Mediation, Divorce Agreements, and Fraud

Some people try to get away with being sneaky. Sometimes that mentality goes so far as to be deceptive in dealing with other people. This happens a lot (too much) in divorce cases. It is not uncommon for the husband or wife in a divorce case to not disclose assets to the other side in an attempt to keep those assets.

The binding and irrevocable framework of a Mediated Settlement Agreement (MSA) in a Woodlands Divorce sometimes fuels these thoughts by a husband or wife to lure the other side into signing an agreement without providing full disclosure. One of the reasons they do this is because they think once the agreement is signed the case is done and they are in the clear. Well, not so fast. A recent case on appeal reminds us that Mediated Settlement Agreements may not be as unassailable as you might think if there was fraud or misrepresentation present when it was made.

In this case a husband and wife were getting divorced and they went through mediation to reach an agreement before opening their lives to the public in a trial. The mediation resulted in a Mediated Settlement Agreement which was then presented to the court for entry. One of the clauses was a poorly phrased (in my opinion) clause that husband and wife would be jointly responsible for any income taxes owed above $5,000. The reason I say that was poorly phrased is when dealing with a liability you should be more concerned with the ceiling of your liability than the floor. The attorney for the Wife in this case did a poor job of protecting his client from a potentially much bigger tax liability than she was expecting and can you guess what happened next? The actual tax due was $100,000!

With this huge tax surprise the Wife then attempted to have the Mediated Settlement Agreement set aside on the basis of misrepresentations and fraud from her Husband concerning the tax debt that occurred as part of agreeing to the MSA. The Husband thought this case was open and shut because once you sign an MSA they are pretty hard to attack in court. Unfortunately for him, the court did open the door for the Wife to set aside the MSA as a result of the material misrepresentations from the Husband; however, the Wife did ultimately lose on this issue because she did not produce evidence that she relied on the Husband’s material misrepresentations and fraud. If she did present that evidence she had a very good chance of prevailing.

Lessons Learned

So we can learn a few things from this case.

#1 is to use more precise language when dealing with division of assets, debts, and anything else that is important. But when you are making an agreement concerning an uncertain liability you might want to put a ceiling on that liability in order to protect yourself.

#2 is to make sure you are not guilty of making material misrepresentations or committing fraud as part of the settlement process in your Woodlands Divorce. Even if you get away with it at the trial court level, you can still get sent back to square one at the appellate level and that is a very expensive trip for a whole lot of nothing being accomplished.

#3 is to document your reliance on any representations or disclosures from your husband or wife that you are relying on in order to enter into a settlement agreement. This last step may have been the difference between winning and losing for the wife in this case.

If you are trying to get away with hiding assets in your Woodlands Divorce case then save yourself some time and do not call me. I can’t help you hide anything, it is dishonest and unprofessional in my opinion. If you are interested in an equitable resolution to your case after full disclosure and would like me to protect you from some of these mistakes other people make in their divorce decree language then I would be happy to help you.