Divorce Settlement Agreements May Not Be Legally Binding

06/30/2017 12:20 pm ET

Divorce Settlement Agreements May Not Be Legally Binding

Settlement agreements are frequently made either in advance of litigation, as may occur in a prenuptial agreement or in mediation, or to resolve existing litigation. This comment provides a brief and incomplete educational overview of legal pitfalls that may invalidate a divorce settlement agreement. Always consult an experienced attorney in specific situations.

A. Does law prohibit the private settlement of this topic? For example, attempts to limit or prevent the collection or alimony and child support or predetermine child custody without judicial review and approval are often invalid since legislation allows divorce courts to consider “the best interest of the child” in all circumstances.

B. Does the settlement agreement attempt to limit the legal rights of nonparties to the agreement? For example, federal and state agencies have independent investigative and enforcement powers that private agreements cannot restrict in virtually all situations. Thus, while employment discrimination complaints might be subject to binding arbitration between the employer and employee, limiting the power of the EEOC (Equal Employment Opportunity Commission) is an entirely different matter, especially since antidiscrimination issues are a matter of public importance. Likewise, a state child protective agency has broad powers to act in the best interest of the child.

C. Have the legal procedural formalities been followed in formalizing the settlement agreement? Depending upon the particular situation, independent attorneys representing each party may be required to review and sign the agreement (not uncommon in prenuptial agreements) as well as the parties, or the agreement may be required to be entered into evidence in open court or filed with the court clerk. Mediated settlements may have a special set of procedural rules that must be strictly followed. State law may have unique standards addressing “maintenance,” “court ordered child support and alimony,” and “contractual alimony.” Be certain to properly identify the agreement in question. Consult an experienced attorney.

D. Is a signature legally binding? In the electronic document context, agreements are often subject to the provisions contained in the Uniform Electronic Transactions Act. An experienced attorney should determine compliance.

E. Related to the previous point, procedural rules may require that an actual lawsuit be filed prior to entering into a settlement agreement. In other words, settling a hypothetical lawsuit may be more difficult than supposed.

F. Verbal settlement agreements are typically not binding, as being, at best, simply evidence of preliminary negotiations. In this regard, some courts invalidate a settlement agreement dictated to a court reporter and filed, but left unsigned by the attorneys or parties.

G. If a settlement agreement is to become part of a binding judicial judgment in a case, clearly state this fact in the settlement and be very careful that the judge incorporates it into the final judgment. Contempt of court enforcement powers apply to disobedience of judicial orders, not private contracts. Be certain that the judge in fact announces and signs a final judgment, rather than simply making a vague comment such as “I will review it.” Judges often have broad powers to reject a one-sided unjust settlement.

H. Does the settlement agreement clearly and completely address all significant terms and issues? For example, are tax issues or items such as stocks and bonds and life insurance policies adequately addressed? While courts are reluctant to add terms or fill-in-the-blanks in the settlement, occasionally this may be done as part of the court’s overall power to render a judgment.

I. A party might be able to revoke an agreement to settle a case at any time before final judgment is rendered. The issue of when a final judgment is rendered was litigated in a unique Texas case when the husband purchased a winning $2 million lottery ticket after the judge announced the divorce decree in open court but before signing a “Final Decree of Divorce” including the oral announcement of judgment [In re Joyner, Tex. Ct. Appeals, 2006]. An appellate court ruled that the judge’s oral announcement, “your divorce is granted,” subsequently incorporated in the written decree, preventing the wife from rescinding the settlement.

J. Note that a settlement agreement may be enforceable as a contract, even if a party attempts to withdraw from it. This may require a separate lawsuit for breach of contract. Defenses to a contract’s validity such as mistake, fraud, duress, incompetency, or illegality might be asserted. In this regard, provisions concerning the enforceability of the settlement as a contract against the heirs and estate of a deceased party are important. Note, that if enforced as a contract, changed personal and economic circumstances may not allow modifications of the contract as might be the case in typical court ordered alimony and child support situations.

K. Will future judicial proceedings, such as a bankruptcy, be able to revise the settlement agreement? Bankruptcy courts have broad authority over assets and debt but far less ability to consider alimony and child support. The settlement must be structured with a potential bankruptcy filing in mind. Consult an experienced attorney.

L. Does the settlement agreement require future actions or payments? Future actions are frustratingly difficult to enforce, such as a promise to pay for a child’s future college education. Carefully consider creating a currently funded trust fund or other financial vehicle to fund future payments. Attempt to wrap-up everything in the present. Again, consult an experienced attorney and financial expert.

M. What will be the impact of the death or disability of a party to the settlement agreement? Will the settlement agreement be binding upon heirs and the estate of the deceased? Experienced legal counsel must consider these contingencies.

This comment provides an incomplete educational overview of a complex topic and is not intended to provide legal advice. Always consult an experienced attorney in specific situations.

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