The parties were divorced in 2001 after signing a settlement agreement resolving all financial issues. The agreement required the husband to pay the wife a series of payments totaling $7.7 million for her share of the marital property. The payments were structured partly as property installment payments and partly as Section 71 payments. Most of the amount paid to the wife was to compensate her for the parties’ real estate investments that were kept by the husband in the property division.
The husband made payments to the wife through 2008, but stopped paying in 2009 when he learned that he was defrauded by his business partner. Due to the fraud, the real estate received by the husband in the settlement was worth only $4.9 million, not the $14.5 million value placed on it at the time of the 2001 divorce.
In 2009, the wife sued the husband to enforce the settlement agreement and the husband sued the wife to modify or rescind it. The husband alleged mutual mistake as to the value of the marital estate. Both parties sought summary disposition. The trial court granted summary disposition to the wife holding that the husband failed to establish mutual mistake that would entitle him to modify or rescind the contract. The wife sought sanctions, claiming the husband’s suit was frivolous. The trial court denied the request for sanctions.
The husband appealed the grant of summary disposition to the wife. The wife cross-appealed the denial of sanctions. The Michigan Court of Appeals affirmed the trial court, citing the New York decision in Simkin v Blank, 19 NY3d 46; 945 NYS2d 222 (NY, 2012). As in Simkin, the husband bargained to retain property that he now asserts was affected by a third party’s fraud at the time of the divorce.
The agreement here, like in Simkin, does not place a specific value on the real estate or indicate that it must be divided equally. Further, the agreement evinces an intent by the parties to permanently resolve the distribution of their marital property. The husband agreed to pay the wife a sum certain, without regard to changes in the real estate market in general or to factors affecting only his specific holdings. While the agreement contains provisions allowing for adjustment of the property settlement in case of fraud by the parties themselves, it contains no such provisions for fraud by a third party or unknown inaccuracies in either or both of the parties’ evaluation of value.
The Michigan Court of Appeals affirmed the trial court’s denial of sanctions because the case presented an issue that was not clearly resolved under prior Michigan case law. Although the husband’s arguments failed, they were not devoid of arguable legal merit.
This case continues a decade-long trend of Michigan courts applying traditional contract principles to disputes of marital settlement agreements. Although this case involves property and Section 71 payments.
Scott Bassett is an attorney handling Michigan family law appeals. He is also available for consultation, brief writing and research on Michigan family law issues. He can be reached through his web site.