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The Importance of Being Precise When Drafting Your Judgment of Divorce
Whatever the intent of the parties, the language of your judgment should be clear and precise to avoid problems in the future.
April 20, 2009 /Accounting PR News/ -- The Importance of Being Precise When Drafting Your Judgment of Divorce
Article provided by Schwartz Law Firm, P.C.
Visit us at http://www.schwartzlawfirmpc.com
Harry and Sally, like most divorcing couples, entered into a consent judgment. They agreed to equalize all of their retirement accounts as of the date of the entry of the consent judgment. Harry had $100,000 in a 401(k) account held with Morgan Stanley. Sally's 401(k) consisted of various funds held with Fidelity and were valued at $75,000 as of the date the Judgment of Divorce as entered. Harry would need to transfer $12,500 to Sally's account to equalize. They believed that after the accounts were divided, they would each end up with roughly $87,500. They were wrong.
It can be months before an account is divided and distributed to the alternate payee (in this case, Sally). In the meantime, the market continues to fluctuate - and in these economic times, that can mean a drastic change in the value of the account. In this scenario, Harry's account lost $15,000 between the date of divorce (the valuation date) and the date of distribution. Because the Judgment of Divorce failed to provide that the parties would equally share in any increases or losses in the accounts from the date of judgment to the date of valuation, Harry was still required to transfer $12,500 to Sally's account to "equalize" as of the valuation date. This resulted in a windfall to Sally and a loss to Harry.
Unfortunately, this is an all too common scenario. Parties are marching back into court, trying to convince the judge that this market change was a "mutual mistake" or that the change in value resulted is an inequitable distribution not intended by the parties. Courts are rejecting both arguments.
Courts have refused to find mutual mistake in these situations because both parties knew that the market could fluctuate and result in a larger or smaller award. The equity argument is equally unavailing because a court is bound by the agreement of the parties. Kline v. Kline, 92 Mich App 62, 71; 284 NW2d 488 (1979).
If the parties intend to equally bear the burden of the fluctuating market, the language in the judgment of divorce needs to clearly demonstrate this. For example, one might add the following language to the section of the judgment that addresses the division of retirement accounts: "the parties shall equally share any investment gains and losses from the date of division to the date of distribution." One simple sentence can help parties avoid unnecessary postjudgment litigation. It will also assist your expert in preparing the Qualified Domestic Relations Order ("QDRO"), which will avoid conflicts between the Judgment of Divorce and the QDRO.
Whatever the intent of the parties, the language of your judgment should be clear and precise to avoid problems in the future.
By: Carmen Moyer, Schwartz Law Firm
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