The Court of Appeals in Dufy v. Dufy, addressed and analyzed to certain extent the enforceability of a Divorce Settlement Agreement and in particular the child support provision.
Appellant there had challenged the trial court’s enforcement of the parties’ separation agreement as part of its Judgment of Absolute Divorce, and both the trial court as well as the appellate review established that the agreement was complete and unambiguous on its face, and that the parties had demonstrated an intention to be bound by it.
Thus, the trial court had found that the agreement was an enforceable contract.
Generally, courts encourage the use of separation agreements to settle the financial affairs of spouses who intend to divorce as the policy is based on the notion that the parties are in a better position than the court to determine what is fair and reasonable in their circumstances.
The courts have also consistently held that in the absence of fraud, duress, concealment or overreaching, a separation agreement is presumptively valid and binding no matter how ill-advised a party may have been in executing it.
In short, a separation agreement is a contract, subject to the same law governing other contracts and to be enforceable, there must be:
- An agreement to all material terms, and
- Intention of the parties to be bound.
Here, the court held that the settlement agreement was complete in terms as parties had specifically addressed, inter alia: joint legal and physical custody of their daughter; division of proceeds from the sale of their home; ownership of appellant’s life insurance policy; transfer of funds from appellant’s 401K account; health insurance coverage for their daughter; sharing of costs of their daughter’s education and wedding; the absence of any restrictions on the parties’ future place of residence; the absence of marital debt; and child support monthly rate.
The parties had also both adopted the agreement by signing and by performance of their respective duties – thus parties were also both bound by the agreement.
The appellant had argued on the main point of appeal that the child support provision of the agreement can and should be modified and that had triggered the court’s legal analysis most pertinent here — the legal interpretation of a settlement agreement that is “incorporated but not merged” v. “incorporated and merged.”
Specifically, the Court of Appeals held on this issue:
- The standard for granting a modification to child support specified in a settlement agreement depends on whether the agreement was merged into the court’s judgment, or incorporated by reference. The trial court has limited authority to alter a child support provision in a separation agreement that is incorporated, but not merged, into an order of divorce, due to the “presumption that `a child support agreement negotiated between two parents is adequate to meet the child’s foreseeable needs, and that at the time of the agreement the best interests of the child were a paramount consideration.
Generally, a trial court may modify child support payment provision upon a showing of:
- A change in circumstances which was unforeseen at the time the agreement was entered and
- That the change is both substantial and material to the welfare and best interests of the children.
However, when the agreement is not merged into the final order, a change in the parents’ financial circumstances alone `cannot provide the basis for modifying a contract between the parties.
Thus, a trial court may increase a child support payment provided in a settlement agreement if there arises an unforeseen change in circumstances that is substantial and material to the interests of the child, but it may not decrease such a child support agreement simply because the payor’s financial circumstances have declined, or the child support payment subsequently proves to exceed the child’s needs.
The calculation is very different if the agreement was merged into the final order, that is, a settlement agreement is merged, and not merely incorporated into a court order, where the agreement was adopted by the court as its own determination of the proper disposition of the rights and property between the parties. In such cases, the binding force of the amount of child support is not based on the contractual obligation arising from an agreement between the parties, but on the authority of the court’s order and the standard and statutory child support guidelines apply.
In conclusion, even if the settlement agreement is incorporated but not merged – the court may exercise significant oversight authority as child support obligations are fully regulated by statute and the best interest of the child would be an ongoing legal factor for the court to consider.