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Matrimonial Matters: A separation agreement is a contract

Matrimonial lawyers know that a separation agreement is a contract. That is why classic contract terms are typically included in this agreement. While it is very unusual when the terms in a separation agreement address specific issues beyond custody, support and equitable distribution, that is exactly what occurred in a case recently before the Fourth Department, Anderson v. Anderson, CA 13-01525.

Sara Stout Ashcraft

Sara Stout Ashcraft

The parties were divorced after entering in to a Separation and Property Settlement Agreement. Under the terms of the “support” section of the agreement, a provision for “additional support” would become operative should the defendant husband’s obligation to pay the plaintiff wife spousal maintenance terminated due to, among other things, the plaintiff’s remarriage during the period of time in which the defendant continued have an obligation to pay child support.

The “additional support” consisted of a requirement that the defendant cause his business “to employ [the plaintiff] as a consultant.” The terms of such “employment” provided for a specific weekly wage (fees), and although it did not require the plaintiff to “work any particular number of hours,” it did require her to “be available at reasonable times and from time to time to consult, as needed by [defendant], with respect to [the defendant’s] various business interests.” Further, the agreement provided that such employment was to continue until the defendant’s child support obligations ended.

When the defendant’s maintenance obligations ceased, pursuant to the parties’ agreement the plaintiff began her employment with his business and began receiving her consultation fees. The plaintiff then opened a competing business, and the defendant filed an Order to Show Cause to terminate the consultation fees, claiming that as his employee the plaintiff had breached her duty of loyalty.

Denying the defendant’s motion, the trial court stated that, “the employment provision is not a contract for employment but rather … is a support provision which allow[ed] the defendant’s business to make payments to the plaintiff instead of the defendant himself.” The Appellate Court disagreed, holding that the provision in the Separation and Property Settlement Agreement “constitutes an employment contract, thereby permitting defendant to terminate the payments upon plaintiff’s breach of her duty of loyalty to him as her employer.”

The Fourth Department pointed out, “It is well established that a separation agreement that is incorporated but not merged into a judgment of divorce is a contract, and a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. … Inasmuch as the language of the agreement is clear and unambiguous on its face, the intent of the parties must be gleaned from within the four corners of the instrument, and not from extrinsic evidence.”

While the court did agree with the plaintiff and the trial court that the “clear and unambiguous intent of the agreement was to provide a substitute source of monetary support for plaintiff after defendant’s maintenance obligation terminated,” the court nevertheless concluded “the reason defendant agreed to employ plaintiff does not change the fact that the agreement established an employment relationship with corresponding rights and obligations for both parties.”

Citing decisions holding that an employee cannot compete with the employer’s business during the time of the employment, the court found that the plaintiff breached the duty of loyalty to the defendant/employer, “thereby permitting defendant to terminate the consultation fees and the employment relationship.”

Additionally, the Fourth Department disposed of the plaintiff’s claim that the defendant’s delay in exercising his termination rights constituted a waiver by noting that the parties’ agreement “specifically provides that a party’s failure to seek strict performance of the agreement or to exercise any option thereunder will not be construed as a waiver of the right to do so at a later date.”

There are times when lawyers can just be “too clever by half,” as the British say.

Sara Stout Ashcraft is a partner in Ashcraft, Franklin, Young & Peters LLP. She concentrates her practice in the areas of matrimonial and family law.

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