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Manifestly Unfair Marital Agreements
By Bari Brandes Corbin
Part One of a Two-Part Article
In December 2006, Justice Laura Visitacion-Lewis
of Supreme Court, New York County, held that a modification to a
separation agreement was void ab initio and unenforceable. D.M. v. K.M.,
14 Misc.3d 1206(A), Slip Copy, (Sup. Ct., N.Y. Cty. 12/12/06). That case
involved a woman who agreed to give up her rights under the original
agreement according to which she would have received a large monthly
maintenance payment, child support and custody of the couples’ children.
Although the Special Referee who
first analyzed the case considered the modified agreement unenforceable
because the ex-wife, an alcoholic, might have been impaired at the
signing, the appellate court rescinded the agreement on another basis:
The amended agreement was a product of the ex-husband’s overreaching. We
are reminded by the holding in D.M. v. K.M. that there is a strict
surveillance of all transactions between married persons, especially
separation agreements. The appearance of equity is so zealous in this
respect that a separation agreement may be set aside on grounds that
would be insufficient to vitiate an ordinary contract. But when is a
separation agreement so unfair that New York’s courts will set it aside?
CHRISTIAN V. CHRISTIAN
The seminal case on the issue of
separation agreement unconscionability is Christian v. Christian, 42
NY2d 63 (1977), in which the Appellate Division declared that a portion
of the parties’ separation agreement — which stipulated that there would
be an equal division of certain securities — was null and void. Although
the entirety of the agreement was not set aside as "unconscionable," the
Court of Appeals’ Justice Cooke, citing to cases involving commercial
contracts, redefined that term in the context of marital agreements as
being anything that was "manifestly unfair." At the time the Christians
entered into their agreement, New York was a common law property state
(equitable distribution was enacted effective July 19, 1980). The
parties, who had been married for 14 years, entered into the agreement
in January 1972, at a time when the husband earned $40,000 a year, the
wife earned $10,000 a year, and each had separate unearned income. The
agreement provided for $100 a week for child support but made no
provision for alimony. The last paragraph of the document provided that,
in the event of a divorce, all assets held by the parties in their joint
and/or individual names on Jan. 1, 1972 should be divided equally so
that each would take one-half of the individual assets held by the other
in his/her individual name on that date. In August 1972, the wife
commenced the action for a divorce on the grounds of cruel and inhuman
treatment. The husband interposed an amended counterclaim for a divorce
pursuant to DRL 170(6), predicated on the parties living separate and
apart for a period of one year since the execution of the agreement
and his substantial performance
of its terms. The wife denied the
essential allegations of the
counterclaim and asserted the affirmative
defenses of fraud,
misrepresentation,
concealment, coercion, duress,
lack
of consideration and that the
agreement
violated public policy. After anon-jury trial, the court
dismissed both the complaint and counterclaim for divorce, while
setting aside the agreement, in its entirety, for fraud. The trial court
found that the husband was aware that his stocks listed were worth
$200,000, while those of the wife had a value of $800,000 to $900,000.
The wife contended that she had no idea of the relative value of the
securities. The court also found that the husband caused the wife to
retain the attorney who represented her and drew up the agreement, and
that neither party informed the attorney of the values of the stock
being split. It ultimately found that the husband’s conduct constituted
such fraud as to vitiate the agreement completely. The Appellate
Division, Second Department, reversed that portion of Supreme Court’s
holding that set aside the agreement. The Second Department held instead
that although adequate evidence of fraud and overreaching with regard to
the formulation or signing of the separation agreement was absent from
the record, that portion of the agreement pertaining to the division of
property was so unconscionable as to be unenforceable. While ordinarily
the division contemplated would not be deemed inequitable, in this case
the wife, who did not have the advice of independent counsel, had
securities worth $900,000 and the husband’s holdings were worth only
$200,000. The court concluded that although the agreement as a whole
should not be set aside, the unconscionable provisions of it should be.
An appeal followed. The Court of Appeal reviewed the finding by the
Appellate Division that the last paragraph of the agreement was so
unconscionable as to be unenforceable. Noted the court, the parties had
a right to and did make the agreement severable, by expressly
stipulating that if any provision of the separation agreement were held
invalid or unenforceable all other provisions should nevertheless
continue in full force. The court, in accordance with the contract
terms, was therefore free to adjudge the validity of the suspect
paragraph of the separation agreement without consequential effect on
the remainder of the writing. It reversed the order of the Appellate
Division and remitted to the Supreme Court forfurther proceedings. It
did not find that the offending clause was "unconscionable."
STATUTORY LAW
Domestic Relations Law Section 236, Part B,
Subdivision 3, was enacted in 1980 and applies to agreements executed on
or after July 19, 1990. It attempts to modernize the New York Law
applicable to antenuptial and postnuptial agreements, to ensure fair
dealing and to encourage settlement. Such agreements may include: 1) a
contrct to make a testamentary provision of any kind, or a waiver of any
right to elect against the provisions of a will; 2) a provision for the
ownership, division or distribution of separate and marital property; 3)
provision for the amount and duration of maintenance or other terms and
conditions of the marriage relationship, subject to theprovisions of §
5-311 of the
General Obligations Law, and provided that such
terms were fair and reasonable at the time of the making of the
agreement and are not unconscionable at the time of entry of final
judgment; and 4) provision for the custody, care, education and
maintenance of any children. To be valid and enforceable to serve
in lieu of equitable distribution in a matrimonial action, the agreement
must be in writing, subscribed by the parties, and acknowledged or
proven in the manner required to entitle a deed to be recorded. (In
Matter of Sbarra, 17 AD3d 975 (3d Dept. 2005), the court held that an
unacknowledged agreement is enforceable in other actions. In Kelly v.
Kelly, 19 AD3d 1104 (4th Dept. 2005), the court held that an
unacknowledged custody agreement was valid and enforceable as an open
court stipulation pursuant to CPLR 2104. The First and Second
Departments have sustained the validity of stipulations in lieu of
formal agreements. See Sanders v. Copley, 151 AD2d 350 (1st Dept 1989);
Harrington v. Harrington 103 AD2d 356 (2d Dept 1984); See also,
Josephson v. Josephson, 121 Misc2d 572 (Sup. Ct., N.Y. Cty. 1983). The
Third and Fourth Departments have rejected open court stipulations. See
Lischynsky v. Lischynsky, 95 AD2d 111 (3d Dept 1983); and Hanford v.
Hanford, 91 AD2d 829 (4th Dept. 1982). In Charland v. Charland, 267 AD2d
698 (3 Dept. 1999), the Third Department appears to have relaxed its
restrictive rule.)
WHAT DO ‘UNFAIR’ AND ‘UNCONSCIONABLE’ MEAN?
The express provisions of the Equitable
Distribution Law mandate that the circumstances surrounding
all of the terms of an agreement be fair and
reasonable when made and
not unconscionable at the time of judgment. The
decisions since Christian have made it clear that the advice of
independent counsel and equality in bargaining position are important
factors in resolving issues relating to fairness and overreaching. There
are few reported cases setting aside agreements as unfair or
unconscionable, probably due in large part to the application of the
doctrine of ratification, which precludes a party from challenging the
validity of an agreement where he has accepted its benefits for a
lengthy period of time. Nevertheless, we shall review the reported
cases, which appear to focus more on the terms of the relevant
agreement, and attempt to reach a conclusion as to what is necessary to
set aside an agreement as manifestly unfair.
In Yuda v. Yuda, 143 AD2d 657 (2d Dept., 1988),
the Appellate Division set aside a 1986 oral stipulation of settlement
entered on the record, in open court, by the 63-yearold husband, acting
pro se, and the 64-year-old wife, who was represented by counsel. The
parties had been married for 30 years. According to the terms of the
agreement, the husband was obligated to leave the marital home by May
1987, and the wife was given the right to the home’s exclusive occupancy
until its sale, which was to occur at her sole discretion. Upon the sale
of the premises, the husband was to receive one-half of the proceeds.
After the plaintiff husband moved from the marital home, he was required
to pay defendant $800 per month maintenance for life. For her equitable
distribution, the wife was to receive, inter alia, 50% of the husband’s
pension benefits when he retired, in addition to the $800 per month
maintenance payment. On the basis of the record, it appeared that after
his retirement the plaintiff’s sole income would be his pension of $416
per month, and his obligation to the defendant would be approximately
$1008 per month. Viewing this stipulation in its entirety, and
"examining the totality of the circumstances in this case," the court
found the entire agreement unconscionable and set it aside. It found
that the provision giving the wife control over the house — the parties
primary asset — for life, and the fact that the husband might
neverrealize any income from this property, to be "particularly
disturbing" in light of the plaintiff’s limited financial resources. The
court also found it "shocking that after he retires (and he is about 63
years old), the plaintiff is to pay the defendant $800 per month plus
one-half of his pension." The court concluded that the "circumstances
under which the stipulation was entered into" lent support to its
conclusion because ""the pro se plaintiff was put under some pressure by
the court to settle at a time when the circumstances should have alerted
the court to take a more active role in insuring that a conscionable
result would be received."
In Weinstock v. Weinstock,167 AD2d 394 (2d
Dept. 1990), the Second Department affirmed an order of the Supreme
Court denying the husband’s application for a conversion divorce, and
set aside the parties’ separation agreement. The court held that the
parties’ 1988 separation agreement was "patently unconscionable" based
on the standard of an "unconscionable bargain," as defined in Christian,
because the wife of 22 years waived all rights with respect to equitable
distribution, thereby relinquishing any share in the husband’s assets,
which were estimated to be in excess of $2 million. Pursuant to the
agreement, the wife’s receipt of maintenance was conditioned
on her being employed and simultaneously taking
at least six college credits, and further limited the husband’s
obligations by providing that, even if those stringent requirements were
met, he would only have to pay the difference between the wife’s other
income and the sum of $15,000 per year. Further evidence of the
agreement’s unconscionability was the requirement that the wife transfer
her share of the jointly held marital home to the husband and the
provision that she grant to him an irrevocable power of attorney,
allowing him to sign her name to any documents, checks, deeds, leases
and instruments required to effectuate the intent that the wife return
to the husband any assets held by her, and which only required the
husband to return to the wife those personal
items specifically set forth in the agreement.
After the agreement was signed, the husband (an attorney) induced the
wife to sign a loan agreement for a mortgage of $85,000 on a second home
purchased by him, and kept for himself the entire proceeds from this
transaction. The wife’s psychiatrist, who testified at the hearing,
characterized the wife as being very trusting of the husband and
emotionally dependent on him. The husband’s direct testimony in
Weinstock indicated a "fatal lack of disclosure" concerning his
financial affairs. The record was also replete with evidence of the
wife’s diminished capacity due to her periods of dependence on Valium
and alcohol. The Appellate Division held that the agreement was "so
manifestly unfair and the apparent product of coercion and overreaching"
on the part of the husband, that it was properly set aside. It concluded
that, as the agreement was void ab initio, it could not serve as the
predicate for a conversion divorce. (We note that the court applied the
doctrine of unconscionability to the property distribution and
maintenance provisions, and did not find itself limited by the language
of DRL Section 236(B)(3) Subdivision 3.)
In Tchorzewski v. Tchorzewski, 278 A.D.2d 869
(4th Dept. 2000), the Supreme Court had granted the husband a default
judgment of divorce incorporating the separation agreement.The Appellate
Division found that there were sufficient indicia of the husband’s
overreaching to require rescission of the financial provisions of the
agreement. The court pointed out that the fact that the defendant wife
was not represented by counsel did not, by itself, invalidate the
agreement, but that it was a "significant factor to be taken into
consideration in determining whether the separation agreement was freely
and fairly entered into." The separation agreement provided that each
party had made independent inquiry into the other’s financial
circumstances and that full disclosure had been made. Notwithstanding
that provision, the testimony of plaintiff’s attorney, who drafted the
agreement, established that plaintiff’s pension was never valued at that
time. The parties did not own real property, and the pension was the
largest marital asset. In exchange for her waiver of any share in the
pension, defendant received $15,000 from plaintiff’s 401K account, the
furniture in the marital residence (valued at $10,000), and her own 401K
account, valued at $16,000. Plaintiff received the remainder of his 401K
account, valued at $28,000, as well as the pension, and was held
responsible for $6000 in marital debt. The Appellate Division held that
the great disparity in the distribution of the marital assets, the fact
that no disclosure was made concerning the value of the pension, and
that defendant was not represented by counsel when she signed the
agreement provided sufficient indicia of plaintiff’s overreaching to
require rescission of the agreement. In next month’s issue, we’ll look
at more interpretations of Christian v. Christian and its progeny, and
the courts’ use of their guidance in deciding whether a separation
agreement may be set aside as manifestly unfair.
Bari Brandes Corbin, a member of this
newsletter’s Board of Editors, maintains her offices for the practice of
law in Laurel Hollow, NY. She is Vice-President of Joel R. Brandes
Consulting Services Inc., Jersey City, NJ, and Ft. Lauderdale, FL (www.
brandeslaw.com or www.nysdivorce.com), and an editor of its Web sites.
She is a co-author of Law and the Family New York, Second Edition,
Revised, Volumes 5 & 6 (Thomson-West) and a co-author of the annual
supplements to the entire set. © Copyright, 2007. Joel R. Brandes
Consulting Services, Inc. and Bari Brandes Corbin. All rights reserved.
4 New York Family Law Monthly www.ljnonline.com/alm?nyfam
March 2007
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