Virginia Property Settlement Agreement Defined
Property Settlement Agreements, also known as marital settlement agreements or separation agreements, are the most common means of an uncontested divorce in Virginia. Nevertheless, many are unfamiliar with them and start from scratch when their divorce becomes necessary. We have handled thousands of divorces and drafted just as many property settlement agreements, so from our experience we can generally tell you want should be included in a property settlement agreement, and we can usually give you a rough estimate of how long it should take to draft one.
But those estimates change dramatically when the other side has no particular knowledge of Virginia law or Virginia procedures, so there are other times when we spend a lot of time explaining Virginia divorce law to him or her. And there are other times when we are flat out incorrect with those estimates, because the client just won’t spend the time needed to understand his or her options and make an informed decision.
A property settlement agreement is a contract between two parties to a divorce (or annulment or separation). It formalizes the distribution of their marital property (and debts), the custody and visitation that they have with any children from the marriage, and generally the spousal support (alimony) that one pays to the other. It may also divide any pension or retirement accounts. The Property Settlement Agreement is the end result of the divorce process that provides a clear picture of what each party receives from the marriage. A Virginia court will issue an Order of Divorce that includes the terms provided in the Property Settlement Agreement.
In Virginia, a Property Settlement Agreement is very important because it becomes part of the final Order of Divorce . As I tell my clients, "It’s better to compromise now than to litigate in front of the judge," meaning that if you do not like the terms of the final order, you should not agree to them up front.
Once you sign a Property Settlement Agreement it is difficult to change it. Even after the final Order of Divorce has been signed by the judge, a Property Settlement Agreement is very difficult to change without the permission of the other party. In very limited circumstances, the Court is authorized to modify the terms of a Property Settlement Agreement, but the burden of proof is on the requesting party to show that the merits of the modification clearly outweigh the public policy in favor of the finality of Property Settlement Agreements.
When preparing a Property Settlement Agreement, your attorney should spend time explaining the statutory requirements of divorce and obtain all the information necessary to prepare the draft of your Property Settlement Agreement. In Virginia, both parties to a divorce are required to fully and frankly disclose all financial earnings and expenditures, from which the Property Settlement Agreement is generally prepared.
Finally, you do not need a lawyer to enter into a Property Settlement Agreement. You should have a lawyer to review and finalize the Divorce Complaint and prepare the final Order of Divorce, but as long as you are aware of all the Virginia laws that apply to your family, you can draft the Property Settlement Agreement yourself. But Property Settlement Agreements are executed under oath, with an Affidavit, so the Divorce Complaint and the final Order of Divorce will almost always require the assistance of a lawyer.
Essential Elements of a Virginia Property Settlement Agreement
A comprehensive Virginia property settlement agreement must address a variety of key components. These components often include an equitable distribution of assets and liabilities between the parties, child custody arrangements, child support payments, spousal support payments, health insurance coverages and related doctor visit cost payment responsibilities, tax deductions for the children and alimony payments, life insurance to benefit the children in case of either parent’s premature death, medical coverage for the children, the division of military retirement benefits, the remaining joint bank account balance and the allocation of responsibility for paying the marital bills. These components of a Virginia property settlement agreement may be what is ultimately required in order for the parties to obtain an uncontested divorce. However, these items are far from the only issues that can be contained in a property settlement agreement in Virginia.
In a Virginia divorce proceeding, financial agreements that do not follow the statutory guidelines are explicitly prohibited from being enacted in Virginia. For example, if the parties agree in a Virginia divorce case to an unequal division of marital assets in a Virginia divorce, one party will be ordered to pay the difference between half of the marital value of the assets and the specifically agreed to unequal division. If the parties agree to take on a debt that was notarized as being a marital liability and one party agrees to assume responsibility for the remainder of the a mortgage loan, the one party who assumes all responsibility for the remaining balance of the mortgage loan will receive a "credit" as reimbursement for the assumption of the debt and the other party will be required to "pay the credit" to the assumption of the debt. While agreeing to the division of assets an liabilities in a Virginia divorce proceeding is permissible, hypothetically dividing the assets and liabilities on an Excel spreadsheet or through a Notion web application may not be a good way to organize the distribution since the court would be required to divide the liabilities and assets to make sure the distribution is equitable.
Validity and Legal Considerations
The legal requirements for a property settlement agreement in Virginia include it being in writing, in order to satisfy the statute of frauds. Generally speaking, that means that the agreement has to be written down on paper and signed by both parties. Moreover, if an agreement is reached between parties through email correspondence or personal notes, the parties should print and sign the email exchanges or personally make the notes part of the final agreement that is signed.
Another requirement, although rather rare, is that the agreement would need to be incorporated into a final decree of divorce. However, this typically takes place with agreements that divide up real estate or retirement assets, or which have some other significant provision that might affect a third party. For example, a judge might want to ensure that a particular asset was treated equitably, and that all of the proper procedures were followed like publishing an advertisement in the newspaper required when escrow is held on real estate in Virginia so that third parties will know the escrow is on-going and to make the agreement binding on subsequent owners of the property.
The bottom line is that as long as a settlement agreement is in writing and signed by both parties, it is valid and enforceable in Virginia even if it has not yet been incorporated into a final decree of divorce.
Drafting the Agreement
The process of drafting a Property Settlement Agreement in Virginia begins with negotiation between the parties and their attorneys. It is important that both individuals realize that the first proposal is not likely to be what they desire, but rather a starting point. The parties can then move forward with crafting the terms of the agreement from there.
The terms of the agreement will vary widely based upon each couple’s unique financial profile such that it is not possible to make any generalizations to provide guidance on the division of property or support negotiations other than to highlight the most common issues as follows: The right to claim a portion of the other person’s Retirement Plans 401(k), pensions, etc. is one of the few areas that is a 50/50 split if there is no agreement to the contrary. The Court must just follow the law and a 50/50 split is as indicated by the law, the court does not have any discretion. That is not the case with other real estate or personal property. It is impossible to argue with numbers unless there is a hidden asset and then the calculation is zero. In general, if there are retirement accounts, several pieces of real estate and no children, there is a high likely hood that a 50/50 split will be ordered by the court. If children are involved, then it is possible that the overall split may be 40/60 and the non-custodial parent will pay more child support.
If there is equity in the real estate which has to be divided or divided out, the real estate should either be sold first and then the equity split assuming neither party has the resources to buy out the other or the better option might be to sell the house so that cash can be divided and there is no debt left on that property going forward. In this manner, if there was any problem or equity was lost, the risk is equally shared. If only one person is going to assume the house, then whoever is keeping the house needs to take on the full mortgage after the divorce and have their share of equity paid out, however, if the mortgage cannot be transferred to the other party because of credit issues and thus has remain in both parties name, then the parties will need to negotiate how the mortgage will be paid and how they will refinance in the future.
Bank accounts can be divided based upon the funds of the bank account. If there are 3 bank accounts and the funds are determined to be joint funds, then all funds go to one party. The same is true with 401(k)’s. If it was determined to be marital then there needs to be orders or instructions given to the person holding those funds to divide up the funds. If they are claimed as separate, then the funds remain in the account and there has been no argument despite the fact that the funds were used for joint purposes. If there was gifted money and it was maintained in a separate bank account and was to be used solely for that purpose and now it is co-mingled, then it may very well be possible to show that it remained separate and therefore secure the funds. If an interest was paid out on that account, it would be marital and divisible. This could also be the case with separate funds used for mortgage payment or other expenses of the marital residence. As long as the deposit made on behalf of the marital home was from a separate account, then it should be considered only the property of that party. Again, if a mortgage is paid and a spouse is added to the mortgage, then at that point those funds may have become marital by virtue of how they have been used. This can include the purchase of cars, furniture, appliances and other assets both before and especially after marriage.
If there are children involved, especially small children, there will be negotiations of Parent Time regarding how often and where the children will stay during the week, overnights and holidays. Overnights with Dad typically do not happen for a good period of time until the child learns who Dad is. If the children are learning how to talk and they have not seen Dad, then a gradual transition must be instituted and Dad needs to keep the visits short at first.
An agreement can also be entered in writing and signed by both parties without having to go through the court if there are a few issues, such as if you do not want to divide out the retirement accounts, put their value as an asset and co-mingle and each person fills out a form for new beneficiary about how they would like it handled in the event of that party’s death and then the parties can sign that as opposed to going through a QDRO, ( Qualified Domestic Order), which takes time and costs money.
It should also be noted that most language in a Property Settlement Agreement must be approved by a Judge in Court as follows: Any language that goes against the code, there are several code sections that refer to maintenance before, during and after the marriage, custody statutes, support statutes and Virginia law for equitable distribution of property.
Common Pitfalls to Avoid
It’s important to think through all eventualities, and to be very specific in what you mean, when drafting a Virginia property settlement agreement, a contract between you and your spouse that addresses how you will divide your assets and liabilities after divorce. The potential for the future until death to do you part is far more than most people think about. Spelling out how the children will move between the two parents in the future; who will pay for medical costs for children of divorced parents, or how these costs will be divided if either parent has a lapse of insurance and still needs medical care; how you will divide interest or income from investments that build up after the divorce; what to do in case of death of either parent or both parents; how to handle the situation if one parent needs to sell the marital residence and the other does not want to; should the home be sold , and if so, how will it be handled, and what if the house appreciates in value in the meantime? These are only some of the issues you could contemplate, and if not specified in your agreement or as a court order subsequent to your filing your divorce complaint, they may not be addressed at all in the future.
Working with an experienced Virginia divorce attorney will also help you avoid mistakes. The worst mistake you can make is to sign something, either a decree or a property settlement agreement, without really reading and understanding it. Attorneys see it all the time in Virginia divorce cases—the parties get anxious to get their case resolved, and the divorce is a drop in the bucket on the path to the future, and don’t think through the full consequences of their actions.
Enforcement and Modification
Once a property settlement agreement is approved by the court, it becomes an order of the court. In Virginia, orders of the court are subject to the same enforcement mechanisms as those of a contract. A written agreement that has been approved as an order can be enforced by contempt of court. A violation will not happen often, as there are many consequences to contempt of court, and so it is normally only the most obstinate of compliant that will defy an order of the court. Normally, when the other party understands the consequence of violating an agreement, that party complies with that agreement.
The exception to the general rule that an approved property settlement agreement is not modifiable is when the terms of the agreement are incorporated into a court order and the order reserves jurisdiction in the court. In such a situation, the order of the court continues indefinitely, and the agreement can be modified at any time by either party by applying to the court for a modification of the order.
For example, if an agreement provides that a party will pay one-half of the annual school tuition for a child, the obligation to do so continues indefinitely, and can be modified by a motion filed with the court. If an agreement provides that a party will pays the first $200 of unreimbursed medical bills each calendar year, a request can be made only once per year for reimbursement. The first $200 that is paid becomes a fixed debt that cannot be modified without a showing that there is a change in the circumstances of the parties that warrants a modification. This is important because the burden is on the party seeking the modification to show that the circumstances of the parties have changed since the order was entered.
How an Attorney Can Help
While the legal framework for a Virginia property settlement agreement remains valid and enforceable even when one or both parties are not represented by legal counsel, the importance of having an attorney involved in the preparation, execution, and approval of such an agreement cannot be understated. The first reason is that diligent representation will assist in the proper preservation of rights in a potential future contested divorce litigation. If one spouse is represented by counsel and the other spouse is not, then often sufficient time is not given to the more vulnerable spouse to work through the process of having the agreement dissolved or amended following the commencement of contested proceedings. Issues of spousal support, division of assets, and custody may need to be revisited, for example, but without sufficient time to accomplish this a party may be precluded from regaining some of their rights to equality in the divorce. A second reason is to ensure that the agreement at issue is equitable and appropriate to the circumstances of the spouse with the least amount of income-earning capability. Pursuant to Virginia law, the analysis of spousal support, custody, and property division is relevant to the overall outcome of a divorce situation. An agreement that is gathered on an uneven legal footing can result in unfair consequences that are difficult to overcome in subsequent bench and jury trials.
Frequently Asked Questions about Virginia Property Settlement Agreements
Frequently Asked Questions on Virginia Property Settlement Agreements
What does "property settlement agreement" mean?
A property settlement agreement (PSA) is a written contract resolved between the parties to settle all matters, including property division and alimony, arising from a divorce or separation.
When do I need a property settlement agreement?
In Virginia, you must have a PSA if you want the Court to incorporate the PSA into a final decree of divorce. Otherwise, the divorce decree will only address the dissolution of the marriage, with no other issues so long as one of the parties does not request a Court determination as to any other pending issues. If one of the parties requests a determination as to any other issues, the parties can still be bound by an enforceable agreement if it is in writing and signed by all parties.
What issues can be addressed by a property settlement agreement?
In Virginia, a PSA can address any marital issues, so long as the parties have full and fair disclosure. It may also be assumed that the Court will require that the issues have arisen between the parties, rather than another party, such as a child or parent, to whom one of the parties may have been obligated. Matters that typically can be addressed by PSA include:
- Division of property
- Division of debt
- Alimony
- Child custody
- Child visitation
- Child support
- Tax considerations
- Life insurance
- Health insurance
- Retirement benefits
- Bank accounts
- Credit accounts
- Pet custody
- Personal property
- Bank accounts, checking and savings
- Corporate accounts, ownership interests , stock options, etc.
- Social Security benefits
- Military benefits
- Real estate
- Personal injury claims
- Settlement proceeds from a lawsuit
- Equitable distribution of marital assets
- Injunctive relief
- Medical expenses
- Counseling
- Bankruptcy
- Attorney fees
- Special appointments
- Spousal health insurance
- Student loans students aids
- Work-related daycare
- Taxes
- Tax credits
- Taxes on the income that the parties have agreed to receive in the future.
Will a PSA cover matters such as custody and child support if the divorce decree does not address them?
To be legally binding, a PSA must be in writing and signed by both parties. If the PSA has not been incorporated into the decree, the PSA is not binding and enforceable against other parties, such as children of a party or the Virginia Department of Child Support Enforcement. If you wish to make your agreement binding upon third parties such as children or outside agencies that may have an interest in the matter of support, the agreement should be made a part of the court order. If the divorce decree does not address custody or child support, the PSA is not binding even though it might apply to that issue. The provisions in the PSA award the rights and responsibilities that each party assumes, however, neither party can be bound by the PSA, unless it is a Court order. In order to make the provisions of the PSA binding upon the parties, the parties must obtain a ruling by the Court, which can be done within the same time frame as the decree, or at a later date. Each party must be given adequate notice of this hearing.