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April 4th, 2011 admin

When can a property settlement or marital agreement be set aside as unconscionable?

Virginia favors written agreements (contracts) especially among married parties.

The person claiming the agreement is unconscionable has the burden of proof to prove it. An agreement is unconscionable if it is lopsided and significantly favors one party over the other. However, it is not enough that the agreement be disparate. It has to be so disparate that it “shocks the court.” There must also be some type of wrong doing by the other party like fraud, misrepresentation, or duress of some type. Otherwise, the court will not save one party from their bad bargain.

The Courts will hold that “[m]arital property settlements entered into by competent parties upon valid consideration for lawful purposes are favored in the law and such will be enforced unless their illegality is clear and certain.” Cooley v. Cooley, 220 Va. 749, 752 (1980). As with any contract, a separation agreement, if unconscionable, is void. A property settlement may be unconscionable based on an evaluation of “the intrinsic fairness of the terms of the agreement in relation to all attendant circumstances, including the relationship between the parties.” Derby v. Derby, 8 Va. App. 19, 28 (1989). A bargain is unconscionable if “no man in his senses and not under delusion would make on the one hand and as no honest and fair man would accept on the other.” Id. To prove unconscionability, a party must show “gross disparity in the division of assets” and “overreaching and oppressive influences” Galloway v. Galloway, 47 Va. App. 83 (2005). The court has held that “[m]arriage and divorce creates a relationship which is particularly susceptible to overreaching and oppression.” Id. at 29.

Virginiacourts have examined separation agreements for unconscionability. In Derby v. Derby, 8Va. App. 19, 28 (1989), the husband “gave up essentially everything he had ever earned and accumulated in his lifetime for an ephemeral promise on the part of the wife to permit him to reside in one of the apartment units in the building…The small amount of remaining marital property was divided evenly, but the agreement provided that George Derby waived his rights to spousal support while Sandra Derby retained hers. The trial court’s finding of unconscionability on its face was supported by the evidence.

In Sims v. Sims, 55 Va. App. 340, 344 (Va. Ct. App. 2009), the Court set aside a separation agreement in which the wife waived spousal support and relinquished to Husband almost 100% of the marital estate–including the marital residence, all retirement benefits and deferred compensation. The court determined that the Agreement “left [Wife] penniless with no practical means for supporting herself.” Id. at 353. In reaching its conclusion, the court considered that the wife possessed very limited educated and suffered from physical and mental ailments. The Husband, though he did not engage in overt oppressive behavior, was found to satisfy the second prong of unconscionability through his attempt to deny his Wife the pecuniary support that she so obviously needed. Id.

An unconscionable contract is defined as one that shocks the conscience. In Plogger v. Plogger, 1997 Va. App. LEXIS 249, there was a gross disparity of assets among the parties, and there was evidence of duress against the less-rewarded spouse. The husband had very modest income, the separation agreement was made without negotiation, and the husband relinquished his ownership rights to nearly all of the marital property. Id.at 5. The court held that the separation was unconscionable and void because, in addition to the gross disparity of the division of property, the husband’s obligation to the wife under the separation agreement was shocking to the conscious. The court held that this knowledge was evidence of overreaching since the wife knew that he had modest financial resources, yet she still sought an extremely high support payment, without negotiation, leaving him “virtually penniless.” Id.at 6.

Where the first prong, a gross disparity in value exchanged, is satisfied, the court should next “consider whether oppressive influences affected the agreement to the extent that the process was unfair and the terms of the resulting agreement unconscionable… When the accompanying incidents are inequitable and show bad faith, such as concealments, misrepresentations, undue advantage, oppression on the part of the one who obtains the benefit, or ignorance, weakness of mind, sickness, old age, incapacity, pecuniary necessities, and the like, on the part of the other, those circumstances, combined with inadequacy of price, may easily induce a court to grant relief.” Scroggins v. Scroggins, 1996 Va. App. LEXIS 207(citing Derby, 8Va. App. at 28-29). Furthermore, proof of “pecuniary necessities” and infirmity also satisfies the second prong the unconscionability test even without overt oppressive influences,

Marriage is such a relationship that is particularly susceptible to duress of one spouse against another. See Derby, 8 Va. App. at 28 and 29. The court has held that “behavior that might not constitute fraud or duress in an arm’s-length context may suffice to invalidate a grossly inequitable agreement where the [marital] relationship is utilized to overreach or take advantage of a situation in order to achieve an oppressive result.” Derby, 8Va. App. at 29.

For example, in Pramagioulis v. Pramagioulis, 2011Va. App. LEXIS 20, the court found a settlement agreement unconscionable because of the Wife was uneducated and easily influenced by her husband as a result of mental instability. She was not represented by counsel. Given her mental condition, she did not understand the legal ramifications of the agreement. The Husband was aware of her mental condition, and made promises to her that he would not keep so that she would sign the PSA. The court found that the Husband’s statements and actions in convincing her to sign the PSA were overreaching influences on wife.

Duress at common law is defined as “any wrongful acts that compel a person … to manifest apparent assent to a transaction without volition or cause such fear as to preclude him from exercising free will and judgment in entering into a transaction.” Norfolk Div. of Soc. Servs. v. Unknown Father, 2Va. App. 420, 435 (1986) (citations omitted).

Duress may exist whether or not the threat is sufficient to overcome the mind of a man of ordinary courage, it being sufficient to constitute duress that one party to the transaction is prevented from exercising his free will by reason of threats made by the other and that the contract is obtained by reason of such fact.

Pelfrey v. Pelfrey, 25Va. App. 239, 246 (1997).

Constructive fraud is defined as the “breach of legal or equitable duty which, irrespective of moral guilt, is declared by law to be fraudulent because of its tendency to deceive others or to violate confidence.” Derby, 8 Va. App. at 16. Fraud is “generally determined by reviewing the conduct of the parties in relation to their legal and equitable duties to one another” Id. at 28.

For a contract to be enforceable, one must enter into it with full knowledge of what they are agreeing to. For example, in Scroggins v. Scroggins, 1996Va. App. LEXIS 207 (1996), the Court held that a property settlement was unconscionable because, in addition to a gross disparity in the consideration received, “the husband failed to disclose the value of his pension, his retirement incentive payment, and his medical benefits…and the wife was not as sophisticated as her husband and she relied upon his integrity.”

In summary, to have an agreement set aside as unconscionable, one must prove a gross disparity in value and something else like duress, fraud, or misrepresentation.

About the Author

Ms. Solomon became an attorney to help people find justice in an often unjust world. Her goal is to provide high quality, affordable legal services. Ms. Solomon is an experienced attorney offering fast, simple and affordable solutions to your financial and domestic problems. She is also skilled in corporate and government contracts, has a comprehensive business background, and is renown for her negotiating skills. She has practiced law for over 20 years and received awards as follows: Graduated with distinction from George Mason law school with a rank of “first” in class; Recognition for outstanding Pro Bono contributions to those in need; George Mason Hornbook Award for Outstanding Scholastic Achievement; American Jurisprudence Awards for property, remedies, antitrust, conflict of law, and communications law; Founder and Director of the Kare 4 Kidz Foundation.

www.marilynsolomonlaw.com