Beaverton, Oregon family lawyer and mediator on divorce, Laura Schantz, was interviewed by Divorce Magazine and asked her thoughts on the various aspects of divorce mediation and issues that may arise during the process. Click below for the audio of the podcast, or read the full transcript below.

In Oregon and Washington, are assets typically split 50-50 in a divorce? What’s the difference between Oregon’s distribution and Washington’s distribution based on community property rules?

Washington and Oregon are two different states and have two different rules about division of assets. Washington is a community property state, which means that Washington will look at separate property of each spouse in a divorce case and it will look at the marital community property. Oftentimes in Washington, you’re going to have tracing. If a separate property of one spouse has been put into the marital community, you can actually trace that separate property and potentially remove it out of the community property and get it back as your separate asset.

That’s very different than Oregon, which is an equitable distribution state. In Oregon, assets are divided equitably, which doesn’t mean equally. It means equitably, but we have to determine what assets are marital assets. Things like inheritances are typically not marital assets in Oregon, and in Washington they’re not community property. There’s a time when a court could consider an inheritance in its final determination in Oregon if it’s what is called “just and equitable.” You might see that in a situation where someone receives a $2 million inheritance and the entire marital estate is only $100,000, one spouse leaves with $50,000 and the other spouse gets $50,000 plus $2 million. In that case, if it’s been a really long marriage with a bunch of kids, the court might decide that it’s not equitable not to give the one spouse a little bit of that $2 million.

There’s a little bit more room for moving things around in Oregon, and Washington is a little bit more strict with the community property and the separate property.

Does fault ever play a role in asset division? For instance, what if one spouse was using marital funds to pay for an affair or a gambling addiction.

Both Oregon and Washington are no-fault divorce states, as are most states in the United States. There are just a couple states that allow fault. But when you talk about gambling and an affair, they’re actually two different things. Gambling is an addiction like drug abuse and other things like that, and typically if a spouse has that type of addiction and has gambled away money, there’s actually a case in Oregon where one of the spouses gambled away almost all the money, yet there was a little bit left and the other spouse said, “Can’t I keep this little bit that’s left since my spouse gambled away everything else?” The court decided no, that was the marriage you had. You had a marriage with a gambling spouse, and therefore, we’re going to divide what’s left 50-50. That’s the law about gambling.

An affair, the same thing. An affair is no-fault. It’s not going to mean you’re going to get any less of the marital property in either Oregon or Washington. But when you specifically ask the question “marital money to pay for an affair,” that would be something you could actually trace, the actual money that was used on somebody else, and you could say, “This money should’ve been spent on our family and you’re spending on the girlfriend.” That’s potentially some money that could come back to you. That’s different than saying, “Because you’re at fault for having this affair, you’re not going to get 50% of the assets.” That would never happen.

How are retirement assets divided in a divorce? How are pensions different from 401(k) plans, and what about PERS retirement plans?

Retirement assets are all different. You can’t just call retirement assets “pensions.” Pensions are a very specific type of retirement asset that are kind of old school that the big companies used to have in the past where you didn’t really have an account with any value in it. You were just told that when you retire, you’re going to get a stream of income every month of a certain amount. It’s called a “defined benefit plan,” which means you get a certain benefit when you retire, but there’s no money in the bank in your name. It’s all in a big account for all the employees of the company, and the employer promises to pay you this stream of income when you retire. That’s very different than the more modern 401(k) account, which is what most people have now. That’s actually an account in your name that’s your money, and you can take it when you leave and you can do what you want with it. There are taxes and penalties if you take it before you retire.

The Public Employees Retirement System (PERS) in Oregon is what teachers, police officers, and any public employee receives that is sort of a hybrid type of account. Now there’s a portion of PERS that is sort of like a 401(k). It’s actually your own account, but there’s still also a portion of PERS that is a defined benefit that’s like an old pension, and you receive a certain amount each month when you retire.

You’ve got to be very careful in dividing assets to really understand retirement assets.

You mentioned penalties or taxes. Can you talk a little bit about any penalties or taxes that people should be aware of when they’re dividing either a pension or a retirement plan?

Typically, because you’re going through a divorce, there’s an exception in the tax code that allows you to divide a retirement account with what’s called a Qualified Domestic Relations Order (QDRO). If you do it correctly with a QDRO on a 401(k) plan, or there’s special forms if you’re going to divide a PERS plan, they have their own special forms. It’s a little different but similar to a QDRO and the same for a pension. If you use these required documents, then you will not have any tax implications by taking part of the money from a retirement account from one spouse and putting it into an account for the other spouse. Or you can’t necessarily see an account if it’s a defined benefit plan, giving a benefit to the other spouse that they’re entitled to receive upon retirement, so there wouldn’t be any taxes or penalties.

On occasion I have a client that just wants the cash. They just want the money. I don’t think it’s a very smart idea, but you can cash out a 401(k)-type account and pay income tax on it and a 10% penalty. There’s one kind of twist that you can sometimes do where you can QDRO a 401(k) account and you won’t have to pay the 10% penalty, but you’ll still pay income tax on it if you cash it out before retirement age.

Are Social Security benefits considered marital assets subject to division?

No, they are not. Social Security benefits are their own kind of stream of income that you receive from the government, and it cannot be divided in a divorce as an asset. It may come into play when you’re talking about support. If one person’s Social Security is higher than the other person’s, you might be able to say, I need some extra money, some spousal support, but it cannot be divided as an asset of the marriage.

If one spouse receives restricted stock or stock options at work, are they considered assets to be divided during divorce? What about restricted stock or stock options that have not vested yet – can these assets be divided?

Yes, they can. Where I work I have many clients in the high-tech industry, especially Intel, which is very close to my office. I’ve had countless Intel employees over the years. Nike is out here as well, providing their employees what’s called “restricted stock units” (RSUs) or “restricted stock awards” (RSAs). They are the new breed. Stock options are rarely given anymore, they’re kind of old school. There’s still a few hanging out there, but most of them are now restricted stock.

Usually these employers have a vesting schedule on their stock. At Intel it’s usually every four years, so you get a grant of, let’s say, a thousand shares of stock. A quarter of those vest every year for the next four years. You are able to divide unvested stock units in a divorce pursuant to a case that’s called a Powell and Powell case, sort of a coverture fraction where you get 50% of stock that is vested and a smaller percentage of unvested stock. The sooner it vested, your percentage is going to be bigger; the farther away it vests, your percentage of the non-employee spouse will be very small because the other spouse has to continue to work at the job for years after your divorce. Based on the fact that you guys aren’t married anymore and you haven’t really contributed to that, your percentage of those unvested RSUs is going to be very small by the final year of vesting.

If one spouse wants to keep the marital home, what are some things to consider about that decision?

That is always a very emotional topic for my clients. Often one spouse feels very strongly that they want to stay in the marital home, oftentimes because the children are already going through a big trauma going through their parents’ divorce and they don’t want to uproot the children and cause them more trauma. That’s one of those questions that I always advise parties to really not make a final decision on right away when they’re feeling very emotional, because as divorces typically take a while – eight months your average divorce – and as you’re getting closer to that eight-month mark, you might find out that your children are not as attached to the home as you think. You might find out that the home is very expensive, and the spouse that’s living in the house is going to have a hard time paying that mortgage by themselves even if they are receiving support. It’s still going to be tough because there’s only one person paying all the bills instead of two people.

Having the stress of getting up in the morning and worrying about how you’e going to make the mortgage payment may be actually worse for you than moving to a place that’s affordable and that may actually be better for your family than keeping the home. I really want my clients to think about all of that and also the cost of selling a home. If you keep that asset on your side, you’re keeping it at full value, but let’s say after a couple years you realize you can’t afford it and you sell it, you have to pay real estate fees if you sell it with a realtor – and those can be pretty expensive. You’re not really getting the full value that was determined your full value in the divorce. If you actually sell the house while the divorce process is pending, then both spouses will pay the real estate fees and then you’ll each have part of the equity. Sometimes that’s a better way to go.

I never tell anybody 100% what they should do, but I just want them to really look at all their options and not make a really quick emotional decision.

Can you modify a final order dividing the assets and debts of the parties in the future for any reason?

The answer to that is no. Division of assets and debts is final and permanent and can never be modified. That is something that people don’t understand sometimes. I’ve had a couple of cases where parties have decided at the divorce that they wanted to sell the house and then something happened. A couple years down the road it turns out that they couldn’t get the house sold for whatever reason or one person decided they wanted to buy the other person out and keep the house. If you put in your final divorce that it was going to be sold, you cannot change it to say now one person is going to buy the person out.

I’ve even had lenders refuse to lend because they want the order to say that and it doesn’t say that, so you have to be really sure about your final decision. We’ve tried to start crafting at our firm an escape clause when it comes to family homes that says something to the effect that the parties have the right to agree to change their mind about this and work together for a solution to protect people from the finalization of a split of assets and debts that cannot be modified.

How can an attorney help resolve the division of assets and debts? How does an attorney utilize an asset and liability spreadsheet to assist in the process?

That’s one of the main things that an attorney can do to help parties resolve this subject, because some clients think, Oh, we’re just going to divide everything 50-50, so they think every bank account, every retirement account is going to be split in half. That’s not realistic and it’s not a smart way to do things. We create an asset and liability spreadsheet based on valuing every asset of the marriage and every debt.

For instance, if it’s a house, we want to have some sort of appraisal or market analysis proving what it’s worth, and we want the mortgage statement, so how much is owed against it. If it’s a business, if someone owns a business, we need to have a business appraisal valuing the business. If it’s a retirement asset, we need to have a statement that shows the balance of that account, or if it’s a pension-type account, we want to know what the stream of income would be at retirement or we want to have an actuary prepare a present value calculation. Every asset is different in the tax implications, so we try to make assets all become the same by applying different taxes to the various assets depending on whether they’re taxed assets or not. But at the end of the day, an attorney can really utilize an asset and liability spreadsheet to make sure that everything is accounted for and that each person knows what they’re going to get. If you’re going for a 50-50 division, that’s the most common way to go. Sometimes you’re not, but if you are, the parties may owe the person what’s called an “equalizing judgment” to make it even, and then you can figure out how they are going to pay that equalizing judgment.

There are a lot of creative things you can do with an asset and liability spreadsheet to help the parties figure out how to divide all of their assets and debts.