The Danger of Property Settlement Agreements Made in Contemplation of Divorce
Marital Settlement Agreements Normally Require Full Disclosure of Assets
The divorce process in California requires that both parties exchange statements signed under penalty of perjury which set forth the martial property subject to division. These documents are commonly referred to as Preliminary Declarations of Disclosure or “PDOD’s.” In fact, a divorce case cannot and will not go forward until this exchange takes place. The case cannot go to trial and the family court will not approve a settlement unless proof is filed with the court that the PDOD’s were exchanged. The strict requirement for the exchange comes from the strong policy of the law for equal and equitable division of community property. The policy is meant to protect the unwitting spouse from substantially unfair property division settlements and orders. However, these protections do not apply unless a divorce petition has been filed prior to an agreement being made between spouses as to the division of their property.
The divorce court will uphold agreements made prior to divorce filing–even if they aren’t fair.
In a recently published California divorce case, Marriage of Evans (Published in August of 2014), the California Court of Appeals upheld a trial court’s decision deeming valid a property settlement agreement signed by the husband and the wife prior to the exchange of the normally required full financial disclosure included in the PDOD’s. The pivotal fact in this case was that at the time the agreement was made the divorce petition had not yet been filed. The court incorporated the agreement of the parties into a Judgment of Dissolution. The result of the agreement was an unequal division of marital property in that the husband was required to pay the wife over five times more than her share of the actual equity in the marital residence in exchange for him being able to keep the residence. Had the parties waited until after PDOD’s were exchanged to come to an agreement, then perhaps the equity in the residence could have been more carefully monetized and then equalized by a more fair payment to the wife.
The take away from the Evans case is that the court will uphold an agreement between spouses even if it isn’t fair and even if “all the cards” have not yet been put on the table. However, while one or more assets might be divided unequally in an agreement like the one in the Evans case; assets not yet expressly divided are subject to division even after the divorce is over.
Division of community property can be requested years after the divorce has been finalized.
In any California divorce case, the court retains authority to divide undivided marital assets forever. In California this is called the division of un-adjudicated community property. There is not statute of limitations on an action to divide community property not yet divided. This being the case, if, when the divorce case actually goes forward, one or both parties fail to disclose an asset thereby keeping the other spouse from seeking his or her interest in that asset, and that asset is later discovered; then the asset can be divided at any time after the divorce has been finalized. Further, even if the asset has been disclosed; if the property agreement or order of the court does not mention the assets at all, then the asset can be divided at any time—even after a judgment has been entered.
Be smart and know your rights before signing anything.
If you are facing divorce and have substantial marital assets then you have much to lose. It is critical that you understand your rights. The Evans case makes it clear that the court will not save you from an agreement signed between you and your spouse if the agreement is made before a divorce petition is filed—even if the agreement is unfair and “gives away the farm.” If you have substantial assets and find yourself in a situation where divorce is a real possibility, and your spouse is pressuring you to agree to terms then remember that it is most likely best to ensure the divorce petition has been filed first. This gives you the protections of the court in regard to disclosure of assets and the values of those assets.
The divorce and family law attorneys of Griffith, Young & Lass know the law and have years of experience assisting clients through the legal process in all family law matters. Call now to set up your free 30 minute consultation at our office in Encinitas.