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Monday, September 15, 2014

In re the Marriage of Evans: Be Cautious of Pre-Disclosure Agreements

In any divorce settlement, it's imperative that each party fully understand the consequences of each concession. In uncontested divorce proceedings, couples divvy up the assets and liabilities per the terms of a predetermined agreement.

But even when things move fast, it's important to make sure everyone understands every step taken and what it's going to mean for all parties. This is why we often advise parties to wait for a formal disclosure of declarations before signing on the dotted line. Our Brooklyn divorce lawyers know both sides are sworn under oath to be honest in these mandatory declarations, which means any discrepancy can later be challenged in court.

This was the issue in the recent divorce case of In re: The Marriage of Evans, before the California Court of Appeal for the Fifth Appellate Circuit. Although this is a non-local case and family law can vary significantly between jurisdictions, the concept of mandatory financial disclosure prior to divorce is a widely-regarded concept.

In this case, the question was whether a property settlement that was signed after the pair separated but prior to a petition for dissolution of marriage (and the exchange of disclosure declarations) should be valid and enforceable.

The specific property in question was the marital home. The two entered into a written agreement in which the husband agreed he would buy out the wife's interest for one-half the value of the equity. The agreement was signed and dated prior to the petition for dissolution of the 22-year marriage.

After that, when financial declarations were made, the husband sought to render the agreement unenforceable.

The marital estate was the only significant asset the two shared. They agreed the husband would buy out the wife's interest, and the wife typed out a contract that was titled "Pre-Divorce Agreement." Both parties assume the residence had a net equity of $600,000, and accordingly, the husband agreed to pay $300,000 to the wife for her one-half interest. The agreement was then the husband would own the home and the wife would move out.

After the document was signed, the husband paid $197,000 to his wife, leaving a remaining balance of $103,000.

This agreement was not reviewed by an attorney, but it was signed and dated by both parties. Prior to both parities signed, neither had served the other with any kind of financial disclosure statement. However, there is no indication in the record the wife had possession of information that might have been pertinent to the exchange and chose not to tell the husband about it. Had that been the case, the husband might have had a stronger argument.

Two years later, when the wife formally filed for dissolution and financial disclosures were submitted, it turned out the actual market value of the home was $420,000. There was an unpaid balance on the property of $350,000, meaning the actual net equity of the home was $70,000 - far less than the $103,000 the husband still owed the wife under the terms of the agreement.

Husband requested the agreement be set aside, citing the parties' failure to comply with disclosure declaration agreements prior to signing. The trial court denied this motion, ruling that because the agreement was signed prior to filing a petition for dissolution, failure to disclose declarations was irrelevant.

He appealed, and the appellate court affirmed.

The lesson here is that financial disclosure is an important part of the asset division process - even if you have no reason to suspect your spouse of hiding anything. It ensures both parties are entering each aspect of the agreement with open eyes. Review by an attorney likely could have prevented this scenario.

If you are contemplating a divorce in New York City, call our offices at (718) 864-2011.

Additional Resources:

In re: The Marriage of Evans, Aug. 29, 2014, Court of Appeals of California, Fifth Appellate District

More Blog Entries:

Tallo v. Tallo - Drafting an Unambiguous Divorce Agreement, Sept. 9, 2014, Brooklyn Divorce Lawyer Blog

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