During a divorce, the court divides the parties’ marital property in an equitable manner. In order to do so, the parties must truthfully disclose their assets and liabilities. But, what if they don’t? What if there is a misrepresentation in disclosing marital assets?
An important appellate case, Franzosa v. Franzosa, addresses the issue of a party making a misrepresentation in disclosing marital assets during a divorce. In Franzosa, the former spouses divorced in 2017. Before the divorce judgment became absolute, however, the husband filed a statement of objections. He claimed that the wife misrepresented her financial circumstances to procure a more favorable property and alimony settlement in the divorce.
The parties married in 1983. The husband worked as the primary wage-earner during the marriage. Meanwhile, the wife was the primary caretaker to the parties’ children and worked part-time in a school cafeteria. In 2006, the wife’s parents executed a deed, giving their interest in a home in Revere to the wife and her two siblings, a brother and sister. In September 2016, the brother bought out the sister and took out a mortgage on the property. The wife signed the mortgage as a “Non-Applicant Title Holder.”
The wife filed for divorce in December 2016.
Trial Court Procedure
On December 7, 2017, the parties executed financial statements listing their respective incomes, expenses, assets, and liabilities. They presented their financial statements to the Probate and Family Court. The parties executed a separation agreement as well, which they also presented to the court. That day, the parties testified that they understood and voluntarily executed the separation agreement. They also stated they had an opportunity to discuss the agreement with their attorneys, and believed the agreement was fair and reasonable. Lastly, they testified that their financial disclosures were accurate.
The relevant portions of the separation agreement provided the following. First, the husband would pay the wife weekly alimony in the amount of $300, secured by a $100,000 life insurance policy benefiting the wife. Second, the husband and wife would equally divide the net proceeds from the sale of the marital home. Third, the wife would retain her interest in the Revere home. Fourth, the husband and wife would equally share in the husband’s pension and annuity. Fifth, since the husband incurred an education loan on behalf of the parties’ children, the wife would pay the husband $10,000 from her share of the marital home proceeds, waive her share of the husband’s 457 plan, and pay the husband $7,665 upon the sale or refinance of the Revere home.
The trial court judge approved the separation agreement and incorporated it into the judgment of divorce nisi. The judgment of divorce nisi is an intermediate judgment. It becomes final — in either 90 or 120 days from the judgment date, depending on the type of divorce filed — unless the court sets it aside.
The Husband’s Statement of Objections
Two months after the divorce hearing, the husband filed a statement of objections. The husband wanted to stop the judgment of divorce nisi from becoming final. He specifically focused on the following portions: 1) the alimony amount and duration; 2) the treatment, value, and division of the Revere home; 3) the parties’ contributions to the education loan; and, 4) the division of marital assets, except for his pension. The husband alleged that the wife misrepresented her income, assets and liabilities. He further alleged he relied upon her misrepresentations when executing the separation agreement, to his detriment.
During the hearing on the husband’s statement of objections, the judge found that the wife underreported her income. Further, the judge found the wife incorrectly listed her brother’s $178,000 mortgage as an encumbrance on the Revere home, artificially reducing the equity value of her one-third interest in the property. Regarding the Revere home value, the judge found that the wife clearly disclosed the value she listed was the assessed value. This value was subject to an appraisal.
However, the judge also found that the wife was financially “’unsophisticated’” and that others, including the husband, historically managed her finances. The judge concluded the wife did not “‘knowingly'” misrepresent her income and assets at the time of the divorce. Additionally, the judge found that the wife’s financial statement inaccuracies “‘were not material to the ultimate division of assets or award of alimony.”‘ Implicitly, the judge did not credit the husband’s assertions that he agreed to an excessive alimony award and inequitable property division because of the discrepancies. Instead, the judge found the husband was only trying to back out of an agreement he believed to be ill-advised.
Ultimately, the judge issued an order dismissing the husband’s statement of objections. The husband then appealed.
The Appeals Court agreed with the trial judge, affirming the dismissal of the statement of objections. The Appeals Court explained that in order to win on a claim of misrepresentation, the husband needed to show, by clear and convincing evidence, that the wife made a false statement of material fact, upon which the husband relied when signing the separation agreement, to his detriment.
Intent to Deceive
The Appeals Court concluded the trial judge did not err when it considered, among other factors, that the wife’s misstatements were not deliberately made to induce the husband into signing the agreement, to his detriment. Furthermore, on the day of the divorce hearing, the husband was aware of the issues he later brought up in his statement of objections.
Regarding the Revere home value, the court stated that the husband could have sought an independent appraisal of the value of the wife’s interest. Nonetheless, he did not. Moreover, the husband was familiar with the wife’s rental income because he oversaw the preparation of the parties’ joint tax returns. And, while the wife incorrectly listed her brother’s mortgage as an encumbrance, the husband could have confirmed how title was held. He also could have confirmed who the obligors were on the mortgage.
“Accordingly, to the extent the husband had actual knowledge, or ignored information readily available to him, regarding the wife’s inaccurate financial disclosures…we discern no error in the judge’s implicit conclusion that the husband failed to sustain his heavy burden of proving, by clear and convincing evidence…that his reliance on the wife’s misstatements was reasonable.”
Materiality of Misrepresentation in Disclosing Marital Assets
The court also rejected the husband’s argument that the wife’s inaccuracies on her financial statement were material. Regarding a misrepresentation, the court stated that materiality is defined as whether “‘a reasonable man would attach importance [to the fact not disclosed] in determining his choice of action in the transaction in question.’“ The court applied this understanding of materiality to the wife’s misrepresentation in disclosing marital assets.
Income and Alimony
The Appeals Court considered the wife’s discrepancies in income and the alimony order. “The judge found the discrepancy in the wife’s income to be immaterial; implicitly rejecting the husband’s claim that the wife’s failure to accurately disclose her income at the time of the divorce led him to agree to an excessive alimony obligation of $300 per week,” the Appeals Court explained. “This determination appears to have been based, at least in part, on the judge’s assessment of the husband’s credibility, which we see no reason to disturb.”
The Appeals Court also noted that the alimony obligation is not excessive. The obligation is well within the Alimony Reform Act’s guidelines. It is also less than the temporary alimony that the trial court previously ordered.
Home Equity Value
Next, the Appeals Court considered the Revere home equity value. The court stated that, although the wife did artificially reduce the value, the trial court did not find this error to be material. The Appeals Court did not find a reason to disturb that determination. The Appeals Court noted that, even with the equity value discrepancy, the parties were still left with roughly equal assets. This is “consistent with both the spirit of their agreement to divide their assets relatively equally, and the judge’s findings…”
Ultimately, the Appeals Court agreed that the wife’s inaccurate financial disclosures were not material and did not amount to misrepresentation.
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