Parties in a Texas high net worth divorce with complex assets may desire to reach an agreement regarding the property division. While an agreement is often intended to avoid further litigation, in some cases three may be ongoing disputes. A former wife recently challenged several declarations made by the trial court regarding her former husband’s obligations to pay her amounts received from his business interests.
During the parties’ marriage, the husband acquired significant real estate interests during the marriage, primarily through a group of companies identified by the court as the “KN Companies” and another company. The parties separated in 2009 and executed an informal settlement agreement in 2012 that stated it was “BINDING AND IRREVOCABLE.” This Binding Settlement Agreement (“BSA”) stated that the value of the “Total Community Estate” was $12,154,024 and that 55.75% would go to the husband and 44.25% to the wife.
The agreed final divorce decree was signed in December 2016. The decree stated the parties had separately entered into an Agreement Incident to Divorce (“Agreement”) and incorporated the Agreement into the decree. The court also found the Agreement and ancillary documents (“Final Settlement Documents”) were stipulated to represent an integrated merger of the BSA and, if there were any conflicts, the Final Settlement Documents would control.
Petition for Declarations
Five years later, the husband petitioned for certain declarations regarding his obligations pursuant to the Agreement. He asked the court to declare that payments to the wife for distributions from the KN Companies under W-13 of the Agreement were capped at $738,799.92. W-13 provided that the wife would receive 43% of funds distributed by the KN Companies relative to assets held on or before October 15,2012, net of taxes, up to a maximum of $740,000.
He also asked the court to declare that payments to her under W-14 of the Agreement were capped at $580,000 gross and/or $411,800 after taxes, or $753,848.67 gross and/or $535,232.55 net as adjusted by the 2012 financial statements. W-14 provided that up to $580,000 gross or $411,800 net would be paid to the wife if guarantee and/or management fees were paid to the husband, as determined by audited financial statements as of December 31, 2012. The provision stated that taxes would be taken off the top and the amount remaining divided equally between the parties until the wife received $411,800 net after taxes.
He further requested a declaration that payments to her under W-15 were capped at $764,203.53. W-15 provided that the wife was awarded 20% of all amounts distributed to the husband with respect to the other company until she received $800,000, net of 20% withholding.
He also requested a declaration that he was not required to pay her for guarantee or management fees that were waived or not actually paid to him.
The wife filed counterclaims for fraud and fraudulent inducement, alleging the husband had made misrepresentations regarding the assets.
The husband moved for summary judgment, arguing the fraud claims were barred by the statute of limitations, the release included in the Agreement, and her ratification of the Agreement. He also argued that the summary-judgment evidence negated essential evidence of the fraud claims.
The court granted the husband’s motion and issued declarations that the payments to the wife based on distributions by the KN Companies were capped at $738,799.92 under the Agreement, payments based on management and guarantee fees were capped at $753,848.67 gross and $535,232.55 net after tax, and payments to the wife based on distributions by the other company were capped at $764,203.53. The court also issued a declaration that the combined unpaid balance pursuant to those caps totaled $709,601.32.
Summary Judgment Challenge
The wife appealed, arguing the Agreement was ambiguous and therefore could not be resolved by summary judgment. She argued the court erred in determining the Agreement placed a cap on the amount she could received under the three provisions at issue.
Contracts are construed as a matter of law unless there is an ambiguity. If there is more than one reasonable interpretation of a contract’s language, it is ambiguous and raises a fact issue.
With regard to W-13, the wife argued that the phrase “all such funds (net of taxes)” described both parties’ share and that the phrase “up to a maximum of $740,000” came after the tax withhold provision and not the description of her share. The appeals court, however, did not find this language ambiguous.
The court noted the “all such funds” language addressed both parties’ shares in the context of how the distributions would be divided when they occurred. Additionally, the language was in the section defining the wife’s share of the assets. The appeals court also concluded that the cap language did not create an ambiguity that it may refer to the tax withholding instead of the total amount the wife was to receive. Furthermore, an addendum to the Agreement stated the parties agreed that the wife was owed $738,799.92 under W-13. The language in the addendum showed that the wife was awarded a specific dollar amount. The appeals court noted the addendum was signed after the husband had paid the wife $1,200.08, further supporting the interpretation that the wife’s share of the distributions was capped at $740,000.
The appeals court similarly rejected the wife’s argument that the cap language regarding the other company in W-15 was ambiguous because it could apply to the tax withholding requirement.
With regard to W-14, the wife challenged the court’s declaration that the husband had no further obligation to make future payments based on guarantee or management fees because such fees had been waived.
The husband submitted summary judgment evidence showing the KN Companies waived the unpaid fees that accrued as of the end of 2012. He attested it would be “detrimental to investor relations” to keep charging fees. He argued he was not obligated to make any additional payments because he would not receive any more fee payments for the period in question.
The wife argued the husband had not cited the audited financial statements to support his claim the “actual amount” of guarantee and management fees to be paid was zero. The court had based this declaration on the language in W-14 that stated the husband would make payments to the wife “if, as and when” the fees were paid to him, however.
The appeals court determined the trial court had not erred in concluding the Agreement was not ambiguous, granting summary judgment, and construing W-13, W-14, and W-15.
The Wife’s Fraud Claims
The wife alleged the asset list and valuations the husband provided during the BSA negotiations were not accurate. She alleged she relied on that information, resulting in economic injury.
She submitted as summary judgment evidence an affidavit by her brother, who was an attorney involved in the negotiations. The brother stated the husband had provided the information to reach “the framework of an agreement,” and the exact amounts would be calculated when the financial statements and values were available. He also stated there was no evidence provided during the settlement discussion supporting those representations. He stated the parties had agreed to an allocation of percentages of the entities, but their actual values, the amounts the husband would receive, and the tax liabilities were not known. He further stated the husband had “made very clear” to him that the numbers provided regarding the businesses “were simply working numbers” and “the values could change.”
The wife’s own evidence showed that parties understood that the information the husband provided was estimated and could change, so appeals court concluded her reliance on that information was not justifiable. She said she had “repeatedly asked for” financial information and tax returns between signing the BSA and the Agreement, but she still signed the Agreement. The appeals court concluded the trial court had not erred in granting summary judgment because the evidence negated justifiable reliance, which was required for the wife to succeed on her fraud and fraudulent inducement claims.
The appeals court affirmed the judgment.
Seek Legal Advice
If your marriage is ending and you have a complex estate that will require division of business entities or interests, you should speak to an experienced Texas divorce lawyer. Set up a consultation with McClure Law Group by calling 214.692.820.