Material Misrepresentation of Assets During Mediation in New York

money-1239608-e1458180514719During a separation or divorce mediation in New York, couples are expected to honestly disclose their assets. Dishonesty during this process can result in a case being set aside.

In the 2015 case Moore v. Moore, an ex-husband tried to subpoena financial records from his ex-wife so that he could use them to challenge a separation agreement negotiated two years before. The couple had divorced in 2013 based on a mediated settlement agreement.

Both parties had provided financial disclosures in order to reach the agreement. They both provided warranties that they had completely and truthfully represented their current assets. They also agreed that if they divorced, they would have to produce all documents necessary to enforce the agreement terms. The agreement was incorporated into the divorce judgment.

The ex-husband agreed, based on the ex-wife’s financial disclosure, to divide cash assets. He paid her $243,000 at the time of the divorce. However, a credible mutual friend told him after they filed for divorce that the wife had bragged about hiding assets during the marriage and at mediation.

The husband looked at their joint checking account and realized that his wife had transferred about $30,000 before telling him she planned to get a divorce, then transferred another $2000 afterward. The transfers weren’t disclosed before or during the mediation. Accordingly, the husband asked for a judicial subpoena for the wife’s financial records. The wife opposed the request, arguing that there wasn’t enough of a basis in hearsay statements from a credible mutual friend to subpoena her records.

The court explained that review of separation agreements is supposed to be sparing. Courts encourage couples to settle differences about a separation agreement on their own. However, there is a fiduciary relationship between spouses. Therefore courts will consider facts existing at the time a separation agreement is signed to make sure that it was fairly executed.

The Domestic Relations Law makes it inappropriate to force financial disclosures for purposes of overturning a separation agreement until the actual separation agreement is set aside. There is an exception when the ex-spouse making the request is able to show a legitimate factual basis for setting the agreement aside.

Where the support obligations are fixed in a separation agreement, financial disclosures are not available during the divorce because spousal support isn’t at issue until the agreement is invalidated. The court reasoned that the issue at hand was whether this principle applied in lawsuits started after July 18, 1980, which was the effective date of the Equitable Distribution Law. This law requires that an agreement must be fair and reasonable when made. The parties’ financial positions are considered by the court to decide whether the agreement is fair.

The court found that in the instant case, the hearsay statements were not enough to permit the husband to scrutinize his ex-wife’s financial records. They were not corroborated, and the husband relied on speculation in connection with his wife’s purchase of a home. The only tangible evidence that supported his claims was his inspection of the banking records, which showed that the wife had taken sums from their checking account before the divorce started. The husband claimed that the wife listed only one bank account in her disclosures although she had two. However, he didn’t produce the bank account statements that supported his allegations.

That said, the court also looked at CPLR 3102(c), which allows for disclosures before a complaint is filed where it would help to file a lawsuit. This code section only asks a party seeking disclosure to articulate the elements of his cause of action.

While a fishing expedition isn’t permitted, the party can discover information prior to overturning an agreement by showing that the information it seeks is material to proving a meritorious cause of action. Further, the parties had agreed that disclosure would be allowed to enforce the agreement if either party owed an obligation to the other. The husband’s claim was of material misrepresentation of assets, which is enough as a matter of common law to set aside a separation agreement. The court required the husband to sign a confidentiality agreement and permitted the records to be subpoenaed to the court for review under court direction.

If you are considering using mediation for your New York divorce, contact the Law and Mediation Office of Darren M. Shapiro at 516-333-6555 or via our online form. Our principal Darren Shapiro is an experienced, compassionate family law attorney and mediator.

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