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.
The legal presumption in Texas is that the parents should be named Joint Managing Conservators. 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 is awarded, the parties or the judge must decide and write into the decree how those rights are to be exercised.
(In Texas, we call this “Periods of Possession.”)
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."
If the parents live within 100 miles of each other, this standard schedule allows for possession by the “visiting” parent:
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.
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.
Restricted Visitation. 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.
Children Younger Than Three. The Court will, however, often restrict overnight possession or lengthy summer periods for infants or very young children. The standard schedule described above applies only to children three years old or older.
Do the Children Get to Determine the Schedule? 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.
Exchanging the Children. 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, the children understand the sullenness, slammed doors and other signs of parental animosity. It is hard on them.
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. If you are interested, ask your attorney or mediator about such services in your community.
How Much Will It Be?
Texas child support guidelines create a presumption that one parent shall 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:
This percentage is calculated at the time of divorce and does not automatically adjust as incomes change. It is a fixed dollar amount and remains that amount until you return to court and ask for a modification.
These guidelines apply only to the first $7,500 of the monthly net resources. The court presumes that the appropriate percentage of $7,5000 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 $7,500 a month and the children's needs justify higher child support, the court may order a higher amount.
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.
The income of the custodial parent may be considered in setting child support, but it will probably have little effect.
How Is It Paid?
Can I give the support directly to the other parent? No. All child support payments must be made through the State Disbursement Unit, which receives and distributes all payments.
Must the Child Support Be Withheld from My Earnings? 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.
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.
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 is the case, the paying parent must pay to the amount that should have been withheld, and the State Disbursement Unit will forward it to the other parent.
If the receiving parent wants, the State may deposit the payment directly to a bank account.
When Does Child Support End?
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.
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.
Will Child Support Change Over Time?
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.
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.
Does Child Support Cover College?
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 may agree by contract to pay those expenses, and that agreement can be included in your divorce decree, making it enforceable as a contract. If you want to have this agreement included in your decree, tell your lawyer or mediator.
What If I Have Children from Another Marriage?
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.
What if One of us Remarries?
Remarriage will normally not affect the amount of child support--unless the paying spouse has more children; then it might. (See the previous paragraph.)
The income of new spouses is not considered in setting child support.
Separate and Community Property
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?"
Community property is all of the property either or both of you have acquired during the marriage due to your earnings. Separate property 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.)
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.
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.
Community property is usually divided fairly evenly between the two of you, just as are all community debts. Remember: it makes no difference who earned the money or whose name an asset is in. If it was acquired during the marriage by either party's earnings, it is community.
If you don't agree on the division of property and the judge must decide, the judge has 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.
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.
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 for that economic contribution.
Paying off debts that one spouse brought to the marriage or building a business that a spouse owned before marriage may also trigger a right of reimbursement.
Figuring out whether property is separate or community and whether there is any right to reimbursement can be complicated. Tell your lawyer or mediator if there is a question about these issues.
Property Acquired While Living in Another State
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.
How to Divide the Property
The community property is 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.
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.
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.
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 later and split the proceeds or loss.
Check out the Property Spreadsheet under “Helpful Tools” for more information about your property division.
How to Divide the Debts
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 net share of community property that matters.
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 and for which you are liable.
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.
The House Mortgage. 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?
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.
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.
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.
Separating Credit Cards. 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:
It's a good idea to send letters signed by both of you if you can.
Property and Debts Acquired During the Divorce.
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.
When the two of you separate, one of you may need help in paying the bills until the divorce is final. This is called temporary spousal support. 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.
But what about post-divorce? Can either of you require support payments from the other after the divorce?
Texas law recognizes two kinds of long-term alimony: contractual and court-ordered.
Contractual. The parties may agree contractually to alimony in any amount and for any length of time, so long as they do not run afoul of IRS regulations.
Court-Ordered. 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:
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.
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.
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.
Tax Consequences of Alimony
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.
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.
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.
See www.divorceinfo.com/taxes.htm for more detailed tax information.
Can I keep my retirement?
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.
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.
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.
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).
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 probably 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.
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?
Dividing Your Retirement Benefits
If you 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 before 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.
Unfortunately, QDROs 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 QDROs to a minimum. That is, if you have four retirement plans, try to avoid drafting four QDROs.
How much does it cost to draft a QDRO?
Lawyers and mediators usually charge a good deal to draft QDROs 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.
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.
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.
What kind of retirement benefits require a QDRO to divide them?
GOOD NEWS! Many employers are now putting QDROs on-line so that employees may draft QDROs themselves by simply filling in the blanks - instead of paying lawyers to do it. Check with your employer to see if such a form is available.
Pension plans, 4O1k's, 403b's Thrift Plans, Profit Sharing Plans, ESOPs--all of these require QDROs.
IRAs and SEPs do not.
Are all retirement plans the same?
No. There are two basic kinds of retirement plans: defined contribution plans and defined benefit plans.
Defined contribution plans. (401k's. 403b's, Profit Sharing Plans, ESOPs) These are the easy ones. These plans are like bank accounts.
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).
Defined benefit plans. 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.
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 idiosyncrasies of that particular plan.
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 estimate the present value of those future benefits.
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.
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.
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.
How much of the retirement benefits is each of you entitled to receive?
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.
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.
When can the Alternate Payee Begin receiving Payments?
If the benefits come from a Defined Contribution Plan (401k type), the Alternate Payee (the non-earning spouse) may usually 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.
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.
What other questions should you ask about your rights to retirement benefits?
These are questions you will want to review with your mediator or attorney:
The best source of answers to these questions is the Plan Administrator, so start there. Unfortunately some P.A. s will not discuss the plan benefits with the Alternate Payee, but they should certainly discuss them with the Participant and with the attorney drafting the QDRO.
Much of this information should also be found in the plan summary pamphlet. Ask the P.A. for a copy of this document.
What Are They?
Stock options are a promise by an employer to allow an employee to purchase in the future company stock at today's price, or at some other reduced value. The idea is to give employees an incentive to help the company grow so that those stock options will be more valuable. If Dell gives an employee an option to buy 1000 shares of stock at $20 a share and the market value goes up to $25 a share, the employee just made $5 on each option, or a total of $5,000 -- if the options are vested.
Vesting
Options are not exercisable immediately. They cannot be exercised until they vest, and they usually vest over a period of time. For example, Dell might grant 1000 options on January 1, 2002, with 250 vesting each January 1 thereafter for four years. The employer usually requires that the options be exercised within a designated time after vesting or they will expire.
Are they Community or Separate Property?
The answer to this question is complicated and not altogether settled by the courts. Talk to your lawyer about how this issue might affect you.
Are they Worth Anything Now?
If the price at which the options can be exercised (the "strike price") is as much or more than the current market price, the options are worth nothing now. However (and this is a big "however"), they may well be worth something when they vest or at some point before they expire. Thus the spouse has nothing to lose by keeping her or his community portion of the options and hoping they will gain value before they expire.
If the Spouse is Awarded Stock Options, How Does S/he Exercise Them?
A few employers allow us to give the options to the spouse so that s/he exercises them when they vest and pays the resulting tax. However, most employers will not transfer stock options to a spouse at divorce, so we draft a complicated order that allows the spouse to direct the employee as to when to exercise the options. S/he will also provide any funds necessary to purchase the resulting stock. The employee then exercises the options, sells the stock, deducts taxes and other costs resulting from the sale, and gives the remaining proceeds to the spouse.