The Pitfalls of Making “Side-Deals” in Divorce

By Robert B. Kornitzer, Esq., and Zach Levy, Esq.

A Property Settlement Agreement (“PSA”) is the blueprint for how the parties to a divorce agree to divide assets, and establish custody and support, among other issues to be resolved. Before the court can properly incorporate the PSA into a Judgment of Divorce, however, it is necessary to establish on the record, that both parties actually understand the agreement and are not entering into the agreement under duress, under the influence of drugs or alcohol, and believe that the agreement is fair. If a party does not completely understand the PSA, does not believe it to be fair, or agreed to it as a result of some improper threat, it is critical that the party speak up prior to a final Judgment of Divorce being entered.  Parties are generally not permitted to re-litigate their divorce later, simply because they decide later on that they could have done better, or agreed to something that they probably shouldn’t have agreed to.

In Corman v. Corman, the plaintiff-wife waived equitable distribution to certain real property owned by the defendant-husband located in Brooklyn, New York. Why the wife agreed to waive equitable distribution with respect to these assets was perplexing to all involved, and something her attorney specifically advised her was a bad deal. Nevertheless, before the Judgment of Divorce (which would incorporate the PSA) was finalized, the wife gave testimony that she understood the terms of the PSA and intended to be bound by it. The wife also denied the existence of any side deals. About one year after the divorce was finalized, however, the wife moved to set aside certain portions of the PSA, including the portion regarding the Brooklyn properties. Contrary to her earlier testimony, the wife now argued that the PSA was essentially a contract of adhesion, and she only agreed to it primarily because of the husband’s promise to keep the family intact after the divorce. The wife also argued that the husband represented to her that the Brooklyn properties were in a state of financial collapse, and he wanted to secure a divorce so he could file for bankruptcy without damaging the wife’s credit.[1]

In the end, the court disagreed with the wife’s position, and declined to set aside the requested portions of the PSA. Applying well-established principals of contract law, the court noted that a party to an agreement (such as a PSA) is bound by the apparent intention that he or she outwardly manifests to the other party according to the actual terms of the agreement. To that end, it is immaterial if the party had some secret or unknown intent, even if that intent differs from the actual terms of the agreement. Accordingly, even if the wife secretly believed she was giving up rights to the Brooklyn properties in exchange for the husband’s promise to keep the family together, that understanding was not evident in the terms of the PSA itself and therefore cannot be a basis to reform the PSA.

The result in Corman shows the major risk a party to a PSA takes by making a side deal that differs from the actual terms of the PSA. If the other party fails to follow through with their end of the side deal, there is a strong likelihood that no recourse will be available to the other party, and they will be stuck with the terms of the PSA as written.

 

[1] It is unclear if this was a misrepresentation.

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Boilerplate Language in a Matrimonial Settlement Agreement

Every well-drafted Matrimonial Settlement Agreement (“MSA”) contains what seems like endless pages of paragraphs that clients often gloss over, called ‘boilerplate language’.  I include this in each MSA that I draft.  Some attorneys include little of the language.  When agreements are verbally placed “on the record” in Court, much of the boilerplate language is actually ignored.

But the boilerplate language should not be ignored and it often has an immense impact down the road.  For example, a “Waiver of Discovery” paragraph will generally preclude a person from later claiming that their spouse did not supply the financial data that should have been supplied. 

Another example is a paragraph included in which a person representing himself acknowledges that he could have been represented by counsel but  is satisfied that he has represented himself.  This could preclude him from later arguing that he did not understand his rights or even the MSA language itself. 

I mention the above because it has been my frequent experience to consult with someone who complains that he either did not understand the agreement or that he thought he agreed to something other that what is the clear language of the MSA.  As the saying goes: the devil is in the details.  In an MSA, the details are not merely filler.

Protecting Business Assets From Divorce

I have been writing and giving media interviews extensively on this subject.  I will shortly be attaching some of the articles and links.  The issue of how a business (even one owned prior to the marriage) can be affected by a divorce, is an issue that touches on a sbustantial number of couples going through a divorce.

It is safe to say that the best time to begin protecting your business from a divorce is before you get married.  Once the marriage begins, the build-up of “marital assets”  begins and can have an increasing affect when it comes time to distribute marital assets as part of equitable distribution.

Preparation of a premarital agreement (which I have previosly discussed) is a popular manner of protecting a premarital business.  However, there are other ways of accomplishing the same results, such as shareholder agreements or placing your business in a trust.  These, and additional ways to protect your business, will be discussed in my future blogs.

A Parent’s Contribution to College Expenses Can be Affected by the Remarriage of a Former Spouse

When assessing each divorced parent’s contributions to their child’s college expenses, the totality of each parent’s financial picture must be evaluated. This picture may even take into account that one parent has remarried.
While the new spouse will not be ordered to contribute to a stepchild, there may be significant economic benefit that accrues to the remarried parent, as a direct result of the financial benefits of the new spouse’s income and assets. For example, household expenditures of the parent may be reduced as her spouse is now footing part of those household expenditures.
In that event, the remarried spouse may be ordered to contribute more towards a child’s college expenses than would have been ordered if the remarriage had never taken place. (See Hudson v. Hudson, 315 N.J.S.577, 584, App.Div.1998)

Selling and Dividing the Marital Home in Today’s Real Estate Market

In the past, the equity in the marital home was often the parties’ most significant asset.  The equity in the marital home was used to offset value in other assets for purposes of asset division.  In the current real estate market, however, given the drastic reduction in property values and the frequent inability to sell at any “reasonable” price, the marital home (or any other real estate subject to equitable distribution) may instead become a liability, not an asset.  Instead of wanting to keep the asset, the parties may be fighting over who is responsible to financially maintain that property.

Continue reading “Selling and Dividing the Marital Home in Today’s Real Estate Market”

How Should I Approach “Discovery”?

Litigant’s often wonder how seriously they must take the “discovery” process.  Discovery essentially boils down to the gathering of information about the marriage and the litigants that later may become the foundation of a final settlement or trial decision.  The answer is: very seriously.  Continue reading “How Should I Approach “Discovery”?”

Counsel Fee Awards – Settlement Drafting Tip

Litigants can agree in their Matrimonial Settlement Agreement that specific counsel fees will be awarded to one party if the other party violates certain aspects of the settlement agreement.  In such a scenario, as a general rule, the courts will seek to enforce that agreement.  Judges have wide latitude when interpreting a domestic relations agreement (such as a Matrimonial Settlement Agreement).  However, if it was the intent of the parties to promote a stable agreement by requiring reimbursement by the party who was unnecessarily forced to pay an attorney, a judge is likely to order that the offending party pay counsel fees to the other.