Oftentimes, during a divorce mediation or settlement conference, soon-to-be ex-spouses negotiate for payments to be paid from one to the other. These payments are generally for three different purposes.
The first might be to resolve issues around marital property. Sometimes, the parties may acknowledge that an asset has a certain value, but that asset is indivisible and one party wants to keep it. In this instance, the person retaining the asset has to pay one-half of its value to the other person.
Oftentimes, there are no liquid assets around to pay that one-half share. A perfect example is a business. Let's say a husband started a business during the marriage, and the business has a marital value of $1 million. But the parties, who have been spendthrifts, have no money in the bank, no retirement assets and no equity in their home.
The wife in this scenario appears to be entitled to $500,000, but the husband has no means of paying it her. And selling the business is not an option, since it is the source of income for the family, and will be the husband's means of paying alimony and child support going forward. In this scenario, the wife may agree to accept payments over time for her $500,000.
Alimony and child support are the other types of payments that are commonly made in divorce. But what happens if the spouse paying alimony dies, gets into an accident that renders them unable to work or just doesn't want to pay anymore (a situation that happens more often that divorced couples may like to admit).
Certainly, the spouse receiving the alimony can seek relief through the court system, but enforcement actions can take time and cost money. Fortunately, there are some protections the spouse receiving alimony can put right in their divorce agreement. None of them are perfect, and none guarantee that the monthly money will land in the payee's bank account every month, but they can certainly help. Here are a few potential safeguards.
1. Security Interest for Payments
This is a provision that states the payments are secured by a recorded (important part of this) security interest against real property owned by the spouse paying alimony. If this person fails to make a payment on time and can't cure the default in a reasonable time period, then the payee could enforce the security interest at a default interest rate.
2. Money Judgments
A payee spouse can get a money judgment on alimony arrearages after the fact. But the parties can also agree that a money judgment shall issue on any arrearages that may occur in the future.
The court has the power to hold people in contempt automatically for failure to make support payments. This includes not only adding interest to arrearages, but also suspending a payor's driver's license, and if warranted, incarcerating them. Adding that all payments are enforceable by contempt in your divorce agreement gives the court extra teeth to impose stronger sanctions, if need be.
4. Attorneys' Fees
You may be able to include a provision stating that spouse paying alimony shall be responsible for the other person's attorneys' fees and costs for enforcement, should they default.
5. Life Insurance
Life insurance is a way to secure payments in the event of death. (The other payment securities above are options for securing payments while everyone is alive.) You may want to make sure to include a provision that the spouse paying alimony show proof the life insurance is current and remains in force each and every year.
6. Not Dischargeable in Bankruptcy
Alimony and child support are already not dischargeable in bankruptcy. However, for property payments, there are scenarios where that liability might be dischargeable. While there are no guarantees, it may be helpful for the parties to include a provision that states something to the effect that they acknowledge any and all terms of their divorce agreement "and any obligations arising therefrom, are specifically intended by the parties to be nondischargeable in the event of bankruptcy."
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