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ATTACKING AND DEFENDING SEPARATION AGREEMENTS: A 1995 UPDATE - PART II
1995 National Legal Research Group, Inc.

This article begins by considering three more major substantive defenses fraud, mistake, and unconscionability. We turn then to a consideration of a number of procedural issues, including laches, waiver, and abandonment. The section on abandonment includes a substantial reinterpretation of the law on the effect of reconciliation on separation agreements, an area in which the law has changed substantially since 1991. You may want to refer to the previous part of this article.

IV. SUBSTANTIVE INVALIDITY

Fraud


Fraud is one of the most common defenses raised in separation agreement cases. One recent decision defined the defense as follows:

Wells v. Wells, 12 Va. App. 31, 401 S.E.2d 891, 892 (1991) (quoting Jefferson Standard Insurance Co. v. Hedrick, 181 Va. 824, 27 S.E.2d 198, 202 (1943)); see also In re Turner, 803 S.W.2d 655, 661 (Mo. Ct. App. 1991). Thus, an agreement is invalid for fraud if (1) one party made a misrepresentation; (2) the misrepresentation was of a material fact; (3) the misrepresentation was deliberate; (4) the other party detrimentally relied on the misrepresentation; and (5) the reliance was reasonable.

Misrepresentation. The first element of fraud is a specific misrepresentation. Where the party who procured the agreement neither misrepresented nor failed to disclose any material fact, the agreement is not invalid for fraud. E.g., Derby v. Derby, 8 Va. App. 19, 378 S.E.2d 74 (1989).

The clearest type of misrepresentation is an affirmative statement of an untrue fact. E.g., Blanchard v. Blanchard, 108 Nev. 908, 839 P.2d 1320 (1992) (husband's financial statement listed Florida property as a marital asset, when it had actually been forfeited for nonpayment of taxes); Wells v. Wells, 12 Va. App. 31, 401 S.E.2d 891 (1991) (husband stated in deposition that he had received no compensation or benefits from corporation since 1987, when in fact he was entitled to 98% of its profits and was the sole signatory of its bank account).

The statement must be untrue when made; it is not sufficient that the statement became untrue at a later date. This point is particularly important when the mispresentation is a promise rather than a statement of fact. Where one spouse makes a promise in good faith but then fails to keep it, the representation was true when it was made, and fraud is not present. See In re Pfeifer, 862 S.W.2d 926 (Mo. Ct. App. 1993) (husband promised to take care of wife after divorce, and then failed to keep his promise; promise was made in good faith; no fraud); In re Auble, 125 Or. App. 554, 866 P.2d 1239 (1993) (husband's promise to collect only nominal child support from wife was made in good faith; no fraud). Conversely, if the promising spouse had no intent to keep the promise at the time it was made, a valid misrepresentation has been made, and the contract should be set aside if the additional elements of fraud are present.

Nondisclosure. In a larger number of fraud cases, one spouse will claim that the other spouse made an implied misrepresentation by failing to disclose a material fact. As a prerequisite to such a claim, the attacking spouse must first establish that the other spouse knew the undisclosed fact. See Drewry v. Drewry, 8 Va. App. 460, 383 S.E.2d 12 (1989) (parties agreed to value property using real estate tax assessment; after agreement, husband sold property for higher amount; no fraud, because husband did not know at the time that the tax assessment was inaccurate); see also In re Dimmit, 132 B.R. 617 (Bankr. W.D. Mo. 1991) (husband could not have fraudulently concealed intention to declare bankruptcy, as he had no such intention until after the divorce).

If the other spouse did know the undisclosed fact, the question then becomes whether the other spouse had a duty to disclose. Such a duty can come from two possible sources. First, the contract itself may contain a clause stating that the parties have fully disclosed their assets. "Such provisions do not call for a minute examination of syntax. They require the disclosure by one party to the other of all matters which in good conscience ought to be disclosed." Atkins v. Atkins, 534 N.E.2d 760, 763 (Ind. Ct. App. 1989). If full disclosure is not made, there is a material breach, and the contract is invalid. See Atkins v. Atkins, supra (failure to disclose impending merger which doubled the value of certain stock was material breach); Lee v. Lee, 93 N.C. App. 584, 378 S.E.2d 554 (1989) (failure to disclose $102,000 debt receivable was material breach).

If the contract contains no full-disclosure clause, a duty to disclose can still exist in two separate situations. First, there may be some facts which are so material to the parties' underlying bargain that they must always be disclosed. In In re Dimmit, supra, for example, the court held that the agreement would be product of a fraud if the husband had failed to disclose an intention to declare bankruptcy after the case was over. Since bankruptcy would destroy the divorce court's property settlement, it was so material that an inherent duty of disclosure existed. On the facts, however, the court held that the husband did not intend to declare bankruptcy until his business failed after the divorce was final.

Second, there is a duty to disclose all material facts where the spouses enjoyed a confidential relationship at the time of the nondisclosure. E.g., In re Baltins, 212 Cal. App. 3d 66, 260 Cal. Rptr. 403 (1989). Where no such relationship exists, nondisclosure of relevant information does not constitute fraud. See, e.g., Hill v. Hill, 94 N.C. App. 474, 380 S.E.2d 540 (1989); McClellan v. McClellan, 52 Md. App. 525, 451 A.2d 334 (1982). In particular, once the confidential relationship ends, there is no duty to disclose the commission of adultery. Barnes v. Barnes, 231 Va. 39, 340 S.E.2d 803 (1986); Winborne v. Winborne, 41 N.C. App. 756, 255 S.E.2d 640, cert. denied, 298 N.C. 305, 259 S.E.2d 918 (1979).

Whether a confidential relationship exists is a question of fact. Blum v. Blum, 59 Md. App. 584, 477 A.2d 289 (1984). The spouses obviously enjoy such a relationship at the start of the marriage, but that relationship ends at some point before the divorce is final. The most important evidence in resolving this question is the existence of independent counsel, and the confidential relationship generally ends when both parties have such counsel. See, e.g., Barnes v. Barnes, 231 Va. 39, 340 S.E.2d 803 (1986) (citing the cases); In re Turner, 803 S.W.2d 655, 661 (Mo. Ct. App. 1991) (parties had been separated for 14 months and each of them had counsel; no confidential relationship); Applebaum v. Applebaum, 93 Nev. 382, 566 P.2d 85 (1977); Avriett v. Avriett, 88 N.C. App. 506, 363 S.E.2d 875, aff'd mem., 322 N.C. 468, 368 S.E.2d 377 (1988) (where wife had her own independent attorney, no confidential relationship).

When both parties are represented by the same lawyer, the confidential relationship may or may not continue. A North Carolina court noted:

Harroff v. Harroff, 100 N.C. App. 686, 398 S.E.2d 340, 343-44 (1990), cert. denied, 328 N.C. 330, 402 S.E.2d 833 (1991); accord Tenneboe v. Tenneboe, 558 So. 2d 470 (Fla. DCA 1990) (confidential relationship exists unless both parties have counsel; where husband had no attorney and wife's attorney did not tell husband that alimony is modifiable only for changed circumstances, agreement not valid); Blum v. Blum, 59 Md. App. 584, 477 A.2d 289 (1984) (where husband was dominant spouse throughout marriage and both parties shared same counsel, confidential relationship existed; case remanded); cf. In re Auble, 125 Or. App. 554, 866 P.2d 1239 (1993) (where wife had moved to another city and was living with another man, parties had no confidential relationship, even though they shared a single attorney). The case for a confidential relationship is particularly strong when an attorney spouse drafts the agreement on behalf of both parties. See Webb v. Webb, 16 Va. App. 486, 431 S.E.2d 55 (1993); Williams v. Waldman, 108 Nev. 466, 836 P.2d 614 (1992) (both finding a confidential relationship in this situation).

A confidential relationship is most likely when the disadvantaged spouse did not have counsel at all. For instance, in Selke v. Selke, 569 N.E.2d 724 (Ind. Ct. App. 1991), the husband did not disclose the value of his retirement benefits to wife, who had no independent counsel. The court implicitly held that the confidential relationship still existed, and set the agreement aside on grounds of constructive fraud.

Courts considering whether a confidential relationship exists have also relied upon other types of evidence:



Representation of Fact. The attacking spouse must also prove that the subject of the misrepresentation or nondisclosure was a material fact. Fraud cannot be based upon misrepresentation or nondisclosure of an opinion unless "extraordinary circumstances" are present. In re Turner, 803 S.W.2d 655, 661 (Mo. Ct. App. 1991).

There are two situations in which courts are especially reluctant to find that a misrepresentation was one of fact rather than opinion. First, representations as to the controlling law generally involve opinion, because they are legal conclusions drawn from primary facts (statutes and case law) which are equally available to both parties. See In re Turner, supra (husband falsely told wife that she had no right to any part of his pension; parties had been separated more than a year and wife had own counsel; no fraud); Cucchiaro v. Cucchiaro, ___ Misc. 2d ___, 627 N.Y.S.2d 224 (Sup. Ct. 1995) (wife knew husband had pension, but husband failed to disclose conclusion that pension was marital property; no fraud); Avriett v. Avriett, 88 N.C. App. 506, 363 S.E.2d 875, aff'd mem., 322 N.C. 468, 368 S.E.2d 377 (1988) (husband failed to disclose his attorney's opinion on a question of law; no fraud).

Second, along similar lines, representations as to the value of marital assets are often held to be statements of opinion. When both parties have equal access to the underlying financial data, value is a secondary conclusion and not a primary fact. For instance, in Mitchell v. Mitchell, 888 S.W.2d 393 (Mo. Ct. App. 1994), the husband misrepresented the value of his pension. The wife had access to all of the plan documents, however, and had a full and fair chance to value the pension herself. The court held that the representation was one of opinion, and that fraud was not present. See also Clooten v. Clooten, 520 N.W.2d 843 (N.D. 1994) (where both spouses had equal opportunity to value business, husband did not commit fraud by understating its value); In re Auble, 125 Or. App. 554, 866 P.2d 1239 (1993) (where wife knew husband had pension, failure to disclose its exact value was not fraud).

Where the parties lack equal access to the primary financial data, representations of value are almost always treated as statements of fact. In this situation, the representing spouse has concealed not a debatable conclusion but rather the essential facts needed to draw any form of conclusion at all. For instance, in In re Richardson, 237 Ill. App. 3d 1067, 606 N.E.2d 56 (1992), the husband told the wife that his business was worth $10.5 million, when it was actually worth $24-37 million at the time, and $41 million only eight months later. The husband had provided the wife with financial information about the company, but insisted that the wife dismiss her experienced matrimonial attorney and hire an inexperienced young lawyer who reviewed the financial information for only 20 minutes. The court held that the husband had effectively denied the wife equal access to the financial information, and found the agreement invalid for fraud.

Materiality. In addition to proving that the representation was one of fact, the attacking spouse must also show that the fact involved was a material one. A fact is material if its disclosure or correct representation would have made a significant difference in the attacking spouse's decision to sign the agreement. For instance, in Gaines v. Gaines, 188 A.D.2d 1048, 592 N.Y.S.2d 204 (1992), the husband told the wife that he needed his entire military pension for his own support after retirement. He neglected to correct this statement when he accepted a civilian job offer during the divorce proceedings at a salary only slightly less than the salary he had earned in the military. The court held that the wife would not have signed the agreement if she had known about the new position, and found the agreement invalid for fraud. Cf.Dayton v. Dayton, 175 A.D.2d 427, 572 N.Y.S.2d 487 (1991) (husband did not tell wife that he regained his job shortly before the divorce; not material, as wife did not assume when signing the agreement that husband would be permanently unemployed; rather, she expected that husband would find new employment shortly).

A fact is not material if the attacking spouse would have signed the agreement even if it had been correctly represented or disclosed. Courts tend to find the fact immaterial in several different types of cases. First, where the fact is entirely irrelevant to the divorce settlement, it is obviously not material. This holding applies most frequently to representations involving marital fault. In In re Dimmit, 132 B.R. 617 (Bankr. W.D. Mo. 1991), for example, the husband failed to disclose the fact that he was having an affair and the fact that he intended to marry his paramour after the divorce. The court held that these facts were not material, as their disclosure would not have caused the wife to refuse to sign the agreement.

Second, courts also tend to find that a representation is immaterial when it involves an asset which would have constituted separate property. For instance, in Tirrito v. Tirrito, 191 A.D.2d 686, 595 N.Y.S.2d 786 (1993), the husband failed to disclose a personal injury settlement to the wife. The court held that the settlement was not material, as it would have been nondivisible separate property in the divorce case.

Finally, a fact is also immaterial when it is material in nature but small in amount. In Paul v. Paul, 177 A.D.2d 901, 576 N.Y.S.2d 658 (1991), the husband represented his income at $40,000. After the agreement was signed, the wife moved to set it aside, arguing that his income was actually $41,465. The court rejected the wife's argument. There was no doubt that the husband's income was a material fact, but the amount of the misrepresentation was simply too small to make a difference.

Intent. If the spouses did not enjoy a confidential relationship, the attacking spouse must show that the misrepresentation or nondisclosure was intentional. This requirement is met if the misrepresentation or nondisclosure was made with the intent that it be relied upon by the injured spouse. See generally Wells v. Wells, 12 Va. App. 31, 401 S.E.2d 891, 892 (1991). The cases generally do not interpret the intent requirement strictly, and many cases fail to discuss the element at all. In effect, there is almost a presumption that a significant misrepresentation or nondisclosure was intentional. As one court noted, "[i]t is seldom possible to show intent by direct evidence; usually it must be shown by the totality of the circumstances." In re Baltins, 212 Cal. App. 3d 66, 260 Cal. Rptr. 403, 415 (1989).

In In re Broday, 256 Ill. App. 3d 699, 628 N.E.2d 790 (1993), the husband did not disclose to the wife his profit-sharing plan. The court held that the nondisclosure was not intentional, and thus there was no fraud. Broday cuts against the clear trend to minimize the intent requirement; the court may have been influenced by the fact that the wife deliberately failed to seek counsel, conduct discovery, or otherwise take the most basic steps to protect her interest.

If the spouses had a confidential relationship at the time of the misrepresentation or nondisclosure, "[i]t is irrelevant whether [the guilty party] intentionally or negligently made the representations." In re Baltins, supra, 260 Cal. Rptr. at 417.

Actual Reliance. After proving intentional misrepresentation or nondisclosure, the attacking spouse must prove that he or she actually relied on the misrepresented or undisclosed information. Actual reliance is usually not an issue, but it may become significant if the attacking spouse had knowledge of the misrepresentation or nondisclosure. See Head v. Head, 59 Md. App. 570, 477 A.2d 282 (where wife knew that husband had failed to disclose true value of assets, she could not have relied on his nondisclosure; no fraud), cert. denied, 301 Md. 471, 483 A.2d 754 (1984); In re Schell, 191 A.D.2d 570, 594 N.Y.S.2d 807 (1993) (wife signed joint tax return which listed the husband's major assets; no fraud). Also, if the attacking spouse makes the mistake of admitting no reliance, fraud is obviously not present. See In re Pfeifer, 862 S.W.2d 926 (Mo. Ct. App. 1993) (wife admitted that she "probably would have" signed the agreement even if the husband had not made misrepresentation; no fraud).

Reasonable Reliance. Even if the attacking spouse suffered actual harm from relying on a misrepresentation, it is still necessary that the reliance be reasonable. Under the general law of contracts, reliance is reasonable only where the party attacking the agreement used due diligence to protect his or her interests. Phrased conversely, a party is not allowed to rely upon a representation unless the party takes at least basic steps to ensure that the representation is accurate.

The extent to which this requirement applies to separation agreements is a closely debated issue. In Billington v. Billington, 220 Conn. 212, 595 A.2d 1377 (1991), the court held that the requirement does not apply at all, and thus that no showing of due diligence need be made. The court relied heavily upon the fact that all parties to divorce cases are required to file financial affidavits, and upon the strong public policy of full and frank disclosure in divorce cases. In light of this policy, the court held that any substantial misrepresentation or nondisclosure of a material fact should be sufficient to set the agreement aside, even if the attacking spouse took no steps to ensure the accuracy of the representation before relying upon it.

The Indiana court took a similar approach in Dodd v. Estate of Yanan, 587 N.E.2d 1348 (Ind. Ct. App. 1992). The wife in that case claimed fraud even though she had failed to conduct any discovery at all in the divorce action. The court held that due diligence did require the wife to review any information presented to her, but it did not require her actually to seek information which she did not already have. Because the wife had no information, she had nothing to review, and the court held that she had used due diligence.

Despite these decisions, the majority rule is that spouses in divorce cases are required to take reasonable measures for their own protection. The duty, however, is not a strict one:

Wells v. Wells, 12 Va. App. 31, 401 S.E.2d 891, 893 (1991) (respectively quoting Cerriglio v. Pettit, 113 Va. 533, 75 S.E. 303, 308 (1912); Harris v. Dunham, 203 Va. 760, 127 S.E.2d 65, 72 (1962); Horner v. Ahern, 207 Va. 860, 153 S.E.2d 216, 219 (1967)).

In most cases, therefore, the representation must only appear plausible in light of "ordinary and accessible sources of information." Wells v. Wells, supra, 401 S.E.2d at 893. The exact definition of "ordinary and accessible sources of information" is a question of fact, but most cases find that it encompasses at least the actual fruits of the discovery process. Thus, where the attacking party had her own independent counsel and expert witnesses and conducted extensive discovery, reliance on the opposing party's statements is generally not reasonable. Patti v. Patti, 146 A.D.2d 757, 537 N.Y.S.2d 241 (1989); see also Tubbs v. Tubbs, 648 So. 2d 817 (Fla. DCA 1995) (no fraud where wife had counsel and expert witness, and thus had independent knowledge of value of marital estate); Micale v. Micale, 542 So. 2d 415 (Fla. DCA 1989) (wife had been officer and director of corporation and had extensive knowledge of its financial affairs; no fraud), cert. denied, 548 So. 2d 663 (Fla. 1989).

In addition, a majority of cases require that the attacking party affirmatively use the discovery process for his or her own self-protection. Thus, where the attacking spouse has completely failed to take discovery, most of the reported cases reject a claim of fraud. See In re Broday, 256 Ill. App. 3d 699, 628 N.E.2d 790 (1993) (wife deliberately declined to seek counsel and completely failed to investigate husband's finances; no fraud); In re Shaner, 252 Ill. App. 3d 146, 624 N.E.2d 1217 (1993) (where contract awarded wife $2453.74 as 50% of the equity in the marital home, but record showed that 50% of the equity was actually $10,983.69, no fraud was present, as wife had failed to use due diligence to discover the error; remanding to consider defense of mutual mistake); Selke v. Selke, 600 N.E.2d 100 (Ind. 1992) (wife knew husband had pension but did not request any information on its value; no reasonable reliance).

At the same time, most cases recognize that due diligence requires only a basic inquiry and not extensive analysis. E.g., In re Lindjord, 234 Ill. App. 3d 319, 600 N.E.2d 431 (1992) (stressing that due diligence requirement is not rigidly enforced where the other spouse is guilty of unconscionable behavior). Thus, where there is some valid reason why the misrepresented or concealed fact should not have been uncovered through basic discovery, reasonable reliance is probably present.

There are several fact situations in which courts are particularly likely to find that a fact was not reasonably discoverable. First, courts have been reluctant to require that the parties continuously take discovery throughout the entire divorce process. Thus, where one spouse misrepresents or conceals a fact which arose shortly before divorce, most courts find that the reliance was reasonable. For instance, in one case the husband listed an asset in his financial affidavit at $225,000, failing to disclose that he had in hand a written offer to purchase it for $380,000. Three days after the divorce, the husband sold the asset for $360,000. The court set the agreement aside for fraud. Billington v. Billington, 27 Conn. App. 466, 606 A.2d 737 (1992). Likewise, where the husband failed to disclose an impending merger, and the merger was not reported in the newspaper until the day on which the agreement was signed, another court held that the wife had reasonably relied on the nondisclosure. Atkins v. Atkins, 534 N.E.2d 760 (Ind. Ct. App. 1989); see also Rupley v. Rupley, 776 S.W.2d 849 (Ky. Ct. App. 1989) (wife not chargeable with knowledge of value of business in 1987 merely because she had been officer and director of corporation in 1984).

Second, courts do not insist that discovery be employed where the guilty spouse has somehow diverted the innocent spouse from making normal inquiries. For example, in Wells v. Wells, 12 Va. App. 31, 401 S.E.2d 891, 893 (1991), the husband made misrepresentations in a deposition taken under oath. Although the wife had reason to suspect the truth of the statements, she did not have actual knowledge that they were false. Because "statements made under oath are commonly accepted" and may "cause even a prudent person to refrain from making further inquiries," the wife had no duty to investigate the statements. 401 S.E.2d at 893. The court reversed a lower court holding that the wife's reliance was unreasonable.

Normal inquiries can also be diverted by the general conduct of the opposing party during negotiations. In Shafmaster v. Shafmaster, 138 N.H. 460, 642 A.2d 1361 (1994), the husband urged the wife to hire an accountant to value the marital estate before she hired a lawyer. In keeping with this promise, the husband voluntarily disclosed a wealth of financial information about his assets. The wife did as the husband suggested, had an accountant value the marital estate, and then sought counsel. Based upon the accountant's report, the parties drafted an agreement, but the husband specifically refused to include a clause requested by the wife providing that the parties had fully disclosed their assets. The wife signed the agreement, and then learned that the husband had failed to disclose certain financial information. The husband argued that the wife's reliance on the information he voluntarily disclosed was unreasonable, because his failure to sign the disclosure clause should have been a "red flag" to the wife that his disclosure was incomplete. The court disagreed, finding that the negotiations had been conducted in an atmosphere of openness and voluntary disclosure. In light of this pattern of conduct, the court held that the disclosure clause issue should not necessarily have alerted the wife that the husband's financial information was unreliable. A decision upholding the agreement was reversed, and the agreement was held invalid for fraud.

In some cases, the mere size of the marital estate may limit the duty to inquire. In Blanchard v. Blanchard, 108 Nev. 908, 839 P.2d 1320 (1992), the husband told the wife that the parties owned land in Florida. After the agreement awarded the land to the wife, she discovered that it had been seized several years earlier for nonpayment of taxes. The court noted that the marital estate contained a large number of assets, and that the husband generally kept most of the parties' financial records. Because there was no particular reason for the wife to investigate the Florida real property more than any other asset, the court held that the wife's reliance on the husband's financial statement was reasonable. A trial court decision dismissing the wife's petition to set aside the agreement was therefore dismissed.

No Reliance Clause. Some separation agreements contain a statement that neither party has relied upon any representations made by the other, or even a general statement that neither party committed fraud upon the other. These clauses are one factor indicating that there was no actual reliance and that any actual reliance which did exist was unreasonable. See Grubman v. Grubman, 191 A.D.2d 194, 594 N.Y.S.2d 220 (1993). They are not, however, conclusive on the question. See Blanchard v. Blanchard, 108 Nev. 908, 839 P.2d 1320 (1992) (finding fraud despite such a clause).

Damages. Finally, an agreement will not be found invalid for fraud unless the fraud inflicted some form of harm upon the attacking spouse. In Voight v. Voight, 645 N.E.2d 623 (Ind. Ct. App. 1994), the wife failed to disclose an IRA and a bank account and then signed an agreement which contained a full-disclosure clause. The court conceded that the nondisclosure was wrongful, but found that the IRA was divided equally between the parties under a residuary clause in the agreement. The other bank account was then found to be beneficially owned by a third party. As a result of these findings, the nondisclosure had inflicted no harm on the husband, and the court refused to set the agreement aside.

Likewise, in Arquiette v. Arquiette, 198 A.D.2d 858, 604 N.Y.S.2d 427 (1993), the husband concealed from the wife the fact that he had selectively cut timber from certain land. The court refused to set the agreement aside for fraud. The husband had used the proceeds from selling the timber to maintain the land itself, the court explained, and the selective cutting had actually increased the value of the property. Because the wife suffered no damages, there had been no fraud.

Civil Action. As an alternative to setting aside the agreement, a spouse who is victimized by fraud may be able to seek relief in an independent civil action. See generally Turner, "Common-Law Fraud as a Remedy for Asset-Related Misconduct," 7 Divorce Litigation 205 (1995).

Mistake

Separation agreements may also be attacked on grounds of mistake. To invalidate an agreement on grounds of mistake, the attacking party must show (1) that a mistake was made; (2) that the mistake was mutual; (3) that the mistake was one of fact; (4) that the attacking party exercised due diligence; and (5) that the mistake was material.

Mistake. The first element of mistake is proof that a mistake actually was made. A mistake exists when both parties are in error on some existing fact which is relevant to their underlying bargain. For example, in In re Agustsson, 223 Ill. App. 3d 510, 585 N.E.2d 207 (1992), the agreement called for a lump-sum distribution of the husband's pension. The husband believed that each party would pay his or her own taxes, while the wife believed that the husband would pay all of the taxes. Given the substantial size of the tax consequences, the court set the agreement aside on grounds of mistake.

In order to serve as the basis for setting aside an agreement, a mistake must involve a fact which existed at the time the agreement was signed. In Ludlow v. Ahrens, 812 S.W.2d 245 (Mo. Ct. App. 1991), after the parties signed a separation agreement, the IRS audited their tax return. As a result, a substantial tax debt was imposed. The husband filed to set the agreement aside, arguing that there had been a mutual mistake as to the existence of the debt. The court rejected the argument, finding that the parties could not have made a mutual mistake regarding a tax debt which did not exist when the agreement was made.

Apart from the existing mistake issue, whether or not a mutual mistake was actually made is generally an issue of fact. Where the mutual mistake was limited to a previously rejected offer, and there was no evidence that the mistake was carried through subsequent negotiations into the final agreement, one court found that no mistake had been made. Lowry v. Lowry, 99 N.C. App. 246, 393 S.E.2d 141 (1990).

Mutual Mistake. As a general rule, a contract can be set aside for mistake only if the mistake was mutual. "A unilateral mistake by a party to a contract, unaccompanied by fraud, imposition, undue influence or other like circumstances of oppression is insufficient to avoid a contract." Lowry v. Lowry, 99 N.C. App. 246, 393 S.E.2d 141, 144 (1990); accord In re Lorton, 203 Ill. App. 3d 823, 561 N.E.2d 156 (1990).

For example, in Pillow v. Pillow, 13 Va. App. 271, 410 S.E.2d 407 (1991), the wife tried to set aside an agreement because she mistakenly believed that the husband's income was $100,000. The court rejected her argument, finding that the wife's mistake was unilateral and not mutual. See also Mitchell v. Mitchell, 888 S.W.2d 393 (Mo. Ct. App. 1994) (refusing to set agreement aside for wife's unilateral mistake on value of marital asset); Harrington v. Harrington, 281 N.J. Super. 39, 656 A.2d 456 (App. Div. 1995) (where husband's business dissolved after contract was signed, and business was basis of the agreement's entire property division provision, error to summarily uphold agreement; remanding for hearing); Gocek v. Gocek, 417 Pa. Super. 406, 612 A.2d 1004 (1992) (wife construed language dividing survivor benefits to divide retirement benefits as well; this fact alone was not sufficient to set the agreement aside, as any mistake would be unilateral).

A mutual mistake of fact is particularly likely to justify relief where the court was involved in the negotiations and was actively misled by the mistake. In Culver v. Culver, 651 So. 2d 21 (Ala. Civ. App. 1994), the parties accidentally based the agreement's support provisions on the husband's gross rather than net business income. The trial court set the agreement aside, commenting that it felt a special responsibility to correct the error because the court itself had been instrumental in its commission. The appellate court held that the trial court had properly found the agreement invalid.

Some jurisdictions may be willing to set aside an agreement for unilateral mistakes of fact. For instance, in In re Agustsson, 223 Ill. App. 3d 510, 585 N.E.2d 207 (1992), the court held that the agreement would be set aside even if the mistake were unilateral rather than mutual.

585 N.E.2d at 214.

Mistake of Fact. In order to justify rescinding the contract, the mistake must be a mistake of fact. Like the fraud cases, the mistake cases clearly hold that a mistake of law is not sufficient. In In re Lorenz, 104 Or. App. 438, 801 P.2d 892 (1990), the husband agreed to pay child support for the parties' emancipated daughter. Some time later, he tried to set the agreement aside, arguing that both parties had mistakenly believed that the daughter was not emancipated. The court held that the agreement was enforceable. Since the husband knew the daughter's age, his error was essentially a mistake of law, and not a mistake of fact. See alsoIn re Banks, 887 S.W.2d 160 (Tex. Ct. App. 1994) (wife's ignorance of her rights under doctrine of reimbursement was unilateral error of law which was not sufficient to invalidate agreement); Pillow v. Pillow, 13 Va. App. 271, 410 S.E.2d 407 (1991) (refusing to reopen for mutual mistake involving tax law).

The mistake cases also agree with the fraud cases that a mistake of opinion is not a mistake of fact. See Mitchell v. Mitchell, 888 S.W.2d 393 (Mo. Ct. App. 1994) (mistake as to value was mistake of opinion, and thus not sufficient to reopen the decree).

Due Diligence. A contract generally cannot be set aside for mistake where the mistake results from the negligence of the attacking party. See In re Agustsson, 223 Ill. App. 3d 510, 585 N.E.2d 207 (1992) (recognizing the requirement, but finding it met on the facts).

Due diligence is obviously not present where the attacking party simply failed to read the agreement. See Mason v. Mason, 873 S.W.2d 631 (Mo. Ct. App. 1994) (rejecting husband's claim that he was unaware that insurance obligation was long-term and unmodifiable; husband was charged with knowledge of the agreement's clear language).

Material Mistake. Finally, in order to justify rescission, the mistake must be a material one. See, e.g., In re Agustsson, 223 Ill. App. 3d 510, 585 N.E.2d 207 (1992). There is not a great deal of case law on this element, but it would seem to be similar to the requirement under the doctrine of fraud that the misrepresented or undisclosed fact be material. As noted above, the general rule in the fraud cases is that a fact is material if the attacking party would not have signed the agreement if he or she had known the truth.

Substantive Insufficiency: Unfairness and Unconscionability

Substantive insufficiency is one of the more controversial defenses to separation agreements. Almost all courts agree that a separation agreement must be set aside if it is unconscionable. The decisions are split, however, on whether the court can set aside an agreement which is only unfair.

Unconscionability

Courts have used differing language in their attempts to grasp the elusive concept of unconscionability. One court defined the term as follows:

Peirick v. Peirick, 641 S.W.2d 195, 197 (Mo. Ct. App. 1982). An Illinois court gave a similar definition:

In re Carlson, 101 Ill. App. 3d 924, 428 N.E.2d 1005, 1010 (1981) (quoting Hume v. United States, 132 U.S. 406, 410 (1889)).

The varying language of these definitions contains a common theme: The underlying bargain must be unusually one sided. At the risk of stating the obvious, to determine the nature of the underlying bargain, the court must compare the attacking spouse's benefits under the agreement with what those benefits would be if the agreement had not been signed. The result of this comparison determines whether the bargain is so one sided that it fails the test of conscionability.

In comparing the benefits received with and without the agreement, the court should look to the total overall benefits and not to the amount recovered on each relevant issue. For instance, where the wife with a smaller earning capacity waived alimony completely, but received a generous $94,000 property settlement, one court found the agreement conscionable. Smith v. Smith, 188 A.D.2d 1004, 591 N.Y.S.2d 662 (1992). The alimony provisions in Smith were probably unconscionable viewed in isolation, but in the context of the entire agreement the overall bargain was not unreasonable. See also Flynn v. Flynn, 232 Ill. App. 3d 394, 597 N.E.2d 709 (1992) (wife waived alimony but received 62% of marital estate; agreement not unconscionable). Likewise, courts have upheld agreements which combine an unfavorable property division with substantial alimony. See In re Lindjord, 234 Ill. App. 3d 319, 600 N.E.2d 431 (1992) (after short marriage, wife received only 11% of marital property but $28,000 in alimony; not unconscionable).

The ultimate conscionability of the agreement depends upon the disparity between overall benefits received under the agreement and overall benefits received without the agreement. Where the attacking spouse receives essentially no benefit at all, the agreement is clearly unconscionable. See Burke v. Sexton, 814 S.W.2d 290 (Ky. Ct. App. 1991) (wife waived all rights and marital estate, and received no alimony); Brash v. Brash, 407 Mass. 101, 551 N.E.2d 523 (1990) (oral agreement permitting husband to retain all marital assets after 19-year marriage).

Where the attacking spouse does receive some benefit, the agreement is still unconscionable if that benefit is grossly disproportionate to the benefits which that spouse would have received in the absence of an agreement. Recent cases finding this test to be met include the following:

  • Legree v. Legree, 560 So. 2d 1353 (Fla. DCA 1990) (husband agreed to pay $300 per week in child support, leaving him only $80 per week for his own support)

  • In re Frey, 258 Ill. App. 3d 442, 630 N.E.2d 466 (1994) (homemaker wife received no alimony after 17-year marriage; property settlement existed, but was not unusually generous)

  • In re Richardson, 237 Ill. App. 3d 1067, 606 N.E.2d 56 (1992) (wife received only 7.55% of marital estate worth over $500,000)

  • Dobesh v. Dobesh, 216 Neb. 196, 342 N.W.2d 669 (1984) (agreement setting alimony at $400 per month, where payor husband's expenses exceeded his income)

  • Weinstock v. Weinstock, 167 A.D.2d 394, 561 N.Y.S.2d 807 (1990) (wife waived property division rights in $2 million estate, receiving in return only modest alimony; alimony was payable only if wife was employed and was taking at least six credits of college courses)

  • Derby v. Derby, 8 Va. App. 19, 378 S.E.2d 74 (1989) (wife received 100% of the parties' most substantial asset, which was worth $423,000; rest of property was divided equally but wife preserved her right to future spousal support)

    On the other hand, where there is no gross disparity between the benefits under the agreement and the benefits without the agreement, the agreement is conscionable. Recent cases finding agreements to be conscionable include the following:

  • McMahan v. McMahan, 567 So. 2d 976 (Fla. DCA 1990) (marital property was divided equally; husband was charged with all the debts, but wife had accepted reduced alimony)

  • In re Brandt, 140 Ill. App. 3d 1019, 489 N.E.2d 902 (1986) (wife received $75,000 of $315,000 estate)

  • Keyser v. Keyser, 182 Mich. App. 268, 451 N.W.2d 587 (1990) (wife deliberately told husband she wanted only a pickup truck and certain personal property, and that he could have the rest of the marital estate; dissent would have found agreement unconscionable)

  • Schlottach v. Schlottach, 873 S.W.2d 928 (Mo. Ct. App. 1994) (wife received 60% of marital estate; not unconscionable to husband)

  • McCaughey v. McCaughey, 205 A.D.2d 330, 612 N.Y.S.2d 579 (1994) (wife waived all discovery, and husband received home, pension, and $1.5 million payout from law firm; wife received installment payments, which became onerous to husband after he lost his job; loss of employment was foreseeable, and agreement was not unconscionable to husband)

  • Grubman v. Grubman, 191 A.D.2d 194, 594 N.Y.S.2d 220 (1993) (wife received apartment for life, $350,000 monetary award, and $17,000 per month alimony)

  • Middleton v. Middleton, 174 A.D.2d 655, 571 N.Y.S.2d 516 (1991) (wife received $10,000 monetary award and waived her interest in husband's pension; perhaps improvident, but not unconscionable)

  • Washo v. Washo, 170 A.D.2d 827, 565 N.Y.S.2d 897 (1991) (husband agreed to pay modest alimony to wife who was capable of supporting herself; agreement may have been improvident but it was not unconscionable)

  • Hardenburgh v. Hardenburgh, 158 A.D.2d 585, 551 N.Y.S.2d 552 (husband agreed to pay wife $3,800 per month in support; his gross monthly income was only $5,400, but wife was in failing health), appeal dismissed, 76 N.Y.2d 982, 563 N.Y.S.2d 769 (1990)

  • Lockhart v. Lockhart, 159 A.D.2d 283, 552 N.Y.S.2d 286 (1990) (wife received home, while husband received other real property, his pension, and $10,000 upon sale of the home)

  • Hill v. Hill, 94 N.C. App. 474, 380 S.E.2d 540 (1989) (wife received $68,500 in cash and $1,000 per month for life out of marital estate worth at least $2 million; terms had first been proposed by the wife herself)

  • Pillow v. Pillow, 13 Va. App. 271, 410 S.E.2d 407 (1991) (husband received car, boat, personal property, and an interest in the marital home)

    Procedural Unconscionability. One isolated recent decision holds that an agreement is invalid for unconscionability only if there is both substantive insufficiency and some form of "procedural unconscionability." King v. King, 114 N.C. App. 454, 442 S.E.2d 154 (1994). The court relied entirely on nondomestic case law which should not be applied to separation agreements. The effect of the court's holding is to destroy substantive review entirely, for the "procedural unconscionability" identified by the court duress, fraud, and undue influence is in itself sufficient to set aside the agreement. In North Carolina, therefore, no amount of substantive insufficiency is apparently sufficient by itself to overturn an agreement.

    This extreme rule has never been applied to separation agreements by any other state, and North Carolina would do well to reconsider its position. The fundamental policy behind the law on validity of separation agreements is that parties to divorce litigation are at an unusually vulnerable time in their lives, and that they therefore merit special protection. The North Carolina legislature has recognized this reality by applying special procedural requirements to separation agreements. See N.C. Gen. Stat. 52-10.1 (1987). The King court ignored this important point, relying instead upon case law defining unconscionability in the nondomestic context. This case law does not apply. See Bromhal v. Stott, 21 Fam. L. Rep. (BNA) 1572, 1573 (N.C. Oct. 6, 1995) ("A separation agreement is different from a commercial, arms-length transaction. It cannot be analyzed in terms of the marketplace and bargaining power"). A better analogy would have been domestic case law from other states, which uniformly holds that a separation agreement can be set aside for substantive unconscionability alone. There is no valid reason why a different rule of law should control in North Carolina.

    Unfairness

    As noted above, the nationwide case law is divided on the substantive sufficiency requirement for separation agreements. One group of states will enforce an unfair separation agreement as long as it is conscionable. See, e.g., Flynn v. Flynn, 232 Ill. App. 3d 394, 597 N.E.2d 709 (1992); Peirick v. Peirick, 641 S.W.2d 195, 197 (Mo. Ct. App. 1982); King v. King, 114 N.C. App. 454, 442 S.E.2d 154 (1994); Pillow v. Pillow, 13 Va. App. 271, 410 S.E.2d 407 (1991).

    A second group of states refuses to enforce unfair agreements. The exact language of the requirement varies from state to state. SeeShaver v. Shaver, 611 So. 2d 1094, 1096 (Ala. Civ. App. 1992) (agreement can be set aside if "one-sided and inequitable"); Sharp v. Sharp, 179 Ariz. 205, 877 P.2d 304, 310 (Ct. App. 1994) (agreement must be "fair and equitable"); Prinz v. Prinz, 596 So. 2d 807, 808 (Fla. DCA 1992) (trial court "may set aside a property settlement agreement in order to do equity and justice between the parties"); Knox v. Remick, 371 Mass. 433, 358 N.E.2d 432, 435 (1976) ("fair and reasonable"); Faherty v. Faherty, 97 N.J. 99, 477 A.2d 1257, 1261 (1984) ("just and equitable"); Funderburk v. Funderburk, 286 S.C. 129, 332 S.E.2d 205, 206 (1985) ("fairness under all the circumstances"); cf. Nitkiewicz v. Nitkiewicz, 369 Pa. Super. 504, 535 A.2d 664 (unless the enforcing spouse made full and fair disclosure of his assets, agreement must be fair and reasonable), allocatur denied, 520 Pa. 589, 551 A.2d 216 (1989); Gangopadhyay v. Gangopadhyay, 184 W. Va. 695, 403 S.E.2d 712 (1991) (oral agreement must be fair and reasonable). The split in authority on this point is approximately equal; neither group of states constitutes a clear majority.

    A Massachusetts court listed eight factors which should be considered in evaluating fairness:

    Dominick v. Dominick, 18 Mass. App. Ct. 85, 463 N.E.2d 564, 569, cert. denied, 392 Mass. 1103, 465 N.E.2d 262 (1984).

    The core concept of all these different definitions of fairness is that the court should set aside the agreement where either spouse receives significantly less than that spouse would receive in the absence of an agreement. The difference between unfairness and unconscionability is thus a matter of degree. The key to both concepts is the disparity between benefits received with and without the agreement, but the amount of the necessary disparity is different. Where the disparity is gross or overwhelming, the agreement is unconscionable; where the disparity is merely substantial or significant, the agreement is only unfair.

    Recent cases finding an agreement to be unfair include the following:

  • Tal v. Tal, 158 Misc. 2d 703, 601 N.Y.S.2d 530 (Sup. Ct. 1993) (wife received $125,000 of net estate worth roughly $350,000 and waived alimony completely; husband's annual income was $171,000, while wife was unemployed 38-year-old who spoke no English).

    Recent cases finding an agreement include the following:

  • Akgul v. Akgul, 175 A.D.2d 194, 572 N.Y.S.2d 338 (1991) (wife waived alimony and received no interest in husband's business, but received the entire marital home).

    Unfairness vs. Unconscionability: Which Test Applies

    Most states choose between unfairness and unconscionability as a matter of policy, and apply the chosen test to all separation agreements. In a few states, however, different tests may apply at different times to different issues. In New York, for instance, waivers of alimony must be fair and reasonable when made, and conscionable at the time of divorce. Property division provisions, by contrast, are judged under a pure unconscionability test. SeeSmith v. Smith, 188 A.D.2d 1004, 591 N.Y.S.2d 662 (1992); Zipes v. Zipes, 158 Misc. 2d 368, 599 N.Y.S.2d 941 (Sup. Ct. 1993).

    Because antenuptial agreements are signed while the parties still enjoy a confidential relationship, some states judge antenuptial agreements under a stricter standard of substantive fairness. Where a separation agreement merely restated and reaffirmed the language of an antenuptial agreement, one court held that the antenuptial agreement test should be applied. In re Lemoine-Hofmann, 827 P.2d 587 (Colo. Ct. App. 1992).

    Time of Application

    Different courts evaluate the substantive sufficiency of the agreement at different times. Some courts evaluate sufficiency as of the time the agreement was signed. E.g., Bendekgey v. Bendekgey, 154 Vt. 193, 576 A.2d 433 (1990) (increase in value of marital home after signing of agreement did not make agreement unfair). Other courts evaluate sufficiency as of the time the divorce decree is rendered. E.g., Knox v. Remick, 371 Mass. 433, 358 N.E.2d 432 (1976).

    Regardless of when the test is applied, the court cannot refer to postdivorce events in determining substantive sufficiency. See In re Hamilton, 254 Mont. 31, 835 P.2d 702 (1992) (postdivorce gifts and inheritances were not relevant to determining fairness of agreement).

    Proving Substantive Insufficiency

    Regardless of whether the relevant test is unconscionability or unfairness, the essence of the substantive insufficiency issue is a comparison of the rights of the attacking spouse with and without the agreement. Inevitably, therefore, the court must make some attempt to determine how the case would have been decided if no agreement were present. Otherwise, there is simply no way to determine whether the agreement is fair or conscionable. Assume, for instance, that an agreement awards the wife a lump sum of $10,000 after a 20-year marriage. This sum would unquestionably be fair and reasonable if the divisible estate were worth $20,000, and it would unquestionably be unconscionable if the divisible estate were worth $2 million. In order to tell the difference between these two fact situations, the court must make some determination of how the case would be resolved without the agreement.

    A few isolated cases have held to the contrary. For instance, in In re Caras, 263 Mont. 377, 868 P.2d 615 (1994), the court made the amazing holding that it need not determine the value of the divisible estate in order to determine whether the agreement is unconscionable. If this holding is taken literally, it would completely prevent any form of meaningful unconscionability review, for the court cannot know whether a given award is reasonable unless it has some basic indication of what the attacking party would have received without the agreement. An award which is reasonable in an estate of modest size may be unconscionable when the divisible estate is worth millions of dollars.

    While the court must make some independent determination of the equities of the case, it is obviously not desirable that the court should conduct the same sort of inquiry it would undertake in a litigated case. The entire purpose of a private settlement is to avoid such an extensive inquiry. This point was probably the underlying concern of the court in Caras, and viewed in the proper light the concern is entirely valid. The court overstated the case, however, by stating that the value of the divisible estate is irrelevant. A more accurate statement is that the trial court must walk a rather fine line: It must value the divisible estate with sufficient accuracy to make a fair determination of substantive sufficiency, but it must avoid relitigating the merits of the entire action.

    The practical compromise which has emerged in most states is that the court should take a broad, overall look at the parties' financial situation. The court need not classify each and every asset as divisible or nondivisible, and it is certainly not required to insist upon evidence of the parties' finances beyond what is presented by the parties themselves. See In re Turner, 803 S.W.2d 655, 661 (Mo. Ct. App. 1991); Secor v. Secor, 790 S.W.2d 500 (Mo. Ct. App. 1990). It must, however, make a rough finding as to the value of the divisible estate and the likely division of that estate if no agreement were present. Without at least a general finding along these lines, it is not possible to make a reasonably accurate determination of whether the agreement is unfair or unconscionable.

    The burden of presenting evidence on the likely division without the agreement lies upon the attacking spouse. Where the attacking spouse introduced no evidence on this point, one court held that it lacked sufficient evidence to determine whether the agreement was unconscionable. King v. King, 114 N.C. App. 454, 442 S.E.2d 154 (1994).

    V. PROCEDURAL INVALIDITY

    The rules of law considered in section IV all involved substantive invalidity: invalidity arising from the terms of the agreement or from the conditions under which it was signed. We move now to a consideration of the rules of procedural invalidity, or invalidity arising from circumstances which occurred after the agreement was signed. In some cases, these rules will permit the enforcement of an otherwise invalid agreement; in other cases, they will prevent the enforcement of an otherwise valid agreement.

    The various available procedural defenses to the enforcement of separation agreements fall into three separate classes. One class is based upon the passage of time; a second class is based upon the conduct of the parties; and a third class is based upon the language of subsequent court orders.

    Limitations and Laches

    The first set of procedural defenses are all based upon the amount of time which has elapsed between the signing of the agreement and the first attempt to enforce or recognize it. If that time period is sufficiently long, the agreement may be unenforceable.

    Limitations. In some states, there may be a statute of limitations on separation agreement defenses. New York, for example, requires that all such actions be brought within a six-year period. See, e.g., Riley v. Riley, 179 A.D.2d 950, 579 N.Y.S.2d 134 (1992); Emery v. Emery, 166 A.D.2d 787, 563 N.Y.S.2d 526 (1990); Zipes v. Zipes, 158 Misc. 2d 368, 599 N.Y.S.2d 941 (Sup. Ct. 1993) (noting that limitations period runs during the marriage as well as after). Where the attacking spouse has no reason to suspect that the agreement might be invalid, the limitations period is two years from the time when the invalidity should reasonably have been discovered. See Gargulio v. Gargulio, 201 A.D.2d 617, 608 N.Y.S.2d 238 (1994) (action is timely if brought within two years after discovery of grounds for invalidity; action barred on the facts); Cucchiaro v. Cucchiaro, ___ Misc. 2d ___, 627 N.Y.S.2d 224 (Sup. Ct. 1995) (wife should have known that husband's pension was marital property more than two years before she filed to set separation agreement aside for failure to disclose that fact, and her action was therefore time-barred).

    Laches. A spouse who is injured by an unenforceable agreement cannot sit on his or her rights for several years before seeking to overturn the contract. Instead, the disadvantaged spouse has a duty to take prompt action upon discovering the invalidity of the agreement. If prompt action is not taken, the agreement is ratified and becomes enforceable. See Capone v. Capone, 148 A.D.2d 565, 539 N.Y.S.2d 35 (1989) (wife waited four years before attacking agreement; agreement ratified); Patti v. Patti, 146 A.D.2d 757, 537 N.Y.S.2d 241 (1989) (three years); Lowry v. Lowry, 99 N.C. App. 246, 393 S.E.2d 141 (1990) (three years); Hill v. Hill, 94 N.C. App. 474, 380 S.E.2d 540 (1989) (wife signed amended contract two weeks after original contract; wife alleged that duress by parties' son tainted first agreement, but son was not present at signing of amendment; contract ratified).

    Where the time period is short or the other spouse suffered no prejudice, laches does not apply. See Kanaan v. Kanaan, ___ Vt. ___, 659 A.2d 128 (1995) (wife's failure to enforce agreement for slightly less than one year did not give husband a successful laches defense; husband had suffered no prejudice from the delay).

    Ratification and Estoppel

    The second class of procedural defenses is based upon the conduct of the parties. Under the doctrines of abandonment and reconciliation, an otherwise valid agreement may become invalid if the parties act as if it were not enforceable. Conversely, under the doctrine of ratification, an otherwise invalid agreement may become valid if the parties act as if it were enforceable.

    Ratification. A party who knows or has reason to know that an agreement is invalid is not permitted to accept benefits under the agreement for a substantial period of time and then attempt to attack it. Instead, where the attacking party has knowingly accepted benefits under the agreement for a significant period of time, he or she has ratified the agreement and cured any causes of invalidity. See Stacom v. Wunsch, 162 A.D.2d 170, 556 N.Y.S.2d 303 (1990) (wife accepted over $1.8 million under agreement over five-year period; agreement ratified); Taplin v. Taplin, 611 So. 2d 561 (Fla. DCA 1992) (two years); In re Schell, 191 A.D.2d 570, 594 N.Y.S.2d 807 (1993) (eight years); Gloor v. Gloor, 190 A.D.2d 1007, 594 N.Y.S.2d 471 (1993) (four years); Torsiello v. Torsiello, 188 A.D.2d 523, 591 N.Y.S.2d 472 (1992) (two years); Lavelle v. Lavelle, 187 A.D.2d 912, 590 N.Y.S.2d 557 (1992) (31 months); Johnson v. Johnson, 180 A.D.2d 530, 580 N.Y.S.2d 250 (1992) (six years); Akgul v. Akgul, 175 A.D.2d 194, 572 N.Y.S.2d 338 (1991) (six years); Moore v. Moore, 108 N.C. App. 656, 424 S.E.2d 673 (1993) (two years).

    One court found no ratification where the wife had accepted only benefits to which she would have been entitled even if the contract were invalid. McBride v. McBride, 797 S.W.2d 689 (Tex. Ct. App. 1990). Acceptance of benefits obviously does not constitute ratification where the accepting spouse had no reason to know that the agreement was invalid. See Webb v. Webb, 16 Va. App. 486, 431 S.E.2d 55 (1993) (wife accepted benefits before learning of husband's fraud; no ratification).

    Reconciliation and Abandonment

    The opposites of the doctrine of ratification are the doctrines of reconciliation and abandonment. Just as ratification can save an otherwise invalid agreement, reconciliation and abandonment can destroy an otherwise valid agreement.

    The law on reconciliation is in the process of undergoing major change. A New Jersey court stated the traditional rule as follows:

    Brazina v. Brazina, 233 N.J. Super. 145, 558 A.2d 69, 72 (Ch. Div. 1989) (emphasis in original); see also Crenshaw v. Crenshaw, 12 Va. App. 1129, 408 S.E.2d 556 (1991). Thus, reconciliation invalidates the executory provisions of the agreement, but the executed provisions remain valid.

    Defining Reconciliation. "[W]hat constitutes a reconciliation is not susceptible to a simple definition and generally depends upon the facts." Brazina v. Brazina, 233 N.J. Super. 145, 558 A.2d 69, 71 (Ch. Div. 1989). At the simplest level, however, reconciliation can be defined as the ending of separation and the resumption of a marital relationship. Yeich v. Yeich, 11 Va. App. 509, 399 S.E.2d 170 (1990). The most obvious form of reconciliation is the remarriage of the parties. See Ray v. Ohio National Insurance Co., 537 So. 2d 915 (Ala. 1989); Cox v. Cox, 638 So. 2d 586 (Fla. DCA 1994); Thomas v. Thomas, 571 So. 2d 499 (Fla. DCA 1990).

    Conversely, the ending of separation without a resumption of the marital relationship is not reconciliation. Thus, mere isolated acts of sexual intercourse do not constitute reconciliation. Brazina v. Brazina, supra, 558 A.2d at 71. Likewise, a short trial period of living together is not sufficient:

    Id.; see also Lippman v. Lippman, 192 A.D.2d 1060, 596 N.Y.S.2d 241 (1993) (brief period of cohabitation did not invalidate agreement); Zambito v. Zambito, 171 A.D.2d 918, 566 N.Y.S.2d 789 (1991) (while parties were allegedly cohabiting, husband had mail sent to sister's home, kept an answering machine there, and continued to pay child support; no reconciliation); Camp v. Camp, 75 N.C. App. 498, 331 S.E.2d 163 (10-day trial period not reconciliation), cert. denied, 314 N.C. 663, 335 S.E.2d 493 (1985).

    Executory Provisions. The executory provisions of a separation agreement are those which have not yet been implemented by the parties. The most common types of executory provisions are future spousal and child support. See, e.g., Yeich v. Yeich, 11 Va. App. 509, 399 S.E.2d 170 (1990) (alimony provision invalidated by reconciliation). Property division provisions can also be executory if the transfer of possession has not yet taken place.

    Executed Provisions. The executed provisions of a separation agreement are those which have already been implemented by the parties. The most common type of executed provision is a property division which has actually been carried out. See Morrison v. Morrison, 102 N.C. App. 514, 402 S.E.2d 855 (1991).

    Integrated Bargain Agreements. Under the traditional doctrine of reconciliation, executed provisions are normally not invalidated by a reconciliation. There is one situation, however, in which even the executed provisions may be invalid. Parties to divorce cases frequently sign integrated bargain agreements, in which the spousal support provisions are consideration for the property division. If only the spousal support provisions of such an agreement were invalidated, serious injustice would result. A North Carolina decision states the rule:

    Stegall v. Stegall, 100 N.C. App. 398, 397 S.E.2d 306, 310 (1990), cert. denied, 322 N.C. 274, 400 S.E.2d 461 (1991). Despite this broad statement, a later North Carolina case held that the executed portions of a property division provision in an integrated bargain agreement survive reconciliation. Morrison v. Morrison, 102 N.C. App. 514, 402 S.E.2d 855 (1991). Morrison could obviously cause severe inequity where an unequal property division has already been implemented in consideration for a large support award. A better approach would have been to invalidate the executory provisions and determine the marital estate as if the executed portion did not exist. See Garland v. Garland, No. 0751-90-2 (Va. Ct. App. Apr. 2, 1991). To protect third parties, however, the executed portions should still be sufficient to convey legal title.

    Whether an integrated bargain exists depends upon whether the parties intended the support provisions to be consideration for the property division. There is a presumption that the agreement is not integrated ("severable"), so that the burden of proof is on the party who claims that an integrated agreement exists. Morrison v. Morrison, supra.

    Abandonment. As noted above, the traditional common-law doctrine of reconciliation is in the midst of a period of change. This change is a result of parallel changes in the public policies which underlie separation agreements.

    At common law, the concept of separation was essential to the definition of a separation agreement. Parties who were not separated were not permitted to sign marital agreements, and separation agreements were invalid if the parties did not separate either before or immediately after signing the agreement. Along similar lines, under the common law, the executory parts of the separation agreement became invalid if the parties ever ended their separation by attempting reconciliation. The basis for this rule was not the intent of the parties, but rather the fundamental public policy that only separated persons could sign separation agreements. When the parties ceased to be separated, their separation agreement violated public policy and became invalid, regardless of the parties' intent.

    In recent years, the public policy underlying marital agreements in general has changed dramatically. Today there is essentially no doubt that marital agreements of all types are consistent with and even favored by public policy, as long as they pass review under the law of substantive validity. In particular, as discussed earlier in this article, the law no longer holds that marital agreements signed during the marriage are void for encouraging divorce. On the contrary, such agreements are routinely enforced.

    This change in public policy has caused a major shift in the theoretical basis for the doctrine of reconciliation. Since marital agreements can now be signed by nonseparated parties, it is no longer true that reconciliation destroys the essential foundation for a separation agreement. Thus, there is no valid policy reason for holding that reconciliation automatically invalidates a separation agreement. At the same time, it is not necessarily true that reconciliation should have no effect on the agreement. Where the parties truly reconcile and resume their former relationship as husband and wife, they frequently cease the actual performance of their separation agreement. Moreover, if the reconciliation lasts for a sufficiently long period of time, subsequent changes in circumstances may make the agreement outdated. In either of these circumstances, the agreement has been invalidated not by rule of law, but rather by the actions of the parties themselves. The modern trend is therefore to view reconciliation not as an issue of law, but rather as an issue of the parties' intent.

    The change from issue of law to issue of fact is still in process in most jurisdictions. The initial break in the common-law rule was a series of decisions holding that the executed portions of the agreement survive reconciliation if the parties so intended. The easiest cases were those in which the agreement itself contained a specific clause stating that the agreement would survive reconciliation. See, e.g., Jennings v. Jennings, 12 Va. App. 1187, 409 S.E.2d 8 (1991); Yeich v. Yeich, 11 Va. App. 509, 399 S.E.2d 170 (1990); see also Zambito v. Zambito, 171 A.D.2d 918, 566 N.Y.S.2d 789 (1991) (no reconciliation; court gave at least some weight to clause in agreement providing that any future reconciliation must be in writing).

    A somewhat harder issue is presented when the parties' intent appears not in the agreement itself, but rather in the parties' actions during the period of reconciliation. Nevertheless, the recent decisions all appear willing to look to conduct as well as to the contract. For instance, where the parties do not completely carry out some of the terms of their agreement, that fact is evidence that the entire agreement is voided by the reconciliation. See Gerard v. Gerard, 636 So. 2d 849 (Fla. DCA 1994) (wife gave husband deed to marital home in exchange for a lump-sum payment; after reconciliation, husband never recorded the deed, and wife used the lump-sum payment for general marital expenses; agreement invalid). Likewise, property which was given to one spouse may be used interchangeably by both spouses. When this occurs, the parties may have implicitly modified their agreement by abandoning the relevant provision. Stegall v. Stegall, 100 N.C. App. 398, 397 S.E.2d 306, 313-14 (1990), cert. denied, 322 N.C. 274, 400 S.E.2d 461 (1991). On the other hand, where the parties continue to follow the agreement during reconciliation, the agreement is valid even if it has not yet been fully executed. See In re Vella, 237 Ill. App. 3d 194, 603 N.E.2d 109 (1992) (parties followed agreement during reconciliation); Kaouris v. Kaouris, 91 Md. App. 223, 603 A.2d 1350 (1992) (where both parties followed agreement during 16-month reconciliation, there was no intent to abandon and agreement remained valid); Lippman v. Lippman, 192 A.D.2d 1060, 596 N.Y.S.2d 241 (1993) (parties maintained separate residences and followed financial terms of agreement during brief period of cohabitation).

    Most of these early decisions relying upon the intent of the parties treated intent as an exception to the executed/executory distinction. A growing number of recent decisions, however, do not mention the distinction at all. See Cox v. Cox, 638 So. 2d 586 (Fla. DCA 1994); Gerard v. Gerard, supra; In re Vella, supra; cf.Kaouris v. Kaouris, supra (traditional rule applies only where separation is consideration for the agreement; where separation is not consideration, issue is one purely of intent). The logical conclusion is that in these cases, the court viewed the intent of the parties as the only relevant issue.

    The history of the doctrine of reconciliation over the past decade has seen steady growth in the frequency with which courts look to evidence of intent. When the first version of this article was written in 1991, the author concluded from the case law available at that time that intent was an exception to the general rule that reconciliation invalidates the executory provisions of a separation agreement. Turner, "Attacking and Defending Separation Agreements: Recent Case Law," 3 Divorce Litigation 73, 81-83 (1991).

    Reviewing the entire issue in light of another four years of case law, the author is now led to change this statement. The intent exception is growing so large so quickly that it has effectively swallowed the general rule. No court has yet expressly recognized this fact, but the actual rule of law being applied by the reported decisions has changed. The traditional rule is that reconciliation invalidates the executory provisions of the agreement, unless the parties intend otherwise; the modern rule is that the effect of reconciliation depends upon the intent of the parties alone.

    This does not mean that the executed/executory distinction is irrelevant. While a growing number of decisions are deciding reconciliation issues without regard to the distinction, the common law dies slowly, and the distinction is still good law in most states. The way in which the distinction is used, however, has changed significantly. At one time, the distinction was a rule of public policy, used to determine which parts of the agreement the law would and would not deem invalid. Today, the distinction is at most a guideline for determining the parties' intent. Thus, where there is no evidence of the parties' intent, or where the available evidence is confused or conflicting, the court may presume that the parties intended to abandon only the executory portions of the agreement. Where there is clear evidence that the parties intended that the executory provisions survive, however, no recent decision has defied that intent and invalidated the agreement. In effect, if not in language, the intent of the parties has become the most important fact in determining the effect of reconciliation.

    It should be stressed again that no court has yet expressly recognized this change in the nature of the doctrine of reconciliation. Many of the decisions rely upon intent without any reference to the common-law rule; some decisions state the common-law rule and then fail to apply it; still other decisions state no rule of law at all. On the facts, however, all of the recent decisions place primary importance upon intent and only secondary importance upon the executed/executory distinction. This fact alone is solid evidence that the law applied in practice has diverged significantly from the law stated on the books. In the future, it is likely that a growing number of courts will recognize the distinction and expressly change the nature of the doctrine of reconciliation.

    Effect on Equitable Distribution. If an executed property division provision survives reconciliation, should the property involved be divided upon divorce? A large majority of cases say yes, on grounds that the provision constitutes an express or implied agreement to classify the asset involved as separate property. See, e.g., Kaminsky v. Kaminsky, 178 W. Va. 786, 364 S.E.2d 799 (1987). Any appreciation in the asset after reconciliation may be marital property, however, if it was caused by the efforts of one or both parties. See, e.g., Brazina v. Brazina, 233 N.J. Super. 145, 558 A.2d 69, 71 (Ch. Div. 1989).

    Effect of Divorce Decree. The effect of the divorce decree upon the doctrine of reconciliation depends upon how the divorce decree treated the agreement. Where the agreement was merged or incorporated into the decree, the language of the contract acquires the force of a court order. Since the parties cannot revoke or abandon a court order by contract, the general rule is that reconciliation will not invalidate a merged or incorporated agreement. Pinsley v. Pinsley, 168 A.D.2d 863, 564 N.Y.S.2d 528 (1990); see also Yeich v. Yeich, 11 Va. App. 509, 399 S.E.2d 170 (1990).

    Conversely, if the decree merely approved the agreement without incorporating or merging its terms, the language of the agreement does not attain the status of a court order. The validity of the agreement under normal contract law does become res judicata, as discussed in the following subsection, but a finding that the agreement is valid does not protect the agreement from subsequent abandonment. Accordingly, the general rule is that the reconciliation can invalidate an agreement which was merely approved by the divorce decree. See Crenshaw v. Crenshaw, 12 Va. App. 1129, 408 S.E.2d 556 (1991).

    Res Judicata

    The third class of procedural defenses to the enforcement of a separation agreement is perhaps the most important one. This third class focuses not upon the passage of time or the actions of the parties, but rather upon the actions of the court. It consists only of a single powerful rule of law: res judicata.

    General Rule. Most separation agreements begin their lives as private agreements between the parties. A separation agreement is inherently part of a divorce case, however, and most separation agreements are therefore ultimately presented to the divorce court. The manner in which the court should treat the agreement is a topic of considerable confusion.Nevertheless, one fact about the issue emerges clearly and uniformly from all of the reported decisions. Regardless of whether the divorce court approves, incorporates, or merges a separation agreement, the court's divorce decree constitutes an express or implied finding that the agreement is valid under the law of contracts. E.g., Barry v. Barry, 409 Mass. 727, 569 N.E.2d 393 (1991).

    This fact has immense consequences when one party seeks to attack a separation agreement after the divorce case has ended. When the court has held that a contract is valid, the party seeking to attack the agreement has already had one day in court. Accordingly, mere contract law defenses are not sufficient to invalidate the agreement. "[A]s a general rule, contractual defenses are impermissible collateral attacks upon the finality of a trial court's judgment." Spradley v. Hutchinson, 787 S.W.2d 214, 219 (Tex. Ct. App. 1990).

    For instance, in Cooper v. Smith, 70 Haw. 449, 776 P.2d 1178 (1989), the husband agreed that he would not amend a certain trust, and he agreed to sell the wife 35% of the marital estate for only $100 if he did so. The husband amended the trust, and then sought to argue that the sale requirement was an unenforceable penalty clause. The court refused to permit this defense on grounds that it should have been made in the initial divorce proceedings. After the divorce decree incorporated the agreement, its validity was res judicata, and contract law defenses were no longer available. See also In re Alexander, 212 Cal. App. 3d 677, 261 Cal. Rptr. 9 (1989); In re Lindjord, 234 Ill. App. 3d 319, 600 N.E.2d 431 (1992); Barry v. Barry, 409 Mass. 727, 569 N.E.2d 393 (1991); Mason v. Mason, 873 S.W.2d 631 (Mo. Ct. App. 1994); Jackson v. Culp, 400 Pa. Super. 519, 583 A.2d 1236 (1990); Doherty v. Doherty, 9 Va. App. 97, 383 S.E.2d 759 (1989) (contract law defenses of laches and estoppel were not available in action to enforce merged separation agreement). But cf. Spradley v. Hutchinson, supra (contract law defenses cannot overturn approved agreement, but they are factors to be considered in assessing damages when enforcing the contract).

    Exception. While mere contractual defenses are not sufficient to overturn a separation agreement after the divorce, it is not by any means true that separation agreements are immune from attack once the court approves them. A court order which approves a separation agreement is a judgment, but it is no more final than a court judgment in any other field of law. Thus, if the attacking party can show a sufficient basis for reopening a final judgment, the judgment and the agreement can both be set aside.

    For example, in In re Turner, 803 S.W.2d 655 (Mo. Ct. App. 1991), the wife sought to set aside a separation agreement for fraud. The court noted that while fraud was not available as a contract defense, fraud was one of the available grounds for reopening a judgment. If fraud were present, the court held, the judgment could be reopened and the contract would be invalid. Ultimately, however, the court found that the elements of extrinsic fraud were not present.

    The precise grounds for reopening a judgment vary somewhat from state to state. As a general rule, however, the grounds for attacking a judgment are similar to the grounds for attacking a contract when the motion to reopen is filed soon after the divorce. In this situation, courts have reopened judgments on a number of different bases without drawing major distinctions between the grounds for setting aside judgments and the grounds for setting aside contracts. See, e.g., Billington v. Billington, 27 Conn. App. 466, 606 A.2d 737 (1992) (fraud); Goodstein v. Goodstein, 649 So. 2d 273 (Fla. DCA 1995); In re Shaner, 252 Ill. App. 3d 146, 624 N.E.2d 1217 (1993) (fraud and mistake); Kelley v. Kelley, 13 Va. App. 424, 412 S.E.2d 465 (1991) (waiver of child support which was void as against public policy); see also Pate v. Pate, 874 S.W.2d 186 (Tex. Ct. App. 1994) (judgment can be reformed for mutual mistake in incorporated agreement, but not on the facts of the instant case).

    In most states, however, there is a strict time limit on the court's power to reopen judgments for fraud, mistake, and the like. When this time limit passes, it is much more difficult to reopen a judgment. See, e.g., Wise v. Nirider, 261 Mont. 310, 862 P.2d 1128 (1993) (once time limit passes, judgment can be reopened only for fraud on the court and not for mere fraud on the opposing party); Lopez v. Lopez, 627 So. 2d 108 (Fla. DCA 1993) (judgment cannot be reopened even for fraud on the court where fraud was committed by both parties); cf. Dodd v. Estate of Yohan, 587 N.E.2d 1348 (Ind. Ct. App. 1992) (period of two years does not start to run until attacking party has reason to discover that grounds to reopen exist).

    Even where the attacking party proves sufficient grounds to set aside the judgment, that fact alone does not automatically justify relief. Reopening negates the defense of res judicata, but facts sufficient to reopen the decree are not always sufficient to establish a valid contract law defense. Thus, to attack an approved or incorporated agreement successfully, the attacking spouse must prove both (1) sufficient grounds to reopen the judgment; and (2) a valid defense to the agreement under the law of contracts. See Kellman v. Kellman, 162 A.D.2d 958, 559 N.Y.S.2d 49 (1990) (where attacking spouse sought only to reopen judgment and did not allege that incorporated contract was invalid under contract law, judgment could not be reopened).

    It should be noted in passing that court approval is not necessary in order to make a separation agreement valid as a contract. In Addy v. Addy, 456 N.W.2d 506 (N.D. 1990), the parties signed an addendum to their separation agreement. The agreement was filed with the court and incorporated into the decree, but the court remained unaware of the addendum. Several years later, the wife sought to enforce the addendum. The court granted her request on grounds that the original court's failure to approve the addendum did not destroy its validity. See also Parra v. Parra, 1 Va. App. 118, 336 S.E.2d 157, 163 (1985).

    VI. PROCEDURAL ISSUES

    Abatement. Case law is divided on what happens to the parties' separation agreement if one spouse dies before the divorce decree is rendered. A Kansas court held that the agreement abated along with the divorce action, essentially treating the divorce as a condition precedent to the effectiveness of the agreement. In re Wilson, 245 Kan. 178, 777 P.2d 773 (1989). Conversely, an Ohio court saw no reason why the agreement should not continue to be valid as a contract. Brown v. Brown, 90 Ohio App. 3d 781, 630 N.E.2d 763 (1993).

    Hearing. Ordinarily, the court must hold an evidentiary hearing on any motion to set aside a separation agreement. See Harrington v. Harrington, 281 N.J. Super. 39, 656 A.2d 456 (App. Div. 1995) (remanding for factual hearing on whether agreement existed to begin with, and whether any agreement which did exist was invalid for mutual mistake); Manes v. Manes, ___ A.D.2d ___, 626 N.Y.S.2d 471 (1995) (reversing summary judgment upholding agreement, where there was a triable issue of fact on whether the husband had concealed assets). Where the attacking party fails to allege sufficient facts to merit relief, however, the motion can be dismissed without a hearing. See Paul v. Paul, 177 A.D.2d 901, 576 N.Y.S.2d 658 (1991).

    Appeal. An order setting aside a separation is an interlocutory order which cannot be immediately appealed. Instead, the issue should be raised in an appeal from the final property division. See Memmolo v. Memmolo, 576 A.2d 181 (Del. 1990); Shapiro v. Shapiro, 432 So. 2d 739 (Fla. DCA 1983); Dexter v. Dexter, 7 Va. App. 36, 371 S.E.2d 816 (1988). An order refusing to set aside a separation agreement can be appealed in most states, as long as the agreement will control the court's ultimate decision in the case. Case v. Case, 73 N.C. App. 76, 325 S.E.2d 661, cert. denied, 313 N.C. 597, 330 S.E.2d 606 (1985); Urban v. Urban, 332 Pa. Super. 373, 481 A.2d 662 (1984) (appeal from order striking defendant's answer as untimely filed); Owney v. Owney, 8 Va. App. 255, 379 S.E.2d 745 (1989) (appeal from order construing agreement and ordering payment of temporary support in accordance with its terms). But see Tidwell v. Tidwell, 496 So. 2d 91 (Ala. Civ. App. 1986) (order denying motion to set aside oral agreement not appealable); Simmons v. Simmons, 549 So. 2d 105 (Ala. Civ. App. 1989) (applying Tidwell without stating whether agreement was oral or written).

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