Dividing Retirement Interests in a Divorce

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It is important to consider some distinctions in retirement interests and the way they are divided in a divorce.  A Qualified Domestic Relations Order (QDRO) is commonly needed so that both spouses can have separate interests in a retirement account without problems associated with tax penalties and early withdrawals.

The QDRO process involves the two spouses, their attorneys, the court and the plan administrator. Sometimes, an additional person is involved, if the attorneys outsource the drafting of the QDRO to a third party.  Each party and their attorney must approve a QDRO draft, the court must sign it, and the plan administrator must pre-approve (early in the process) and implement (late in the process) the QDRO.

Oftentimes, the asset that is divided by the QDRO is a 401(k) account or pension that neither party plans to tap into for many years.  In that case, the time involved in processing a QDRO is of minimal concern. However, when one or both parties needs to liquidate some retirement funds to pay debts or purchase a house, it is a problem that the process takes so long.  The benefit of the long process, though, is the ability for the spouse receiving a share of the other spouse’s account to cash out their share without tax penalty.

When the parties are dividing an IRA (individual retirement account), a QDRO is not necessary.  The bank should implement the division as set forth in a court-signed decree.  If one or both parties cashes all or part of the account, most of the time, there is an early withdrawal penalty.

Consequently, the division of an IRA provides a time advantage, but a tax disadvantage; and the division of a 401(k) or pension provides a tax advantage, but a time disadvantage.

 

 

Annulment in Minnesota

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If you want to terminate your marriage, you need a divorce.  If you want to nullify the marriage, you need an annulment.

Under Minnesota law, a marriage can be annulled under the following circumstances:

(a) One spouse lacked the mental capacity to consent to the marriage at the time of the wedding, unbeknown to the other spouse;

(b) One spouse lacks the physical capacity to engage in sex, unbeknown (at the time of the wedding) to the other spouse;

(c) One spouse, or both spouses, lacked the capacity to consent to the marriage at the time of the wedding because of the influence of alcohol, drugs, or other incapacitating substances;

(d) One spouse’s consent was obtained by force or fraud (although this basis for annulment does not apply if the defrauded spouse later lives with the other spouse voluntarily);

(e) One spouse, or both spouses, were not 16 years of age or older at the time of the wedding, and if under the age of 18, did not have consent of his or her parent or guardian.

It is important to note that the family court has discretion to fairly divide assets and liabilities in annulment cases, as in divorce cases; so the decision to annul the marriage – versus to dissolve the marriage – does not affect the property settlement.

Moreover, in certain cases, one spouse may dispute the grounds for annulment but be unable to dispute the grounds for divorce, since a marriage can be dissolved under Minnesota law if one spouse declares an irretrievable breakdown of the marriage (a somewhat subjective standard that is satisfied by one spouse’s assertion to the family court that the marriage cannot be saved).  If the grounds for annulment can be effectively disputed by one spouse’s counterargument, the spouse desiring to end the marriage may be best served by seeking to dissolve the marriage, rather than nullify the marriage.

 

 

Joint Physical Custody is a Legislative Issue Again

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In recent years there have been multiple attempts to create a legal presumption in Minnesota that a child should be in the joint physical custody of the child’s separated or divorced parents.  This year, there is a bill that reflects a renewed effort to pass a “JPS law” in Minnesota.

What needs to be realized in the debate over a JPS law is not merely the importance of the presumption question, but also two very important issues: (a) how the presumption is rebutted and (b) the wide discretion of the family court.

The bill currently proposed to address JPS requires the court to award joint physical custody in a contested custody case unless one parent proves by clear and convincing evidence that the other parent is unfit in a manner that would cause substantial harm to the child.  The law’s impact would be on cases where (a) the parties are not in agreement about the custody arrangement and (b) there is no compelling evidence that the child would be substantially harmed by joint physical custody.  Family court judges that would otherwise give one parent primary custody would be prevented from doing so, because the presumption would not be rebutted.

The implication of this is to substantially curtail the family court’s discretion, which has repeatedly been ruled by Minnesota appellate courts to be very wide.  Minnesota family law holds a child’s best interests to be a paramount consideration in contested family court disputes.  Oftentimes, it is THE paramount consideration.  This is antithetical to the notion of a presumption – particularly a presumption that can be overcome only by clear and convincing evidence.  Every family is different.  Every child of divorced or separated parents has a unique experience.  So the practical reality is that a presumed custody arrangement will have as many exceptions as it has cases that conform to the presumption.  The rule-or-exception quandary must be resolved in some way; consequently, the family court cannot be divested of the authority to make that determination.

Where the proposed law’s equation breaks down is the application of a clear and convincing evidentiary standard to find “substantial harm” to the child.  When the establishment of joint physical custody is more important than preventing minor harm, or even moderate harm, to the child, the paramount importance of the child’s interests necessarily gives way to a different philosophy.  The proposed bill expressly seeks to establish a new “public policy.” The proposed public policy would necessarily alter the existing emphasis on the paramount importance of the child’s best interests.

In the end, with or without the proposed law, many children will be in the joint physical custody of their parents – for very good reasons.  And many will not – for very good reasons.  Nothing will change the wide discretion of family courts, because no public policy will alter the fact that families and children vary widely.  So even if the law passes, its most fervent proponents will be foiled by the diluted application of the term “substantial harm” to create custody arrangements that are more often the exception than the rule.

 

 

 

Collaborative Law

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Collaborative law is the practice of proceeding with a marriage dissolution without going to court (other than submitting a written stipulation settling all issues in the divorce).  The parties contract with each other and their attorneys to refrain from using the court process to litigate or contest disputes.  If the parties and their attorneys sign a participation agreement, it is understood that if either or both parties seek relief in court (other than processing the final, stipulated divorce decree), the collaborative attorneys will withdraw, and the parties will retain different counsel for the court proceedings.

The case proceeds based upon the negotiation of the parties, mediation or early neutral evaluation if a third party facilitator is needed, and an arbitrator or consensual special magistrate if there is a contested dispute in need of a binding decision.

When Collaborative Law first emerged in the 1990’s, alternate dispute resolution (ADR) (such as mediation and early neutral evaluation) was not yet as commonplace as ADR is now.  During the last two decades, there has also been an increase in the availability of consensual special magistrates and arbitrators to provide for addressing contested disputes outside of court.

One drawback to the collaborative process is that the process breaks down without a certain level of cooperation from both parties.  The parties and attorneys must reach agreement, where possible; identify the contested issues; and determine the forum and time frame for resolving the contested issues.  If one party wants to delay the proceedings, it is possible to manipulate the process to prevent forward progress.  In non-collaborative cases, an upcoming court date often provides incentive to move forward and deterrence from stalling. It is not clear what an effective incentive/deterrence is in collaborative cases.  Therefore, it is important that both parties in a collaborative case have equal (or at least, comparable) motivation to get the case done.

Reality and Truth…versus Fictional Reality and Engineered Truth

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When you are involved in a family court matter, particularly a contested dispute in family court, reality and truth will serve you well.  Fictional reality and engineered truth will not serve you well.  The family court’s goal is to make findings based in reality and truth; consequently, the party seeking to engineer the truth, or establish a fictional reality, is likely to lose the battle.

The family court can best learn the facts about a case by hearing the observations and recommendations of a neutral professional.  The family court can best be misled about the reality of a case by basing its findings strictly on the mud slung by the parties at each other in affidavits filed with the court.  When one parent wants to bring down the other parent, by filing affidavits of family members and neighbors, or bringing family members and neighbors into court to testify on the record, they are probably trying to establish a fictional reality – a reality that would not bear out if a neutral professional were to render their own observations.  If what family members and neighbors have to say really is the truth, then those facts can and should be borne out by the work of a neutral professional.

If you don’t have the facts on your side, it can be an exhausting, expensive and fruitless task to try to pull one over on the court.  As an example, an abusive or chemically dependent parent, who pretends not to be, will likely be found out by the court.  On the flip side, if Parent A suffers from anxiety or depression, but Parent B brings in family members to testify that Parent A is in fact psychotic, Parent B is attempting to establish a fictional reality that should not prevail.  (Unfortunately, one who persists despite the fruitlessness creates protracted litigation that is costly to themselves, to the other party and to the family courts.)  If you do have the facts on your side, which often means not seeking unrealistic relief from the court, chances are the task of bringing out the truth will be less exhausting, less expensive and less fruitless.

The need for the family court’s reliance on neutral professionals is easy to understand when you consider what a small snapshot the court gets of a case’s facts during the finite windows of time the court hears testimony.  If the family court relies on a subjective, skewed version of truth (even sincerely presented by someone speaking under oath), the court’s ruling will not reflect reality.

Subject to the occasional, unfortunate exceptions, a good family court judge will cast aside fiction and manipulation, and rely on a good neutral professional to bear out the reality and the truth of the case.

Divorce is a Transition…Stay the Course

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The process of divorce is often difficult.  The decision to get a divorce is often difficult. And once you’ve made the huge decision and begun the process, you are likely to want nothing more (and nothing less) than to be done with it.

One of the difficulties about the hugeness of the decision to divorce is that it may take a long time to reach the firm conviction that the marriage is at an end.  Most people find that they need to remain with “both feet” in the marriage until they have exhausted the prospect of saving the marriage.  But then, once there is a realization that the marriage is over, there can be the strong desire to be done with the divorce “yesterday.”  In retrospect, people regret having given the marriage a shot for as long as they did.

This can be a real problem with the financial aspects of marriage and divorce.  If you have “both feet” in the marriage, you are still entangled financially.  Once you decide to divorce, you are STILL entangled financially…until the process is complete.  While the divorce is pending, the process of getting unentangled financially can be miserably slow. The financial conflict one experiences with their spouse can seem like a hemorrhage that must be stopped, but cannot be stopped.

It is important to realize that the financial terms of the divorce will take shape eventually, but probably not as soon as you might wish.  Consider it as a “before” and “after” scenario, in which the “before” is living together as husband and wife, and the “after” is having the divorce complete and being unentangled regarding day-to-day finances.  It takes weeks, if not months, to get from the “before” to the “after.”  That may result in three or four months more of “financial jointness” than you bargained for – the consequence of making a careful, and not hasty, decision to divorce.  In the long run, you will likely sleep better knowing that dissolving the marriage was your last resort, after pursuing all other options.  But the process, in the short run, is an extremely difficult and stressful experience.

Legal Separation

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In Minnesota, legal separations are not common, and are often confused with certain steps that are part of the divorce process.

While not technically correct, the term is often used to describe a couple whose divorce is not yet complete, such as a husband and wife who no longer live together, or a couple who are awaiting trial of their marriage dissolution in court.

The only real difference between an actual “legal separation” and a divorce is the breaking of the bonds of matrimony.  That is, a legal separation addresses custody of children, parenting schedules, asset division, debt responsibility, and other financial issues – just like a divorce – but the couple stays married.

The reason that legal separations are uncommon is mainly that they are useful in very limited circumstances.  There is no residency requirement for a legal separation, whereas a divorce requires at least one of the spouses to have been a resident of the State of Minnesota for at least 180 days.  So, a legal separation is useful if one wants relief in family court but has not lived in the state for very long.

Another circumstance in which legal separation may be appropriate is if both spouses are firmly convicted that, for religious reasons, divorce is simply not an option.  Legal separation allows the couple to get relief from the family court without terminating the marriage.

In most other situations (other than short-term residency or religious convictions), there is little reason to pursue a legal separation rather than a dissolution of the marriage.

Why 50-50 Property Divisions Are Common, But Not Required

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Minnesota law requires that the division of a marital estate to be “fair and equitable.”  The law does not require the division to be EQUAL.  But often equal is fair, and anything other than equal is not fair.  Here is why: if the parties reach an out-of-court settlement, they will negotiate the terms.  Both spouses will have to assent to the agreement.  It would not be surprising for the wife to be unwilling to accept less than half.  It would not be surprising for the husband to be unwilling to accept less than half.  Consequently, many out-of-court settlements constitute a 50-50 division of the property, which a reviewing court judge would find is consistent with the “fair and equitable” requirement.

Similarly, if the case goes to trial, for the court to decide, it would not be surprising for the court to find no reason to award the wife more than half, and it would not be surprising for the court to find no reason to award the husband more than half.  Consequently, many court decisions reflect a 50-50 division of the property, which would pass muster by a reviewing appellate court as consistent with the “fair and equitable” requirement.

In neither instance is the 50-50 division REQUIRED.

Conversely, a division of property that is OTHER THAN fifty-fifty may be consistent with the “fair and equitable” requirement, but the basis for that conclusion will need to be spelled out in more detail, because on its face it may appear to favor one party over the other.  This need for more detailed provisions for the non-equal-but-fair-and-equitable division goes for both out-of-court settlements and court-ordered divisions.

Default Divorce

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If you start the divorce process, your spouse has thirty days to respond to the petition.  What happens if the responding spouse does nothing during the thirty-day period?  Technically, the responding spouse is in default.

That means that the responding spouse has forfeited the opportunity to participate in the divorce process. This situation may sound advantageous, since it means that the court can enter the decree without hearing the responding spouse’s “side” of the story.  But there are drawbacks.  Most family court judges prefer to have both spouses involved in the divorce process, because of the likelihood that a defaulting spouse will approach the court later for relief.  Many issues, such as the parenting schedule for minor children, or the comprehensive disclosure of all debts, cannot be fully addressed without both parties being involved.  With one party absent, those issues are unresolved, possibly reserved by the court for future determination, and both the petitioning spouse and the court are left in limbo. So, if the divorce is finalized as a default, the responding spouse may come forward later, wanting to reopen the case.  Even if the responding spouse has no valid excuse for failing to respond, that will not necessarily prevent the responding spouse from CLAIMING to have a valid excuse for failing to respond.  If the court “hears out” the responding spouse, the petitioning spouse is likely to be drawn into in an additional “chapter” of the family court process.

Since the family court would rather open the case and shut the case once, without reopening the matter, the family court would rather get it done “right” the first time.  That can be hard to do without one spouse’s participation.  It is harder to have all of the relevant information properly disclosed and considered in the file without both parties actively present in the case.

Ultimately, it is better to have the case done by default than not at all.  If extra effort is made to involve the responding spouse, to no avail, then both the court and the petitioning spouse can be satisfied that proceeding by default is the right way to conclude the case.

Child Custody – The Label, the Impact on Support and the Actual Schedule

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When child custody is disputed, it usually comes down to three things: (a) the label, (b) the impact on child support, and (c) the actual schedule.  If someone wants joint physical custody, it is because (a) they like the idea of telling other people they have “joint physical custody;” (b) they want to pay less child support, or (c) they actually want to have the children in their care about half the time.  If someone wants sole physical custody, it is because (a) they like the ideal of telling other people they have “sole physical custody;” (b) they want to receive maximum child support, or (c) they actually want to have the children in their care most of the time.  It can be surprising how often the dispute is NOT about the actual schedule.

Typically, the label matches the support calculation, which matches reality.  But not always.  If one parent is really hung up on the label, then there could be a “joint physical custody” arrangement in which the children spend most of the time with one parent, and the child support paid from one parent to the other is not reduced to reflect the “joint” arrangement.  It is not uncommon in a joint physical custody arrangement (both by label and by actual schedule) for the higher earning parent to pay “non-reduced” child support to the lower earning parent (oftentime to obviate the need for spousal maintenance).  It is important to note, though, that in almost all cases in which the label does not match the support calculation and/or the actual schedule, that discrepancy is a product of a negotiated agreement, and not a court decision.  The typical court decision will make the label, the support calculation and the actual schedule all correspond.  If one parent is hung up on the label or the support calculation, it is important to attempt to address that issue outside of court.