Agreements Incident to Divorce and Final Decrees of Divorce

This post is a continuation of Jennifer's Hargrave's series on now various methods of settlement are incorporated into divorce decrees. The series began with Rule 11 Agreements and Final Decrees of Divorce.

Before trial, parties to a suit for divorce can resolve issues related to the division and confirmation of marital property and spousal support through an agreement incident to divorce (AID). Tex. Fam. Code § 7.006(a). The AID can divide the spouses' community property and liabilities, confirm their separate property and liabilities, provide for spousal support, set forth the terms of the agreed parenting plan, and incorporate any other terms to which the parties have agreed (e.g., income taxes, college expenses for children, attorney's fees, health insurance and life insurance.

The AID must be submitted to the court for its approval, either in writing or made in open court and entered on the record. If the court finds that the terms of the AID are just and right, and/or in the best interest of the children, the terms are binding on the court. If the court finds that the terms are not just and right, the court can ask the parties to submit a revised agreement or set the case for a contested hearing. The court, however, cannot supply missing terms to the agreement.

Either party can revise or repudiate an AID before the court renders a final judgment of divorce, unless the agreement conforms with requirements of another law that makes the agreement binding (i.e., irrevocable settlement agreement or Rule 11). It is important to note that a court can approve the AID prior to rendering judgment. For example, if the parties have entered into an AID and submitted it to the court for approval prior to the expiration of the 60 day waiting period, either party may withdraw their consent after the court's approval but prior to the rendering of the divorce. Once the court has rendered the final judgment based on the AID, consent can not be withdrawn. Schwarz v. Schwartz, 247 S.W.3d 804 (Tex. App. – Dallas 2008, no pet).

The AID can be an important tool for preserving the parties' privacy, if that is an issue (especially in Dallas County, and other counties where court filings are readily viewable online). The AID can contain all the details of all the accounts, dollar amounts, and other terms (i.e., drug and alcohol testing) that a party might not want visible as part of the court's records. In this case, the AID will be submitted to the court for approval, the court will sign the decree reciting its approval of the AID and incorporating the terms of the AID by reference, but the AID will not be filed with the court as part of its records. Obviously, this can create an enforcement issue at a later date if one of the parties needed to enforce the terms at a later date, and clients opting for this level of privacy should be advised of the potential issues surrounding its enforceability.

Rule 11 Agreements and Final Decrees of Divorce

The Agreed Decree of Divorce is a final decree that contains the terms to which both parties have given their consent. The Decree is both a "judgment" of the court, and a contract between the parties. Some terms can be enforced by contempt, some terms can be enforced as a breach of contract. Parties can give their consent by simply signing the final decree, in which case one party will "prove up" the decree before the judge who may approve the agreements and enter the order. Or the Decree can be based upon some form of a settlement agreement, which has been incorporated into the Decree.

If the decree is based upon a settlement agreement, it is important to understand the different variations of "agreements." Generally, once an agreement is reached regarding the terms of the decree, one party will want to enforce that agreement in the event the other party changes their mind. Understanding the nature of the underlying agreement is important to understand the "finality" of that agreement.

 The Rule 11 Agreement

 The Rule 11 Agreement is an agreement that conforms with the requirements of Texas Rules of Civil Procedure (TRCP) Rule 11, which states:

Unless otherwise provided in these rules, no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.

Rule 11 Agreements are used to settle all types of issues between the parties, from discovery matters to final property divisions. They are contractual in nature, and can be enforced as a contract – provided they satisfy the requirements of Rule 11. When incorporating the terms of a Rule 11 Agreement into a final decree of divorce, specify that the parties intend for the decree to supersede the terms of the Rule 11 agreement. That way, if there is a conflict between the two documents, it is clear that the provisions of the decree trump the Rule 11 agreement. Otherwise, the settlement agreement remains enforceable as a contract even if its terms are not incorporated into the judgment. Compania Financiara Libano, S.A. v. Simmons, 53 S.W.3d 365 (Tex. 2001). The terms of the Rule 11 Agreement also remain enforceable as a contract, even if a party withdraws his or her consent. Boyd v. Boyd, 67 SW3d 398 (Tex. App. - Fort Worth 2002, no pet).

Alimony Ordered Despite Breach of Prenuptial Agreement

Is this a case of eating your cake and having it, too? In Dockery v. Dockery, a wife breached a prenuptial agreement by challenging it but received $25,000 in contractual alimony anyway.

Prior to marriage, the parties signed a prenuptial agreement. The prenuptial agreement stated that the parties' respective earnings during marriage would be their respective separate property and that no community property would be created.

The prenuptial agreement "also stated that if the couple remained married for five years, but later divorced, the husband would pay the wife $25,000 in contractual alimony." The agreement additionally stated that if either party challenged the enforceability of the agreement, that action would constitute a breach of the agreement.

After twelve years of marriage, the wife sued the husband for divorce. In the divorce, the wife took the position that community property existed. That action breached the prenuptial agreement. However, the husband testified that he wanted the trial court to enforce the prenuptial agreement. The trial court enforced the agreement by ruling that no community property existed and that the prenuptial agreement required the husband to pay the wife $25,000 in contractual alimony.

The Tyler Court of Appeals affirmed the trial court's decision. With citations to cases removed, the Court explained the applicable law:

Generally, in Texas, courts interpret premarital agreements like other written contracts. "Breach of agreement," or contract, means the failure, without legal excuse, to perform any promise that forms the whole or part of an agreement. It is a fundamental principle of contract law that when one party to a contract commits a material breach, the other party's performance is excused. 

However, if the nonbreaching party treats the contract as continuing after the breach, he is deprived of any excuse for terminating his own performance. Thus, when one party materially breaches a contract, the nondefaulting party is forced to elect between two courses of action, i.e., continuing performance or ceasing performance.Treating the contract as continuing after a breach deprives the nondefaulting party of any excuse for terminating its own performance.

Because the husband requested the trial court to enforce the prenuptial agreement, the husband elected to continue performance and therefore waived the breach.

The question remains, what provisions can a family law attorney include in a prenuptial agreement to discourage the opposing party from breaching it? 

Premarital Agreement Executed by "Trick" or "Artifice"

Husband and wife executed a premarital agreement four or five hours before the wedding. That, by itself, will not invalidate a premarital agreement. But obtaining a future spouse's signature by "trick" or "artifice" will invalidate a premarital agreement, said the Dallas Court of Appeals in Moore v. Moore, No. 05-10-00498-CV (Tex. App. - Dallas July 3, 2012, n.p.h.).

The evidence at the parties'  divorce trial included that:

  • Husband misrepresented his financial condition to wife.

  • Husband falsely claimed he wanted wife to sign a premarital agreement to protect her from "loans, liens, and lawsuits."

  • Husband suggested wife retain her own lawyer at his expense, but vetoed wife's first two choices as too expensive and directed wife to a lawyer he chose for her.

  • Husband prevented wife's lawyer from reviewing the final premarital agreement by misrepresenting to wife for several days, until just before the wedding, that husband did not have the premarital agreement.

  • The premarital agreement falsely stated that husband had given wife full disclosure of the nature, extent and value of husband's assets.

  • Husband falsely represented to wife that wife's lawyer had approved the premarital agreement and said that it was "okay" for her to sign it.

Husband argued that wife could not challenge the premarital agreement because the agreement recited that wife's attorney had reviewed the agreement, that wife had read and understood the agreement, and that wife was signing the agreement voluntarily.

The Dallas Court rejected this argument. The Court acknowledged that unless prevented by trick or artifice, a person who signs a contract "must be held to have known what words were used in the contract and to have know their meaning, and he must also be held to have known and fully comprehend the legal effect of the contract." But this rule does not apply to premarital agreements because the Texas Family Code states that a premarital agreement is not enforceable if it is not voluntarily signed. Husband could not prevent wife from making this showing "by including recitations in the very agreement that she alleges was not voluntarily signed."

Premarital Agreement Signed "Involuntarily"

In Martin v. Martin, the Dallas Court of Appeals ruled that a trial court had erred by granting summary judgment that a marital property agreement was valid. The wife admitted she had signed the agreement, but she said she had signed involuntarily. The court remanded the case to the trial court for further proceedings.

One of the defenses to the validity of a marital property agreement is that "the party did not sign the agreement voluntarily." Tex. Fam. Code § 4.105. An action is taken "voluntarily" when it "is taken intentionally or by the free exercise of one's will," said the court.

This case is notable because of the facts it relied upon to conclude that the wife had signed the agreement involuntarily. In short, the husband told the wife that the agreement was necessary "to protect the family's assets from possible financial ruin in the event of litigation against the business" and that he had no intention of divorcing her.

The wife's attorney advised her not to sign the agreement. The husband

constantly threatened that the family would be financially ruined and would have nothing if [the wife] did not sign the agreement. When [the wife] tried to discuss her attorney's concerns with [the husband], he became outraged and called [wife's attorney] “incapable,” “unqualified,” and insisted that [the wife] ignore [the attorney's] advice. [The wife] said that she had no choice but to sign the agreement because her sole concern was the welfare of the family.

Some years later, the husband filed for divorce. On these facts (as fleshed out in the court's opinion), the Dallas Court of Appeals concluded there was some evidence that the wife signed the agreement involuntarily.

This case appears inconsistent with cases such as Sheshunoff v. Sheshunoff, in which the Austin Court of Appeals held that a husband had voluntarily signed a marital property agreement even though his wife threatened to withdraw her guarantee of his bank loan, which would ruin the husband's business by causing the bank to call its line of credit, if the husband refused to sign; and Nesmith v. Berger, in which the same court upheld a marital property agreement where a husband refused to go on the couple's honeymoon unless the wife signed the agreement. The Dallas Court cited, but did not distinguish, Sheshunoff; the court neither cited nor distinguished Nesmith.