The Second Department has imposed what may be an impossible burden of proof needed to correct a mathematical miscalculation (the alleged mutual mistake) in a divorce settlement agreement. That is the effect of the March 19, 2014 decision  in Hackett v. Hackett.

After 22 years of marriage, the husband commenced an action for a divorce in 2005. A year later, the parties executed a written settlement agreement, which was incorporated, but not merged into their judgment of divorce.

Under the terms of the settlement agreement, the wife received the marital residence, which the parties estimated to be worth $465,000, and she assumed responsibility for repayment of a first mortgage and a home equity loan with combined outstanding balances of $195,124. The husband retained sole ownership of his restaurant business, which had an appraised value of between $360,000 to $385,000, but which the parties agreed to value, for purposes of their settlement, at only $325,000. The wife also agreed to waive valuation of the husband’s certification as a public accountant, which he acquired during the marriage. “Schedule A” to the divorce settlement agreement listed the dollar values of the assets being allocated to each party. The settlement “purportedly” [the Court’s word] equalized the division of assets by requiring the husband to pay the wife $19,336.

Approximately two years later, the ex-husband commenced this action, seeking to reform the settlement agreement on the ground that an alleged mutual mistake had resulted in the unequal division of the marital assets. He alleged that the settlement agreement contained a “computational error” on Schedule A. As a result the wife’s share of the marital assets was undervalued, resulting in a windfall to her in excess of $100,000. The husband maintained the expressed intent of the agreementcertain was to equally divide the parties’ assets.

Continue Reading “Clear and Beyond Doubt” is Burden of Proof for Correction of Mutual Mistake in Divorce Settlement Agreement

The alleged failure of the mediator and the husband’s counsel to advise the husband that a court need not apply the C.S.S.A. formula to the husband’s entire agreed-upon income of $1,200,000.00 per year income is not a basis to set aside a divorce settlement agreement, or its $29,500.00 per month child support obligation. So held Westchester County Supreme Court Justice Lawrence H. Ecker in his January 16, 2014 opinion in A.B. v. Y.B.

The couple involved separated after 12 years of marriage. Following three years of mediation, the parties entered into an agreement that resolved issues of custody and access to the parties’ three children, maintenance, child support, and equitable distribution. The husband is a 50% equity partner in a brokerage firm. The wife is owner and operator of her own business.

Upholding the agreement, Justice Ecker took pains to quote several of its provisions. One acknowledged that the parties had waived the “compulsory financial disclosure” requirements of the Domestic Relations Law and court rules, and agreed not to exchange Net Worth Statements. Nonetheless, the parties represented to each other that each made a full and complete disclosure of assets, liabilities, income and expenses, and that they relied on the information provided.

The agreement recited the husband’s disclosure, to the best of his knowledge, of his gross personal 2010 income as approximately $156,427.00. The parties agreed to use the 2010 income because their 2011 income was not yet available. The Husband disclosed that in no event was his income from any and all sources more than $156,427.00 in said year.

Nonetheless, for purposes of the agreement, the parties agreed to use an imputed income of$1,200,000 in computing the child support calculation under the Child Support Standards Act.

The parties acknowledged that they reached their agreement with the aid of the mediator, but that the mediator provided no legal representation to either of the parties. Further, although “the mediator may have provided information or opinions concerning the state of the law generally, neither party has relied upon such information or opinions in executing this Agreement.”

The parties further represented that each had ample opportunity to obtain independent legal counsel, and counsel [apparently recommended by the mediator] for each spouse was named.

As to the basic child support obligation, the agreement provided it was agreed that the the husband’s would pay $29,500 per month [$354,000 per year] for 12 years, 5 months, subject to a cost of living increase biennially. The husband was further responsible for 100% of discretionary expenses and add-on expenses, including private school tuition for all three children, private college expenses, camp and summer programs, religion education expenses, Bar and Bat Mitzvah expenses, health insurance and unreimbursed medical expenses.

Continue Reading Claimed Ignorance of C.S.S.A. Treatment of Income Over Cap Not Basis to Set Aside Divorce Settlement Agreement

House of cards 2.jpgContinuing to demonstrate New York’s public policy enforcing settlement agreements and the finality they bring to bear on divorce litigation, the Court of Appeals on April 3, 2012 held that the post-agreement discovery that the fact that a marital account had been invested with Bernard Madoff and retained by the husband upon the divorce was not a sufficient basis to set aside that agreement when the Madoff scheme later surfaced.

In 2006, former spouses Steven Simkin and Laura Blank entered a divorce settlement agreement under which Ms. Blank, among other terms, waived spousal support and marital property rights in the value of the husband’s law practice. The husband paid his wife $6.25 million.

Three years later, when the now ex-husband learned he was a victim of Bernard Madoff’s massive Ponzi scheme, he commenced an action against his former wife asking that the 2006 agreement be “reformed” to reflect the mutual mistake made by the parties, i.e., the assumption  that there was an account with Madoff worth $5.4 million. Mr. Simkin alleged that the payment made to his ex-wife under the 2006 agreement was intended to accomplish an “approximately equal division of [the couple’s] marital assets.” In reliance upon that mistaken assumption, the ex-husband claimed he paid his wife $2.7 million which should now be returned.

Continue Reading Husband Keeping Madoff Account in Divorce is Not Basis to Change Pre-Collapse Settlement Agreement

show your work 3.jpgShow your work.

Mistakes happen, and probably a lot more often than any of us matrimonial lawyers would care to admit.

We all make mistakes. I am happy to say that most mistakes are alleviated by collegial adversaries working together to put things right.

However, sometimes the spouse benefiting from the mistake in marital settlement agreement will not acknowledge that a mistake was made.

When that happens, the burdened party must ask the court to reform the agreement to correct the mistake. That party has a heavy burden.

The burden, however, becomes a lot easier to meet if the parties have shown their work.

Consider, the February 21, 2012 decision of Kings County Supreme Court Justice Jeffrey S. Sunshine in Hackett v. Hackett. The parties had entered a marital settlement agreement in January, 2006. The parties’ marital estate was itemized in a schedule annexed to the agreement. The agreement expressly provided that the husband was to pay the wife $19,336.40, “in order to equalize the allocation of marital property so as to arrive in an equal division.”

Included among the parties’ property was their marital residence, a Brooklyn home valued at $465,000.00 against which there were two mortgages totaling $195,124.00. When listing the assets being received by the wife, the marital residence was included at a value equal to its net equity of $264,447.00. Including this amount for net equity, the wife was to receive $557,442.00 in assets. From this the wife was to be take on marital liabilities of $195,124.00. Thus, the wife was receiving assets net of liabilities of $382,318.00.

The problem was that these liabilities were the very same mortgages totaling $195,124.00 which were subtracted from the home’s appraised value to result in the equity value of $264,447.00 stated for the marital residence. The mortgages were double-counted. Moreover, there was another simple math error. Subtracting the $195,124.00 in mortgages from the $465,000.00 appraised value of the marital residence should have resulted in the wife being charged with receiving net equity of $269,876.00, not the $264,447.00 which was stated as the net equity value of the marital residence being received by the wife. Thus, the wife was under-charged $5,429.00, in addition to having benefited from the double-subtraction of the mortgages.

Instead, the wife should have been charged with receiving $562,871.00 in net assets (the originally stated $557,442.00, plus the $5,429.00 math error, without the second deduction for the mortgages already taken into account). The husband was properly charged under the agreement with receiving $400,990.00. Thus, the wife received $161,881.00 more than the husband. In order to equalize the division of assets, the wife would have to pay to the husband one half of this amount, or $80,940.50. Here, the agreement as originally drafted with its mistakes ended up with the husband paying the wife $19,336.00. To correct the error, the wife would have to repay this $19,336.00, and on top of that pay the husband $80,940.50, for a total of $100,276.50.

Justice Sunshine provided the husband relief, reforming the agreement to require the wife to make the requested payment of $100,276.50. To do so, the court rejected the recommendation of the Referee to home the matter was referred to “hear and report.”

Continue Reading Correcting a Mistake in a Divorce Settlement Agreement