In order to understand what might occur when the terms of a property settlement agreement are violated, it is helpful first to know exactly what a property settlement agreement is. A property settlement agreement is a written agreement that two spouses make with the goal of dividing up assets of their marriage.
It defines how assets should be divided between the spouses, usually by determining how the couple came into possession of their assets whether before or during their marriage. Property acquired before the marriage or through inheritance is generally considered to be separate property. A spouse who acquired property through inheritance or owned it prior to the marriage is entitled to keep the property after divorce or separation.
Of course the law regarding what is property of the marriage and what is separate depends, to a large extent, on the state in which the spouses live. Some states, such as California, have a community property regime. This makes all property and income acquired during marriage community property which must be divided evenly between the spouse in the event of divorce or separation. Other states have different laws on the subject.
Assets of the type that should be addressed in a property settlement agreement would include everything the spouses own. This includes personal property, furniture, real estate, bank accounts, retirement accounts, trusts, and possibly even the pensions that one or both expect to receive upon retirement. It should also deal with how debts and other obligations are to be handled, specifically who is going to pay them.
Other financial issues that need to be addressed in a complete property settlement agreement would be whether one spouse would continue to cover the other under their health insurance and who would receive the payout of a life insurance policy. Taxes are another financial issue that must be considered, and each spouse may be required to pay a part of the federal and state taxes on property that is divided or dissolved during the divorce.
Although a property settlement agreement would focus mostly on the division of assets and debts in the event of a divorce or legal separation, they sometimes address other issues as well. These might be different aspects of the financial settlement between the spouses, including whether alimony and child support are to be paid and if so, in what amounts.
Property settlement agreements can either be made before the marriage, i.e., as with a prenuptial agreement, during the marriage, i.e., as with a postnuptial agreement or when the spouses agree to separate or divorce. Depending on the state in which it is made, the agreement may also be called a “property agreement,” “settlement agreement,” or “separation agreement.” Regardless of the name, they all refer to the same concept.
Additionally, as mentioned above, settlement agreements can also be referred to as “spousal agreements.” The term, “spousal agreement,” is much broader in scope than a property settlement agreement. That is why spousal agreements may sometimes cover subjects other than the distribution of assets between spouses upon divorce, such as child custody and child support. Still, of course, the division of assets and debts would be an important part of a spousal agreement in any divorce or separation.
How are Property Settlement Agreements Created?
Property settlement agreements are essentially contracts, especially in the way that they are enforced. The terms of the agreement would be negotiated by the parties or by the parties through their representatives, e.g. lawyers.
In order for a property settlement agreement to be valid, it must be in writing. Also, both spouses are required to disclose all of their financial resources and assets. Furthermore, the agreement must not encourage divorce and the couple must mutually agree on the terms it contains. That is, the agreement cannot be formed under the circumstances of duress or coercion, in which one spouse is pressured into agreeing to something they do not really want.
Ideally, an experienced family law lawyer should be hired to prepare and review the terms of the agreement to ensure that it is fair, valid, and that the parties are not signing a legally binding document that gives up important rights. A lawyer may also need to be consulted because some states require court approval of a property settlement or spousal agreement.
What Happens If the Terms of a Property Settlement Agreement are Violated?
As noted before, property settlement agreements are essentially legally binding contracts. Therefore, both spouses must conduct themselves according to the provisions in the agreement. If one of the spouses fails to honor the terms of the property settlement agreement and does not perform as promised in it, this action can result in legal penalties for the party at fault in a violation.
Either party can file a lawsuit against the other party if the other party fails to comply with the terms of the agreement. Such a lawsuit would be essentially the same as suing for breach of contract.
For example, a court may order the party who has failed to perform as promised to hand over property that the agreement awarded to the other party or pay a debt, as a remedy for the failure to perform.
A common scenario that can lead to problems with settlement agreements is when one spouse conceals the existence of assets from the other spouse. A spouse is usually permitted to handle assets on their own as they please, such as investing money in a particular retirement account option without consulting their spouse. However, property settlement agreements require that the spouse who made an independent use of funds inform the other spouse of the existence of any such assets.
Another way that a settlement agreement can lead to a dispute is when one spouse falsifies information regarding their financial resources or assets. For example, a party may fraudulently overvalue or undervalue a particular asset. Alternatively, they may falsify statements concerning the actual amount of money contained in an account. Or they might conceal the existence of an account or asset altogether.
Making misrepresentations of fact in the course of negotiating a property settlement agreement, whether by concealing marital assets or falsifying their value, would open the spouse who does it to a lawsuit for fraud, or negligent or intentional misrepresentation. Remedies for these causes of action could be an award of money damages or even rescission of the entire agreement.
To serve as the basis for a lawsuit for misrepresentation or fraud, a false statement must have been made with the intent to get the other party to rely on the statement as a reason for entering into the property agreement. Also, the other party must have believed the false claims, and it must have been a primary reason motivating their agreement to the contract. Finally, the party who relied on the false statement must have suffered economic harm as a result of entering into the agreement on the basis of their belief in a false statement.
To avoid unpleasant lawsuits involving allegations of negligent misrepresentation or fraud, the best practice is to completely disclose all assets of which a spouse has knowledge and deal with the disposition of them in the property settlement agreement.
How Does a Court Interpret Property Settlement Agreements?
If a dispute over the terms of a property settlement agreement ends up in court, the court will attempt to determine the parties’ original intent, based on the specific language used in the written agreement. As with any contract, this is because the writing provides the clearest evidence of the couple’s intent when they entered into the agreement.
Thus, it is important that property settlement agreements are drafted as clearly and concisely as possible, so as to avoid any misunderstandings. This is another reason why hiring a lawyer to prepare and review the property settlement agreement is often a good idea.
Do I Need a Lawyer to Help Draft My Property Settlement Agreement?
If you decide to draft a property settlement agreement with your spouse, you should strongly consider hiring an attorney to draft and review the agreement. As discussed above, this is because once the agreement is signed, it becomes a legally binding document that can potentially have serious consequences, if the parties do not perform according to its terms.
Additionally, if any legal disputes arise over the terms of the agreement, an experienced family law attorney can help you negotiate a settlement and provide you with guidance regarding the options available for resolving the issue. If necessary, they can represent you in a court of law.
