When Can a Divorce Settlement Be Overruled By the Court?

In every state, the law strongly encourages people to settle their disputes. In nearly all situations, when a settlement is reached, it will be enforced. In Oregon, however, there is a very small loophole that allows a few settlements, in extraordinary cases, to be disregarded by the court. A recent case shows just how narrow the loophole is.

The Oregon divorce statute requires that the division of property be “just and proper.” The courts have read this requirement to mean that the court can overrule a settlement if it doesn’t think that the division is just and proper, but that it takes a lot to reach that point. The new case shows that the division has to be extraordinarily unfair and may, in some circumstances, require that the parties didn’t take the facts leading to the unfairness into account in negotiating.

The husband and wife negotiated a settlement, but when the husband submitted it to the court, the wife objected. The most significant issues that the court considered involved two instances of financial misconduct by the husband. First, the husband drew over $250,000 from a joint line of credit and declined to return it. Second, he loaned $300,000 to a third party without telling the wife.

The line of credit withdrawal was clearly addressed in the settlement. The line of credit withdrawals were addressed by awarding the couple’s ranch to the wife, subject to the line of credit, which the husband was to pay down by paying $15,000 spousal support a month. Effectively, that meant the wife was paid back, but the husband got a tax deduction in the process.

The trial court read the settlement as not addressing the loan to the third party and decided that because of the husband’s misconduct, it should award the loan to the wife. The Court of Appeals disagreed, ruling that a clause generally awarding separately held accounts, including the account from which the loan was made, to the person in whose name the account was held, gave the loan to the husband. Because the trial court hadn’t reviewed the settlement with the understanding that it addressed the loan, the case was sent back to the trial court for a new ruling.

The Court of Appeals also noted that the husband’s misconduct couldn’t be taken into account because everyone agreed the wife had known of the loan before the settlement and because the settlement addressed the line of credit drawdown. This meant that the wife had already taken the husband’s misconduct into account when they parties settled.

In other words, you shouldn’t rely on the courts to protect you from a bad decision in a divorce settlement. You’re better served by thinking carefully when negotiating, and, if you think you need advice or protection from high pressure negotiations, talking to a lawyer.