periods may
be omitted or modified, and he or she is given every spring break and 6
weeks of summer possession. </P>
<P>Remember, though, that we can put into your Decree any schedule that
works for you and your family. You don’t have to use the “standard”
periods if you don’t like them.</P>
<P><I>Restricted Visitation</I>. Sometimes one parent believes that the
other's time with the children should be restricted to less than the
standard periods either because the children are very young or because one
parent doesn't trust the other to take proper care of the children. This
restriction might, for example, mean no overnight periods of possession,
not taking the children out of the country, or supervised possession. If
the other parent doesn’t agree to this restriction, the Court will
order it only if the Court finds that such limitation is necessary for the
safety of the children. </P>
<P><I>Children Younger Than Three</I>. The Court will, however, often
restrict overnight possession or lengthy summer periods for infants or
very young children. <B>The standard schedule described above applies
only to children three years old or older.</B></P>
<P><I>Do the Children Get to Determine the Schedule? </I>Parents often ask
if a child must go with the other parent if the child doesn't want to. The
answer is "yes." The child should be encouraged to maintain his
or her relationship with both parents, and each parent must turn the child
over to the other as ordered unless to do so would endanger the child.
However, we sometimes include in the decree a provision that teen-age
children shall have a voice in determining the possession schedule so that
it doesn't interfere with their other activities. If you think this is a
good idea, talk to your lawyer or mediator about it.</P>
<P><I>Exchanging the Children</I>. Sometimes the exchange of the children
becomes acrimonious. Especially during the first couple of years after
divorce, parents may vent their anger at one another while picking up the
children. Even if this anger is muted or even silent, the children
understand the sullenness, curtness, slammed doors and other signs of
parental animosity. And it is hard on them.</P>
<P>Many cities have a non-profit organization that provides a neutral site
for exchanging children and a way for the parents to avoid personal
contact. One parent drops the children off and the other parent picks them
up a few minutes later.</P>
<P>In Austin, Kids Exchange, Inc., at 503 West 14th Street, offers such
services on a sliding-scale fee. Call 472-3855 for more information.</P>
<P>If you want the use of Kids Exchange or other neutral site to be a legal
requirement, tell your attorney or mediator.</P>
<P><A NAME="cs"></A></P>
<H3>CHILD SUPPORT</H3>
<P><A NAME="hm"></A></P>
<P><B>How Much Will It Be?</B></P>
<P>Texas child support guidelines create a presumption that the Possessory
Conservator or one of the Joint Managing Conservators should pay a certain
percentage of his or her net resources in child support. "Net
resources" is all income after taxes (federal income tax withholding
for a single person claiming one personal exemption and the standard
deduction), social security, union dues, and health insurance for the
children are subtracted. The guidelines provide for the following
percentages, depending on the number of children:</P>
<OL>
<LI> one child -- 20%; </LI>
<LI> two children -- 25%; </LI>
<LI> three children -- 30%; </LI>
<LI> four children -- 35%; </LI>
<LI> five children -- 40%; and </LI>
<LI> six or more children -- not less than the amount for five children.
</LI>
</OL>
<P>This percentage is calculated at the time of divorce and does not
automatically adjust as incomes change. It is fixed until you return to
court and ask for a modification.</P>
<P>These guidelines apply only to the first $6,000 of the monthly net
resources. The court presumes that the appropriate percentage of $6,000 is
adequate support, and it is up to the receiving parent to convince the
court that the children need more. If the paying parent nets considerably
more than $6,000 a month and the children's needs justify higher child
support, the court may order higher support.</P>
<P>The court also usually orders that the paying spouse pay the cost of the
children's medical insurance and that each parent pay one-half of all
uninsured medical expenses.</P>
<P>The income of the custodial parent may be considered in setting child
support, but it will probably have little effect.</P>
<P><A NAME="hp"></A></P>
<P><B>How Is It Paid?</B></P>
<P><I>Can I give the support directly to the other parent?</I> No. All
child support payments must be made through the court. In Austin, that’s
the Travis County Domestic Relations Office (“DRO”) (473-9696),
which receives all payments and helps to resolve disputes regarding
nonpayment of child support and denial of possession. If you encounter
such a problem, you can contact that office to help you enforce your
rights, for no charge.</P>
<P><I>Must the Child Support Be Withheld from My Earnings?</I> Yes. All
child support payments are to be withheld from the payor's paycheck unless
the payor is self-employed. However, we can add language that the
withholding order will not be mailed to the employer unless the payor does
not pay support on time. If you want such language, be sure to tell your
attorney or mediator. The Order to Withhold will still be drafted and
signed by the judge (as required by law), but it will not be submitted to
the employer unless a payment is late.</P>
<P>The employer receives a separate court order requiring it to withhold
the appropriate amount of support from each paycheck. For example, if the
child support award is for $500.00 per month and the Payor is paid twice a
month, the employer will withhold $250.00 from each pay check and mail it
directly to the Domestic Relations Office of the county. The county will
make a record of the payment, put the check into another envelope, and
forward it immediately to the receiving parent.</P>
<P>The employer is ordered to begin withholding child support immediately
upon receipt of the court order, but if your divorce date is very close to
the next pay period, the child support may not be withheld from that first
paycheck. If that's the case, the paying parent must pay the amount that
should have been withheld to the Domestic Relations Office, which will
forward it to the other parent.</P>
<P>If the receiving parent wants, DRO will deposit the payment directly to
a bank account.</P>
<P><A NAME="end"></A></P>
<P><B>When Does Child Support End? </B></P>
<P>Child support must be paid until the child is 18 or finishes high school
(if the child turns 18 before that), so long as the child is a full-time
high school student--unless the child is disabled.</P>
<P>If you have a child that requires substantial care and personal
supervision because of a mental or physical disability and cannot or will
not be able to support himself, the court may order that child support for
that child continue after his or her 18th birthday for an indefinite
period. Tell your mediator or lawyer if this could apply to any of your
children.</P>
<P><A NAME="amt"></A></P>
<P><B>Will Child Support Change Over Time? </B></P>
<P>If you have more than one child, the child support obligation will drop
as each child reaches 18 and finishes high school. For example, if you
have three children, your child support obligation will normally be 30% of
your net resources. But that amount changes to 25% when the oldest child
is emancipated and then to 20% when only one child remains.</P>
<P>You can also return to court at any time and ask for an increase or
reduction in your child support--if the Payor’s income or the
children’s expenses have changed significantly.</P>
<P><A NAME="col"></A></P>
<P><B>Does Child Support Cover College? </B></P>
<P>Parents often wonder if they can obligate the other parent to help pay a
child's college or other expenses after the child is 18. Unless a child is
disabled, the judge cannot order either parent to pay the child's expenses
after age 18 because there's no legal duty for a parent to support a child
after that age. However, the parties can agree by contract to pay those
expenses, that agreement can be included in your divorce decree, and it's
enforceable as a contract. That agreement must be voluntary; it cannot be
required. If you want to have this agreement included in your decree, tell
your lawyer or mediator.</P>
<P><A NAME="ch"></A></P>
<P><B>What If I Have Children from Another Marriage? </B></P>
<P>Will the court take your children from another marriage into
consideration when setting your child support obligation? Yes. The
legislature has adopted child support guidelines which factor in your
child support obligation for other children. The formula is too
complicated to explain here, so be sure to discuss this issue with your
mediator or lawyer.</P>
<P><B>What if One of us Remarries?</B></P>
<P>Remarriage will normally not affect the amount of child support--unless
the paying spouse has more children; then it might. (See the previous
paragraph.). </P>
<P>The income of new spouses is not considered.</P>
<P><A NAME="pd"></A></P>
<H3>WHO GETS WHAT PROPERTY?</H3>
<P><A NAME="cp"></A></P>
<P><B>Separate and Community Property</B></P>
<P>At divorce, all of the property the two of you own must be divided
between you. The first question to ask in deciding how to do that is, "Is
the property community or separate?"</P>
<P><I>Community property</I> is all of the property the two of you have
acquired during the marriage due to your earnings. <I>Separate property</I>
is any property you owned before marriage or have acquired by gift or
inheritance. (If you received any money from a law suit, your lawyer will
discuss with you whether it's separate or community.)</P>
<P>Separate debts are (1) debts incurred before marriage and (2) debts
incurred during marriage but secured by the separate property of one
spouse with the statement of the lender to look only to that spouse's
separate property for security.</P>
<P>All separate property and separate debts are automatically awarded to
the spouse whose name they are in. The other spouse has no claim on the
property and no obligation for the debts.</P>
<P>Community property is usually divided fairly evenly between the two of
you, just as are all community debts. However, if you don't agree on the
division of property and the judge must decide, the judge will have some
discretion in dividing the property unevenly. If one spouse has a lesser
earning capacity than the other, the judge will probably take that into
account and award that spouse somewhat more than half of the community
property. The judge may do the same for an innocent spouse who has
suffered from the other's abuse, mismanagement of funds, or egregious
conduct that caused the divorce. More uneven divisions may be made in
unusual circumstances, such as the disability of a spouse or a child.</P>
<P>Also, if community assets were used to make payments on one spouse's
separate property, the community may have a right to be reimbursed for
that expense. For example, if the husband owned before marriage the home
that the spouses live in, and during the marriage the spouses made
payments on the house from their earnings, the wife may be entitled to
some reimbursement for those payments at divorce. However, any benefit she
received (for example, living rent-free and tax write-offs) must be
subtracted from the reimbursement.</P>
<P>Similarly if one spouse's separate property contributed to the community
estate or to the other spouse's separate estate, that contributing spouse
may be entitled to reimbursement.</P>
<P>Figuring out whether property is separate or community and whether there
is any right to reimbursement can be complicated. Be sure to tell your
lawyer or mediator if there is any question as to whether any property is
community or separate.</P>
<P><A NAME="os"></A></P>
<P><B>Property Acquired While Living in Another State</B></P>
<P>Texas law provides that, if you divorce here but have property acquired
while living in another state and that property would have been community
property if it had been acquired in Texas, the court shall treat it as
community property.</P>
<P><A NAME="div"></A></P>
<P><B>How to Divide the Property</B></P>
<P>Whenever possible, the community property should be divided at divorce
so that each party gets a fair share. This is done by deciding what each
asset is worth and then dividing everything up so that each person gets
property of approximately equal value. When cash or other liquid assets
are involved, it's easy to make such a division.</P>
<P>If an asset cannot be divided or you don't want to divide it, you can
give it to one spouse and give something of similar value to the other.</P>
<P>Parties often get into arguments about who gets the lawn mower and
whether the bed is worth more than the refrigerator. Such arguments can
cost more in lawyers' or mediator's fees than the property is worth, so
it's best to be prepared to be reasonable and willing to compromise.</P>
<P>Sometimes there's no way to divide an asset evenly. For example, you may
own a home or a family business which constitutes most of your community
assets. If one of you takes the house, the other can't be compensated with
something else of equal value. This problem can be dealt with in various
ways. One of you may be given a lien against the house to be paid off over
time or when the house is sold, or you may continue to own the house
together after the divorce with an agreement to sell it and split the
proceeds or loss.</P>
<P>Check out the Property Spreadsheet under “<A HREF="tools.html">Helpful
Tools</A>” for more information about your property division.</P>
<P><A NAME="deb"></A></P>
<P><B>How to Divide the Debts</B></P>
<P>One party may receive more than half of the community assets if s/he
also takes a compensating extra share of the debts. It's the <I>net</I>
share of community property that matters.</P>
<P>For example, you might consider giving your spouse $5,000 more in assets
and balancing it out by also giving him or her the $5,000 joint Visa debt.
But if your spouse doesn't pay that debt, Visa can sue you for the amount
owing because the creditor is not bound by the division of property in
your decree. Therefore, it's not a good idea to balance out the division
of property by giving your spouse debts that s/he may not pay.</P>
<P>One way to solve this problem is to roll the credit card debt into a new
account in only that spouse’s name. This is a very good thing to do
if you can, i.e., if that spouse has the credit to do it.</P>
<P><I>The House Mortgage</I>. Suppose you've agreed that your spouse will
keep the house after divorce. Are you still liable for the mortgage, and
will that debt affect your credit?</P>
<P>Technically, you will remain liable for that house mortgage until your
spouse pays it off or refinances the Note. In the Decree of Divorce, the
judge will order your spouse to pay off the Note, but if s/he doesn't, the
mortgage company can still look to you for payment.</P>
<P>To protect you in that situation, your spouse will normally sign a Deed
of Trust to Secure Assumption, giving you the right to foreclose and take
back ownership of the house if s/he defaults on the mortgage. So if the
house is worth more than the amount owed on it, you'll probably be
protected.</P>
<P>However, your name on that debt may still show up on credit reports,
thus hindering your credit. Sometimes if you send the mortgage company a
copy of the Decree of Divorce, Deed, and Deed of Trust, they will remove
your name from the credit reports. Also, if you send the same documents to
the lender from whom you're seeking credit, they may be willing to ignore
that mortgage obligation.</P>
<P><I>Separating Credit Cards. </I>You and your spouse must decide who's
going to keep which credit cards, and then it's up to you to notify the
credit card companies that you're divorcing and that: </P>
<P>(1.) if the account is one that your spouse is keeping, you're not
responsible for any future debts on it; and </P>
<P>(2.) if it's an account that you are keeping, you're not responsible for
any future debt that your spouse incurs on it.</P>
<P>It's a good idea to send letters signed by both of you if you can.</P>
<P><A NAME="pen"></A></P>
<P><B>Property and Debts Acquired During the Divorce. </B></P>
<P>Do not purchase or sell any property of significant value or incur a
significant debt during your divorce without first consulting your lawyer
and/or mediator. You could be penalized by the court for doing so.</P>
<P><A NAME="al"></A></P>
<H3>ALIMONY</H3>
<P>When the two of you separate, one of you may need help in paying the
bills until the divorce is final. This is called <I>temporary spousal
support</I>. If you can’t work out by agreement how both parties’
bills will be paid, one of you can ask for a court hearing so that the
judge can decide how it's to be done. The agreement or court decision can
be written up in a formal court order.</P>
<P>But what about post-divorce? Can either of you require support payments
from the other <I>after the divorce</I>?</P>
<P>Texas law recognizes two kinds of long-term alimony: contractual and
court-ordered.</P>
<P><I>Contractual</I>. The parties may agree contractually to alimony in
any amount and for any length of time. </P>
<P><I>Court-Ordered</I>. Even if one spouse doesn’t want to pay
alimony, the court may order him or her to do so, but only if certain
criteria are met:</P>
<OL>
<LI>) the marriage lasted at least 10 years; </LI>
<LI>) the spouse seeking support lacks sufficient property to provide for
her or his minimum reasonable needs; and </LI>
<LI>) that spouse
<UL>
<LI>a.) is unable to support herself or himself due to an
incapacitating physical or mental disability that prevents that
spouse from being employed; or</LI>
<LI>b.) lacks earning ability adequate to support her or his minimum
reasonable needs.</LI>
</UL></LI>
</OL>
<P>A spouse may also, however, seek court-ordered alimony if the other
spouse has been convicted of or received deferred adjudication for a
criminal offense involving family violence within two years before the
divorce was filed or during the pendency of the suit. </P>
<P>Unless the spouse seeking court-ordered alimony has a serious physical
or mental disability, the court may not order support for more than three
years.</P>
<P>The amount of court-ordered alimony is not to exceed the lesser of
$2500.00 or 20% of the spouse's average gross monthly income and in no
event should it be for more than the "minimum reasonable needs"
of the spouse seeking support. </P>
<P><B>Tax Consequences of Alimony</B></P>
<P>Alimony is sometimes used as a tax-planning device because it shifts the
tax burden from one party to the other. If you're paying alimony, you get
to deduct the payments from your taxable income. If you're receiving
alimony, you must pay taxes on it. When money is paid as child support or
as part of the property division, the person paying cannot deduct the
payments and the receiving party does not pay taxes on it. </P>
<P>Because of these tax implications, your mediator or lawyer may talk to
you about using alimony to shift income from one of you to the other if it
looks like it might be a benefit to both parties.</P>
<P><A NAME="tax"></A></P>
<H3>TAXES</H3>
<P>Your lawyer and/or mediator are probably not tax experts, yet the tax
implications of your property and debt division and support and alimony
provisions can be significant. Therefore, it's important to consult a CPA
or other tax expert regarding the tax effects of any agreement you might
reach before you sign the final papers. </P>
<P>See <B><I><A HREF="http://www.divorceinfo.com/taxes.htm">www.divorceinfo.com/taxes.htm</A></I></B>
for more detailed tax information.</P>
<P><A NAME="rb"></A></P>
<H3>RETIREMENT BENEFITS</H3>
<P><B>Can I keep my retirement?</B></P>
<P>What about those retirement benefits that you've worked hard to
accumulate? Who do they belong to? Both of you--if they were acquired
during your marriage. Any benefits acquired before or after marriage
belong just to the spouse who earned them, but anything acquired during
the marriage belongs half to each spouse.</P>
<P>This can be a bitter pill to the spouse who worked for the benefits, but
the courts consider it fair. If you hadn't put the money into retirement,
it would have gone into savings or into purchases, all of which would now
be subject to division.</P>
<P>However, even if your spouse owns half of your retirement, you may be
able to keep it all if you can buy her/him out. You'd do this by giving
your spouse something else of equal value--like the house equity or cash.
You might even make the buy-out over time, with monthly payments.</P>
<P>In order to buy your spouse out, you must first figure out what your
retirement benefits are worth. If they are in a 401k type of plan, that’s
easy; they're worth exactly what’s in the account (though you should
remember that those funds are subject to tax and possibly penalty, so they
aren't worth as much as money in a regular bank account). </P>
<P>If they're in a pension plan (the kind that promises to pay you a
monthly stipend at retirement based on your highest years’ earnings)
you will need an actuary to determine the value. The value quoted by your
employer on your annual statement is probably not an accurate reflection
of the account's true worth because your employer is just telling you what
you would get if you withdraw funds from the account--not what it's worth
if you leave it in, which you probably will.</P>
<P>So what happens if you decide you can’t buy your spouse out and
will just let him/her have a share when you retire? What will that look
like?</P>
<P><B>Dividing Your Retirement Benefits</B></P>
<P>If you do decide to divide these benefits, we'll draft a Qualified
Domestic Relations Order (QDRO, pronounced "quadro") to be sent
to the Plan Administrator (P.A.) for the business. This document, signed
by the judge along with your divorce decree, tells the P.A. to pay the
spouse a certain portion of those benefits if and when the employee spouse
retires. (The spouse may be able to receive payments <I>before </I>retirement,
but we'll discuss that later.) The advantage of the QDRO is that the
company pays the spouse directly; the employee spouse never sees that
money.</P>
<P>Unfortunately, QDRO's are complicated and expensive documents to draft.
Therefore, if you can fairly divide your estate without dividing the
retirement benefits, you should. If that's not possible, then at least
keep the number of QDRO's to a minimum. That is, if you have four
retirement plans, try to avoid drafting four QDRO'S.</P>
<P><B>How much does it cost to draft a QDRO?</B></P>
<P>Lawyers and mediators usually charge a good deal to draft QDRO's because
they're difficult to draft and to have approved by the Plan Administrator.
The charge may vary from a few hundred dollars to a few thousand dollars,
depending on which kind of retirement plan is being divided and who is
doing the drafting.</P>
<P>The lawyer or mediator first drafts a proposed QDRO and sends it to the
P.A., who reviews it and probably indicates required changes. Since each
plan is unique, the P.A. is making sure that the ODRO meets the
specifications of that particular plan. Often this drafting and review
will occur several times before the P.A. approves the QDRO. This process
should all happen before the QDRO and decree are signed by the judge,
because it's much more cumbersome (and expensive) to make changes after
the divorce is completed.</P>
<P>A certified copy of the QDRO and decree are sent to the P.A. after the
divorce, and then the P.A. reviews it again for final approval. I've had
P.A.'s change their minds at this point and insist on changes in a QDRO
that they approved before the divorce!</P>
<P>All of this drafting and administrative hassle make lawyers dread
working with QDRO's and cause them to charge a lot of money when they do.</P>
<P><B>What kind of retirement benefits require a QDRO to divide them?</B></P>
<P>Pension plans, 4OIk's, 403b's Thrift Plans, Profit Sharing Plans,
ESOP's--all of these require QDRO'S.</P>
<P>IRA's and SEP's do <B>not. </B></P>
<P><B>Are all retirement plans the same?</B></P>
<P>No. There are two basic kinds of retirement plans: defined contribution
plans and defined benefit plans.</P>
<P><I>Defined contribution plans. (401K's. 403b's, Profit Sharing Plans,
ESOP's)</I> These are the easy ones. These plans are like bank accounts.</P>
<P>You and perhaps your employer make contributions into them, and they're
worth exactly what you have in them--your contributions plus accumulated
interest (less any tax and penalty you pay upon withdrawal).</P>
<P><I>Defined benefit plans. </I>These plans are more complicated. They
are pension plans. The employer promises to pay you, when you retire, a
monthly benefit, or pension, based on your highest years' earnings. They
pose difficulties in two ways: one is in trying to divide them and the
other is in trying to evaluate them.</P>
<P>They're harder to divide because the spouse usually doesn't receive
his/her share until retirement, so we must build in provisions for what
should happen if one of them dies and whether that death is before of
after retirement. Also, each plan has different specifications, and we
must work with the idiosyncracies of that particular plan.</P>
<P>They're harder to evaluate because we don't know how much the employee
spouse will be entitled to receive at retirement, when exactly s/he will
retire, how long s/he will live after retirement, and what that benefit is
worth in today's dollars. If you decide to divide this benefit, its value
doesn't matter because the QDRO will simply state what percentage of the
future benefit each of you is entitled to receive. The value is relevant
only if the employee spouse wants to buy out the other spouse's interest.
In that event, we must first determine the present value of those future
benefits.</P>
<P>Actuaries calculate that present value by making several assumptions.
They determine how much the Participant would be entitled to receive per
month if s/he could retire now and did so. Then they estimate the
Participant's life span by looking at actuarial tables. Next they
calculate how much money Participant would receive from these projected
payments during her/his expected lifetime and then reduce that amount to
present value by determining what amount of money, invested at current
interest rates, would yield that future amount at the time of retirement.
</P>
<P>As you can see, this calculation is complicated and makes many
assumptions that may not be accurate. That is, the Participant spouse may
not live as long as the actuary projects, or may live longer. Or the
interest rate at which the fund would grow may be higher or lower. Slight
variations in these numbers can make an enormous difference in the
estimated value of the benefits.</P>
<P>Often the employer will provide a statement of the value, but that
figure usually represents how much the Participant would receive if s/he
withdrew the benefits from the Plan. This number may be considerably less
than the value determined by an actuary and is also based on an unlikely
assumption--that the funds will be withdrawn before retirement.</P>
<P><B>How much of the retirement benefits is each of you entitled to
receive?</B></P>
<P>Under Texas law, all retirement benefits acquired during the marriage
are community property. That means that you're each entitled to half,
regardless of which spouse earned them. Indeed, one of you may be entitled
to more than half if you have a lower-earning ability or for other reasons
are entitled to more than half of the community estate.</P>
<P>However, only the community portion is to be so divided. That means that
any retirement accumulated before or after the marriage is not to be
considered--only the marital portion. For example, if Mary worked for IBM
for five years before marriage, then is married to Tom for 10 years, and
continues to work for IBM for another 15 years before retiring, Tom is
entitled to half of 10/30ths, or one-sixth, of Mary's retirement benefits.</P>
<P><B>When can the Alternate Payee Begin receiving Payments?</B></P>
<P>If the benefits come from a Defined Contribution Plan (401k type), the
Alternate Payee (the non-earning spouse) may withdraw her or his share at
divorce. However, taxes on those funds must be paid at the time they're
withdrawn. Most people choose to roll-over their share of the benefits
onto an IRA in order to defer taxes until retirement. You must be careful
in rolling those funds into an IRA if that’s your intention.</P>
<P>If the benefits are in a Defined Benefit Plan (pension type), the
Alternate Payee cannot receive any benefits until the Participant is
entitled to receive them. The Plan may allow the Alternate Payee to begin
receiving payment at Participant's early retirement age, even if the
Participant doesn’t retire then, but if so the Alternate Payee's
payments will be reduced in amount.</P>
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