PSA No-No’s

March 12, 2019 § Leave a comment

Just because your client agrees with her estranged husband to certain terms for settlement of their divorce does not mean that you should plug those terms into a PSA and shove it under the judge’s nose for approval along with a divorce judgment. Our appellate courts have held that some provisions are void and unenforceable as contrary to public policy. Here are the most notable:

  • A provision that relocation of the custodial parent would automatically trigger a change of custody without court action is void because it deprives the chancery court of jurisdiction to modify its judgment. McManus v. Howard, 569 So.2d 1213, 1216 (Miss. 1990).
  • Likewise, an agreement that the custodial parent may not relocate without prior court approval is void. Bell v. Bell, 572 So.2d 841, 845-46 (Miss. 1990).
  • The parties may not agree that child support terminates when the child turns 18. Lawrence v. Lawrence, 574 So.2d 1376, 1381 (Miss. 1991).
  • A post-nuptial agreement that the father would automatically have custody of the parties’ child in the event of a separation was held to be unenforceable. McKee v. Flynt, 630 So.2d 44, 50 (Miss. 1993).
  • A mother’s agreement to forego child support in return for a deed to some property was void as against public policy. Calton v. Calton, 485 So.2d 309, 310 (Miss. 1986).
  • The parties’ agreement that the mother would pay no child support if she agreed to transfer custody to the father is unenforceable. R.K. v. J.K., 946 So.2d 764, 779-80 (Miss. 2007).

It should go without saying that the chancellor, before approving the agreement, must find that it makes adequate provision for the support and custody of the child(ren). MCA § 93-5-2(2). The court reversed in a case where the mother agreed to no visitation whatsoever and to a provision that her payment of child support was in an amount she could not afford. Lowrey v. Lowrey, 919 So.2d 1112, 1119 (Miss. 2005).

An agreement for no child support should be approved only in the most exceptional circumstances, such as unemployment. Brawdy v. Howell, 841 So.2d 1175, 1179 (Miss. App. 2003).

It is against public policy for the parties to present one agreement to the court for approval while having a secret agreement that they would not abide by its terms. Wilburn v. Wilburn, 991 So.2d 1185, 1193 (Miss. 2008). I set aside a divorce judgment on its first anniversary after I was presented proof in court that the parties had exchanged emails in the course of settlement negotiations that the husband promised he would not enforce the wife’s obligation to pay certain debts under the agreement if she would agree that he did not have to pay the child support provided for. Oh, and the agreement for her to pay certain debts was only in the agreement to help her qualify for a low-income mortgage.

Keep in mind that our appellate courts have been reversing cases in which the paying party was ordered to maintain life insurance in a benefit amount in excess of the total obligation. In one case, the trial court ordered the ex-husband to maintain a $1,000,000 life insurance policy to secure a $480,000 lump sum alimony award. The COA reversed, holding that the amount of life insurance may only be enough to secure the award. Griner v. Griner, 235 So.3d 177, 188-89 (Miss. App. 2017). Your PSA’s should follow that line of reasoning or reflect some other justification for the agreed amount.

 

 

If Private School Expenses are Included, You Must Say so in the PSA

May 22, 2014 § 3 Comments

Andrea Gaienne and Michael McMillin were divorced from each other in 2007, on the sole ground of irreconcilable differences. They shared joint legal custody, and Michael got “primary physical custody” of the two children, who were then ages 7 and 3. The parties’ PSA included the following language:

3. Child Support and School Expenses. Wife will not be required to pay child support to Husband, as Husband acknowledges and represents unto the Court that he has sufficient income in excess of that set out in the Mississippi Child Support Guidelines to fully support the minor children in his custody without contributions of child support from the Wife. However, Husband and Wife agree that each will pay one-half of any and all daycare expenses, and any other expenses relating to daycare or school, including school supplies, and sports activities for the minor children, including the costs of any uniforms, fees, and travel expenses for sports activities.

. . .

12. College Education and Expenses. Husband will continue payments to the Mississippi Impact for the minor children for their college tuition and Wife agrees to contribute and pay $500.00 per year to the Mississippi Impact fund for the minor childrens’ college tuition beginning in 2007. Husband and Wife further agree that whatever college expenses are not covered by the Mississippi Impact fund, that as such college expenses that are not covered become due, Husband and Wife will discuss and confer with one another as to which are reasonable for college for the minor children, they and will [sic] decide, if possible, the amount that each will pay toward said college expenses, and if they cannot agree, then Husband and Wife agree that the Chancery Court of Warren County will make such decisions regard[ing] the college expenses for the minor children. That this agreement will extend throughout the attainment of a bachelor’s degree or equivalent. This obligation may extend past the twenty-first birthday of either child, but it shall not extend past the twenty-third birthday of either child. Total expenses for which the Husband and Wife may be responsible and may agree on include the following: tuition, room and board, books, student fees, transportation expenses, fraternity or sorority dues, fees or expenses, and a reasonable amount of discretionary spending money. Husband and Wife further agree to consult with one another and with each minor child as to the choice of the appropriate college or university. The college or university shall be selected by the parties and the child, the majority rule.

The seven-year-old was enrolled in public school at the time of the divorce, but, after a bullying incident the parties enrolled him in a private school, sharing the tuition. Andrea thought she and Michael had an agreement that she would be relieved of the Impact payments in consideration of sharing the private school tuition, but when Michael would not acknowledge that in writing, she filed pleadings in chancery court seeking modification or clarification that she was not required by the language of the PSA to contribute to pre-college private school tuition. Michael countered with a contempt action.

The chancellor found that the agreement did require Andrea to contribute to the private school tuition, and found her in contempt. Andrea appealed.

In a ruling handed down May 15, 2014, the MSSC in Gaienne v. McMillin, addressed the issue. Justice Randolph wrote for the majority:

I. Gaiennie is not obligated to pay for private-school tuition.

¶8. “While a chancellor’s decisions in a [domestic] action are reviewed for manifest error, a property settlement agreement is a contract, and contract interpretation is a question of law, which is reviewed de novo.” McFarland v. McFarland, 105 So. 3d 1111, 1118 (Miss. 2013) (citing Harris v. Harris, 988 So. 2d 376, 378 (Miss. 2008)). This Court applies a three-tiered approach to contract interpretation. Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So.2d 107, 111 (Miss. 2005). First, we apply the “four corners” test, wherein this Court “looks to the language that the parties used in expressing their agreement.” Id. “When construing a contract, we will read the contract as a whole, so as to give effect to all of its clauses.” Id. “On the other hand, if the contract is unclear or ambiguous, the court should attempt to ‘harmonize the provisions in accord with the parties’ apparent intent.” Id. (quoting Pursue Energy Corp. v. Perkins, 558 So. 2d 349, 352 (Miss. 1990)). “The mere fact that the parties disagree about the meaning of a provision of a contract does not make the contract ambiguous as a matter of law.” Cherry v. Anthony, Gibbs, Sage, 501 So. 2d 416, 419 (Miss. 1987). Secondly, if the contract is unclear or ambiguous, this Court applies the “discretionary ‘canons’ of contract construction.” Facilities, 908 So. 2d at 111. Thirdly, “if the contract continues to evade clarity as to the parties’ intent, the court should consider extrinsic or parol evidence.” Id.

¶9. Gaiennie argues that, under the terms of the property-settlement agreement, she is not obligated to pay one-half of private-school expenses. Gaiennie points to the absence of the word “tuition” in the “school expenses” provision as a clear and unambiguous indication that precollege private-school tuition was not part of the property-settlement agreement. Gaiennie also argues that there was no consideration of private school at the time the property-settlement agreement was signed. McMillin argues that the plain meaning of the phrase “any other expense related to daycare or school” necessarily encompasses private school tuition, as private-school tuition is a school-related expense.

¶10. We disagree. The absence of any reference to private school or private-school tuition in provision three controls the issue. “When a contract is clear and unambiguous, this Court ‘is not concerned with what the parties may have meant or intended but rather what they said, for the language employed in a contract is the surest guide to what was intended.’” Ivison v. Ivison, 762 So. 2d 329, 335 (Miss. 2000) (citing Shaw v. Burchfield, 481 So. 2d 247, 252 (Miss. 1985)). Looking to the four corners of the agreement, we find that it is not ambiguous. Tuition is conspicuously absent from the “school expenses” provision. (See Zweber v. Zweber, 102 So. 3d 1098, 1101-02 (Miss. 2012) (holding that “flying lessons were not included in the final judgment of divorce).

¶11. Notwithstanding that the plain language of the agreement requires no private-school tuition, if we accepted Gaiennie’s argument that absence of the word “tuition” creates an ambiguity, the result would be no different, for we would first attempt to harmonize the provisions in accord with the parties’ apparent intent. The fact that tuition was specifically included within “college expenses,” but not “school expenses” reveals the parties’ intent that private-school tuition was not intended under the agreement.

¶12. Even if we went beyond the “four-corners test,” and looked to the intent of the parties, Gaiennie would still prevail. Neither party disputes that, at the time the agreement was signed, the eldest child was enrolled in public school. Neither party disputes that, at the time the agreement was signed, it was their intent for the children to attend public school. The children attended public school for nearly three years before a bullying incident prompted consideration of private school. We find that, because private-school tuition was not specified in the agreement, we must reverse the chancellor’s holding requiring Gaiennie to pay for one-half of the children’s private-school tuition.

This decision underscores a recurring theme in PSA-interpretation cases: If you don’t specify that a particular expense is covered by the agreement, don’t assume that the court is going to write that requirement into it for you. This is especially true in cases involving private-school enrollment.

Oh, and notice the reference to Ivison in the opinion. If you click on the link it will take you to a previous post on that case that further highlights the perils of leaving things in an agreement unsaid that really should be said.

SOME THINGS YOU NEED TO KNOW ABOUT CHILD DEPENDENCY EXEMPTIONS

January 8, 2013 § 4 Comments

Many property settlement agreements (PSA) involving children have a provision like this:

Husband shall claim the minor children as dependents for tax purposes in even-numbered years, and Wife shall claim the minor children as dependents for tax purposes in odd-numbered years.

What happens, though, where, despite the language of the agreement, the mom claims the children in an even-numbered year, and the father does, too? Is the language above enough to satisfy the IRS that the dad, and not the mom, was entitled to claim the exemption in that year?

The answer is no.

IRS regs require that if you are trying to base a claim for exemption on a writing that is not an IRS-designated form, the writing must conform to the substance of the IRS form and must be a document executed for the sole purpose of serving as a written declaration within the meaning of the IRS regs. A court order, PSA, handwritten note or any other document not meeting those requirements will not suffice. The claiming party must attach to the tax return a completed IRS form 8332 or a document including every element of it.

In the case of Armstrong v. Commissioner of Internal Revenue, decided December 19, 2012, by the US Tax Court (I do not have a cite for you) involved the scenario above. The court said:

The IRS’s Form 8332 provides an effective and uniform way for a custodial parent to make the declaration required in section 152(e)(2)(A) for the benefit of the noncustodial parent. But a noncustodial parent like Mr. Armstrong may also rely on an alternative document, provided that it “conform[s] to the substance” of Form 8332.5 See 26 C.F.R. sec. 1.152-4T(a), Q&A-3, Temporary Income Tax Regs., supra. In particular, for tax years including the year at issue here, a court order that has been signed by the custodial parent may satisfy section 152(e)(2)(A) as the noncustodial parent’s declaration if the document “conform[s] to the substance” of Form 8332.6 See Briscoe v. Commissioner, T.C. Memo. 2011-165 (concluding that the court order attached with the return did not conform with the substance of Form 8332); cf. Boltinghouse v. Commissioner, T.C. Memo. 2003-134 (holding a separation agreement conformed with the substance of Form 8332).

A basic element necessary for satisfying section 152(e)(2)(A) is a custodial parent’s declaration that she “will not claim” the child as a dependent for a taxable year. A custodial parent accomplishes this on a Form 8332 with the following statement: “I agree not to claim * * * for the tax year”. This statement is unconditional; and in order for a document to comply with the substance of Form 8332 and ultimately section 152(e)(2)(A), the declaration on the document must also be unconditional. See Gessic v. Commissioner, T.C. Memo. 2010-88; Thomas v. Commissioner, T.C. Memo. 2010-11; Boltinghouse v. Commissioner, T.C. Memo. 2003-134; Horn v. Commissioner, T.C. Memo. 2002-290.

The opinion points out that there are four considerations in determining whether a party is entitled to claim the dependency exemption: (1) Whether the “child receives over one-half of the child’s support during the calendar year from the child’s parents … who are divorced … under a decree of divorce”, sec. 152(e)(1)(A); (2) whether the child was “in the custody of one or both of the child’s parents for more than one-half of the calendar year”, sec. 152(e)(1)(B); or (3) whether “the custodial parent signs a written declaration (in such a manner and form as the Secretary may by regulations prescribe) that such custodial parent will not claim such child as a dependent for any taxable year beginning in such calendar year”, sec. 152(e)(2)(A); and (4) whether “the noncustodial parent attaches such written declaration to the noncustodial parent’s return” for the appropriate taxable year, sec. 152(e)(2)(B).

To rub a little salt in the wound, the Tax Court held that, since Mr. Armstrong had been ruled not to be entitled to claim the dependency exemption, the children were not “qualifying” within the regulations, so he could not claim the child credit, either. Ouch.

For drafting purposes, at a minimum you should include language that the non-claiming parent will timely execute IRS form 8332 for every tax year covered in the agreement. At least in that way you can ask the court for relief under MRCP 70(a). I have no idea whether a form executed by another party per the rule would satisfy the IRS, but it’s better than nothing. It would have the added benefit of documenting that you have made your client aware of the requirement of the form.

If I were practicing today, I would confer with my favorite CPA for advice about how best to avoid problems with this situation. Can you get the other party to sign ten years’ worth of forms in advance, each for the specific year in which your client will be claiming the exemption? I don’t know, but a CPA will know.

Of course, Mr. Armstrong could seek relief via contempt from the fomer Mrs. Armstrong. Contempt is a dish best served cold, as they say. But it has the disadvantages that one has to hire an attorney and try to collect money that may no longer be there. Yes, you can put that ex in jail, which may provide a measure of comfort and satisfaction, but it may not make you whole financially.

NOTE: Armstrong involves tax returns filed before the above-cited regs were adopted, and the language of the parties’ divorce decree included a clause that made claiming the exemption conditional upon payment of child support, but I believe my interpretation of the law above is accurate.

ANOTHER OBJECT LESSON IN PSA DRAFTSMANSHIP

December 21, 2011 § 2 Comments

What does the following language in a divorce property settlement agreement (PSA) mean?

The parties both agree and understand that [Stephen] will retire from Martin Marietta Manned Space Systems effective April 24, 1992. . . . The parties have agreed to accept #D-Level Income as the monthly benefit option. This will provide [Stephen] a monthly income of approximately $3[,]189.26. [He] will remit to [Gloria] one-half of this income, being the approximate amount of $1,594.63, on the first day of each month . . . commencing on January 1, 1993. These monies will be considered alimony[,] and [Gloria will be responsible for the income taxes].

That was the question squarely presented to the chancellor in litigation between former spouses Stephen and Gloria Reffalt.

Stephen and Gloria were divorced in 1993. Stephen had retired from his job with Martin Marietta (MM). Approximately two years later Stephen’s retirement benefits paid by MM were reduced when his Social Security benefits kicked in, as the plan provided. As a result of the automatic reduction, the $1,594 payments to Gloria came to represent considerably more than 1/2 of the MM benefit. Nonetheless, Stephen continued paying the $1,594 until December 2008, when he apparently decided enough was enough, and he filed a petition to modify the payments proportionally to about $1,150 a month.

Stephen took the position that the above PSA language clearly intended that Gloria receive only 1/2 of his MM retirement benefits, whatever that amount might be.

Gloria argued that the language mandated that she be paid 1/2 of Stephen’s total retirement benefits from whatever source.

The chancellor found the language to be ambiguous and accepted parol evidence of the parties’ intentions in the drafting of the contract. Placing heavy emphasis on the parties’ course of conduct over fifteen years after the reduction in MM benefits, the trial court held that the language intended that Stephen pay the higher amount, and denied his request for a downward modification.

In Reffalt v. Reffalt, decided December 13, 2011, the COA affirmed. I recommend that you read the opinion, written by Judge Ishee, for its exposition on the principles of contract interpretation and what is and is not an ambiguous contract. The opinion also touches on the question of modification of property settlement.

This case is yet another example of draftsmanship that may appear at first blush to be clear, but on further inspection is susceptible to several different interpretations. Consider the language ” … This will provide …” and ” … one half of this income …” To what do the pronouns this refer? Are their objects the same thing or different? Better to have said “… one half of the #D-Level benefit each month …” Or “Stephen will pay to Gloria the sum of $1,594 each month.” Or “The amount payable by Stephen shall be adjusted automatically to be equal to 50% of his #D-Level benefit actually received, without any voluntary action on his part to reduce the amount received.”

A few suggestions:

  • As I have said here before, it’s a good idea to draft and set aside that agreement for a day or two. Then pick it up and read it through different eyes. Cast yourself in the role of the judge looking at it years later, or the plan administrator considering how to apply it, or another lawyer to whom your former client has carried it.
  • Go pronoun hunting. Eliminate as many as you possibly can, replacing them with the specific term that you intend to refer to.
  • Does your language say exactly what you mean to say, or is it indirect and prolix? More words are not always better. The more verbosity you use, the more likelihood that confusion, unintended meanings and ambiguity will grow and fester in that thicket like a staph infection. 
  • Here are five suggestions for improving your PSA’s.
  • And here are five more.
  • Here is a post about a nightmare scenario in draftsmanship.
  • Kicking the can down the road, and why it’s not a good idea in your PSA’s. 
  • And here is a post on some examples of the hidden costs of divorce that you need to take into account when drafting a PSA.

Give your PSA’s some thought. That’s what you’re being paid for. Strive for your PSA’s to be better than 99% of other attorneys’. Make it your goal that no judge will ever have to find one of your PSA provisions to be ambiguous.

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