Sloppy Drafting of Marital Settlement Agreements Can Cause Great Harm - Usually to only one of the parties
In a perfect world, marital settlement agreements (MSAs a/k/a Property Settlement Agreements) are crystal clear and cover every possible contingency under the sun (I say this as when first drafting this post, I was being contacted frantically by a client regarding custody provisions in the event of school closure because of hurricane.) That perfect world rarely exists for many reasons, including the main reason that most cases would never settle and/or the cost would be outlandish if every possible contingency is contemplated and negotiated. That said, we do our best to address to the most germane and likely issues.
If the document cannot cover every possible thing under the sun, at least the final document should be clear and include the parties' actual meeting of the minds on the included issues. Sadly, this does not always happen either. Sometimes, the parties meeting of the minds is really not a meeting of the minds - that is, they each believe that the settlement is something else but the language of the agreement is vague or imprecise enough where they both think that they are right. Some people actually do this on purpose to keep an argument on a "hot button" issue alive for the future. Other times, it is simply inartful, to put it kindly, or down right bad drafting that causes future problems.
If a party can convince a court that the terms of the agreement represent a mutual mistake, perhaps there is some relief and the agreement can be re-formed. That said, more often then not, one of the parties gets really hurt by virtue of the poor drafting.
This appears to be what happened in the case of Rozier v. Byrd, an unreported (non-precedential) opinion released by the Appellate Division on October 26, 2012. In this case, either someone was trying to be cute and the law of unintended consequences jumped up to bite him, or he was the apparent victim of a poorly drafted agreement.
In this case, not unusually, the parties agreed to sell the marital home and equally divide the net proceeds after certain marital debt was satisfied. The house was listed for $899,000 but the agreement provided that the listing price could be reduced at the advice of the broker. The husband was going to remain in the house pending the sale. The agreement also provided that he was allowed to refinance the house into his own name, taking out $85,000 to pay off the aforementioned marital debt and give the wife a $25,000 advance against her share of the equitable distribution of the house. The agreement further provided that:
In the event the marital home is not sold within one year of the date of [plaintiff] vacating the marital home, [defendant] shall provide [plaintiff] with a second $25,000.00 advance payment of her share of the net proceeds from the sale of the marital home, which shall be deducted from her equitable share of the net proceeds from the sale.
This is where the problems begin! After a year, the house was not sold and the second $25,000 "advance" was not paid. on top of that, the house was now off of the market. When the husband didn't pay, the wife filed an enforcement motion. The husband's defense seemed to be in good faith, as follows:
Defendant explained he had obtained an appraisal of the home indicating that, as of January 18, 2010, the appraised value of the home was $755,000. After subtracting out the current mortgage balance of $575,000, outstanding student loans of $136,523, estimated real estate commission and closing fees of $37,750, and the first $25,000 advance payment to plaintiff, defendant asserted that there was no longer any equity in the home. Since there was no current equity in the home, defendant argued he had no obligation to pay plaintiff any further advance on her share of the net proceeds from the future sale of the home.
Plaintiff opposed the motion, asserting that the MSA was clear and required defendant to pay her $25,000
on January 6, 2011. She lost in the trial court because the trial judge found that the second payment was not guaranteed. The Appellate Division reversed finding:
Thus, contrary to the trial judge's interpretation, there was only one pre-condition
to plaintiff receiving the second $25,000 advance payment - - defendant's failure to sell the home within the one-year period. Once he failed to do so, he was required to make the $25,000 payment to plaintiff.
Rather, the Appellate Division looked right to the language of the agreement which noted that equitable distribution of the asset would only be determined when the net proceeds were determined which could only happen when a sale occurred, whenever that was. In fact, the court found that the "current equity" was not even mentioned in the MSA and thus, irrelevant to the inquiry.
So, in addition to the ruling of the Appellate Division, two possible take aways here are that the husband thought he was getting a good deal being able to live in the home until the market rebounded or the parties "real agreement" was not fleshed out with precision and detail the MSA. If the parties' real intent was as espoused by the husband, one reasonable conclusion given that the house was listed for $899,000 at the time of the divorce but appraised for far less, only the wife got a guaranteed $50,000 equitable distribution from this asset and the husband perhaps got nothing.
Is this fair? Who knows? That said, there probably wouldn't have been this post judgment litigation and appeal if the parties' true intent, assuming that it was other than as set forth in the MSA, was spelled out.
Eric Solotoff is the editor of the New Jersey Family Legal Blog and the Co-Chair of the Family Law Practice Group of Fox Rothschild LLP. Certified by the Supreme Court of New Jersey as a Matrimonial Lawyer and a Fellow of the American Academy of Matrimonial Attorneys, Eric practices in Fox Rothschild's Roseland, New Jersey office though he practices throughout New Jersey. You can reach Eric at (973)994-7501, or firstname.lastname@example.org.