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Tuesday, March 30, 2010

New York Appeals Court Overturns Wife’s Attempt to Set Aside Equitable Distribution Agreement

In Label v Label, a New York Appeals Court recently ruled unanimously to reverse an order of the trial court which partially vacated a portion of the equitable distribution settlement between both parties. In the original agreement, the wife waived her interest in her husband's business in return for other benefits:

In 2007, the wife hired an independent appraiser to calculate the value of the business as of the commencement date of the divorce action, 2004. He estimated the value of the business to be $1,042,890. Based on this information, the wife entered into the agreement whereby she waived her rights to a portion of the value of the business.

However, in 2008, the wife stole documents from her husband's home office indicating his intent to sell his interest in the business for $1,820,000. As a result, the wife obtained an updated appraisal of the business, listing its value at $3,640,000. Based on this information, she moved to set aside only that portion of the settlement agreement that provided for her waiver of any interest in the business, claiming that he fraudulently withheld vital information from her regarding negotiations for the sale of the business, which began in 2007.

The trial court initially approved the motion; however, the appellate court overturned the ruling based on several important points of law:

  • The court cannot set aside only one portion of an agreement while allowing the other party to retain all of the benefits; if the agreement is to fall, then the entire agreement must fall.
  • An agreement between spouses which is fair and reasonable on its face will be enforced according to its terms, absent proof of fraud, duress, overreaching or unconscionability.
  • The husband had no special duty to disclose his preliminary negotiations for the sale of his business to the wife.
  • The proper valuation date for the business was the commencement date of the divorce action.

The last point is particularly important. The commencement date of the divorce action was 2004. Therefore, any increase in value to the business over the next three years would not be considered marital property, and the wife would not have a right to receive any of this increased value as part of her divorce settlement. As a result, the court ruled that the husband's actions did not constitute fraud, since he had no legal obligation to disclose information that was not relevant to the value of the business in 2004.

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