DOCUMENT FOR LIFE: The Memorandum of Understanding PART ONE: The Division of Assets

April 1, 2007
Written by Staff at The Centre for Mediation & Dispute Resolution

DOCUMENT FOR LIFE: The Memorandum of Understanding
PART ONE: The Division of Assets

The entrance to divorce mediation is filled with concerns and even fears. Is this the right process for us? For me? How will I express what I really think in front of my spouse? Will the mediator be able to diffuse our disagreements? Resolve our differences? Yet all of these questions are secondary compared to the most important question of all – what do we take with us from our mediation? In short, what is the end product of mediation?

At the Centre for Mediation & Dispute Resolution (CMDR), we believe that your Memorandum of Understanding, the document that memorializes your agreements, is one of the most important documents of your life. Corny as this may sound, the point to be made is that the Memorandum is fashioned to provide instruction and guidance for the years ahead. When changes occur, be they good or bad, the Memorandum is intended to help you deal with the changes and move on. At CMDR, we believe that mediation offers an opportunity to deal with the present and to anticipate the future. We do not believe that your life as a single person should be clouded by repeated negotiations and/or returns to court.

What in fact does this mean? In this two-part article, we will deal with examples from different areas of decision-making and consider how a present-future approach will, in the long run, result in a major savings of time, money, and emotional anxiety.

The Division of Assets:

1. Real Estate

The major issue for many people is what to do about the marital home. Let’s consider some options.

A. If the decision is to sell the property, the following questions should be addressed:

• When?
• Asking price?
• Sale price (minimum acceptable)?
• What if the property does not sell?
• How to resolve disagreement on selling price?
• How to handle the sale (selection of broker, fix-up costs, showing the property)?
• What will the living arrangements be until the sale?
• How will the costs of ownership be paid until the sale?
• How will the sale proceeds be divided?
• Use of moneys for payment of future obligations (e.g. taxes, children’s education).
• Use of moneys for debt paydown.

B. If the decision is for one spouse to remain in the house, the following questions should be addressed:

• How long?
• Triggers for sale?
• Management of property?
• Payment of costs?
• Repairs/Renovations?
• Sale process? (Questions in “a” above pertain here.)
• Division of sale proceeds?
• Equal or unequal division?
  — Any credit for paydown on mortgage?
  — Any reconciliation of advanced moneys?

C. One spouse buys the other out:

• When? (Now or later)?
• Determination of fair market value?
• Any credits for past contributions?
• How is payment made?
  — In one lump sum?
  — As trade for other holdings?
  — Combination of money and trade of assets?
  — Payment – When and how? (Installment payment terms)?
• Use of moneys for debt paydown.

D. Hybrid Varieties:

• Switching house usage in accordance with schedule
• Renting property
• One spouse owns the property and the other spouse lives there
• Real Estate Trust with children as beneficiaries

2. Retirement Funds

A. Tax free transfers for equalization or other apportionment
B. As trade for other assets
C. Cash in without penalty (401k Plans)
D. Beneficiary terms
E. Pensions (These holdings have different properties and require careful thought and consideration.)

3. Non-Retirement Investments

A. Balance division for the tax consequences (tax basis)
B. Cashing in
C. Retention for children’s education or other purposes

These categorizations are just three examples of commonplace property decision-making in the division of assets. There are many other forms of property including businesses, investment real estate, stock options, trust funds, and on and on.

Regardless of the nature of the property or even of the sense of individual entitlement, the Memorandum needs to address the core of the agreement, the mechanisms required to accomplish the division, and an understanding of future issues that may impede the actualization of agreements. Agreements that do not include any anticipation of stumbling blocks or change may well lead to future conflict.

In the second part of this two-part series, we will look through this present-future lens approach at custodial issues.

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