Subsequently discovered property provisions in equitable distribution agreements

Posted Thursday, June 3rd, 2021 by Gregory Forman
Filed under Equitable Distribution/Property Division, Litigation Strategy, Miscellaneous, Not South Carolina Specific, Of Interest to Family Court Litigants, Of Interest to Family Law Attorneys

A provision I occasionally see in equitable distribution agreements addresses subsequently discovered property. These provisions state that if one spouse discovers the other spouse failed to disclose assets (typically in their financial declaration) that existed on the date of filing, the discovering spouse can either reopen equitable distribution to seek a portion of that asset or is entitled to that undisclosed asset.

Such provisions are well-intended. A spouse who deliberately hides assets in divorce proceedings engages in fraud. Allowing that spouse to profit from his or her fraud–by being able to keep that undisclosed asset without the other spouse obtaining any equitable distribution of it–is to allow injustice. Domestic attorneys may suggest after discovered property provisions to protect their clients from being victims of such injustice. They may also be seeking to avoid malpractice claims that could potentially arise from failing to discover such hidden assets.

Further, a quirk of South Carolina law prevents parties from reopening cases based on intrinsic fraud [fraud which misleads] “on the theory that intrinsic deceptions should be discovered during the litigation itself, and to permit such relief would undermine the stability of all judgments.” Gainey v. Gainey, 382 S.C. 414,675 S.E.2d 792, 798 (Ct.App. 2009). Without an after discovered property provision, a spouse can gain an unjust advantage by failing to disclose marital assets and keep these ill-gotten gains even if the other spouse subsequently discovers the hidden asset.

However there are numerous reasons not to include after discovered property provisions in equitable distribution agreements. A primary one is noted in the Gainey case: judgments can never truly be considered final if one party retains the right to reopen it based upon a claim of after discovered property. Then there’s issues of how valuable the asset has to be to trigger the provision: some agreements have a floor on the asset value that triggers the provision but most are silent. Further, there are always issues of proving the asset in dispute actually existed on the date of filing, as the assets are often “discovered” long after that date.

Finally, there’s a reasonable argument that these provisions are unenforceable, as they conflict with plenty of case law on the finality of property division judgments. Case law authorizes spouses to enter property division agreements that reserve jurisdiction over some property issues: essentially every final order authorizing a subsequent qualified domestic relations order does this. Other case law allows such final orders to only be modified upon clerical error or exceptional circumstances. No existing case law addresses after discovered property provisions but I suspect an argument that it violates public policy favoring the finality of judgments might be successful.

In my experience, even attempts to litigate after discovered property provisions go nowhere: the party seeking to invoke the provision never has the proof necessary to make litigation worth pursuing. What my experience also shows is that spouses who have these provisions in their agreements, and who believe their ex-spouse hid assets in the divorce, make themselves miserable seeking to discover such assets. For these reasons, I don’t include after discovered property provisions in my separation agreements and discourage my clients from agreeing to them.

If other attorneys have unitized after discovered property provisions to obtain more in equitable distribution after the final order issues I’d love to hear how much litigation was involved and how much more they obtained. Until I hear these success stories, my opinion is that these provisions do little more than make parties feel protected while prolonging their attachment to their estranged spouse.

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