The separation agreement was the product of mediation; the wife was afforded the opportunity to consult with counsel; and the wife elected to sign the agreement, notwithstanding the advice of counsel not to do so. “These facts, standing alone, do not shield the separation agreement from judicial scrutiny. The validity of the agreement is dependent upon an examination of the totality of the circumstances, including an examination of the terms of the agreement, to see if there is an inference of overreaching.”
So held the Appellate Division, Second Department in its April 24, 2019 decision in Mizrahi v. Mizrahi. Reversing the decision of Queens County Supreme Court Justice Margaret Parisi-McGowan that upheld the agreement without a hearing, the appellate court also noted the record disclosed no information regarding who retained and paid for the services of the mediator, and how the mediator arrived at the substantive terms of the agreement.
The Second Department noted:
because of the fiduciary relationship existing between spouses, a marital agreement should be closely scrutinized and may be set aside upon a showing that it is unconscionable or the result of fraud or where it is shown to be manifestly unjust because of the other spouse’s overreaching. To rescind a separation agreement on the ground of overreaching, a wife must demonstrate both overreaching and unfairness.
Here, the court held that without a hearing to determine the totality of the circumstances, including the extent of the parties’ incomes and assets and the circumstances surrounding the execution of the separation agreement, it could not be determined on this record whether equity should intervene to invalidate the parties’ separation agreement.
The agreement was the product of a mediation conducted by the attorney who prepared the document. The agreement, itself, reflected that the husband retained counsel to represent him, while the wife did not do so. While the wife consulted with an attorney regarding the separation agreement, the agreement states, in bold print, that the wife’s consulting attorney advised her not to sign the agreement “based upon the fact that there has been no discovery in the matter whatsoever, and [the attorney’s] considered opinion that the support provisions in the agreement are not adequate to meet the [wife’s] and children’s basic needs.”
The agreement recited that the parties had waived their rights to disclosure and to the exchange of statements of net worth.
The holding may delineate minimum protocols for mediators. In what may be viewed as a departure from most decisions, and perhaps because of the threat this decision may have on the viability of mediated agreements, the Second Department took great pains to present the facts.
At the time of execution, the wife earned no income, and the husband represented his income as $100,000 per year “based upon his ability to earn.”
The husband agreed to pay $3,000 per month in child support for the parties’ two children, and $500 per month in maintenance. The husband agreed to provide health insurance for the children and to pay 75% of the children’s medical expenses not covered by insurance, with the wife to pay 25% of such expenses. No provision was made for the payment of the children’s educational expenses, although the husband agreed to pay a “possible” outstanding balance due to the children’s private high school.
The wife would have exclusive use and occupancy of the marital residence, a rental apartment. Under the January 15, 2015 agreement, from February 1, 2015, the wife was responsible for the apartment rent, utilities, and carrying charges.
However, the monthly rent for the Forest Hills apartment exceeded $5,200 per month. The amount of combined maintenance and child support, payable by the husband to the wife, who had no other income, was less than the monthly rent. Thus, the amount of support that the wife was to receive was less than her housing expense, let alone sufficient to cover food, clothing, and other expenses. There was no indication that the wife was expected to, or could, obtain reasonable alternative housing at lesser cost (the wife was in the process of being evicted from the marital residence due to missed rental payments).
Each party was to retain his or her own personal property, except that the husband waived any interest in rugs and other items in storage in Israel and agreed to pay the storage charges until October 1, 2015. The husband agreed to pay the wife a lump sum of $45,000, representing an equitable share in his business, identified as EMS 15A, LLC. The agreement did not identify this business as being claimed by the husband as his separate property, did not describe the nature of the business, and did not place a value on the business.
The agreement did not provide for the payment of the children’s private school tuition, even though the children had attended a private religious school for several years. The record contained no information as to the wife’s ability to obtain employment. While the husband averred that he was diagnosed with end-stage renal disease in March 2015 and that he was working only on a part-time basis, he did not provide any documentation of his condition and his past or present income.
The husband averred that his business, EMS 15A, LLC, owns a condominum apartment in Manhattan, which he estimated had a fair market value of $3,200,000 . He claimed that he had purchased the apartment in 2001, borrowing $150,000 from his watch business to make the down payment. He asserted that the watch business was his separate property, he sold part of his interest in the watch business to his brother in 2006, and he used the proceeds of the sale to repay the mortgage on the apartment. On the other hand, he also claimed that he thereafter had taken out $2,595,000 in mortgages on the property, on which he was in default. He did not, however, describe what use he made of the proceeds of the mortgages.
In addition, the parties’ affidavits raised questions as to value of the rugs that the wife was to receive under the separation agreement and the nature and extent of jewelry that the wife retained as her property.
The agreement’s support provisions were insufficient to cover the rent for the marital residence and other basic needs of the wife and the children/ There was a lack of financial disclosure regarding the value of the husband’s business, condominium, and actual income.
Questions of fact existed as to whether the separation agreement was invalid, sufficient to warrant a hearing. Given the lack of any financial disclosure, the Supreme Court should have exercised its equitable powers and directed disclosure regarding the parties’ finances at the time the agreement was executed, to be followed by a hearing to test the validity of the separation agreement.
It may also be noted that the reversed order contained Justice Parisi-McGowan’s award to the husband of $4,000 counsel fees under that provision of the agreement that provided that in the event that the validity of the agreement was unsuccessfully challenged, the challenging party would be responsible for the attorney fees and legal expenses of the defending party.