Drafting Settlement Agreements

A recent case illustrated the pitfalls for the unwary in drafting settlement agreements. The agreement provided that (a) husband would pay alimony until the wife remarried, and (b) after the wife remarried husband would continue to make payments until August 1, 2015, or until the wife’s children from a prior marriage finished school, whichever came first.   Wife remarried in October of 2008, triggering the switch to plan b.   Husband made payments until December of 2009, when wife died.  Husband stopped making paying, thinking that the death of the wife terminated the payments. The administrator of wife’s estate sued husband, claiming that his obligation continued until August 1, 2015, or until the children finished school.

Normally, both child support and alimony would automatically terminate upon the death of the wife, while a division of property would continue after death and could be enforced by the administrator of the estate.  Upon reviewing the parties’ agreement, the court decided that part b of husband’s payments were neither child support, alimony, nor property division. According to the court, they weren’t alimony because they were for the benefit of wife’s children.  They weren’t child support because the children weren’t the husband’s children. They weren’t property division because the payments were contingent upon the wife’s remarriage.   The court ruled that the payments were simply a contractual obligation and as such continued after the wife’s death.

There are several lessons here.  First, it is very easy to make a mistake in drafting a settlement agreement.  When this agreement was drafted it is likely that nobody thought about what would happen if wife died while the plan b payments were in effect.  While there is certainly nothing wrong with the husband’s obligation continuing after the wife’s death–it was going to help the wife’s children while they were in school, after all–the agreement needed to address clearly the effect of wife’s death on the payments.

Second, the drafting mistake here was failing to clearly identify what category the plan b payments fit into to.  Were they child support, alimony, or property division?  These different categories are treated differently, not only regarding the impact of the wife’s death, but also in the way they are taxed and enforced.  Clarity is essential.

Third, courts will have a tendency to enforce agreements to support children.  It is a long way from clear that the plan b payments were an uncategorized, “contractual obligation.”  The payments could have reasonably been seen as alimony to help the wife meet some of her expenses.  The fact that those expenses involved her support for her children does not necessarily mean that the payments are not alimony.

Assuming that the parties intended for the plan b payments to be alimony, the agreement could have explicitly said so: “The parties agree that the husband’s payments after the remarriage of the wife shall be alimony, taxable to the wife and deductible by the husband, and shall terminate upon the death of the wife.”  Of course, if the parties had intended for the payments to continue after the death of the wife, the agreement could have said so as well.

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