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Separation Agreements: Lack of Disclosure Countered by Ratification

By: Y. Michael Yin, JD

Rolls v. Rolls, 706 S.E.2d 842 (2010) (unpublished)

In North Carolina, Equitable Distribution can be settled without ever needing to step into the courthouse. Separation Agreements and Property Settlements are common ways to resolve the issues incident to a divorce. They are the will of the parties in a separation, distilled onto paper. They are contracts, and there are very precise rules for formation and enforcement of contracts. As we see below, a separation agreement may have been faulty, but it was the actions of a party that doomed his own arguments.

(a) Facts: Plaintiff wife and Defendant husband married in 1980 and separated in 2007. The parties filed a separation agreement in 2007, where they waived equitable distribution and acknowledged that both parties made full disclosure of all assets and debts. However, during the absolute divorce portion of their case, Defendant pled that there was in fact not a full disclosure of facts, and he requested equitable distribution in a counterclaim. In 2009, the trial court entered a Domestic Relations Order whereby half of Plaintiff’s IRA would be transferred to Defendant in accordance with the 2007 separation agreement. Plaintiff then filed a motion for summary judgment to dismiss the counterclaim, which was granted. Defendant appealed.

 

(b) Issue: Was it an error for the trial court to grant the motion for summary judgment?

 

(c) Holding: No.

 

(d) Rationale: Separation agreements are an acceptable method to deal with issues incident to divorce. However, such an agreement must be made without fraud and undue influence and with full disclosure of all materially relevant facts and assets. If those are conditions are not met, the agreement may not be valid. Even with the presence of such conditions, however, a separation agreement can still be ratified. Ratification of a separation agreement can happen when a party accepts the benefits of and performs under the agreement. In Rolls, Defendant argued that he did not have disclosure of all assets and thus the agreement was invalid, yet later he accepted the division of the IRA as it was agreed to in the separation agreement. Because he accepted a benefit stemming from the agreement, he could no longer claim that is was simultaneously invalid.

 

(e) Lessons and Observations:

 

a. Contract law governs many aspects of separation agreements. If one party claims that the separation agreement is invalid due to error in its formation, then the ratification of the agreement is the defense that prevents a party from “having their cake and eating it too.”

b. Separation agreements can be complex. Contract law is complex. Provisions, actions, and omissions can all play a part in how that contract will be interpreted and enforced. A family law attorney with experience in separation agreements can help you navigate these channels with respect to your agreement.