Fox Rothschild LLP

We made too many wrong mistakes.

–Yogi Berra

What happens when you make a mistake? You correct it and move on.

What happens when you make a mistake in your divorce settlement agreement? Can you correct it and move on? Well, maybe not.

There is a mechanism provided by Court rule that allows you to correct a settlement agreement that is incorporated in to a Final Judgment of Divorce, but only under certain circumstances.

There are times where a mistake is one that the parties just have to live with depending on certain factors. Other times, a mistake will merit the Court’s attention and correction.

The operative rule for this event is New Jersey Court Rule 4:50-1, which provides that a party can gain “relief” from a judgment or order under the following circumstances.

“(a) mistake, inadvertence, surprise, or excusable neglect;

(b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial;

(c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;

(d) the judgment or order is void;

(e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or

(f) any other reason justifying relief from the operation of the judgment or order.

While the terms of the Rule are fairly clear that a mistake or other circumstance can be corrected by a court, it is not always so easy to gain relief. For one, there is a timing component to the rule. For parts (a), (b) and (c), the request for relief must be made within one year after the judgement or order. All other bases for relief (parts (d), (e) and (f)) must be made “within a reasonable time.”

Then there is always the possibility that relief may be denied improperly by the trial court. In that event, a party may find themselves in the Appellate Division, the trial court’s reviewing court, to address the issues.

This was recently illustrated in a recent Appellate Division decision, Goethals v. Goethals. In that case, the divorce agreement provided for equitable distribution of 13,293 shares of stock paid to the husband as part of his compensation as an executive of Ross Stores.

Thereafter, during a meeting with a forensic accountant, it was discovered that there was a stock split before the parties’ agreement was signed and there were actually 26,586 shares subject to equitable distribution. This would have entitled the wife to an additional $350,695.26 above what the wife was set to receive under the settlement agreement.

When the forensic accountant advised the husband of this, he indicated “it must have been a mistake.”

Given this clear acknowledgement from the husband that the stocks appeared to have been inadvertently omitted, the wife attempted to settle the issue with her former husband. When those efforts proved unsuccessful the parties ended up in court and the wife asked the court to address the mistake and correct it.

Despite the husband’s statements that there must have been a mistake when he first learned of the issue, he opposed the wife’s request that the court correct, stating that “there was absolutely no mistake or fraud.” After all, both parties were represented by counsel, both had forensic accountant, and both parties signed an agreement stating that “both parties were satisfied with the full disclosure of each of the accounts as provided herein and both have reviewed all account statements and other documentation necessary relative to the balances distributed and amounts not even subject to equitable distribution.”

The husband further stated that the issue of the stock was already resolved with his payment of $244,687.59 in full satisfaction of the stock issue.

The trial court denied the wife’s application, stating that she was too late. Despite filing her application within one year following the discovery of the mistake, the trial court said it was not soon enough. A request for redress on the grounds of mistake requires a filing within one year of the judgment; not within a year of her discovery.

The wife, dissatisfied with the result she obtained in court, asked the judge to reconsider the denial of her application. In so requesting, she cited to the “catch-all” provision of the Rule, subpart (f). That subpart, she stated, was not time-barred and must be brought only “within a reasonable time”; it was not bound by the one-year time constraint.

That request was also denied by the trial court. The wife appealed.

The Appellate Division reviewed the trial court’s decisions and found that the trial court was wrong. Rule 4:50-1, “is designed to reconcile the strong interests in finality of judgments and judicial efficiency with the equitable notion that courts should have authority to avoid an unjust result in any given case.”

As a result, the trial court should have granted relief under subpart (f) which is specifically designed to avoid results that are unjust, oppressive or inequitable. This catch-all provision has been used many times to reform settlement agreement where there is any showing of inequity or unfairness. Furthermore, even if the motion was brought alleging fraud or mistake (subparts that require a filing within the one year timeframe) subpart (f) could be invoked and an application brought within a reasonable time.

In reversing the trial court’s decision, the Appellate Division noted that there was no dispute between the parties that there was an undisclosed stock split, doubling the number of Ross stocks. This occurred between the filing of the divorce complaint, but before the settlement agreement was signed. As a result, whether or not there was fraud or mistake was irrelevant; all that mattered in this case was that the undervaluing of the wife’s share of stocks was “unjust, oppressive or inequitable.”

In sending the case back to the trial court for further proceedings, the Appellate Division issued a specific mandate to the trial court to correct the number of Ross stocks, which could be determined after discovery and a plenary hearing where the court would hear testimony and make a determination as to which party was more credible on the issue.

Correcting a settlement agreement is not always an easy feat. However, when a large sum of money is at stake, like in the Goethals case, it is certainly beneficial to explore your options and obtain an opinion from a lawyer as to the remedies available to you.

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