What Happens When Your Florida Marital Settlement Agreement is Based, in Part, on an Incorrect Assumption?

There is an old and colorful saying about the perils of making assumptions. The saying, which popped up on a 1973 episode of The Odd Couple, admonishes that you should “never assume” and reveals its lesson by separating the word “assume” into its first through third letters, its fourth letter, and its fifth through sixth letters. Before entering into any contractual agreements, including marital settlement agreements, it would be wise to heed this advice. It would also be wise to seek out the advice and counsel of an experienced Florida divorce attorney.

One case in which one of the spouses didn’t heed that advice was a recent action that originated in Sarasota County. James and Pamela were married for 27 years before their marriage ended in divorce. James was the son of very wealthy parents. In fact, James’ parents’ wealth was the source of the couple’s retirement plan. According to the court, they never saved for retirement; they simply made plans to live in their retirement years off the very large lump-sum inheritance they expected James to get once both of his parents had passed away.

James’ parents survived longer than James’ marriage to Pamela. Thus, when it came time for James and Pamela to enter into a marital settlement agreement, they simply included their assumptions about James’ inheritance in their MSA.

The difficulty was, though, that their assumptions were not correct. James’ parents didn’t leave him a lump-sum inheritance. They created a trust into which they placed their wealth and named James as a beneficiary. That trust had what’s called a “spendthrift” provision in it, which is a special type of estate planning tool that names a third-party trustee who pays out trust funds to the beneficiary. In other words, instead of getting a lump sum, James got periodic payments from his father’s trust, doled out by the trustee in accordance with the father’s instructions written into the trust document.

The problem with this arrangement, as far as the MSA was concerned, was that James did not pay Pamela anything from the periodic trust distribution payments he received. Pamela went to court, seeking an order demanding enforcement of the MSA. Pamela wisely did not ask the court to give her money that was still within the trust (because such an argument very likely would have failed). Instead, she argued simply that the MSA called for her to receive a set percentage of James’ inheritance, so she was entitled to that exact percentage of each of the periodic trust payments that James had already received.

James argued that the trust payouts were not an “inheritance” under the law, so he didn’t owe Pamela anything. While the trial judge agreed with the husband, the court of appeal ruled for the wife. As that court explained, the question to be addressed is what “the parties would have included in the contract had they anticipated the occurrence they overlooked.” In other words, if the couple had known that James’ father was going to create a spendthrift trust and give James only periodic trust payouts rather than a lump sum inheritance, what would the MSA document have looked like? Since the trial court did not answer this question but instead simply ruled against the wife based upon an incorrect interpretation of the law, Pamela was entitled to a new hearing and a new opportunity to argue for her share of the trust payments.

Any divorce case presents its own unique elements and differences. To get to an outcome that works for you, it helps to have a skilled advocate on your side. The knowledgeable South Florida divorce attorneys at Sandy T. Fox, P.A. are here to provide you with the strong advice and representation you need. Contact our attorneys online or by calling (800) 596-0579 to schedule your confidential consultation.

More blog posts:

What are Your Rights When Your Ex-Spouse Isn’t Complying With Your Florida Marital Settlement Agreement?, Fort Lauderdale Divorce Lawyer Blog, Dec. 21, 2017

The Importance of Negotiating a Favorable Florida Marital Settlement Agreement, Fort Lauderdale Divorce Lawyer Blog, April 12, 2017