Terms of a Property Settlement Agreement (PSA)
A Property Settlement Agreement (PSA) is a contract between a married couple that sets out the terms of how they will move forward in their lives, during separation and divorce, in the following areas:
- Parenting Arrangements (also known as Custody & Visitation) – Sets forth the schedule of custodial care. This section also sets forth how child-related responsibilities will be shared. This includes both the decision-making and day-to-day care for the children.
- Child Support – Sets forth the presumed statutory guideline monthly award (dollar amount) and the actual amount to be paid (which may differ, somewhat, from the presumed guideline amount). This section also clarifies how certain child-related expenses, over and above the monthly child support award, will be covered, e.g. out-of-pocket medical expenses, extracurricular activities, work-related childcare (daycare, nanny, babysitter), camps, tutoring and private school. Some parties also choose to set forth how college tuition and related expenses will be shared between the parties once the child support obligation ends (usually at high school graduation or 18 years of age, whichever comes later).
- Spousal Support (aka Alimony) – Sets forth the dollar amount of spousal support to be paid (if any) and the duration for which it must be paid. This section also sets forth whether or not spousal support will be modifiable or non modifiable and, in some instances, the specifics of that modifiability. This section also sets forth, where necessary, waivers of the right to petition a court for spousal support at the time of divorce and/or in the future. The Spousal Support section of a PSA must include certain statutory language in order to be acceptable to the IRS. Because the payment of spousal support includes many important tax implications, depending on how the PSA is written, close scrutiny must be paid to this language.
- Property & Debt Distribution – Sets forth the division and distribution of all marital property. Also clarifies property that has been determined by the parties to be separate (e.g. non-marital) and, as is usually the case, non-divisible. This section also clarifies how the parties’ debts will be handled during separation and post-divorce. In a divorce, the term “property” includes all assets: real estate, automobiles, bank accounts, investment accounts, stocks & bonds, businesses, antiques & collectibles, furniture, artwork, tools, etc. In Virginia, this is often referred to as the “E.D. Section”, which is short for “equitable distribution of property and debt”.
Other Key Components of a Property Settlement Agreement
Property Settlement Agreements in Virginia (and elsewhere) also include other very important information, such as:
- Date of Separation - the date upon which the parties agree they began living “separate and apart” (which may or may not be the date that one of the parties moved out of the marital residence);
- No Fault Divorce - a clause that forbids either party to ever proceed with a divorce on contested grounds (e.g. desertion/abandonment, adultery, cruelty);
- Waiver of Right to Discovery - a clarification (if appropriate) that the parties waived their right to discovery (the court-supervised process of gathering documents and information from “the other side” which is standard in most litigated divorces);
- Taxes - a predetermination of how certain tax benefits and burdens will be divided between the parties (where appropriate, necessary and permitted by the IRS). Such items include: the dependency exemption for children, the child and dependent care credit, future filing status decisions while still married (e.g. married filing separately, married filing jointly), mortgage interest & real estate tax deductions, and future income tax refunds and liabilities.
There is No Such Thing as “Legal Separation” in Virginia – Property Settlement Agreements Resolve Some of the Resulting Confusion & Risk
In Virginia, there is no such as thing as “legal separation”. The closest that parties can come to legal separation is to actually live separate and apart (see footnote 1) and be in possession of a signed and notarized PSA.
Most attorneys advise their clients to never move out of the marital residence without the benefit of a PSA. The reason for this is two-fold:
- Risk – Setting Up Fault Ground of Desertion/Abandonment - Without a signed and notarized PSA, which clearly states that neither party is permitted to file a divorce on fault grounds, the party who leaves the marital residence is at risk of the other party proceeding with a divorce on the fault ground of desertion/abandonment. If the other party prevails, this could affect a judge’s ruling with regard to property and debt distribution. This risk is somewhat “academic”, however, according to many divorce professionals in the Northern Virginia Area, as long as the person who physically moves out of the marital residence continues to provide financial support “back home”. Also, and perhaps most concerning, fault-based divorces set in motion a defensive posture that ramps up the litigation and costs the parties dearly in terms of emotional strain and financial drain.
- Risk – Confusion in the Classification of Certain Property and Debt as Marital Property (divisible by a court) versus Separate Property (not divisible in court) - Virginia law states that all property and debt acquired post-separation is to be classified as separate property (non-marital, non-divisible by a court). It is usually best, therefore, for parties to clarify what they have, in terms of their property and debt, at the time of separation. To avoid often confusing, and sometimes very stressful situations later, parties are well-advised, once they have decided to separate, to determine, in detail, how and when their property and debt will be divided and distributed and what the values of their property, and balances on their debt instruments are, at the time of separation. It is also notable, however, that even though judges are required to classify post-separation assets and debts as separate (non-divisible) property, parties may choose to classify some or all of that post-separation property and debt as divisible marital property (as is the law in many other jurisdictions).
Property Settlement Agreements are Binding Contracts
Once parties sign a PSA, they have entered into a binding contract that is not renegotiated at the time of divorce. The key agreements and pertinent sections of the PSA are incorporated into the Final Order of Divorce (e.g. the custodial care arrangements for the children, the amount of child support and spousal support to be paid, and the specifics of the division and distribution of property and debt). The signed and notarized PSA is filed with court, along with several other divorce documents (including the Final Order of Divorce, aka Divorce Decree). In essence, parties who have a signed PSA, during their period of separation, are operating under a contract; once those same parties are divorced, they are operating under both a contract and a court order (the Final Order of Divorce).
It is notable, however, that all matters related to children (custody, child support), are always modifiable if there is a material change in circumstances. Parties are not permitted to negotiate away this right.
Can a Property Settlement Agreement Ever Be Declared Invalid?
Property Settlement Agreements, though usually upheld in court, may be declared void (i.e. “invalid”) and, therefore, unenforceable, under the same circumstances as are other contracts. Specifically:
- No Capacity to Form a Contract - one or both parties lacked the capacity to form a contract (e.g. serious mental impairment);
- Unconscionability - the contract is extremely unfair;
- Too Much Pressure - one or both of the parties signed the contract under duress, as a result of coercion, and/or as a result of undue influence;
- Factual Mistakes - there was a mutual mistake of fact(s)(unless it really doesn't matter);
- Illegal - the contract contains a violation of law or public policy; and/or
- No Full Disclosure - there was a failure to provide all relevant factsthat would allow for informed decision-making with regard to the settlement terms (in a PSA, that usually means "financial facts").
(Va. Code §8.01-581.26)
The last area is usually of the biggest concern in a Property Settlement Agreement – especially one that is signed without the benefit of formal discovery (the attorney-led and formalized process of collecting and reviewing documents and other information relevant to the case). If it is determined that essential financial information, which would be necessary for one or both of the parties to make informed settlement decisions, was purposefully withheld, the Property Settlement Agreement will almost certainly be void (no good).
95% of Divorce Cases Settle Without Trial. Why Not Start With Settlement in Mind?
The vast majority of cases -- 95% being the most quoted statistic – never go to trial. That means that, after all the litigation strategy, motions, depositions, discovery, and very expensive legal wrangling, almost all divorcing couples end up settling their case without a trial.
Therefore, when all is said and done, if you are considering a divorce, or are in the process of getting a divorce, you might as well start with a settlement mentality and focus on reaching solutions to your divorce disputes that you both can live with before you engage in expensive and time-consuming litigation.
The final result of your mutually agreeable solutions to your divorce-related issues will be in the form of an enforceable Property Settlement Agreement which, if written by a qualified lawyer-mediator, will be clear, enforceable, detailed, written in neutral language, and contain a minimum of “legalese”.
If you have any questions about what goes into drafting a Property Settlement Agreement and how Graine Mediation goes about settling divorce cases, call Robin Graine at 571-220-1998.
 In Virginia, parties with minor children must live “separate and apart”, without cohabitation (no marital relations) and without interruption, for 12 months before they are permitted to file for divorce. Va. Code §20-91. Without minor children, parties are permitted to get a divorce after only 6 months of separation as long as they have a signed Property Settlement Agreement. The term “separate and apart” is also interpreted, in Virginia, to mean that at least one of the parties intends that the separation be permanent. There is no actual law stating that the parties must live under separate roofs (though that is preferred by the Courts). This lack of clarity is bad enough on its own; but it compounded by the fact that Virginia law specifies that all property and debt acquired post-separation is separate property (aka non-marital and, as a result, is not divisible by a court).