A Texas Mediated Settlement Agreement Upheld In Spite of Failure to Disclose Assets

Divorce

Mediated settlement agreements can be a great way to resolve contentious divorces and/or highly complicated divorces without going to court. While there can be a wide range of benefits associated with mediated settlement agreements, a recent Texas case demonstrates exactly how important it is to enter into such agreements with your eyes wide open. If you are facing a divorce, the bottom line is that you need an experienced Killeen divorce attorney on your side.

What Is a Mediated Settlement Agreement?

A mediated settlement agreement (MSA) is a form of alternative dispute resolution (ADR) that settles divorce terms via mediation rather than by going to court. Mediation involves you and your divorcing spouse – along with your respective divorce attorneys – negotiating divorce terms under the guidance of a professional mediator who is a neutral third party and who will help you explore a middle ground. The benefits of a mediated settlement agreement include all the following:

  • You and your divorcing spouse retain decision-making power between yourselves rather than abdicating this power to the court.

  • Mediation is a private matter, but if your divorce is resolved in court, it becomes a matter of public record.

  • The mediation process is less formal than going to court, which many people who are going through the immense stress of divorce find preferable.

  • Because you do not need to get a spot on the court’s overly crowded docket, mediation is very likely to be less time-consuming than going to court.

  • Because your attorney will not need to prepare for the exacting formalities of court, mediation is generally less costly than proceeding to court (although careful preparation for mediation is obviously an important part of the process).

If you and your divorcing spouse are able to negotiate an MSA at mediation that you are both willing to sign off on, it becomes legally binding. If not, however, you will likely proceed to court – where you will incur the additional expense and time expenditure that comes with it (on top of the resources you have already put into mediation). In other words, there can also be cons associated with mediation, as the case discussed below effectively demonstrates.

A Recent Texas Case

In the recent Texas case in question, the wife ended up challenging the couple’s divorce decree, which included terms reached in an MSA. She asserted that the MSA was predicated on fraud (on the part of her then-husband). The couple’s divorce decree was issued in Dubai, but both parties appealed it, and the wife went on to petition for a divorce in the State of Texas and to modify the terms set forth in the Dubai court order. The upshot is that, during the discovery process of the MSA, the husband disclosed only one bank account, which ended up being not entirely true.

Discovery

The discovery phase of divorce or mediation is that portion of the process in which both sides require the other to share specific information and documentation related to the terms that need to be resolved. Both sides are entitled to know what information the other side is planning on presenting in court or mediation, and sharing this prior to mediation or trial is part of discovery. The discovery process is intended to help both sides get a handle on the relevant information – backed by relevant documentation – and to encourage a resolution outside of court. Only information that is deemed relevant can be sought during discovery, and there are procedural regulations that must be followed in the process. There are various kinds of discovery that commonly apply to divorce cases.

Requests for Admission

A request for admissions is a request that requires you to either admit or deny the stated facts that are deemed relevant to your case. When it comes to these requests for admission, you have the option of either answering the questions or of objecting to the questions being asked of you on specific grounds.

Requests for Disclosure

Requests for disclosure generally involve answering basic biographical questions, such as the following:

  • Your legal name

  • The names and contact information of any witnesses who you will potentially be calling at trial

  • The legal theories that are guiding the requests you are making in your case

Requests for Production and Inspection

The down and dirty, time-consuming component of discovery boils down to requests for production. This part of the process is when you and your divorcing spouse allow one another to review critical documents in order to help you each build your case and prepare for either mediation or trial. The kinds of documents that come into play include the following:

  • Tax returns

  • Bank statements

  • Electronic communications, such as texts and emails

While production used to be accomplished by providing one another with boxes full of paper documents, it tends to now be conducted via cloud-based retrieval and other electronic means.

Interrogatories

Each side can submit a maximum of 25 interrogatories to the other side during the discovery process. Interrogatories amount to questions, and the respondent’s answers are considered to have been given under oath (you will each be required to sign an affidavit attesting to this fact once you have completed your interrogatories).

Depositions

Depositions are interviews that are either conducted orally or that amount to written questions. Depositions serve to nail down certain information and to help ensure that the party being deposed does not change his or her responses during the course of the divorce and that there are no discrepancies in the information he or she provides. In other words, the responses given in a deposition must match the responses provided during mediation or at court. Depositions do not play a role in every divorce but are often useful in highly contentious and/or financially complicated divorces.

Back to the Divorce Case

The original MSA stipulated all of the following:

  • The wife received half of a retirement account in the husband’s name, $94,000 in cash, her personal property, and all those accounts and property that were in her own name or possession.

  • The husband received the other half of the retirement account, the couples’ real property in Florida, and all those accounts and property that were in his own name or possession.

Importantly, both spouses agreed to halt the discovery process except as it related to issues that involved their shared child.

The Wife Moves to Rescind the Divorce Case

After the fact, the wife moved to rescind the mediation settlement agreement. Her argument was that fraud had played a role due to the fact that her then-husband had failed to disclose specific financial accounts during the discovery phase of the mediation process. She asked the court to allow her additional discovery privileges in order to back up her allegation of fraud. For his part, the husband moved to enforce the MSA they had both signed off on, and the court went on to deny the wife’s motion for a continuance.

The Matter Moves to a Hearing

Both spouses went on to testify at an appeal hearing, and the appeal court found that the testimony of both parties was inconsistent in relation to what the wife knew and in relation to the information that was provided by the husband. Each party took a specific stance on the matter.

The Husband’s Position

The husband maintained that financial information was not exchanged at mediation and that he had made no representation of assets that would have caused his wife to sign off on the MSA. Instead, he asserted that he and his wife had conducted an exchange of financial information when they were in Dubai and that his wife had been privy to financial information related to his bank and personal accounts.

The Wife’s Position

The wife agreed that she had gained access to some financial information while in Dubai but that there had not been full financial disclosure because Sharia law barred her from rights to her husband’s assets. While her husband had shared financial information from a joint account and from one of his personal accounts, she later learned that he had a separate account in which he had deposited about $1.5 million over a five-year period (which she discovered by inspecting records she had ultimately subpoenaed). The wife shared that, had she known about this additional account, she would not have accepted the current mediated settlement agreement.

The Wife’s Discovery

The wife submitted two affidavits to the court of appeals in which she detailed how she had discovered the additional accounts. She reported that her husband had informed her about five joint accounts and one retirement account and that she had been aware of these six accounts plus the one account in her husband’s name alone (that had been disclosed during the discovery phase of mediation).

Case Recap

As mentioned, the trial court denied the wife’s original motion to rescind the MSA and the husband’s motion to enforce it but moved forward with a final divorce decree that incorporated the terms included in the MSA. At this stage, the wife appealed on the grounds that she had been fraudulently induced (by her husband) to sign an MSA that did not support her best interests. The means that he had used to perpetrate fraud, she claimed, involved failing to disclose complete financial information regarding their marital assets.

Proving Fraud by Nondisclosure

In order to prove fraud by nondisclosure, the moving party must show that the party accused of fraud deliberately failed to disclose information that he or she had a duty to disclose in the first place and that the party claiming fraud did not know about or have the necessary opportunity to discover. Further, the party who claims fraud must show that the party who is accused of fraud intended for the claimant to either act or not act based on the nondisclosure in question and that the claimant’s reasonable reliance on the nondisclosure in question caused him or her harm.

The Duty to Disclose

There is typically no duty to disclose unless there is either a confidential or a fiduciary relationship (a relationship in which one party has a financial responsibility to act in accordance with the best interests of the other party) involved. Other exceptions in which there is a duty to disclose include the following:

  • One party uncovered new evidence that renders a prior representation untrue or misleading.

  • One party created a false impression by providing a partial disclosure.

  • One party voluntarily disclosed partial information that created a duty to disclose the truth in its entirety.

Marriage as a Fiduciary Relationship

The wife argued that the marriage is a fiduciary relationship, but the appeals court pointed out that this fiduciary relationship ends when both spouses are represented by their own counsel during a contested divorce proceeding. As such, the appeals court found that the husband had no fiduciary duty to disclose the financial information in question during the discovery phase of mediation. The wife went on to argue that because the husband had disclosed partial information – he had misled her and created a false impression – which led to a duty to fully disclose. The appeals court, however, found that the wife did not provide the adequate context in relation to the six accounts that she did know about to demonstrate that her husband had further duty to disclose. The appeals court ultimately found that the wife could not be said to have unreasonably relied upon her husband’s disclosure of one account during the discovery phase of mediation when she admitted to knowing about six additional accounts.

Reach Out to an Experienced Killeen Divorce Attorney for the Legal Guidance You Need

Mediation can be a great option if you are going through a divorce, but there can also be pitfalls involved. If you are facing a divorce, you need professional legal counsel on your side, and Brett Pritchard at The Law Office of Brett H. Pritchard – proudly serving Killeen, Texas – is a formidable divorce attorney who will leave no stone unturned in his efforts to protect your financial rights throughout the legal process. To learn more, please do not wait to contact us online or call us at 254-501-4040 today.

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