Sowards v. Sowards (mem.)

A structured settlement agreement for one spouse's personal injury claim may be a valid and enforceable postnuptial agreement

Is a structured settlement agreement for one spouse’s personal injury award a valid and binding postnuptial agreement?

Do the undisputed allegations in the parties’ initial pleadings constitute a binding agreement?

Is it an abuse of discretion if the trial court fails to account for one spouse’s violation of temporary orders in its final decree?

Facts and Procedural History

During the marriage, Husband and Wife recovered $6 million in damages in an action arising from Husband’s pacemaker surgery. They worked with a financial advisor to create a structured settlement agreement for the award. Both parties signed the settlement agreement, which provided for large monthly and annual payments, payments to Wife in the event of Husband’s death, and payments to beneficiaries in the event of Wife’s death.

Wife petitioned for legal separation in 2019 and alleged in her petition that neither party was entitled to spousal maintenance. Husband admitted the allegation in his response. However, shortly thereafter, Wife filed a motion for temporary orders requesting spousal maintenance which was granted on a temporary basis.

At trial, the court ruled that approximately $2 million in damages for Husband’s physical injuries was his separate property, but the substantial award for punitive damages was subject to the parties’ contractual agreement, “which takes these payments out of the community property realm.” The trial court also ruled that the parties had created a binding agreement through their pleadings that neither party was entitled to spousal maintenance.

Ruling

Spouses are free to contract for changes to their community property rights through a postnuptial agreement. The agreement must be free from any taint of fraud, coercion or undue influence, it must be fair and equitable, and each spouse must have acted with full knowledge of the property involved and their rights therein. In re Harber’s Estate, 104 Ariz. 79 (1969). Arizona law does not require a postnuptial agreement to be formed in anticipation of separation or divorce. See Austin v. Austin, 237 Ariz. 201, 206-07 (App. 2015) (“A postnuptial agreement is defined as ‘[a]n agreement entered into during marriage to define each spouse’s property rights in the event of death or divorce.'” (citation omitted) (emphasis added)).

The court of appeals affirmed the trial court’s determination that the structured settlement agreement and a valid and binding postnuptial agreement. Wife did not claim that she signed the agreement as a result of fraud or mistake; the trial record confirmed that Wife had an adequate understanding of the agreement and its effect on her property.

The court of appeals also rejected the idea that the undisputed allegations in the parties’ pleadings consituted a binding agreement, but noted that Wife could have and should have amended her petition. This is an interesting decision in light of Rule 24(b)(6), which states that “the filing of a response has the effect of placing at issue any matter in the petition not specifically admitted.”

Finally, the court of appeals held that the trial court should have addressed Wife’s claim that Husband failed to comply with the temporary orders. Although temporary orders terminate and become unenforceable upon the entry of a decree, the court of appeals remanded the issue to permit the court to “account for the value of any noncompliance with the temporary orders and make an equitable adjustment if needed.”

Sowards v. Sowards, 1 CA-CV 21-0098 FC, 2022 WL 678530 (App. Mar. 8, 2022) (mem.).