Posted on March 4, 2010 by Eric S. Solotoff

DIVORCE PLANNING COMES BACK TO BITE THIS HUSBAND

We have all heard stories about spouses hiding assets to keep them away from the other spouse during a divorce.  In fact, I am sure that many lawyers have even had clients ask how they can do it.  Hopefully, the lawyer told them the straight answer -don't do it - and if you do and get caught, it will be far worse for you. 

A litigant named Eric Barzda learned this the hard way as noted in the unreported decision (non precedential) Appellate Division decision released on March 3, 2010.

In this case, in 1996, Mr. Barzda was  was going through a divorce proceedings with his former wife.  While the divorce  was pending and even thereafter, he feared that his wife would assert a claim against property in Hightstown he acquired with his girlfriend, the defendant in this matter.  In order to  shield this property from a claim from his wife, he transferred his interest in the property to the girlfriend for $1.  However, he claimed that there was an oral agreement that he would be a silent partner.  He later filed for bankruptcy relief and did not list this property as owned by him in the bankruptcy - obtaining a discharge in what was deemed a no asset case.

In 2006, after the romantic relationship ended, the plaintiff here filed suit seeking his equitable share of the property. The trial court, as affirmed by the Appellate Division, used the concept of judicial estoppel to deny him relief.  Judicial estoppel essentially prevents litigants from taking inconsistent positions regarding the same issue/property in different legal proceedings. 

In an interesting quote, the Appellate Division said:

Here, plaintiff's conduct provides almost a textbook example of facts calling for the applicability of judicial estoppel. By his own words, plaintiff attempted to conceal his alleged interest in this real property to mislead his former espouse and frustrate any attempt on her part to seek legal recognition of a potential equitable interest in the property. In furtherance of this scheme, plaintiff deliberately failed to disclose his alleged interest in the petition he filed under oath before the federal bankruptcy court in order to induce that tribunal to give him relief from the legitimate claims of his creditors.

It will be interesting to see if in light of this, the ex-wife goes after him for fraud in the divorce.  In any event, the saying "don't do the crime if you can't do the time" seems particularly applicable here.
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Posted on April 5, 2009 by Robert A. Epstein

APPELLATE DIVISION AFFIRMS TRIAL COURT'S DENIAL OF WIFE'S MOTION TO SET ASIDE PROPERTY SETTLEMENT AGREEMENT BASED ON FRAUD

The New Jersey Appellate Division has held that an application seeking to set aside a Property Settlement Agreement (PSA) under Rule 4:50-1 of the New Jersey Rules of Court should be granted "sparingly."  It was this very type of application that formed the basis of the Appellate Division's recent opinion in Heald v. Heald, found here.

The parties were married for 28 years and had 4 children before the Final Judgment of Divorce was entered in November 2006.  They had separated in 2005 and, for a significant period of time, negotiated the terms ultimately encompassed in a PSA, executed in April 2006.  Notably, the parties agreed to use the Husband's 2004 income to determine his support obligations.  The PSA also contained language that the parties were knowingly waiving their right to discovery regarding each other's income and assets.

Within the following months after the FJOD was entered, the Wife filed three post-judgment motions seeking a wide variety of relief pertaining to support and the Husband's business bank accounts and income.  It was the third post-judgment motion that formed the basis of the Appellate Division's opinion.  Specifically, the Wife sought in August 2007 to have the trial court, among other things, increase the Husband's alimony obligation to allow her to regain her marital standard of living.  The trial court, however, denied the Wife's request.

The Appellate Division focused on that portion of the Wife's appeal arguing that the trial court erred by failing to find that the Husband misrepresented his income during the negotiations period preceding execution of the PSA and, therefore, in denying her request for a retroactive increase in alimony.  The Wife specifically wanted the PSA set aside based on the Husband's purported misrepresentation as to his income - namely, that he knew, but failed to disclose during negotiations that his 2005 business income was at least $130,000 higher than his 2004 income, which was used to determine his support obligations in the PSA.  The Wife based this assertion in part on the fact that the Husband deliberately filed for an extension on the joint tax returns to hide this information.

The Appellate Division first noted that relief under Rule 4:50-1 to set aside the PSA is to be granted "sparingly" and, when relief is premised upon a claim of misrepresentation, there must exist clear and convincing evidence of such misrepresentation.  The Appellate Division also noted that the trial court's decision could only be overturned on the basis of a "clear abuse of discretion." 

Under that analytical framework, the Appellate Division concluded that there was insufficient evidence to set aside the PSA.  Specifically, the Court held that the record failed to demonstrate that the Husband ever represented his annual business income for 2005 at $500,000 - a number that was far below the true level of income earned.  Rather, the Court found that the $500,000 was nothing more than a level of income proposed by the Wife's attorney to apply to the Husband during settlement negotiations.  Further, the Court concluded that, as negotiations carried into 2006, there was nothing stopping the Wife from seeking information as to the Husband's 2005 income and nothing unusual about the Husband seeking an extension to file the tax returns since he had done so in the past.

The Appellate Division also found that the Wife was aware that the Husband's income fluctuated on a yearly basis; that it was she who wanted to expedite the negotiations process to bring the proceedings to an end; that the Husband had no duty to update his Case Information Statement pursuant to Rule 5:5-2(c) of the Rules of Court because he had not previously filed one from the Date of Complaint to the date the FJOD was entered; and that the PSA made no indication that the parties intended to use the Husband's current or highest year of business income as a starting point to determine support.  Finally, because the parties waived their right to discovery in the PSA as to income and assets, the Husband's failure to disclose his 2005 income, which the Wife did not even request, did not warrant post-judgment discovery.

Notably, while relief pursuant to Rule 4:50-1 is to be "sparingly" granted, this office was recently granted summary judgment for a client seeking to set aside a PSA based on fraud and unconscionability.  A recent post regarding that victory can be found here.
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