Property Settlement Agreements and Merger

Property Settlement Agreements

MERGER – What is it and why should I care?

Lucy is getting divorced. Lucy’s (soon to be) ex-husband, Ricky, has an attorney who has drafted a Property Settlement Agreement. The purpose of the agreement is to resolve all property issues between Lucy and Ricky, including all assets or liabilities accumulated by Lucy and Ricky during their marriage. Assets may include business interests (such as ownership interest in a night club), retirement accounts, investment and bank accounts, real property, spousal maintenance, and other property of value. Liabilities are generally the debts of the parties – mortgage, car note, credit cards, loans, etc.

Lucy is happy with the agreement – Lucy gets the house and Ricky gets the nightclub, but Lucy gets a portion of the profits for the next several years. And, the agreement states Lucy gets to perform at the nightclub every Tuesday night!

But the agreement says it is incorporated but not merged into the Divorce Decree. What does this mean? Is she at risk if she signs it? Merger and incorporation are not the same. An agreement only becomes part of the Decree if it is merged. The language must be very clear, in order to show the intention of the parties is to merge the agreement. For example, “it is the intention of the parties that this Property Settlement Agreement is merged.” But, again, why does it matter?

If merger occurs, the Family Law Court keeps jurisdiction over the agreement and may enforce the agreement. For example, if Ricky refuses to let Lucy sing every Tuesday night because of her terrible rendition of Babalu, Lucy can ask the Family Law Court to order Ricky to comply with the agreement. She can ask the Court to find him in contempt and to award her attorney’s fees.

What happens if Lucy signs the agreement and there is no merger? An agreement that is not merged but rather, is incorporated, keeps its independent status. In other words, it is a separate contract between Ricky and Lucy and contract law controls the agreement. Instead of asking the Family Law Court to enforce the agreement, Lucy must seek to enforce the agreement in Civil Court. The exception to this rule is if Lucy is awarded spousal maintenance in the agreement and she is seeking to enforce the payment of that spousal maintenance or alimony. All other claims, whether division of assets, transferring of accounts or title, payment of debts, in the agreement, must be pursued in Civil Court.

The benefit of merger is that if Ricky is being stubborn and refuses to keep the promises he made in the agreement, Lucy can go back to the Family Law Court (where the judge may or may not have familiarity with the parties and the facts). The Family Law Court can resolve Lucy’s claim by finding Ricky in contempt, entering an order granting property to Lucy, or any solution the Court deems appropriate. If the agreement is not merged, Lucy must bring her claim in Civil Court. Lucy can also seek attorney’s fees in Civil Court for the breach of contract. It is important to note that a breach of contract claim must be brought within six (6) years of the breach.

Whether an agreement is merged or not, is a consideration based on a party’s situation and circumstances. Regardless, it is always important to consult with an experienced Family Law attorney.

Modern Law provides exclusively Arizona Family Law Attorneys for divorce, child custody, child support, property division,  domestic violence and more. Learn more at www.mymodernlaw.com or call 480-649-2905.