Fraud and the PSA

When parties get divorced, usually neither party is totally satisfied. The goal in formulating an agreement is to have an end result that is fair under the law.

A lot of work can go into a Property Settlement Agreement (PSA), also known as a Marital Settlement Agreement (MSA), because it is the framework by which parties will be guided post-divorce. The parties may not be thrilled with the PSA, but if a party discovers that they entered into the agreement due to fraud, there is a way to right the wrong.

In a recent unpublished opinion, the Appellate Division stated that upon the discovery of fraud, and the ensuing motion to vacate the parties’ PSA, the moving party was entitled to discovery and a plenary hearing.

In L.B. v. H.B., Appellate Division Docket no. 20-2-1258, the Court indicated that the defendant demonstrated an instance of testimony or conduct that “is willfully false, material to the issue, and the falsity could not have been discovered by reasonable diligence.” See Shammas v. Shammas, 9 N.J. 321, 330 (l952); Pavlicka v. Pavlicka, 84 N.J. Super. 357, 366 (App. Div. l964).

After 10 years of marriage, the parties signed a property settlement agreement and were divorced. The defendant and former wife, representing herself, signed the PSA, which had been prepared by her husband’s attorney.

She contended that at the time she signed the PSA, and when the judgment of divorce was entered, she was suffering from, and in treatment for, drug addiction and depression. Thus, she did not understand the PSA and was acting under mistake, fraud or duress. Among other things, she asserted that she did not know that plaintiff enjoyed an average annual income of over $600,000 for the three years prior to the divorce or what assets he had.

The PSA provided, among other things, that the defendant waived alimony and equitable distribution for a lump sum payment of $250,000. Without the knowledge of the husband’s annual income, she contended that she did not knowingly or intelligently waive her right to alimony and equitable distribution.

When the defendant later discovered the information, she retained an attorney and filed a motion to vacate the PSA on the grounds of fraud. The trial court denied the motion without a plenary hearing. However, the Appellate Division reversed that decision and remanded the case back to the trial court for a plenary hearing, concluding that given the disputed facts concerning the circumstances under which the PSA was signed, and the questionable nature of a number of the provisions of the PSA, the defendant was entitled to discovery and a plenary hearing.

If you have questions or seek advice regarding the divorce process, property settlement agreements (PSA’s), and/or equitable distribution of assets, please contact us for a free ½ hour consultation.