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Asked about 1 year ago - San Clemente, CA
FlagWe're 65, married 40 years with no children. We have an IRA and a SEP/IRA both with Schwab, which require equalization.. We agreed how to divide our property and both waived spousal support. Together we prepared extensive lists of all bank accounts, personal property and other assets/debts. We drafted a confidential MSA which will be executed either just before or just after filing the Petition for Dissolution. We tentatively plan on having all of our assets distributed prior to submitting the stipulated Judgment with the public MSA. Therefore, we believe that the public MSA will state that all property of the parties has been divided by the parties prior thus avoiding disclosure. How do we handle the SEP/IRA equalization payment? We want to leave it out of the court filing. Any ideas?
Your tentative plan will enable you both to avoid public disclosure of your assets. However, the following comprise some admonitions concerning your tentative plan:
Your plan risks lack of the private disclosure between parties that the disclosure provisions of the Family Code (Sections 2100 through 2110) require during a pending divorce case, to ensure that at the time the parties enter into an agreement for property division, each party will have a full and complete knowledge of the relevant underlying facts. Without complete and updated disclosures at the time the agreement is entered, and without the Judgment setting forth the property division details, you would likely be unable to set aside the Judgment pursuant to the provisions of Family Code Sections 2120 through 2129, and you would likely not be successful with a Motion to adjudicate an unadjudicated asset pursuant to the provisions of Family Code Section 2556.
Regarding IRA and SEP/IRA, you address an equalization payment, implying that each of you will keep your own respective IRA and SEP/IRA. The difficulty with an equalization payment is that equalization payments are typically made with after-tax dollars, not tax-deferred dollars. The IRA and SEP/IRA contain tax-deferred dollars. In order to make a tax-deferred equalization payment, the party with the greater amount in his/her IRA and SEP/IRA could make a tax-deferred equalization payment via a term in the Divorce Judgment requiring payment of a specific amount (the equalizing amount) directly to the other party's IRA and/or SEP/IRA and/or a Rollover IRA account. You should contact SCHWAB to determine its requirements (if any) for language in the Divorce Judgment to authorize and facilitate the equalization payment transfer.
Each party would be well-advised to consult with an experienced Family Law Attorney before entering into the proposed agreement.
What you are asking for is not impossible. However, the law in the state of California requires disclosure of pertinent information. All court files are open to the public unless they are sealed. There are very few times when a judge will seal a divorce file. Therefore, sometimes parties wish to have a Confidential Marital Settlement Agreement which is signed and executed by the parties and not filed with the court. In that case, you would have two separate documents. You would have the Confidential Marital Settlement Agreement which would have duplicate originals held by both parties and perhaps even their attorneys. Then, you would file a judgment of Dissolution of Marriage with the court containing only the executory provisions of the Confidential Marital Settlement Agreement such as support, custody, etc., so that those orders could be enforceable. A Confidential Marital Settlement Agreement is only a contract and in order to be enforceable must be part of the judgment. Please keep in mind that you have better protection when you have a judgment rather than a Confidential Marital Settlement Agreement. The judgment is enforceable as a court order whereas the agreement is enforceable only as a contract.
Having said that, the SEP/IRA and IRA create a different situation. In order to divide those, the plan administrator may require a court order/judgment. In that case, you are going to have to disclose certain aspects. You do not have to disclose the entire designation of the IRA or SEP/IRA account, but can merely include the last four numbers for instance. That is sufficient for everyone to know what you are intending to do without disclosing to the public your account numbers.
Please understand that a SEP/IRA requires a Qualified Domestic Relations Order under ERISA. As such, a separate document will have to be drafted to transfer moneys from one account to the other. The typical vehicle used by the receiving party is an IRA rollover.
I do feel that everything you wish to accomplish can be done. However, you may wish to have a competent family law attorney assist you.
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