Category: Contracts

Putting Humpty Dumpty Together Again: Breach of Contract

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When they separate after being in a relationship, people who are or were married usually resolve their disputes one of two ways, by obtaining a court order or by a contract usually but not always called a separation agreement.

Breach of Contract

Failure to do what was promised in a contract is a violation of it, called a breach of contract. This article assumes a valid contract has actually been made, and it doesn’t look at what defenses someone might have if he or she is sued for breach of contract. If you enter into a contract, you are legally obligated to perform accordingly. Contracts are usually enforced by money damages. Like Humpty Dumpty, the court tries to make the innocent party “whole” again, restored to the position they were in before the other person breached the contract. The law gives the person a legal remedy, they are then finished with the matter, and both are off to live happily ever after.

No Adequate Remedy at Law

Now consider the person in a family law situation. If you are entitled to child support but your ex won’t pay, a legal remedy to enforce the contract would mean that each month after no payment is made, you would sue your ex, have a trial to get a judge to make a ruling, and execute on a judgment for money owed. Needless to say, this legal remedy would be repetitive, expensive and time-consuming. The entire point of child support is to make sure the child is given shelter, food, transportation, etc. Going to court every month would give a completely opposite result. This means the law is substituted with what is called equity.

Remedy at Equity

When the legal remedy isn’t enough to make you whole again, the law is supplemented by equity. Family law is one of the few times when the court has the ability to rely on equity, which is based on justice and what is right and wrong, instead of relying just on a written statute. The distinction between the law and equity is also noticeable when you see it used as an attorney at law. Property claims for marital property are courts at equity because the judge must divide marital property equally “unless the court determines that an equal division is not equitable.” NC Gen. Stat. §50-20. In fact, the division of marital property is called equitable distribution. In several matters related to family law, a judge’s discretion is used, based on what is just and fair.

Family Law: Specific Performance

If the court doesn’t use financial damages to remedy the problem, what does it use? The answer is specific performance, enforcing a contractual obligation to act or perform in a specific way. Besides continuing and repetitive money paid every month, a family law contract may involve obligations such as signing a deed, returning family photos to the other spouse by a certain deadline, filing joint tax returns or naming someone as a beneficiary of life insurance. Money doesn’t fix those types of problems. These are examples of a promise to act or perform in a certain way.

In these instances, a judge will enter a decree of specific performance, ordering the other party to perform in the specific way he or she agreed to do. In the non-family law world, an actor who breaks a contract to star in a movie, for example, is not forced to go to the set and perform. Instead, the actor must suffer the penalty of paying money damages. But in the world of domestic law, a judge will order specific performance. Before a person is court-ordered to perform, the judge must be persuaded that you have performed as you agreed to do in the contract, and that the other party has the ability to perform as promised. If he or she only has the ability to partially perform as promised, that is what the judge will require.

 

The ABCs of College Expenses in North Carolina

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First Things First. When Does Child Support End?

The age of majority in our state in age 18, and child support obligations generally end when a child reaches that age. There are several exceptions to that rule. Support ends when a child is emancipated (by marriage for example) before reaching age 18. If a child is 18 but has not yet graduated from school, support continues until the child graduates or ceases to attend school on a regular basis, fails to make satisfactory academic progress towards graduation, or reaches age 20, whichever comes first. The court does, however, have the ability to terminate support at age 18 before high school graduation if he or she deems it appropriate. See NC Gen. Stat. §50-13.4.

When Do College Expenses Begin?

They begin based only on parental agreements. Because child support obligations end at age 18 or graduation, the court has no ability to order continuing support (i.e., college expenses). However, while there is no legal obligation for either parent to pay these expenses, they are free to enter into an agreement to address them. The agreement is frequently a separation agreement, which the court will enforce. When parents obligate themselves to be responsible for college expenses, the obligation is not only enforceable against the other parent. The obligation is enforceable by the child against one or both parents in the event a parent fails to abide by the agreement.

Considerations For Parents Negotiating College Expenses

How are “college expenses” defined by the parents?

Do the expenses include tuition, housing, books, transportation, insurance, etc.?

Can the parents truly afford to pay for college?

Will each parent be required to contribute a specific dollar amount, to be supplemented by the student taking on loans or working while in school?

Are there restrictions on which university or college, usually related to either in-state rates in North Carolina or out-of-state rates?

Will the same rules apply to all of the children?

Will one parent pay or both share the cost?

If both pay, what percentage of expenses will each parent pay?

Should the parents contribute to a 529 College Savings Plan, or pay expenses directly?

Does the agreement require the child to meet standards, such as earning a minimum GPA or living at home while in school?

Are there limitations concerning anticipated degree programs, such as a two-year degree or four-year degree?

 

How a Contract Magically Becomes a Court Order: Incorporation

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In the world of family law in North Carolina, there are three ways to address agreements: contracts, court orders and incorporation.

Contracts

Contracts are agreements signed by the parties, such as a separation agreement. If someone violates the contract, it is called breach of contract. A contract is enforced by a “specific performance” lawsuit, asking the court for an order requiring him or her to perform the specifics of the contract, such as signing a deed, refinancing a mortgage obligation, etc. A contract generally can’t be changed by the court. However, the court always has the authority to change anything related to child custody and support until a child is 18 years of age, regardless of what the parties set out in a contract.

Court Orders

Court orders are only available after a lawsuit has been filed, and they must be signed by a judge to be valid. The best part about a court order is the remedy. A party who violates the court order is subject to being held in contempt of court for failure to obey the court order. The contempt power of the court gives the judge discretion to do whatever he or she sees fit to enforce the order, depending on the circumstances presented. Although they don’t usually do so until after someone demonstrates they will remain obstinate, judges have the authority to incarcerate someone who continues to disobey court order. Orders can be registered in any state to be enforced with the full faith and credit of another state.

Incorporation

Our state has what is called incorporation, a special process by which a separation agreement “magically” becomes a court order once a judge signs it. But a judge cannot sign anything until there has been a lawsuit filed. Incorporation is done only by agreement, which is usually mentioned in a separation agreement. After a full year of separation has passed, either spouse can file for a divorce. When the judge signs a divorce decree, he or she also has the authority to incorporate it into the decree, permanently making it an order of the court.

What is a Separation Agreement?

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A Separation Agreement and Property Settlement is a voluntary contract between a husband and wife of ex-spouses. It may be signed no sooner than separation, and may be signed at some later date, even after the parties divorce. The parties can settle some or all of the issues, including child custody, spousal support (alimony), child support, and division of marital property and debts (equitable distribution). The laws are written to encourage settlement instead of litigation. Therefore, a properly drafted separation agreement is extremely difficult to change or void.

What Things Can We Include in the Agreement?

Because they are contracts mutually agreed upon, separation agreements can include just about anything. One of my favorite war stories involved a case where we agreed on horse custody and visitation. We even included terms for which farm the horses would stay and whether each “horse parent” would be entitled to allow future romantic partners to ride the horses. That type of outcome will never happen in court. In our state, horses are legally treated as personal property no different than a television or set of china.

Express Lane: Is There a Form I Can Use?

Even some attorneys who don’t handle family law cases, or just  dabble in family law, do not realize there is no “boiler plate” form.  In fact, separation agreements are popular because they can be customized to whatever terms agreed upon by the parties. Imagine going to a mechanic and asking for “the standard repair.”  All cars have tires and a steering wheel, but a Corvette and a VW Bug don’t call for the same repairs.  It is no different with attorneys who draft separation agreements. Some are very complex, but others might not be.

While separation agreements do have certain magic words for the more routine things, such as jurisdiction of the court to interpret the agreement for example, a good attorney will address dozens of other issues specifically. For instance, the agreement might include a disclosure paragraph that dictates whether the parties are obligated to tell each other about hidden assets, inheritance rights, or address certain significant tax consequences.

Buyer’s Remorse: Enforcement

Separation agreements can be written to spell out the types of enforcement mechanisms that will be used if it is violated. The agreement may be treated like a contract, which is enforced by a lawsuit based on breach of contract. Other times, the agreement may be drafted to become a court order at some later date, enforced directly by the court. The agreement can say that violations will trigger certain consequences. Or, it may dictate when and how child custody and/or support lawsuits can be filed at some later date. All of these enforcement options are another example of ways attorneys draft agreements based on each client’s specific needs and priorities.

Free-Trader Agreements in North Carolina

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When a married couple separates, if they can reach an agreement on all of the issues between them, they may choose to sign a separation agreement. A separation agreement is a contract that says how they have agreed to divide property and debt, how family support will be provided, if any, and what they will do about parenting time if they have children together. One of the usual terms contained in it is a free-trader-agreement (FTA). If there is no separation agreement, an FTA can be a short contract by itself.

What’s the Problem?

When married couples acquire a mortgage loan, both usually sign the promissory note, which means they both have a legal obligation to make mortgage payments. That’s pretty straightforward. But when only one spouse signs a promissory note, only he or she owes the money. To oversimplify the problem, if the home-owner dies before becoming divorced, the surviving spouse has no legal responsibility to make the mortgage payments. But regardless of the fact that a married couple is separated, as a spouse, the non-home-owner would still have certain inheritance and survivorship rights to the property.

Remedy #1 – Free Trader Agreement

Mortgage lenders regularly require separated parties to sign an FTA, which is an agreed-upon right for each spouse to buy (i.e., trade) freely (i.e., without interference from the other) before they lend money to buy a home. The mortgage company will own the home if they foreclose on the loan. They don’t want to share ownership of the home with the other  spouse who isn’t even obligated to make mortgage payments. The purpose of an FTA is make sure the non-buying spouse waives all claim to the house, including inheritance and/or survivorship rights.  These agreements clarify that either spouse is free to get a mortgage in his or her name individually, without the signature of the other spouse. FTAs are recorded at the office of the Register of Deeds, which makes them public record. With the agreement, the spouse buying the home has exclusive ownership of it (and the responsibility of paying for it) even though he or she is married. Like all contracts, both parties must voluntarily agree to sign it.

Remedy #2 – The Divorce

When a divorce decree is granted, the other person is no longer a spouse, so the mortgage lender no longer has the problem of an ex who is still a surviving spouse even if they were separated for some time when the home was purchased. However, in North Carolina, a spouse can’t even file for the divorce until he or she has been separated for at least one full year. When a spouse files for a divorce, it can take two to three months before the divorce decree is granted. When the other spouse refuses to sign an FTA, the only remedy is the divorce, which is nearly impossible to contest because it is based on a one-year separation.

 

Post-nuptial Agreements

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Marital contracts are signed by parties who choose to clarify what they desire to happen in various situations, instead of having issues decided in court.  The requirements for marital contracts are quite different.  Prenuptial or premarital agreements are subject to the Uniform Premarital Agreement Act, and only becomes effective if and when the parties marry. These agreements cannot address any future children and there are some restrictions about alimony.

On the other hand, separation agreements can generally only be signed after the parties separate, meaning they no longer live together. Separation agreements are made between people whose positions are clearly adversarial. These agreements are very broad and can include agreements on almost any subject matter, including alimony, equitable distribution and all matters related to children.

In between premarital agreements and separation agreements, there are post-nuptial agreements, which may be signed after marriage but while the two spouses live together. Post-nuptial agreements are still somewhat exotic, and they are more limited than a separation agreement. They cannot cover all of the subjects found in separation agreements. This is because courts have a public policy concern that these post-nuptial agreements interfere with the marital relationship while the spouses are in the same home. In those cases, the fear is that one spouse will manipulate the other so he or she will stay in the relationship. Contrast this with the notion that people who have already separated are on notice not to trust the other who is now not looking out for the person’s best interest.

 

What Are Divorce Papers?

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People frequently contact an attorney when they receive documents from an attorney or their ex. When someone uses the term divorce papers it can mean a variety of things. Although there are other possibilities, the overwhelming majority of people who receive what they call divorce papers have received one of two things: a proposed contract or a lawsuit. These two things are completely different, and anyone who receives divorce papers from an attorney (or the ex) should immediately consult with an attorney. The attorney will explain what the documents actually are, and advise you of your rights and responsibilities.

Separation Agreements

When spouses can agree about dividing debts and property, alimony if applicable, or child support and custody, they may sign a Separation Agreement and Property Settlement. Attorneys sometimes send a proposed Separation Agreement to the other party to see if there is room to negotiate an out of court settlement. A Separation Agreement is a contract, not a court order. Because it is a contract, a person who violates it can be liable for breach of contract. Contrary to what most people think, there is really not a “standard separation agreement” although there are several paragraphs that are almost always included in most separation agreements.

Like all contracts, the parties must agree to be bound by the terms of the contract, and properly sign or “execute” it and any related companion documents such as deeds or car titles. There is no way to force the agreement if the other person is unwilling to negotiate. No contract can create an actual divorce, which must always be granted by a judge after a lawsuit is filed, even if the divorce is uncontested.

Lawsuits

When people say they are going to get divorce papers that definition might mean they are filing a lawsuit and asking the court for any number of things. A lawsuit might be one for divorce after a separation of at least one year, an emergency domestic violence order, an order for alimony or child custody and support, or equitable distribution, which is the division of property and debts.

When there is no agreement on financial matters or issues concerning children, the only way to force a resolution is to file a lawsuit. In our state, divorce papers for a lawsuit consist of a complaint, which is the document that activates a lawsuit, and a summons. The summons gives the court jurisdiction or the right to order you to do something or stop doing something, like pay child support or divide property by signing a deed or paying a debt.

In family law cases, unlike criminal court, it does not matter if you are the plaintiff or the defendant. You will be asking the court to do the same things regardless of whether you file the lawsuit first. Lawsuits may or may not be related to the divorce itself, although a divorce operates as a deadline for certain claims. Unlike contracts, lawsuit documents must be “served” on the other person. Service is the act of a sheriff handing documents to you, or a few other alternatives. If you are served with a lawsuit, you have a specific deadline to respond. If you fail to act on the documents served upon you, or if you wait too long to act, you risk forever losing the right to file your claims or certain defenses.

Prenuptial Agreements (Also Known as Premarital Agreements)

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An engagement is a happy occasion. In the excitement about their wedding, people sometimes overlook the fact that marriage automatically changes your legal rights. These rights include inheritance rights, marital asset and debt rights, and alimony. In legal terms, these rights and responsibilities are called incidents of marriage, meaning the burdens or benefits of marriage.

What is a Pre-nuptial Agreement?

A pre-marital agreement, sometimes called a pre-nuptial agreement, is a contract between two unmarried individuals. It only becomes effective if there is a marriage. Otherwise, these contracts have no legal effect. Some people think it is unpleasant to discuss the subject of pre-marital agreements. But it is worse to wait, perhaps decades, to find out your gamble to roll the dice and see if you can avoid dealing with a pre-nup was unsuccessful? I tell clients a pre-marital agreement is like home owners insurance; you hope that you never need it, but after a fire (or in this case divorce/death) burns your house to the ground, you sure are glad you have it.

What Topics Does a Pre-nup Cover?

The statute[1] clearly says “[t]he right of a child to support may not be adversely affected.” Otherwise, couples are free to contract about alimony, property and debt, and even inheritance rights. These agreements are popular among people who have been married before, or people who have property, such as a home, when they get married. When people marry later in life, they usually want to protect their adult children in the event of their death or divorce.

A pre-nup can be as simple or complex as is necessary. These agreements are not usually boiler plate documents. Sometimes people merely want to clearly identify their separate property before they marry. Other times, someone may have substantial debts, such as huge on-going medical bills, and want to shield the other person from them. A common circumstance is when a wealthy person (sometimes at the request of his or her parents) marrying a person of modest means.

Why Have a Pre-nup?

Protecting property (i.e., their separate assets) is the most common reason for having a pre-nuptial agreement. Property you bring to the marriage may grow in value, such as retirement investments or a pension. Do you understand the impact of marriage is on these assets or debts?  Most people don’t realize it, but property may be mixed, meaning separate property someone brings to the marriage may become partly marital. No widow or widower wants to own property with their spouse, only to find out after his or her death, the property is now owned 50/50 with the adult children of the late husband or wife. This can be an unintended consequence of failing to properly plan events before marriage.

Estate rights may also be included in a pre-nup. If someone does not have a will, the state will determine who inherits the estate, and in what percentage. Having a will generally gives you the flexibility to name anyone you choose to inherit from, but without a prenuptial agreement, you cannot “disinherit” your spouse. Otherwise, without a pre-nuptial agreement, by law, a spouse cannot be ignored or left out. A pre-nup can set out the wishes of the parties in the event of their deaths, in any way they choose.

Alimony is another reason pre-marital agreements can be useful. There is no formula or guideline for determining the proper award of alimony a dependent spouse will receive in North Carolina. However, parties may choose to do so in a pre-marital agreement. For example, the amount of alimony may be awarded based on the number of years they remain married.

One spouse may want to avoid alimony altogether, and the other may want to be sure it is specifically included. For example, if you are young and anticipate being a stay at home mother (or father), think about the financial impact that would have on you.  After being out of the workforce for what may be years, it may be difficult to get back into the workforce, especially if you separated suddenly, or your spouse leaves you. Every year a spouse is not employed outside the home is another year he or she is not contributing to their social security retirement. One spouse may be giving up a career to move frequently if the other spouse is in the military or has other employment that requires frequent relocation. Think of your life 20 or 25 years from now, when you don’t necessarily have your whole life ahead of you.

The BIG Mistake

The biggest mistake I see people make is making this decision to have a pre-marital agreement prepared largely as an afterthought. It seems some people spend more time choosing the flowers for the wedding ceremony than thinking about their rights and how they are impacted the day that wedding ceremony takes place. This type of contract will have a major impact on your life, not only if you divorce or die, but even for a spouse who wants to get a mortgage in his or her sole name, without the other spouse’s signature, for instance.

Waiting until a few weeks or even days before the marriage to think about having a pre-marital agreement is a very bad idea. Don’t wait until the last minute to begin the process. Doing so tends to create a hurried and very basic document, which doesn’t include many details. A well drafted agreement that a client has plenty of time to review and ask questions about usually means people are free to enjoy the wedding without bickering about the terms of the agreement, in the midst of being distracted by hurried last-minute wedding planning. Remember, it is your life and failing to properly plan what happens if you separate, divorce or your spouse dies can lead to disastrous consequences. It is much better to consider these things now instead of waiting until a worst case scenario occurs. You will have to deal with the worst case scenario either way. Some pre-nups are just as complicated as separation agreements, and can easily take weeks or longer to prepare and negotiate.

Can We Share an Attorney?

No. Because fiancés are in love and are sharing a joyous occasion, it is difficult to explain that the matters in the agreement create a conflict of interest. An attorney may only represent one person. Usually, what is in your best interest is not in the best interest of the other person, who may be losing assets or alimony in the process. A good attorney is not looking just at the current situation, but years or decades away. In fact, that is the very reason you are entering into a pre-marital agreement, to avoid arguments with each other and family members in the event of divorce or death. It is better for the other person to have his or her own attorney instead of going through the process without an attorney.