Recent ruling highlights the fact that written agreements are binding even if made years before divorce or disclosure.
For divorcing couples, the question of who should get the family home and how the other spouse should be compensated for their equity stake in that home is often a top concern, typically second only to issues of child custody and visitation. However, a recent case shows that it is important not to be too hasty in coming to an agreement regarding your real estate.
In a case released a few days ago, the Fifth Court of Appeals was asked to consider the legitimacy of an agreement made between a husband and wife regarding the disposition of their home. Specifically, the court needed to decide if property settlement agreements are valid and enforceable even if made before a divorce petition has been filed and before disclosure declarations have been exchanged.
Following their separation in 2007, the husband had agreed to pay $300,000 to buy out his wife’s share of their Kern County home. However, the couple did not actually initiate their divorce proceeding until the wife filed papers in 2009. Preliminary disclosure declarations describing each spouse’s debts and assets were served in 2010. The husband never served his final disclosure declaration, but the wife served hers in 2012.
By this time, their home’s value had declined significantly to about $420,000. Naturally the husband was not happy with the original agreement to pay $300,000 to buy out his wife’s share of the home. He tried to get the agreement thrown out on a technicality because it was made so long before divorce papers and disclosures were served.
However, the law only requires that preliminary disclosures be served “after or concurrently with” the divorce petition. There is no requirement for disclosures to be served in relation to prepetition agreements. Therefore the court found that the prepetition agreement regarding the home was enforceable, and the appeal court upheld this decision.
Why This Case Matters
This case highlights the importance of following a three-step procedure for divorce proceedings, such as we recommend here at Kendall & Gkikas. First, the petition for dissolution of marriage should be filed. Then, disclosures will be done, and finally agreements can be reached. Ideally these agreements will be reached in negotiation, but if negotiation is unsuccessful litigation may be pursued.
The most important takeaway from this case for divorcing couples is that prepetition agreements can certainly be enforced by the courts. If there is any possibility that circumstances will change between the signing of the agreement and the finalizing of the divorce decree, it is wise to think twice before signing, or at least word the agreement to account for the potential changes. For example, in this case the husband would have done well to have agreed to pay half the market value of the home rather than a fixed dollar amount.
