Additionally, as part of his income, and as part an employment retention device, the Husband received Portfolio Grants.  

A target incentive is awarded annually.  The Husband represents that the value of the ultimate award increases or decreases based on the Husband’s performance over a three or four year period.  In addition, the ultimate payout is strictly conditioned upon ABC, Corp.’ financial performance  and total shareholder return as compared to the Standard and Poor’s 500 Index over a three or four year performance period, depending on the year of grant.  The target incentive listed below is the initial value of the award at the time of grant.   

The payments have historically been made in cash and the ultimate award has been larger than the target incentive.  Based on the payouts received by Husband including the 2002 grant that has been set and shall be paid in September, 2002,  the average pay-out was  2.52 times the target incentive. 

The vesting period of the portfolio grant had historically been three years.  The PG’s  awarded in 1999 will pay $55,000.  Beginning in 1999, the vesting period was increased to four years and a supplemental award was received in 1999 to compensate for the additional vesting year.  This will effectively provide a bonus to Husband in 2003.  

The above chart does not include a Portfolio Grant received by the Husband in February 2002 with a target value of $30,786.  Since the awards received by the Husband in a certain year are for work performed in the preceding year together with performance over the subsequent year vesting period and the Complaint for Divorce in this matter was filed on May 23, 2001, it is hereby agreed that 17.5% of the ultimate pay-out of the  Portfolio Grant awarded in February 2002 shall also be included in the group of Portfolio Grants to be distributed incident to this Agreement. For example, the Wife’s share of the PG to be paid in September 2002 (i.e., $55,000) shall be paid as follows: $55,000 times Wife’s share (25%) equals $13,750.  This figure shall then be reduced by the agreed upon marginal tax rate of 44% ($6,050), resulting in a net payment to the Wife of $7,700.   

All of the aforementioned stock options, restricted stock and portfolio grants awarded to Husband as stated above shall be distributed in accordance with the “Callahan Trust” provisions that follow.  The Parties acknowledge that neither party shall have rights with respect to the grants of stock options and restricted stock and portfolio grants that were paid out or inured to the benefit of either party subsequent to the date of the filing of the complaint for divorce as referred to above.  

The parties agree that the Wife is hereby granted an equitable and constructive interest in the aforementioned stock options, restricted stock and portfolio grants granted to Husband by ABC, Corp., as noted above.  As part of this Agreement, subject to the ABC, Corp. policy procedures and restrictions in place, Wife is entitled to fifty percent (50%) of the vested stock options.  Further, the Wife is entitled to 25% of the unvested Stock Options, Restricted Stock (“RSA’s”) and Portfolio Grants awarded prior to the Complaint for Divorce.  For the stock options and Portfolio Grant awarded in 2002, the Wife is entitled to 17.5%.  As to the stock options, the Wife is entitled to direct Husband to exercise on her behalf a total of fifty percent (50%) of the vested stock options, and twenty-five percent (25%) of the unvested stock options (except for those awarded in 2002, in which the Wife’s share is 17.5%), culminating in a total of 7,552 vested options and  18,681 unvested   options from the total of  93,978 stock options and 1,500 RSA’s which represents 25% of the 6,000 RSA’s, as set forth above and subject to policies, procedures and limitations of ABC, Corp. which are in full force and effect at the time of the request of the exercise by either party..  These options, PG’s and RSA’s vest across various dates, as noted in the above chart.  Husband shall hold the options, PG’s and RSA’s allocated for Wife as a fiduciary and in constructive trust for her, subject to the following provisions as well as the policies, procedures and limitations of ABC, Corp. governing the stock option plan.  As to the restricted stock and portfolio grants, the Wife shall receive her share of these benefits immediately upon Husband’s receipt of his share subject to deduction of 44% for applicable Federal, State and local taxes.  

For example, Husband shall hold in constructive trust the 3,801 of the 7,602 options awarded on February 23, 1998, through and including their vesting date of February 23, 2001, until their expiration date of February 22, 2008.  The Husband shall act as a fiduciary to the Wife with respect to these options and shall not act in any manner contrary to his duties therein.  However, voluntary or involuntary termination of employment for any reason shall not be construed as a breach of his fiduciary obligations pursuant to the terms of this paragraph.  

Husband shall hold in constructive trust for the Wife the following portions of the options, both vested and non-vested, until she so directs him to exercise these options.  The Wife has sole and complete control over the exercise of the stock options allotted to her (as limited by the provisions of the stock option plan, and/or ABC, Corp. policies, practices and procedures in effect at that time.  

The following provisions shall govern the exercise of the Wife’s share of those options:  

                                                                    i)            Notice and Instructions:  When the Wife wishes the Husband to exercise the stock options allocated to her herein, or any portion thereof, she shall send written instructions to the Husband at his then current E-Mail work address.  The current E-Mail work address: higgins@xxx.com.  In order to carry out the terms of this agreement, Husband agrees to keep Wife informed of any changes in his email address by notification in writing to Wife at her email address at doris.poppins@xxxxx.com with such a change.  The written instructions from Wife to Husband shall include the exact number of stock options that she wishes Husband to exercise on her behalf and shall designate the particular grant (i.e., “flight”) from which the shares are to be exercised.  The parties may agree to alternative notice provisions if one or both emails become unavailable.  

                                                                  ii)            Taxes:  The parties understand that the income tax withholding in conjunction with the exercise of stock options or receipt of RSA’s or Portfolio Grants for Wife will be reported on Husband’s earnings statement at the end of each year.  (Caveat:  If, however, any of the stock options, RSA’s or Portfolio Grants, in which the Wife shares, can be taxed at her tax rates, pursuant to present or future tax laws (e.g. Rev. Rule 2002-22), then her tax liability shall be limited to the amount computed on her own individual tax returns.)  If, however, the Wife’s share of the income associated with the Stock Options, RSA’s and Portfolio Grants cannot be transferred to the Wife, the parties agree that the Wife is obligated for her share of the taxes owed on the “taxable amount” resulting therefrom.  This shall be effectuated by the Husband, at the time of exercise or receipt of benefits due to the Wife, deducting, 44%  as the Wife’s complete and full tax liability for the taxes related to the options exercised, or RSA’s/Portfolio Grants received. The Husband shall be fully responsible for all other taxes owed with regard to said assets and indemnify the Wife fully for same.   To the extent possible, the taxes attributable to any option exercise on Wife’s behalf shall be deducted from the proceeds distributed to her from a same-day sale..   

                                                                iii)            Same-Day Sales Rights (Cashless Exercises):  Husband shall make available to Wife any,  cashless or other exercise rights that are available to him for the exercise of stock options.  The Wife shall be liable and responsible for any and all actual costs associated with the exercise of such rights as mandated by the Husband’s employer, including but not limited to administration fees, documentation fees, and service fees.  

                                                                iv)            Exercise of Options and Sale of Stock:  In the event Wife instructs Husband to exercise the options and sell the stock allocated for her (i.e., via a same-day sale, cashless exercise or otherwise), the Husband agrees to instruct the stock brokerage firm to remit the net proceeds of the sale of the stock on Wife’s behalf, by a wire transfer to an account as directed by her. The Wife shall be responsible to provide any and all current account data including ABA and routing information at the time of each exercise request to insure the accuracy of such transfers.  The “net proceeds of the sale” of stock options are defined as the proceeds available after deduction of the state and federal taxes at the agreed upon marginal rate of 44%.[2]  When possible, Husband will enable Wife to take advantage of all cashless transaction rights for the exercise of options.  Thus, Wife shall have the right to exercise options less the net value of the strike price without putting forward cash for the exercise of the options, to the extent this right is granted to the Husband through ABC, Corp..  However, the Wife shall pay all applicable fees and out-of-pocket costs incurred by the Husband in connection with the exercise of such right.  

                                                                  v)            Limitations on Amount of Options Exercised:  The Wife acknowledges that the exercise of stock options by the Husband for his benefit as well as hers, is now subject to certain ABC, Corp. policies that requires senior executive approval of such exercise, if said exercise exceeds 40% of all vested stock options.  At this time, the senior executive in his or her sole discretion may expressly withhold approval for a period of 90 days subsequent to a scheduled meeting to review the exercise.  For this reason, the Wife expressly agrees not to exercise more than 20% of the total vested options (calculated as all of the vested stock options in which the Husband has an interest as of the date of her request to exercise) .  However, should the Husband be granted the right to exercise more than 40% of all vested stock options, the Wife shall have the right to exercise 50% of the amount in excess of 40% of all vested stock options to which permission was granted.  

                                                                vi)            Exercise of Options and Distribution of Stock to Wife in Kind:  In the event Wife wishes Husband to exercise the stock options allocated for her and receive the stock in kind , the Wife shall deliver to Husband all funds necessary for the exercise of the specified stock options prior to the exercise, including the agreed upon 44% federal and state income taxes attributable to the exercise,[3] if any, at the time of exercise of the specified stock options applied by the taxable amount together with any and all applicable fees and out-of-pocket expenses, required to be paid to the Husband’s employer as a result of said exercise.  This delivery shall be made in the form of a wire transfer to an account as outlined in accordance with the aforementioned procedures.  In the event that the company will not authorize the issuance of stock in the name of the Wife, then the Husband shall cause the stock to be issued in his name, as the trustee and the fiduciary for the benefit of the Wife and shall immediately thereafter transfer the stock into the Wife’s name.  Any stock transfer or related cost associated with the exercise of the options for the wife’s benefit or the transfer of the stock into the name of the Wife, shall be borne solely by the Wife.  

                                                              vii)            Damages for Untimely Exercise of Options:  The Husband shall be liable for any intentional delays in the exercise of options requested by Wife pursuant to the procedures set forth herein and subject to ABC, Corp. processes and procedures.  .  

                                                            viii)            Exercise of Husband’s Options:  In the event that Husband desires to exercise his share of the ABC, Corp. stock options, he will provide written notice to the Wife at the aforementioned email or residential mailing addresses at least 24 hours prior to the exercise of the options.   

                                                                ix)            Termination of Husband’s Employment (Claw- back Provisions):  The parties expressly acknowledge the existence of portions of the ABC, Corp. policies and procedures, which are called “Claw- back” provisions.  These Claw- back provisions may require a disgorgement of the total gain  realized on the exercise of stock options within a certain stipulated period of time before an employee’s termination.  It is acknowledged that these terms may change from time to time.  The Husband shall provide Wife with a copy of the current applicable “Claw-back” provisions and any changes to such “Claw-back” provisions.  Therefore, it is the parties’ intention as to the distribution of the specific stock options, restricted stock and portfolio grants listed above, that they each be bound by the actual claw- back provisions that may be in effect at the time of the triggering event (i.e., the Husband’s termination of employment with ABC, Corp.[4]).  Further, it is the intention of the parties that should the husband involuntarily or voluntarily terminate his employment with ABC, Corp., that the claw- back provisions shall equally  apply to the Wife should said company make a final, internally non-appealable decision to required the return of gain received (i.e., profits on the exercise of stock options), exercised within the “claw-back period” and the Husband actually returns his total gains .  In that event, the Wife shall be obligated to do the same within 15 days of the Husband’s return of the total gain .[5]    She shall return promptly her total gains  to the Husband so that such total gains  may be returned to the company.  The amount to be returned shall be calculated in accordance with the policies and procedures of ABC, Corp. in place at that time.  (Example:  Presently, the funds to be returned are the gross profit (i.e., fair market value of stock on date of exercise less strike price, exercise fees and other allowable fees), not the net amount received from the exercised stock options.)  The Husband shall return these total gains to ABC, Corp. in accordance with ABC, Corp.’ stated policies, procedures and limitations in effect at that time.  The Husband shall be obligated to provide the Wife with any documentation that he receives from ABC, Corp. with respect to compliance with this policy.  To the extent that the Husband loses any stock options, portfolio grants or restricted shares or rights for stock options, portfolio grants or restricted shares due to a change in employment, but receives stock options, portfolio grants, restricted shares or other form of compensation directly or indirectly attributable to the loss of such stock options, portfolio grants or restricted shares, the Wife shall be fully compensated for her lost rights and shall share in said recompensed stock options, portfolio grants or restricted shares or other form of compensation in the same proportions as with the original ABC, Corp. stock options, portfolio grants or restricted shares subject to forfeiture due to the Husband’s termination of employment. stock options, portfolio grants or restricted shares.  Housing allowances, and moving expenses shall not be construed as compensation for lost stock options.   

                                                                  x)            Notice of Termination of Employment:  In the event Husband’s employment at ABC, Corp. is terminated, Husband shall notify Wife within 24 hours of said termination of employment, by telephone and/or email, followed by immediate written notice (within 48 hours of termination), mailed to Wife’s residential mailing address.   

                                                                xi)            Failure to Comply with Notice Provisions:  In the event Wife loses the right to have Husband exercise any stock options on her behalf as a result of Husband’s intentional failure to comply with the notice provisions herein, the Court shall have reserved jurisdiction to determine the amount of the monetary loss, if any, resulting to Wife as a consequence of said failure and shall order reimbursement to her by Wife of that monetary loss, plus counsel fees and associated costs.   

                                                              xii)            Re-Pricing:  In the event ABC, Corp. declares a re-pricing of the exercise price of the stock options, or makes any other adjustments to the options allocated to Wife in this agreement, Husband shall notify Wife of the adjustments, or re-pricing within 15 days of his knowledge of such event  by telephone and/or email   Husband shall not exercise any right to re-price any of the stock options allocated for Wife unless and until Wife has given Husband written instructions to do so.  As soon as ABC, Corp. notifies Husband of the opportunity to re-price such stock options, Husband shall notify Wife of the opportunity and provide her with copies of all documents from ABC, Corp. pertaining thereto.  

                                                            xiii)            Reload Options:  To the extent that the Husband is granted or has any reload rights in the existing options listed in paragraph 45 above, the Wife shall also share in those rights up to her proportionate share allocated to her herein. However, provided that the Wife has and presents to the Husband ABC, Corp. stock in the amount required for reload at the time of the requested stock option exercise.  It is expressly agreed and understood that the Wife shall have no reload options granted for any post complaint period.  

                                                             xiv)            Reservation of Jurisdiction:  The Court shall have reserve jurisdiction to enforce the terms of this section subject to the then existing stock option plan terms and conditions regarding the exercise of said options and all applicable retention agreements of ABC, Corp. in place at the time of the exercise.  The Court shall also be able to make any further Orders as necessary to carry out the intent of the parties with respect to this section in the event of changes in the stock option plan for loss   of options due to the voluntary termination of employment with ABC, Corp. or any other unforeseeable event that the parties have not contemplated as part of this Agreement, relating to the designation of the parties’ option rights subject to distribution under this Agreement. Death:  In the event of the death of the Husband, all rights of the Wife shall be preserved subject to the rules, policies, and procedures with respect to said options.  The Husband’s estates is hereby bound to honor the obligations imposed upon the Husband pursuant to this Agreement.  The Estate shall, at the direction of the Wife, exercise the Options prior to any accelerated expiration if any,  resulting from the Husband’s death.  

VII.      PENSIONS

21.  QDRO Language to Meet Requirements of Tax Reform Act of 1984.  

There are various provisions that are required to correctly distribute retirement assets under the Tax Reform Act of 1984 and other applicable laws.  Such provisions relate to defined benefits plans, defined contribution plans, state plans, etc.  Entire books have been written on such clauses and many Plan Administrators have a preferred form of Domestic Relations Order.  As such, it is not feasible to provide every clause that should be included in a MSA and/or QDRO but rather basic sample clauses should be used as a starting point and modified to address specific plans 

It is our recommendation that the necessary language needed to transfer qualified plans (i.e., ERISA type plans) be either incorporated into the MSA or in a form QDRO attached to the Judgment of Divorce as an exhibit.

The Internal Revenue Code, §414(p)(1)(B), defines a QDRO as “any judgment, decree or order (including approval of a property settlement agreement) which (i) relates to the provision of child support, alimony payments , or marital property rights to a spouse, former spouse, child, or other dependent of the participant; and (ii) is made pursuant to a State domestic relations law (including a community property law).  If the proper language is set forth in the MSA, that Agreement, which has been incorporated into the Judgment of Divorce, can qualify as a QDRO.  This is essential in the event that one of the parties predeceases the other prior to the entry of the actual QDRO.  Therefore, at the very minimum, every MSA should contain and every QDRO must contain the following language:

Ø      The name and last known mailing address (if any) of the participant and each alternate payee covered under the order;

Ø      The relationship of the alternate payee (i.e. former spouse) to the participant;

Ø      The amount or percentage of the participant’s benefits to be paid by the plan to such alternate payee, or the manner in which such amount or percentage is to be determined;

Ø      The number of payments or period to which such order applies; and

Ø      The specific name of each plan to which such order applies. (See IRC §414(p)(2))

            The Agreement and/or QDRO should also include a recitation of the limitations of the Order as follows:

Ø      The Order cannot require the payment of benefits in a form not otherwise provided by the plan;

Ø      The Order may not direct that a joint and survivor annuity be established for the divorced spouse and his or her subsequent spouse;

Ø      The Order may not require the plan to provide increased benefits on the basis of actuarial value; and

Ø       The Order may not provide for the payment of benefits already awarded to another alternate payee pursuant to a prior QDRO. (See §414(p)(3))

            It is also suggested that, in advance of drafting the MSA, you obtain the Plan documents for the plan(s) against which you will be drafting, the Plan’s QDRO requirements and a sample form of QDRO from the appropriate Plan Administrator.  Review of such documents will assist you in understanding the particular plan, against which you are drafting the QDRO, and will educate you as to what provisions must be included for that particular plan and what provisions may not be accepted.  For example, some Plan Administrators will not adjust a specified sum or percentage, as of a date certain, for market appreciation and depreciation from the specified date through the date of distribution.  If you did not submit your proposed language to the Plan Administrator for pre-approval and the MSA contains such language, you will be left with a post-judgment issue that may require the retention of an expert to make the calculation or may require that the offending provision of the MSA be renegotiated.   

            The best practice is to first put the Plan Administrator on notice that there is a pending divorce and that the retirement asset may be subject to equitable distribution.    Next, obtain all of the relevant discovery (there may be plans that have not previously been disclosed), as you would with any other asset and then prepare and submit a proposed QDRO for pre-approval.    During the time that the QDRO is being reviewed, the Plan Administrator must “separately account for the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a qualified domestic relations order.”  (See §414(p)(7)(A).  This will prohibit, for example, the Participant spouse from taking a loan against the plan until such time as the order is actually qualified so as to protect that portion of the account that has been designated as the alternate payee’s.  The pre-approved QDRO should be attached to the MSA and entered simultaneously with the Judgment of Divorce.  All too often, practitioners neglect this area, which results in post-judgment issues, litigation and sometimes years of delay in having the QDRO entered, qualified by the plan and effectuated.  This delay may subject you to a malpractice action if one of the parties remarries or dies before the QDRO is entered or if the Participant retires and makes elections contrary to the terms of the MSA, which may not be altered after the plan goes into “pay status”.    

            Keep in mind that a QDRO may also be used to secure child support and alimony payments and to satisfy support arrears.   However, the use of a QDRO for ongoing support payments is problematic for a number of reasons including but not limited to the fact that many plans require that the Order be renewed each time a payment was due and because the Plan Administrator can only make payment from a defined benefit plan at certain times as specified by the Plan (i.e., the earliest retirement age of the participant).  The use of a QDRO is a much more effective tool for the collection of support arrears, the amount of which has already been fixed by Court Order. 

Proposed language for the equalization each party’s defined contribution plan where there are no pre-marital contributions:   

The parties each have a 401K plan.  In order to equalize the accounts, each party shall receive (either a specified % of dollar amount) of the accrued balance in the other’s account as of (an agreed upon cut-off date, usually the date of the Complaint), which sum or percentage shall be adjusted by the Plan Administrator for that plan, for market gains and losses, if any, from the agreed upon date through the actual date of distribution or such other date as permitted by the plan. (Note - sometimes the will only make the calculation through a date specified in the plan – i.e., the last day of the month preceding distribution).  This equalization shall be accomplished by way of a QDRO, which is attached hereto and incorporated herein as Exhibit “A”.

Proposed language for the distribution of the Husband’s share of the Wife’s  defined contribution plan (Husband does not have one) where there are pre-marital contributions:   

The Wife has a 401K plan through her employment.  The Husband shall be entitled to receive $_________ [6], which sum shall be adjusted by the Plan Administrator, for market gains and losses, if any, from _____________(the agreed upon date, usually the date of the Complaint) through the actual date of distribution or such other date as permitted by the plan. This equalization shall be accomplished by way of a QDRO, which is attached hereto and incorporated herein as Exhibit “A”.  

Proposed language for the distribution of a defined benefit plan:

The Husband is a participant in the ABC Retirement Plan.  The Wife shall receive 50% of the marital portion of the Husband’s accrued monthly benefit at the time of retirement in accordance with the formula approach delineated in Marx v. Marx, 265 N.J. Super 418 (Ch. Div. 1993) as follows:  

Number of months married, employed by

ABC and in the Plan through the filing date

(_______ to ______) or ___ months

Total Number of Months employed by

ABC and in Plan                       x               50% x  Monthly Benefit at            

                                                                                    Retirement

The payments shall be based on the life expectancy of the Wife.  The Wife shall be entitled to the Qualified Pre-Retirement Survivor Annuity, to protect her interest in this plan in the event that the Husband predeceases actual retirement and the commencement of monthly benefit payments.  After the DRO is qualified, the death of the Husband shall have no effect on the payment of the benefit assigned by the Husband to the Wife.  

The DRO shall further provide that the Wife shall have the right to elect to receive benefit payments under the Plan at any time, as otherwise permitted by the plan.  The Plan shall pay benefits to the Wife in any form permitted by the Plan which is selected by her, provided that the form she selects does not adversely affect the selection by the Husband of a form of benefit payment.   

If applicable, the Wife shall be entitled to receive her proportional share of all COLAs, ad hoc or other increases or adjustments, adopted by the Plan in accordance with the Plan provisions, in accordance with the formula set forth in paragraph ___ above.  

The Wife shall include in her gross income, for the tax year of receipt, all retirement benefits that she receives pursuant to the Husband’s assignment of benefits, and, accordingly the Husband shall not include such benefits in his gross income.  The Wife shall be treated as the sole distributee under IRC Sections 72 and 402 of any payment or distribution that is made to her under the Husband’s assignment of benefits.  (See Defined Benefits Domestic Relations Order (“DRO”) attached hereto as Exhibit “A”)  

VIII.    TAX RETURNS

22. Filing of Tax Returns & Indemnification for Previously Filed Joint Returns.  

There are many variations possible for how to deal with past tax returns.  This is, as is most other provisions, dependent on the factual circumstances of the parties and a point of negotiation.  The following represents a detailed series of clauses that can be utilized. 

PREPARATION OF RETURNS AND INNOCENT SPOUSE DOCTRINE

The parties shall file joint income tax returns for 2002, and Husband agrees that he shall be solely responsible for the payment of such taxes together with all expenses, which may be incurred in the preparation of the income tax returns.  As soon as practicable following December 31, 2002 in which the parties are eligible to file joint income tax returns, but not more than one hundred (100) days thereafter, Wife shall deliver to Husband all information, data, and documents requested for the preparation of true and correct joint income tax returns (“Wife’s Income Tax Information”).  Husband shall then promptly cause the preparation of true and correct joint income tax returns. Within ten (10)days following the sending of such returns to Wife, Wife shall execute such returns and return them to Husband.  The Wife is executing these returns as an innocent spouse and has no knowledge about the contents of said returns.  In the event Wife’s bad faith refusal to sign a tax return prepared and submitted to her in accordance with the terms hereof creates additional tax obligations and/or liabilities, Wife shall be solely responsible for the payment of said obligations and/or liabilities, including, without limitation, interest and penalties.  Any refund attributable to such returns for 1998 shall belong solely to Husband and Wife will endorse any refund check..  

LIABILITY

To the extent that there are any past taxes, penalties or interest owed with regard to any joint tax returns filed by the parties during the course of the marriage through tax year 1998, the husband shall be responsible for any taxes, penalties, assessments or interest determined to be due and owing by the Internal Revenue Service or any state Taxing Agencies.  The Husband shall hold the Wife harmless from any loss or liability in accordance herewith, including counsel fees and accounting fees that she may incur as a result of any deficiencies with regard to said joint tax returns unless the Wife failed to accurately disclose her income or deductions and in such case she shall pay the liability and indemnify the Husband.

AUDITS 

Except if a conflict exists between Husband and Wife related to claims brought by the IRS or the IRS gives notice of an intention to levy on Wife’s assets or income, from and after the date of the execution of this Agreement, Husband shall have complete control over the payment, settlement, audit, litigation or other disposition of any dispute involving any tax obligation or liability of the parties assumed by Husband pursuant hereto. The Husband shall have the right to conduct and control all negotiations, audits, litigations, and proceedings with respect thereto.  Wife will notify Husband immediately of any claim made with respect to any such obligation or liability and will not, except with the prior written consent of Husband, voluntarily make any payment, or settle or offer to settle, or consent to any compromise in connection with any such obligations or liabilities.  Wife will cooperate with Husband in any manner requested by Husband in connection with any negotiations, audits, litigations, or proceedings involving any such obligations or liabilities.  

23. Allocation of Mortgage Interest and Real Estate Tax Deductions.  

If the parties do not file joint income tax returns for 2002, the Husband shall be permitted to declare the real estate taxes and mortgage interest deductions with regard to the former marital residence on his 2002 tax returns up to the last day of the month in which this Property Settlement Agreement is fully executed.  The Wife shall be permitted to declare the real estate taxes and mortgage interest deductions with regard to the former marital residence on her 2002 income tax returns commencing with the month next following the full execution of this Property Settlement Agreement.  After 2002, the Wife shall be solely permitted to declare the real estate taxes, mortgage interests and other deductions with regard to this property.  

IX.           BANKRUPTCY

24.  Bankruptcy Clause (Dischargeability and Characterization of Certain Obligations as “in the nature of Alimony and Child Support”).

The interplay of family law and bankruptcy presents the legal world with a collision of competing policies.[7]  Family courts are concerned with the financial protection of the family,[8] and have a significant interest in seeing their orders regarding alimony, child support, and equitable distribution enforced.  In bankruptcy, however, the predominant policy of the law is to afford the debtor a fresh start.[9]

As long as the debtor has not engaged in fraud or other improper conduct, a discharge of debts will generally be granted.[10]  Certain debts, however, are non-dischargeable,[11] including debts for alimony and child support or other obligations that are in the nature of support or alimony.[12]  Certain other debts incurred in connection with separation or divorce proceedings, such as equitable distribution, are subject to a equitable treatment in the bankruptcy court.

With a view toward balancing the "fresh start" policy of bankruptcy with the need to enforce interspousal agreements, the 1994 Bankruptcy Reform Act represents a Congressional response to the evolving view of marriage as a joint enterprise, and acknowledges the interplay between spousal support and distribution of assets.[13]

There are many situations where the threat of bankruptcy by an obligor spouse is real or anticipated.  In these situations, it is necessary to craft language expressing the intent of the parties to guard against the discharge of obligations in bankruptcy after an MSA is executed.  A sample clause follows: 

The husband has warranted and represented that it is more likely than not that subsequent to the execution of this Agreement he shall file a bankruptcy petition in which he shall seek to discharge certain financial obligations.  This Agreement has been entered into based upon that representation.  As a result the parties have carefully considered the impact of bankruptcy on their respective rights, duties and obligations under this Agreement.  It is for that reason that the parties have designated certain payments to be made by the Husband to the Wife as non-dischargeable and in the nature of alimony or support.  Such payments represent obligations which the parties have considered to be directly related to maintenance of a certain lifestyle by the Wife which she could not maintain if these were discharged.  The lifestyle to be maintained was a specifically bargained for item and which the parties deem appropriate given all of the facts and circumstances.  Accordingly, the parties agree the Article IV payments the Husband is required to make for the Wife pursuant to this Agreement, regardless of how they may ultimately be characterized, are payments designed to provide the Wife with cash flow to maintain this bargained for lifestyle shall not be dischargeable in any bankruptcy petition filed by the Husband.  

            In reaching this Agreement, the parties have carefully considered not only the need of the Wife for these payments to maintain the bargained for lifestyle, but the economic sacrifices made by the Wife during the marriage which make it necessary for her to receive economic assistance from the Husband to maintain the lifestyle.  The parties have also carefully considered the reasoning of the In Re Gianakas bankruptcy decision and have agreed to incorporate its reasoning and contents to reflect their contracted intent as if set forth at length herein.  The parties have further agreed to incorporate concepts of promissory estoppel and collateral estoppel to prevent the Husband, in any subsequent proceeding, from asserting that the payments he is required to make hereunder are dischargeable.  Specifically, the Husband shall not be permitted to list any of the payments he is required to make to the Wife or on her behalf in this Agreement as dischargeable payments under the Bankruptcy Code in any petition filed by him, a representation upon which the Wife is relying.  Should the Husband violate the representations and obligations set forth in this Article and succeed in bankruptcy, the Wife will be entitled to counsel fees and the right to seek increases in support in order to make her whole.  

X.              ALTERNATE DISPUTE RESOLUTION

Alternate Dispute Resolution (“ADR”) has become increasingly popular in recent years. The wisdom of ADR is so persuasive that the authors believe it should be incorporated into almost every MSA unless extraordinary circumstances dictate otherwise.  The amount of time, money and anxiety that is usually saved with ADR, versus court litigation, makes such provisions very attractive.  There are various forms of ADR, however the two basic forms are “Arbitration” (binding or non-binding) or “Mediation”. There are, however, limitations on the ability to arbitrate custody, child support and other issues effecting the best interest of children.  In these instances, perhaps “Mediation” rather than “Arbitration” may be chosen.  However, as to most other issues, arbitration may be preferable.  Sample clauses follows: 

25. Arbitration.

Should any dispute arise between the parties concerning the interpretation or implementation of this Matrimonial Settlement Agreement, unless an emergent situation arises, the parties shall be required to submit their dispute to Binding Arbitration in accordance with the following provisions before making application to court.  To initiate these provisions, should a dispute arise, one or both parties shall serve upon the other, via certified mail, return receipt requested, a Notice Of Intent To Trigger Arbitration.  Once the Notice Of Intent To Trigger Arbitration is received by the other party, they shall adhere to the follow protocol.

Binding Arbitration

The parties after full and complete discussions with their counsel, have elected to enter into Binding Arbitration and upon advice of counsel have been made fully aware of their rights not to enter into Binding Arbitration and to have certain (or all) portions of their matter heard to completion by the Superior Court, Chancery Division, Family Part of ______ County.

Neither party to this Agreement shall have the right or power to revoke this submission without the consent in writing of the other party hereto.

Issues to Be Arbitrated

The parties agree that the following issues shall be submitted to the Binding Arbitration process:

(A)              Custody (with proviso);

(B)              Time-sharing (with proviso);

(C)              Equitable distribution;

(D)             Alimony;

(E)              Child support (with proviso);

(F)               Professional fees;

(G)             Any other issues.

The following issue shall not be arbitrated and shall be determined by the Superior Court, Chancery Division, Family Part of _____ County after the conclusion of arbitration process and a decision is rendered:

(A)              _________________________

(B)              _________________________

Choice of Arbitrator & Responsibility for Associated Fees

The parties hereby agree to appoint _____________ __________, and _________________________________ to be the Arbitrator(s). Each party shall promptly sign the Retainer Agreement of the Arbitrator, if so requested.  If said Arbitrator shall refuse or be unable to serve, then the parties shall agree, in writing, upon a substitute Arbitrator.  If the parties are unable to agree in writing within fourteen (14) days of notice of the above agreed upon Arbitrator’s refusal or inability to serve, to a substitute Arbitrator, then they shall each submit three names to the Court and the Court shall select the arbitrator. (OR)  If the parties cannot agree upon an arbitrator(s) they can each select one arbitrator and the third arbitrator shall be decided by both parties submitting three names to the Court and the Court selecting the third arbitrator, (who may or may not appear on either party’s list.) 

The Arbitrator shall determine how his or her fees shall be allocated between the parties.  However, until such determination is made, the parties shall equally divide the initial retainer and all subsequent fees of said Arbitrator.  Therefore, the Arbitrator’s retainer shall be advanced by the parties 50% to be paid by the plaintiff and 50% to be paid by the defendant.  The advance of money is without prejudice to the rights of either party and therefore is subject to allocation by the Arbitrator.  If the case is settled or terminated for any reason, the arbitrator shall retain an amount to cover the time he or she actually expended, plus actual expenses incurred out of the retainer money, and return the balance, if any, to the party or parties making the retainer payment in  proportion to their contributions. If the retainer is exhausted, the parties shall replenish the retainer with a sum of money that will reasonably secure future fees due the arbitrator or make other suitable arrangements.  The allocation of any replenishment of the Arbitrator’s retainer shall be in the same proportion as the initial retainer, unless determined otherwise by the Arbitrator.

Fees of the Arbitrator shall be charged at the Arbitrator’s customary hourly rate.  The Arbitrator will be reimbursed for out-of-pocket disbursements, for photocopy fees, facsimile fees and messenger service fees, if needed.

Standard for Appeal of Arbitrator’s Decision

Standard for Appeal:

(A)              The Arbitrator’s decision shall be final and binding upon both parties and shall not be appealable, except in accordance with N.J.S.A. 2A:24-l et seq.  The parties upon the advice of counsel have been made fully aware that they are giving up their right to appeal by entering into Binding Arbitration, except in accordance with N.J.S.A. 2A:24-1 et seq.  Nevertheless, the legal principals of Rule 4:50-1 regarding modification of Judgments or Orders shall be applicable to the arbitrator's decision once incorporated into a Judgment.

OR

(B)       The Arbitrator’s decision shall be appealable as of right as would any Final Judgment of the Superior Court of the State of New Jersey. 

Notwithstanding the above, the parties recognize that they cannot by agreement relieve the Court of its obligation to safeguard the best interests of the child(ren).  Therefore, the standard of review agreed to herein by the parties may not apply to the standard of review for issues related to the child(ren).

Incorporation Of Arbitrator’s Decision Into Judgment

The parties agree that they shall be bound by the Arbitrator’s decision, and said decision shall be incorporated into a Judgment and shall be specifically enforceable in the Superior Court, Chancery Division, Family Part of Ocean County, without limitation on the Court's remedies.

Pendente Lite Relief

The Arbitrator shall have authority to rule upon applications by either party for pendente lite relief or applications for the enforcement of existing pendente lite or post-judgment Orders previously entered.  The Arbitrator may award fees and costs incident to said applications, in his or her discretion, in accordance with the factors delineated within R.5:5-3 and New Jersey case law.

Enforcement by Arbitrator of Arbitration Process

The parties, their counsel and the Arbitrator understand the importance of resolving this matter expeditiously.  They will each remain accessible, promptly return the phone calls and answer correspondence.  They will cooperate in all discovery.  They will cooperate in scheduling conferences and hearings.

The Arbitrator shall have leave to assess sanctions, counsel fees, costs, and other relief to a litigant for failure the other party’s failure to comply with the process of arbitration (as detailed herein) or any ruling or directive of the Arbitrator, (including enforcement of pendente lite or post-judgment Orders).

The Court shall have leave to assess sanctions, counsel fees, costs, and other relief to a litigant for failure to comply with the arbitrators’ decision and in order to obtain compliance with the arbitrators’ decision.

Scheduling & Scope of Hearing (Subsequent Written Agreement)

The arbitration shall be scheduled in accordance with the directions of thc: Arbitrator after giving consideration to the schedules of both counsel.  A schedule of hearing dates shall be set in advance for the convenience of the litigants, counsel and the witnesses.  The matter shall be arbitrated day to day until completed to the extent practicable. The arbitration shall be conducted at the Arbitrator's office located at _________________________________.

After the Arbitrator is chosen and retained, the parties and the Arbitrator shall discuss and agree upon the following issues:

(A)              Determination of exchange of witness lists, pre-marking documents, stipulations and a schedule of hearing dates to be set in advance for the convenience of the litigants, counsel and the witnesses;

(B)              Whether the Rules of Evidence shall be strictly or loosely enforced;

(C)              Will a record be made of the proceedings.  If so, the manner in which it will be recorded, i.e., by audio-tape, videotape, stenographic device or any other means.  Notwithstanding what the parties decide in this regard, the Arbitrator may tape record all or part of the proceeding for his own use.  Said recording shall not be deemed an official record.

The agreements reached by the parties and the Arbitrator shall be reduced to a Subsequent Written Agreement which shall be signed by the parties, their counsel and the Arbitrator.  All parties and the Arbitrator shall be bound to comply with not only the terms hereof, but also the terms of the Subsequent Written Agreement.

Discovery & Experts

The Arbitrator may conduct discovery.  The Arbitrator may request that either or both parties produce certain information or documents. The Arbitrator may request that either or both parties subpoena third parties. 

All discovery propounded up to the date of this Order may be utilized, and the discovery responses and answers shall have the same force and effect as if this proceeding was being conducted in the Superior Court of New Jersey.  Any remaining discovery to be undertaken by either party (or the Arbitrator) shall be completed within sixty (60) days of the entry of receipt of one party’s Notice Of Intent To Trigger Arbitration. The Arbitrator shall enforce any issues regarding the production and/or limitation of discovery.  Counsel for the parties and the Arbitrator shall have the power to serve Subpoenas and Notice in Lieu of Subpoena pursuant to Rules 1:9-1 and 1:9-2, and the Arbitrator is hereby empowered to enforce the subpoenas including but not limited to the power to assess penalties or fines or other relief for failure of the properly subpoenaed party or witness to appear and/or produce records, and the Arbitrator’s determination in this regard shall be enforceable on application to the Superior Court.

The Arbitrator may request that either or both parties retain third party professionals to render expert opinions regarding valuation issues, accounting issues, mental health issues, or any other issue typically involving expert testimony in divorce litigation.  The Arbitrator shall allocate the cost for such outside professionals between the parties, as he or she deems fit. All expert reports shall be provided to the Arbitrator (and both parties) at least twenty (20) days before the date of the hearing.

Choice of Law

The Arbitrator’s decision shall be made pursuant to the laws of the State of New Jersey.

Findings of Fact & Conclusions of Law

The Arbitrator shall render a written decision which shall include reasonably detailed Findings of Fact and Conclusions of Law upon which the arbitration award is based within thirty (30) days of the conclusion of the arbitration.

All Orders entered heretofore shall have the same force and effect as if this proceeding was being conducted in the Superior Court of New Jersey.  The arbitrators decision shall be incorporated in a judgment or order of the court.

Settlement Discussions

In the event the parties, at any time, request that the Arbitrator participate in settlement discussions, they waive their right to disqualify the arbitrator from rendering a final and binding decision.

26.  Mediation (Custody & Economic)

Mediation may address custody and economic issues.  As with Arbitration, this form of ADR is usually preferable to litigation.  We will present clauses first as to custody and then as to economic issues.  The “Custody Mediation” provisions are an example of a more elaborate series of clauses and can be adapted to deal with economic issues as well.  The “Economic Mediation” clause in simpler and can also be adapted to deal with child-related issues.  

Custody Mediation

Notwithstanding the incorporation herein of the Judgment Fixing Custody and Parenting Time, the parties intend to implement an Alternative Dispute Resolution protocol regarding time-sharing issues.  Specifically, if any dispute shall arise between the parties on issues concerning decisions of a Joint Legal Custody nature, parenting time, or other related issues, the parties agree to submit their disputes to a mediator to assist them in the resolution of any disputed issues pursuant to the protocol set forth below.  Specifically, it is the intent of the parties to submit to a Mediator any issues related to compliance or implementation of the parenting plan delineated within their Judgment Fixing Custody and Parenting Time attached hereto as Exhibit “A” and any issues that may need to be addressed by the Joint Legal Custodians.  In the event that mediation is unsuccessful, then either party may apply to the Court for relief as referenced below.

Should either party make an application to the Court, except in an emergency, related to custody and time-sharing issues inconsistent with the protocol outlined herein, counsel fees and costs of bringing said application shall be borne by the breaching party.

Selection of Mediator 

In the event that a dispute arises between the parties regarding time-sharing, they shall agree to select a mediator from the approved list of mediators issued by the _________ County Family Court or such other list of mediators as the parties may agree.  If an agreement cannot be reached as to the selection of a mediator, the Court shall select the Mediator.

Role of Mediator Related to Parenting Plan 

The role of the Mediator is as follows: 

The Mediator will first attempt to resolve any disputes by mediation.  If a dispute cannot be amicably resolved,  then either party may make an application to a Court of competent jurisdiction.    The parties acknowledge that the decision making authority shall reside with the Court and not the Mediator.     

Cost of Mediator 

The party initiating the mediation shall pay the initial retainer for the Mediator, if any, subject to possible reimbursement pursuant to the following sentence.  The allocation of the Mediator’s fees (including the initial retainer, if any) shall be in the discretion of the Mediator who shall take into account the good or bad faith of either party’s position. 

Role of the Parties 

The parties shall cooperate with the Mediator to resolve disputes and to comply with the Parenting Plan.

Protocol for Mediator 

Both parties shall cooperate with the protocol that is outlined below:

Except in the event of an emergency, if any parenting time dispute shall arise between the parties, as previously outlined herein, the parties will abide by the following procedure:  

i.  A party with a dispute shall notify the other party by mail that an issue requires resolution.  The party shall set forth the nature of the problem and a proposed resolution, if applicable.   

ii.  The other party shall reply within 48 hours of receipt of the mailed notice as to his/her position with a proposed resolution of the problem, if applicable.   

iii.  Thereafter the parties will have three additional days to resolve the dispute between themselves.   

iv.  If not successful then (1)  the parties shall agree upon a mediator (or have one appointed) and either party or both parties may advise the Mediator that a dispute exists.  (2)  the parties shall mutually cooperate and immediately schedule all meetings required by the Mediator to help resolve the dispute if possible.  

Economic Mediation

Except in the event of an emergency, if the parties are unable to resolve any financial issue that may arise between them in the future or incident to the enforcement or interpretation of this Agreement, they agree to employ Economic Mediation before resorting to court intervention.  This Economic Mediation shall be non-binding and shall be conducted in accordance with the Rules of Court.  Therefore, the results of said Economic Mediation, statements of the parties or mediator, shall not be introduced or referred to in any court proceeding, should one become necessary to resolve the dispute.  The parties shall divide the cost of said Economic Mediation based upon the ratio of gross earned and unearned income as reported on the prior years Federal tax return.  In other words, if the mediation is scheduled for March, 2005, the parties will look to their incomes for 2004 to determine this ratio.  At the time of the execution of this Agreement, the ratio is as follows: Husband 2/3 and the Wife 1/3 .  The parties hereby elect to utilize ______________, Esq. of the law firm of _________________ located at ___________________ as the Economic Mediator.  Should _____________ be unwilling or unable to serve as the Economic Mediator, then the parties shall agree upon a substitute Economic Mediator who shall be an experienced matrimonial law attorney with training and/or experience in Economic Mediation.  

XI.           CONFIDENTIALITY OF AGREEMENT 

Certain high profile litigants are very concerned about the confidentiality of their MSA.  Accordingly, it is advisable to incorporate by reference and not attach the agreement to the judgment for divorce.  To provide further confidentiality, the following provisions are proposed:  

A.                 The Husband and Wife hereby agree and represent to one another as follows:

1.      The terms and provisions of this Agreement shall be confidential except for such discussions which the Husband and Wife may have with their respective advisors, attorneys, accountants and family members.

2.      Both parties shall specifically direct their attorneys and agents not to discuss the terms of this Agreement or any facts or documents related to this case with any third parties and not to disseminate or in any other way disclose to their parties any documents which are part of the court records.

3.      Any documents or information given by one party to the other, that parties’ attorneys and agents, or otherwise obtained by the parties’ attorneys and agents, concerning the other party’s financial condition, business interest or holdings shall be deemed confidential unless they were previously disclosed to third parties prior to the execution of this agreement.

4.      Except for purposes of preparing tax returns, or as may be required in any court proceeding, or unless a document is of a public nature other than documents in the court file), the parties, their agents, attorneys and accountants shall not divulge, disclose or discuss any provision, term or condition of this Agreement or deliver any document in the file of any attorney, expert or consultant to any third party including but not limited to any member, employee, agent or the like, of any newspaper, radio station, television station, law publication or any other periodical or media organization.  This provision shall in no way inhibit the Husband or the Wife or their advisors, attorneys or accountants from discussing any matter among or between themselves.  The fact that any document or detail of this case has already been disclosed, or has previously been of a public nature, does not relieve a party of the strict obligations of this Agreement.

B.                 Paragraph A and its four subparagraphs shall control unless a party, agent or attorney is required to produce this agreement or a document which was the subject of this litigation by reason of court administrative proceeding, subpoena or arbitration hearing under this Agreement or for the purpose of the filing of any tax return as may be required by law.  In the event that such a demand is received, notice shall be immediately given to the other party and the party or attorney or agent receiving the demand shall assert the attorney client privilege, if either party to this Agreement so desires.

C.                 The parties acknowledge that all pleadings, motions, cross-motions and other papers heretofore filed with the court in connection with the matrimonial litigation have heretofore been matters of public nature because of said filing, however, the parties through their counsel will request that the court file be sealed.  In the event the court does not seal this file, the parties shall not release records or documents which are part of this court file to any persons or entities whatsoever.

D.                The within Agreement shall be incorporated by reference in a Judgment of Divorce but shall not be attached.

E.                 It is expressly understood and agreed that the exclusive remedy for Husband and for Wife in the event a breach by either party or their counsel, experts or agents of this Confidentiality Agreement and all of its subparts occurs shall be by action or motion instituted by Husband against Wife or by Wife against the Husband, as the case may be.  In addition to seeking damages, injunctive relief may also be sought in the event of a breach.  The defaulting spouse, moreover, shall indemnify the other party and hold that party harmless as to any damages, including reasonable attorneys fees, which that party has suffered.  

PRACTICE POINTERS  

1.      That term “Property Settlement Agreement” is outdated.  Our agreements relate to much more than “property”.  We suggest that a comprehensive divorce agreement be uniformly referred to as “Matrimonial Settlement Agreement”.

2.      After the “Wherefore” clauses in the beginning of your MSA, every paragraph which follows should be “auto-numbered”.  Do not restart numbering under new headings, sub-headings or new “Articles” (if same are used).  In other words, the first numbered paragraph should be #1 with the numbers proceeding in increasing numerical order until the end of the document.  Otherwise, you have more than one #1, #2, #3, etc and reference to paragraphs becomes confusing.

3.      When you respond to a proposed MSA from adverse counsel, in addition to your letter commentary, return a “marked” up version of the Agreement so that your opponent knows exactly what changes you wish to make to the MSA.  In the best of all worlds, have your adversary send you a disk or e-mail the MSA so you can highlight your changes directly into the document.  This is done by tracking your changes and will appear as redlined or blacklined text.

4.      Make sure that no provisions of the agreement are inconsistent or in conflict with one another.

5.      Do not blindly incorporate boiler plate language without considering the facts and circumstances of your case.

6.      If possible, ask another lawyer in your firm to review the agreement.  This exercise will disclose confusing and ambiguous provisions that must be clarified.

7.      If you set forth a narrative or formula to calculate an obligation, give an example to avoid confusion or multiple interpretations.

8.      Wherever possible, set forth the intention of the parties and any future events contemplated by the parties.

9.      Extensively review the agreement with your client prior to sending it to your adversary.

10.  If your client is emotionally distraught or disabled, obtain a letter from his/her mental health expert, that the client understands and appreciates the nature of the settlement.

11.  Wherever possible, attach to the MSA the form of documents that will be executed in the future.  For example:  QDRO, trust agreements related to life insurance, schedule of stock options that will be distributed, security instruments.