Agreements To Pay Spousal Support - Watch Out For The Pit Falls!!!

If you are going through a divorce or a legal separation and find yourself negotiating spousal support, be especially careful before you accept the terms of the agreement. Modifying a spousal support obligation is not as easy as you may think. It's not as if you can simply walk into a court and ask the judge to modify the order based on the fact that your ex-spouse recently acquired access to funds. Unfortunately, the process is a little more complicated than that.

The test for modifying a spousal support obligation in California has always been whether or not there has been a "material change of circumstances." A material change of circumstances means a reduction or increase in the supporting spouse's ability to pay and /or an increase or decrease in the supported spouse's needs. Thus, it would seem obvious that grounds for a modification of support would exist anytime a party acquires access to retirement funds or if his or her assets significantly appreciate in value. Think again.

In a recently published opinion entitled "In Re Marriage of Dietz," the Appellate Court decided that the trial court erred by concluding that the accessibility and increased value of a retirement account, previously awarded to the wife in a stipulated judgment, constituted a material change of circumstances justifying a decrease in the husband's monthly spousal support obligation.

On the surface, this opinion seems to contradict the holding in In re Marriage of Schmir. In Schmir, the Appellate Court affirmed the trial court ruling that there were material changes of circumstances to justify modification of support after Ms. Schmir became eligible to withdraw funds from her retirement account without penalty. However, the Dietz case was decided after the terms of the parties' marital settlement agreement were scrutinized by the Appellate Court, which held that the trial court was required to give effect to the husband's and wife's intent, as expressed in the agreement.

The stipulated judgment that Mr. and Mrs. Dietz signed expressly acknowledged their expectations that the value of the subject retirement account might increase. The agreement stipulated that each party would receive one-half of the community property interest in the retirement accounts, including "any and all contributions made up to the date of separation, and any increase or decrease in value of such assets related to market conditions."

Based on this decision, it would seem prudent for anyone entering into a marital settlement agreement, containing a spousal support order, to insist that the judgment include a detailed list of future events that will constitute a material change of circumstances. For example, if the parties anticipate a penalty-free withdrawal from retirement funds at a future date, it should be specifically indicated in the agreement that the occurrence of such event will constitute a material change of circumstances.

The Dietz decision also serves to remind us that drafting a spousal support agreement can be a highly technical exercise that requires knowledge of all possible pitfalls. Through the years, the courts have created special rules pertaining to the amount, duration, modification, and tax consequences of spousal support orders. When negotiating spousal support, pay particular attention to the proposed terms of the agreement. As Mr. Dietz learned, the failure to do so can have severe long term consequences.

Written by: Donald P. Schweitzer