The Benefits of Separation Agreements

A separation agreement allows married couples to work out financial details of a divorce without having a contested court hearing. However, it does not avoid court involvement completely.

In fact, a separation agreement that is not incorporated into a divorce decree can be enforced by law enforcement for breach of contract. This is why it’s essential to get legal assistance drafting a separation agreement.
Business Owners

When a business partner departs, a separation agreement can keep issues such as asset transfers and liability for debts, taxes or judgments from cropping up later. Ideally, the partners will have addressed most of these matters in their partnership agreement, but a separation agreement can offer further protection.

The leaving partner might also agree to indemnify the remaining partners against lawsuits for certain actions, inactions or occurrences that occur during and after the separation, either through a separate indemnification agreement or clauses included in the separation agreement itself. Other provisions might include covenants not to disclose confidential information or a transfer of the company’s assets and liabilities to another line of business, which may be required for tax-free spin-offs.

The New York separation agreement might also include a provision that the former employer agrees to provide a reference letter for the former employee when asked, which can be an important consideration in the event the employee is seeking future employment. These types of provisions typically are negotiated by attorneys.

Typically, employees who are being laid off are offered some type of payment (often called a “severance package”) in exchange for signing a waiver and release of claims. They may also receive promises such as continued health coverage, a neutral reference and services to help them find new employment.

Non-disparagement provisions are routinely included in separation agreements because they can protect employers from defamation lawsuits. The McLaren Macomb decision, however, criticized the hospital’s non-disparagement clause for not specifying that it was limited to statements about matters of interest to the public as consumers and not to employment-related comments.

Restrictive covenants such as non-solicitation and/or noncompetition clauses are also routinely included in separation agreements. These must comply with state law to be enforceable. Covenants that are too long in duration, too broad in geographic scope and/or that restrict former employees from engaging in certain types of work opportunities will be rejected by courts. Employees should always consult with counsel before agreeing to such provisions.

For some borrowers, co-signers are necessary in order to secure financing. For example, parents often co-sign for their children when they are applying for a student loan to help them afford college. This is usually done because the parent has a better credit history or income and can help them meet the lender’s financial requirements.

For landlords, it may be prudent to consider accepting co-signers for leases, especially if a tenant has poor credit and is ineligible to apply for their own loan or rental property on their own. This could be an opportunity for the landlord to increase revenue and gain a quality tenant.

Landlords who accept co-signers should make sure to draft a written agreement. This should include a clause that says the promises in this document are not to be incorporated into any divorce decree or court order and are non-modifiable. They should also state that the co-signer is responsible for any eviction proceedings that are initiated.
Dispute Resolution

Many separation agreements have a dispute resolution clause which outlines how future disputes will be dealt with. Dispute resolution is generally much less expensive and quicker than going to court but it also has the potential for being more stressful on both parties.

Dispute resolution methods include mediation, conciliation and arbitration. Mediation is a facilitated negotiation whereby a neutral third party like a retired judge or experienced lawyer sits down with both spouses and seeks to promote communication, lay out all the facts of the situation and exchange options for resolving the matter.

Conciliation is similar to mediation but it is a non-binding process while arbitration closely resembles litigation and is legally binding. A court can also make decisions in relation to custody and access, division of assets and spousal/partner support and such orders are binding on the parties. In any event, the objective of all these methods is to incorporate all decisions into a Separation Agreement which is then signed, dated and witnessed.