Sometimes the Divorce Settlement Isn’t Final: Modifying Property and Spousal Support

Part of the goal of divorce proceedings (or terminations of domestic partnerships in Oregon and Washington) is to disentangle the financial affairs of spouses. Unfortunately, even when the parties agree on how to divide their property and set spousal support (alimony), they may find that circumstances change and that one of the spouses wants to change the terms. Although it is very hard to change a property settlement, it is possible to change support, as illustrated by a recent case from the Oregon Court of Appeals.

This article does not discuss changes in child custody and visitation or child support, which are more easily changeable because the purpose is to ensure the children are properly brought up and supported.

Property

Traditionally, property distributions in divorces were final. Oregon has a law allowing property not disclosed to the court to be brought before the court to be distributed, regardless of whether the omission was innocent or wrongful. In the recent Oregon case, for example, the wife was held to have concealed the existence of a large retirement account, and the court ordered it divided 50-50 when it came to light.

Washington allows property distributions to be changed on the same grounds that any other judgment can be changed, which appears to have been read to allow more changes for extraordinary circumstances than Oregon would allow for omission of property. In one unusual case, for example, involved the refusal of a brother-in-law to cooperate in the transfer of corporate property to the spouses. In that case, the court decided that the entire settlement was conditioned on that transfer, threw out the entire settlement, and started over. In another case, the court held that a simple ambiguity in the meaning of the word “equity,” as used to divide the value of a house, was enough to require a change in how the value was divided.

Spousal Support

In both Oregon and Washington, the law generally requires a material change in circumstances before a spousal support award can be modified. The recent Oregon case made clear, for the third time in since 2011, that a material change can be grounds to modify an agreed support award. It also made clear that material changes can be addressed even if the previous settlement tried to take other potential changes into account.

The new case involves a couple who were divorced in 2004 after a 33 year marriage. The husband was a doctor and the wife was a CPA. They agreed that the husband would pay the wife $1,000 per month spousal support until she reached age 67. In any year the husband earned more than $160,000 or the wife earned more than $120,000, half the excess over those figures would be added to or subtracted from support.

The wife lost her job in 2009, then found another job, but was laid off again in 2010. She opened her own practice.

In 2009, he wife moved to modify the support award based on her lost job. The husband disputed that the change was substantial enough, and also argued that the wife should be charged with lost value in sale of their house because she delayed putting it on the market in 2007 as the judgment required. The wife then asked for back support based on the husband’s income exceeding $160,000 in 2008 and 2009; they disagreed by how much. The husband, in turn, asked that the excess income provision be deleted and that a specific listing price be set for the house. At the first hearing, in April 2010, the court resolved the question of back support for the husband’s income, which was not appealed, and set listing terms for the sale of the house.

At a subsequent hearing, which ran on several days in October 2010 and January 2011, the husband alleged that he had discovered that the wife had concealed income in 2005 and 2006 and that she had concealed the retirement account. He asked that he be awarded a back support adjustment and that the support award be terminated altogether because of the wife’s concealment of income. He noted that by this time, the wife had $1.2 million in retirement accounts, about $500,000 more than he had at that point, and that she was old enough to withdraw from them without penalty. The wife asked that her support be increased to $3,000 backdated to April 2010 and to $4,000 when her unemployment expired.

The trial court ruled, generally, in the husband’s favor. It found that the wife was overstating her business expenses and disallowed expenses it found to be double-listed. It also found that the wife’s delays of the sale of the house were in bad faith, which allowed her to live there without rent for several years longer than anticipated. Although the husband’s income had increased, he needed to draw from his retirement accounts to meet expenses the sale of the house was anticipated to cover. The court also found that the wife had diverted undisclosed income into the undisclosed retirement account in order to increase her support award.

The court awarded the husband half the retirement account. It also noted that it had considered awarding the husband the entire account as a sanction for the wife’s misconduct, but chose not to. Instead, it considered the past manipulation of the excess-income provision, the availability of the retirement account and a pension, the wife’s potential to earn a reasonable wage should she try for a less-well paying job than she was aiming at, and a general need to disentangle the spouses’ financial situation. With the wife capable of income of about $75,000 from employment and investments, the court decided to leave the $1,000 base support award in place and delete the excess-income provision.

The wife appealed. Her first argument was that the legislature had included a policy statement in the law favoring finality of settlements in divorce cases. The Court of Appeals made clear that this did not prohibit modifications for change of circumstances.

Her second argument was that the husband had not shown a change in circumstances. The Court of Appeals said that he didn’t need to, because the wife already had shown the change by proving that she had lost her job.

The wife’s third argument involved legal procedure. Did she have fair warning of the argument that the husband was going to use to request that the excess-income provision be deleted? The Court of Appeals ruled that she had; in responding to the wife’s original motion to increase support, the husband had stated that the changed economic positions of the spouses was such that the excess-income provision was inappropriate.

The wife also argued that the removal of the excess-income provision was a wrong decision in light of the actual evidence. The Court of Appeals pointed out that although the trial court was not allowed to modify support as a penalty for hiding the retirement account, it hadn’t made the changes for that reason. Instead, the court reviewed the trial court’s ruling and determined that its ruling was a proper consideration of the overall financial picture and to prevent further manipulation.

Finally, the wife argued that disentangling the spouses was not a good enough reason to change their previous settlement. The Court of Appeals said that wasn’t the only reason the trial court ruled as it had, and approved the trial court’s overall reasoning.

Lessons

Several lessons can be learned from this case. First, courts do not like people playing fast and loose with the truth. If you get caught withholding important information, it will come back to hurt you.

Second, don’t be greedy. If the wife hadn’t asked for more support when she lost her job, she probably wouldn’t have been caught hiding the retirement account or her past income, and the husband probably wouldn’t have thought there was a good reason to ask for a change.

Third, remember that a change in circumstances doesn’t have to appear to favor you if the overall situation indicates a possible change in your favor. If you think the overall situation might result in a favorable change, talk to your lawyer to see if there is a substantial change somewhere in the mix and whether there really is enough to work with. Don’t focus on only one point, but put everything together and look at the situation as a whole.

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One Response to Sometimes the Divorce Settlement Isn’t Final: Modifying Property and Spousal Support

  1. Mark Mandel says:

    The “Lessons” seem to be widely applicable, esp. the last two sentences. Good post!

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