The Importance of the Settlement Agreement in Divorce

The Importance of the Settlement Agreement in Divorce

If you are getting divorced, but don’t want all the emotional turmoil and high costs of a contested battle, the first thing you need to do is start working on your Settlement Agreement.

In this blog post, I'll dive into what Settlement Agreements are all about. I will explain how they work, why they matter, and how they differ from an actual divorce. You can also view my video.

What is a Settlement Agreement?

When you decide to get divorced, there are four key areas that need to be settled before you and your spouse can move on with your lives as unmarried people. You must reach agreement on all four of these areas before your case will be considered “settled” and before your mediator can begin drafting your Settlement Agreement. These areas are:

  1. custody plans;
  2. child support payments;
  3. alimony payments; and
  4. the division of assets and debts. 

These matters need to be agreed upon and drafted with crystal clarity in the Settlement Agreement. The Settlement Agreement is a contract which is enforceable in a court of law. It is serious business. 

Once signed, you and your spouse must follow all of the terms of your Settlement Agreement. This has nothing to do with the divorce. Remember: A Settlement Agreement is a contract enforceable in a court of law.

What Is the Difference Between a Settlement Agreement and a Divorce?

A Settlement Agreement is a contract enforceable in a court of law. A Divorce is a governmental declaration that your marriage is dissolved. 

Before you actually get divorced, you will operate under the terms of your Settlement Agreement. The divorce makes the Settlement Agreement somewhat stronger, but you are still required to follow all of the terms of the Settlement Agreement whether you are divorced or not.

Besides being single again, there are some other things that happen automatically upon your divorce that do not happen upon signing a Settlement Agreement: 
  • Once divorced, you can legally marry someone else;
  • Once divorced, you can no longer be on your spouse’s health insurance;
  • Once divorced, you can no longer file your taxes jointly;
  • Retirement assets cannot be transferred until after the divorce is finalized (the settlement agreement will determine what money goes where, but the transfers can only be done once the divorce decree is signed); and
  • Once divorced, all jointly owned real estate loses some of its legal protections. For example, in Virginia and many other states, creditors are not permitted to force the sale of the home if it is jointly owned by a married couple, but they are permitted to force the sale of the home if it is owned by two single individuals.

Is a Divorce Decree Stronger than a Settlement Agreement?

Yes. There is some more strength added to the terms of your Settlement Agreement once you get divorced. 

A Settlement Agreement is a contract enforceable in a court of law. That means that, if there is a violation, the lawyers and judges will look for all kinds of ways to push you into paying the  money you owe, stop behaving badly, or whatever else the problem might be. This is, essentially, a “breach of contract” situation.

Once you are divorced, though, all of the terms of your Settlement Agreement get “incorporated’ into your Divorce Decree (also called a “Final Order of Divorce” in Virginia) and your contract is now also a Court Order.

The extra “bonus”, once you are divorced, is that if your ex violates the Divorce Decree (which now includes the Settlement Agreement), he or she could wind up in jail. This is what is called “contempt of court”. That is where the extra boost of strength comes from once you are divorced.

How Do I Get Started on a Settlement Agreement?

If you and your spouse think that you can both be rational and reasonable enough to sit down with a mediator and get your case settled, that will be your most efficient and least expensive route. Your mediator will let you now what information you need to begin gathering and will guide you every step of way.  I recommend that you hire a mediator who is also an attorney and has expertise in family financial matters, divorce taxation, and impact of various custody arrangements on children. 

Within a couple of sessions, in most cases, you should be all settled and your mediator will draft the Settlement Agreement for your review. Once the document is proofed about a hundred times, you sign it and it is official!

PLEASE BE AWARE THAT THE LAW IS DIFFERENT IN DIFFERENT STATES. YOU MUST CHECK WITH AN ATTORNEY/MEDIATOR IN YOUR STATE TO UNDERSTAND HOW THINGS WORK WHERE YOU LIVE. I mediate divorce cases in Virginia which does tend to have some unique ways of doing things. Specifically, your state may have “legal separation” or other interim steps before and in between the settlement agreement and the divorce. Check first!

KEY TAKEAWAY: Your Settlement Agreement contains all agreements between you and your spouse related to custody, child support, alimony, and the division of assets and debts. Once you sign a Settlement Agreement, the divorce merely dissolves your marriage. 



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