The Pennsylvania Superior Court affirmed the Bucks County trial court's upholding of a marital settlement agreement that failed to delineate the value of a business owned by husband but did recite that disclosure of its value had been made.
Sandra J. Paroly and Ted W. Paroly were married April 4, 1981, and separated Jan. 4, 1999. On Feb. 23, 2001, the trial court granted a divorce and incorporated the parties' Oct. 16, 2000, divorce settlement agreement into the divorce decree. On April 3, 2002, wife filed a petition to set aside the October 2000 agreement.
The trial court conducted three hearings on the wife's petition and denied it Feb. 13, 2004. Thereafter, wife appealed to the Superior Court. In her appeal, which contained 14 specific challenges, the "central allegation is that the agreement did not contain full and fair disclosure of the parties' assets because the value of the marital estate is not specifically delineated. She claims that husband misinformed her that the value of his business, Rampart Security Systems Inc., was $145,000; however, six months after the agreement was executed, he reportedly sold that business for $560,000."
The parties negotiated their settlement without counsel. However, the parties sought the assistance of an attorney who acted as the scrivener of the agreement. The agreement comprehensively dealt with the parties' assets, including bank accounts, cars, home, retirement accounts, personal property and the stock of Rampart. "Under the agreement, wife received $70,000, and husband received the home and Rampart. . . . Wife, a participant in the Princeton University TIAA/CREF retirement plan, received her interest in that account as well as any other retirement benefits that she owned. The savings account was divided equally and wife received a car titled in Rampart's name."
Approximately six months after the parties' divorce, husband entered into an asset purchase agreement with Franklin Security Systems Inc. to sell Rampart for $560,000. Instead of paying husband a lump sum payment for the company, Franklin paid him $70,000 per year for eight years as long as husband remained a consultant for the company.
Importantly, the Superior Court pointed out that wife worked at Rampart prior to husband purchasing the company in 1977. Wife remained at the company until 1988 after the parties first separated (the parties subsequently reconciled). During that time period, wife was the office manager and "was responsible for 'accounts payable, accounts receivable and she wrote all checks, did all deposits, did billing, did customer service work." From 1988 until 2000, wife continued to be associated with Rampart in the capacity of corporate secretary and executed Rampart's tax returns. The trial court found that wife was intimately involved with the company. The Superior Court agreed with the trial court's finding.
The Superior Court reiterated that the Supreme Court decision in Simeone v. Simeone, set the standard for determining the validity of marital settlement agreements generally. "Under Simeone, we are not permitted to review the reasonableness of the marital settlement agreement to determine its validity, and the fact that the parties did not have separate representation is not relevant. That case abolished prior, paternalistic approaches to enforcing such agreements and announced, 'absent fraud, misrepresentation, or duress,' spouses should be bound by the terms of their agreements."
The Superior Court further stated "the Simeonecourt reaffirmed the 'longstanding principle that a full and fair disclosure of financial positions of the parties is required. Absent this disclosure, a material misrepresentation in the inducement for entering a prenuptial agreement may be asserted. . . . If an agreement provides that full disclosure has been made, a presumption of full disclosure arises. If a spouse attempts to rebut this presumption through an assertion of fraud or misrepresentation, then this presumption can be rebutted if it is proven by clear and convincing evidence."
The Superior Court stressed that in determining whether adequate disclosure was made each case must be reviewed on a case-by-case basis.
After analyzing numerous cases, the Superior Court held that "this case law provides that where the circumstances indicate that a spouse has knowledge of the general value of the couples' assets, an agreement will be upheld, especially where, as here, the agreement recites that full and fair disclosure was made." The court felt that because of wife's participation in Rampart she had a general knowledge of the company and that supported the trial court's conclusion that the presumption of full and fair disclosure was not rebutted by clear and convincing evidence. The Superior Court concluded: "[t]hus, we uphold the trial court's conclusion that wife failed to establish by clear and convincing evidence that, contrary to the language in the agreement, she was not aware of Rampart's worth."
A disclosure provision contained in a marital agreement shifts the pendulum of the burden of proof in a case where the validity of an agreement is in issue. If the agreement contains a disclosure provision (even though values of the assets and liabilities are not listed in the agreement), the pendulum swings to the party attacking the validity of the agreement, and it then becomes his or her burden to overcome the presumption of full financial disclosure by clear and convincing evidence. If that party has knowledge of the general value of the couple's assets, it may be very difficult for him or her to meet this heavy burden of proof.
MICHAEL E. BERTIN is an associate in the Philadelphia law firm of Obermayer Rebmann Maxwell & Hippel. Bertin is a member of counsel of the family law section of the Philadelphia Bar Association and is co-chairman of the custody committee of the family law section of the Philadelphia Bar Association.
This article is reprinted with permission from the October 21, 2005 issue of The Legal Intelligencer © 2005 NLP IP Company.
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