Enforceability of Economically Skewed Matrimonial Settlement Agreements

Editor's Note: This is the eighth article in a special, 10-part weekly series on settlement of litigation.

Often, a matrimonial litigant voluntarily enters into a settlement agreement, but then attempts some time later to re-open the case and vacate the agreement by way of post-judgment motion under Rule 4:50-1(f). Pursuant to this rule, a court may vacate an order and an incorporated settlement agreement for good cause.

In many such cases, the applicant's motion is based primarily upon the argument that the settlement is economically unbalanced and therefore “inequitable” because the agreement substantially benefits one party over the other, in a manner which would have been an unlikely result had the matter proceeded to trial and decision of the court. From a judicial standpoint, however, an inherent issue with this type of argument is that a litigant always has an absolute right to freely enter into a financially disproportionate and disadvantageous settlement agreement.

By way of example, suppose a husband and wife are undergoing divorce proceedings, and there is an issue regarding equitable distribution of a jointly owned, mortgage-free marital home worth $500,000. Knowing the value of the property, the parties nonetheless enter into a settlement agreement in which one spouse keeps the home and pays the other spouse $150,000, or only 30 percent of the net worth. Six months later, the spouse who received the $150,000 files a Rule 4:50-1 motion, seeking to vacate the settlement on the grounds that the agreement was financially disproportionate and therefore inequitable. The applicant further contends that he or she likely would have been entitled to a substantially greater share of the equity than $150,000 had the matter actually proceeded to trial.

In this example, some might summarily conclude that the spouse who received the $150,000 was economically shortchanged, in that he or she may have received more funds at trial following a court's analysis of the applicable no-fault, economic factors listed in New Jersey's equitable distribution statute, N.J.S.A. 2A:34-23.1. In settlement negotiations, however, the parties are not limited to consider only the exact legal factors that a court might consider at trial. Rather, in the course of human conduct and behavior, there may be numerous non-statutory but authentically personal reasons why a party in this hypothetical scenario might have knowingly and willingly agreed to accept only a small portion of the available equity in the property. Such reasons may be subjectively important to the party, even if a court may never have considered such reasons at trial. For example, what if the party agrees volutarily to take the lesser share because:

1) The party wants to cut ties with his or her spouse as quickly as possible; or

2) The party wants to give his or her spouse extra money out of remorse — and in the hope of achieving some forgiveness — for certain conduct during the marriage, particularly if such conduct violated the other party's trust and essentially caused the divorce itself; or

3) The party wants to leave the door open for a possible reconciliation with the spouse, by treating the spouse favorably, and by trying to paint him/herself in a positive light by generously giving the spouse the majority of the equity in the property; or

4) The party wants to end the litigation rapidly so that he or she can marry a new partner.

In choosing whether and how to settle a matrimonial case, litigants have the absolute right to freely and voluntarily consider any factors that are personally important to them as individuals, even if such factors branch outside the specific factors enumerated for a court's consideration under the statute. Indeed, marriage is at its root a social relationship. See Rothman v. Rothman, 65 N.J. 219, 229 (1974). In fact, the New Jersey Supreme Court has expressly noted that marital property settlements “involve far more than economic factors.” Conforti v. Guliadis, 128 N.J. 318, 323 (1992). For this reason, a litigant may genuinely decide that the achievement of specific non-statutory goals via settlement takes a higher priority in his or her life than the legal right to pursue every possible financial claim or entitlement.

For certain, a court in its discretion may decline to enforce a settlement agreement when such enforcement is unfair and inequitable. See Edgerton v. Edgerton, 203 N.J. Super. 160, 171 (App. Div. 1985). Reciprocally, however, every person has the freedom to consensually enter an agreement that grants the other spouse greater financial benefits than might have reasonably been expected at trial. Therefore, absent extreme circumstances, the entry of such an agreement does not by itself necessarily and automatically constitute dispositive or irrefutable evidence of factors such as unconscionability, incompetency, fraud, duress or undue influence supporting a vacating of the agreement under Rule 4:50-1. Further, in Rothman v. Rothman, 65 N.J.219, 232-33 note 6 (1974), the Supreme Court rejected any starting presumption of 50-50 division of assets and debts in divorce litigation.

There are, of course, certain factual scenarios where Rule 4:50-1 may be applied to vacate an agreement. For example, if the evidence supports a finding that a party entered into a financially disadvantageous agreement because he or she (a) was mentally incompetent or disabled and unable to understand the nature of the settlement agreement, or (b) was forced into the agreement thorough fraud, extortion, duress, undue influence, or other wrongful and inequitable conduct by the other party, or clear unconscionability of terms, then a court may vacate the agreement or schedule a plenary hearing for more fact-finding on the issue. In many matrimonial cases, however, a party seeking to vacate a settlement agreement simply contends that he or she “gave up too much” due to the stress of the break-up and divorce proceeding itself. Such a contention, however, may potentially fall short of the mark for vacating a settlement agreement and re-opening a matter which was voluntarily resolved by the parties.

Pursuant to N.J.R.E. 201(b), a court may take judicial notice that divorce is for many people a highly stressful and naturally emotional experience. In fact, it is difficult to envision a contested divorce where at least one of the litigants is not potentially and situationally stressed, depressed or distraught over the end of the marriage and intact family unit. Sometimes this feeling is actually shared by both litigants. This reality, however, is not by itself necessarily sufficient for a party who has entered into a settlement agreement to later seek rescission because he or she was “stressed.” Otherwise, almost every litigant in every case could perpetually return to court to re-open resolved matters, causing chaos and instability for all involved.

Moreover, changing one's mind is highly common in human experience, particularly in family court. In matrimonial litigation, it is predictable that many parties will second-guess their settlement agreement long after voluntarily entering into a financial resolution which is less beneficial than one which might have reasonably been obtained at trial. People can one day be fully satisfied with their resolutions, and then later kick themselves with regret. Sometimes, the personal factors, goals and driving forces that were so important to a party at the time of divorce may, with the passage of time, diminish in significance as compared to new factors and goals, and a litigant's desire to turn back the clock and legally free oneself from the obligations he or she knowingly assumed and undertook in a divorce negotiations leading to resolution. Such a desire, however, does not mean that equity automatically requires the vacating of a settlement agreement that was voluntarily entered by both parties, especially since one of the major public policy reasons supporting voluntary settlements is the benefit of finality, i.e., so people can move on from the courthouse and forward with the rest of their lives.

As noted in Gulick v. Gulick, 113 N.J. Super 366, 369 (Ch. Div. 1971), there are often many troubling aspects of permitting a dissatisfied litigant, who has previously settled a case and placed a written agreement into a judgment or order, to then disavow the agreement and re-litigate a case well after the fact: First, it fosters a “second bite of the apple” philosophy, in that either party may consciously accept a voluntary agreement with confidence that if things do not work out right, the litigant can simply start the litigation all over again. Second, it encourages something less than the best judgment of the litigants, at the important moment of divorce, to bring to bear all those factors which might be the subject of proper consideration with regard to the matter of support. Third, it inflicts on both the courts and parties a heavy and unnecessary burden of belated re-examination. Id.

Our courts have repeatedly stated that matrimonial settlement agreements should not be unnecessarily or lightly disturbed. See Smith v. Smith, 72 N.J. 350, 358 (1977); Edgerton v. Edgerton, 203 N.J.Super. 160, 171 (App. Div. 1985). New Jersey has long espoused a policy favoring the use of consensual agreements to resolve marital controversies. Voluntary agreements that address and reconcile conflicting interests of divorcing parties support a strong public policy favoring stability of arrangements in matrimonial matters. Konzelman v. Konzelman, 158 N.J. 185, 193 (1999). The prominence and weight accorded such arrangements reflect the importance attached to individual autonomy and freedom, enabling parties to order their personal lives consistently with their post-marital responsibilities. Id. Voluntary accommodations regarding matrimonial differences are highly desirable. See Petersen v. Petersen, 85 N.J. 638, 645 (1981).

Further, the court's role is not to make a better agreement for the parties than the one originally made (see Communications Workers v. Monmouth Co., 96 N.J. 442, 452 (1984), Sinopoli v. North River Ins. Co., 244 N.J. Super. 245, 251 (1990)), even if the agreement turns out to be a poor decision by one party. See New Jersey Mfrs.v O'Connell, 300 N.J. Super. 1, 7 (App. Div. 1997). Parties are generally bound by the intentions that they express in the written agreement, absent evidence of fraud or other legal excuse. MacKenzie v. New Jersey Auto Ins., 299 N.J. Super. 112, 119 (App. Div 1997). A court's function is not to insert new terms because one party later suggests that a few changes would have made the agreement more fair. Dworkin v. Dworkin, 217 N.J. Super. 518, 523 (App. Div. 1987). This is because the court must consider the rights of both parties, not just one.

Overall, while a court of equity may in its discretion exercise its authority under Rule 4:50-1 to either vacate a settlement agreement or schedule a plenary hearing regarding same, an appropriate analysis must generally go beyond a surface comparison of what each party agreed to receive or surrender in the agreement itself. Rather, a party seeking to vacate a voluntary agreement must logically convince the court that there are legitimate persuasive circumstances that would justify and excuse the litigant from being held to comply with the very resolution he or she approved in the first place.

Jones is a former Superior Court Judge in Ocean County. He retired from the Judiciary in 2017 and now practices mediation and arbitration.