Heather married Samuel right before he began medical school. They both worked and shared expenses. However, Heather worked more hours, took care of the administration of the bills and the household tasks so Samuel could study. Samuel’s income paid the tuition and Heather’s income paid for daily expenses. There were no children produced from the marriage.
Medical school proved to be harder on the marriage than it was for Samuel. In time, the marriage was over. Heather and Samuel wanted a separation agreement, because they felt that they had no grounds for divorce. Also, they did not want to inflame each other with hostile grounds. They would be able to file for a divorce one year from the date of the signed and notarized agreement. Although Heather and Samuel chose to negotiate a separation agreement instead of a divorce, the agreement needed to wrap up all the financial affairs of the marriage as if it were a divorce. By the time they chose to negotiate a separation agreement, Samuel had obtained his medical degree and was finishing his residency at a hospital. There were no savings and no debt in the marriage. The parties lived in a rented apartment and Heather had no retirement accounts from her employment. The sole asset consisted of the medical degree.
The attorneys agreed that a forensic accountant should be retained to valuate the worth of the medical degree. Both parties shared equally the expense of the accountant. The degree was valuated at nearly a million dollars. We agreed that due to her equal contributions to the marriage and since there were no other assets, that Heather was entitled to half the value of the degree. The problem was how to pay Heather nearly $500,000. Samuel did not have any separate property, i.e., inheritance, gifts or funds acquired before the marriage. However, Samuel had an income that would increase over time. Thus, it was agreed that Samuel would pay Heather in monthly installment payments with interest over a period of time until her share of the value of the degree was attained. Heather did not have to pay tax on the monies received, and Samuel did not obtain a tax deduction, because it was not considered alimony, maintenance or spousal support. The payments due Heather were for division of marital property and thus were not taxable. The agreement was specifically written to reflect that point.