What is a Family Settlement Agreement?
Family settlement agreements are utilized in Texas to bring disputes between family members to an end without the need of protracted litigation. These agreements can arise between close relatives such as a child and guardian or two siblings or even in cases where an ancestor has bequeathed his or her estate to an heir and other potential heirs turn grey sheep. The latter scenario makes up the bulk of family settlement agreements that courts across the country see. In fact, "the typical family settlement"—according to a March 5, 2013 article in the Nevada Law Journal—"involves the decedent who leaves behind a Will, an heir or heirs contesting the terms of such a Will, and an heir or heirs who are willing to abide by the decedent’s intentions provided that other heirs contribute their "fair share" of the expense incurred (such as taxes) in the preservation of the estate."
Family settlement agreements are generally preferred because they save time and money. On the one hand, they minimize costs in that the estate or a party does not have to spend money on legal fees to litigate the issue. On the other hand , a court does not have to use manpower or funds to try the entire matter. In fact, in a 1990 Lower Court of Appeals case, Johnson v. Howard, the Court of Appeals at Dallas explained how "repeatedly, [the Texas Supreme Court has] reported that amicable settlement of pending litigation through family compromise has long been favored, encouraged, and approved by the courts." This is particularly so in part because "there is a strong public policy against [a]n undue deprivation of heirs of a parent’s bounty," according to the Texas Supreme Court in the 1944 case of Mangold v. Plehn.
This is all very well, but what exactly is a family settlement agreement? And how does it differ from a standard contract? What’s more, how are these contracts ordered in trial court?
A family settlement agreement is a contract between family members to settle their differences and bring some sort of closure to the matter. It can amicably resolve issues such as transferring property, obtaining financially feasible solutions, taking care of unaccounted for assets, and resolving any other family issues. The point is to create an enforceable contract that will put an end to the strife.
The Legal Basis for Family Settlement Agreements in Texas
In Texas, Family Settlement Agreements are governed by the Texas Family Code and relevant case law. According to Texas Family Code Section 153.0071(b), parents have the power, and the duty to confer with each other in the exercise of joint custody. Part of that process includes reaching agreements on matters related to their children and the family unit.
Family Settlement Agreements, sometimes referred to as FSAs, are a type of final settlement agreement that resolve disputes in a formal and legally binding manner. In Texas, FSAs are intended to promote peace, foster cooperation, and prevent further disputes between parties. Under Texas law, FSAs cannot be contrary to law or public policy, must be just and right, and can only be entered upon the agreement of the parties.
There have been changes to the legal framework of FSAs in the past couple of years. For example, required disclosures regarding potential debts, like credit card balances, which were not previously covered, now require the disclosure of all final credit card statements for the six months prior to signing the FSA, in addition to requiring the disclosure of the most recent statement and the alleged amount owed to each creditor.
Typical Provisions in a Family Settlement Agreement
In order to be binding and enforceable in Texas, the language in the FSA (used as a resolution tool in a pending lawsuit), must generally contain the following elements: (1) All parties to the action must be parties to the agreement; (2) Each party must agree to the terms of the settlement; (3) Terms must be set forth with particularity; (4) The parties must agree to the manner for the enforcement of by the court in which the lawsuit is pending; and (5) All parties to the agreement must sign the document. Interlocutory Orders may be enforced by motion or mandamus. Bell v. Smith, 139 S.W.3d 840, 842 (Tex. App.—Dallas 2004). The individual who signs a FSA may later challenge the validity of that signature based upon lack of mental capacity at the time the FSA was signed. De Sonier v. Texaco, Inc., 951 S.W.2d 769, 773 (Tex. App.—Houston [1st Dist.] 1997, writ denied). When an FSA is made a Court’s Order it is entitled to the full force and effect of execution and is enforceable by contempt. Jayne Invs., Inc. v. Conoco, Inc., 215 S.W.3d 135, 142 (Tex. App.—Houston [1st Dist.] 2006, no pet.); see also Bell v. Bell, 594 S.W.2d 402, 403 (Tex. Civ. App.—Dallas 1980, no writ). The trial Court retains continuing jurisdiction to enforce its Order of "any settlement agreement made pursuant to the trial upon the merits or the judgment rendered." McMillan v. Potts, 36 S.W.3d 509, 514 (Tex. App.—Dallas 2001, pet. denied). An FSA is res judicata as to any subsequent attempt to litigate the matters contained within the FSA. Large Milam, L.L.C. v. D.C.P.R., Inc., 316 S.W.3d 881, 885 (Tex. App.—Houston [1st Dist.] 2010, no pet.). The doctrine of res judicata bars parties from retrying the same issues that have been fully and finally litigated. Id. A final judgment upon the merits bars further claims by parties or privies involving the facts or conditions giving rise to the action. Id.
Advantages of a Family Settlement Agreement
The use of a family settlement agreement is often the best way to resolve a dispute. Family settlements have many benefits, including: 1) cost-effectiveness; 2) privacy and confidentiality; 3) expedited resolution; and 4) preserving familial relationships. A family settlement agreement can reduce tax consequences and preserve the value of assets. In appropriate matters, the use of a family settlement agreement can be casual and less formal than a court proceeding. Parties can negotiate agreements with minimal formality in an effort to reach resolution. Also, a family settlement agreement is much more likely to be honored by the parties than a court order. Whereas court orders are often ignored by at least one of the parties or the terms are not completely honored, this is less likely to occur when the parties reach agreement on their own. Generally, family settlement agreements are not appealed and are often not appealed even if there is a perceived issue. Family settlement agreements can also act as an effective remedy for problems in estate plans. If someone believes their family member’s estate plan is faulty (e.g., failing to provide a specific asset or failing to make adequate provision for family member), a family settlement agreement may be the most economic and efficient way to "fix" the problem while maintaining family harmony. In summary, a family settlement agreement can be a very important option for resolving uncertainty in an estate or trust context.
How to Create a Family Settlement Agreement in Texas
If you reach a verbal agreement with another party after a dispute has arisen, it is important to get it in writing. These agreements are contract disputes and Texas rules of civil procedure control. The parties will have a contract even if no formal written agreement is ever signed. Family Settlement Agreements or Family Law Settlement Agreements are generally oral contracts that are subsequently reduced to writing. If there is a dispute as to the settlement terms and there is no written record of what all the terms are it is very hard to reverse engineer what the actual agreement was.
Once an agreement is reached and the parties are ready to draft a written agreement there are several steps that must be followed. There is an enormous amount of very specific information that needs to be captured in a family law settlement agreement. The standard forms that attorneys use contain dozens of questions and sub-questions that need to be answered. And regardless of the form used the attorney should be asking very specific clarifying questions to make sure the agreement will meet the needs of both parties.
Many assets have special tax implications that have to be addressed. The parties need to consider court ordered proceeds from the division of real estate and the receipt of those proceeds after a sale of an asset. Alimony payments have specific tax consequences and all alimony payments must meet the test of being necessary for support and not for property division. Alimony payments cannot be secured by anything such as a lien or property interest. The tax consequences of alimony payments are so particular that drafting the language is extremely important to avoid a future unintended tax consequences.
If the parties have children there is a large amount of standardized information that must be provided to the court regarding the children’s health insurance. Family Settlement Agreements with children also require a long list of additional information such as social security numbers , ages, addresses, insurance coverage, birth years, and the like.
A Family Settlement Agreement should be prepared by an experienced family law attorney. The attorney should review the agreement with the parties. If the parties do not understand every provision of the agreement they should have the opportunity to ask clarifying questions. Once the agreement is signed by the parties the attorney can prepare it to be filed with the Court. Sometimes these agreements need to be signed by the parties and then by the Court. Other times these agreements can be presented to the Judge asking for approval and the Judge will sign it on the record.
Common Issues in Family Settlement Agreements
The formation of a family settlement agreement does not always go exactly as planned. In fact, the process of achieving agreement can be extremely contentious and may serve to bring up all the underlying issues that are often better left buried. Even when agreements are achieved, the parties may not be able to always enforce them at a later date – especially if the agreement has not been reduced to writing and incorporated into a valid court order.
When a family settlement agreement is drafted, the parties may feel a sense of relief that something has finally been accomplished. At that point, however, the case has not actually ended. A judge or jury must enter an order memorializing the agreement. Until that order is entered, the agreement is subject to renegotiation and modification. Even if a signed family settlement agreement exists, it may not be enforceable if it has not been formally entered by the court. Furthermore, even an order may not be enough to permanently resolve future issues. In the case of a property division agreement, both parties may continue to have an interest in particular items of property for the foreseeable future, and that can lead to disagreements. In the case of a support order, that order is typically subject to periodic review and adjustment based on changing income levels. Similarly, any visitation order is subject to periodic modification as the children’s needs and interests change over time.
Even if a family settlement agreement is ultimately granted by a court, there is often room for interpretation as to what the order actually means. If particular terms were used in the family settlement agreement that were not clearly defined, then those terms may become the subject of debate and interpretation. Other issues may arise because there simply was not enough time to negotiate particular terms prior to entering into the family settlement agreement. The parties may not have considered the future consequences of implementing an agreement. For example, what if one party was overwhelmed by debt at the time of the family settlement agreement and did not realize the impact of entering into it? What happens if the circumstances completely change after the family settlement agreement is entered, but before it is finally incorporated into a final order or is otherwise enforced? These situations are unexpected and may not be addressed in the family settlement agreement, resulting in further drama and litigation.
A difficult scenario may involve the combining of both child-related issues and spousal support or property issues. The child-related issues are more likely than not part of a continuing relationship between the parties and their children, while the other issues are not. In many cases, the child needs to establish a long-term, stable life with both parents in order for the relationship to be successful. It is, therefore, important not to lose sight of this goal during the negotiation of the settlement. It is usually best to negotiate the child-related issues first, and thereafter negotiate the other issues without losing focus on the potential long-term impact of any decision.
Changes to and Enforcement of Family Settlement Agreements
Evidence and Exceptions Related to Family Settlement Agreements
A "Family Settlement" is an agreement in which the parties come together and agree how to resolve the division of their community property, debts and other issues based on an understanding of the facts, some of which may be purposely withheld. The use of a family settlement agreement can save time and money and avoid the expense of going to trial.
Once again, the agreement can be enforced by a judge through a judgment rendered by the judge; for this reason, it is important that the agreement’s terms be clear and unambiguous and each party be represented by his/her own attorney. Most family settlements are easy to enforce, as they are clear and precise in their terms.
Even when parties have agreed to a settlement and our firm represents one side, we find it beneficial to review the settlement terms to ensure its binding effect. We have found it helpful to ensure specific terms are included in the agreement that evidence the agreement is sufficiently detailed, including:
If the family settlement is vague or ambiguous, it can undermine the enforceability. In making a determination about whether an agreement is clear and unambiguous, a judge does not make credibility determinations. A judge also does not draw inferences regarding the interpretation of a family settlement. Instead, a judge is only permitted to "look at the four corners" of the agreement to determine whether an ambiguity exists when interpreting the agreement.
In some cases, a party may seek to have a judge render a judgment ordering the enforcement of an agreement , but a judge may refuse to do so if the agreement does not set forth the parties’ intent. Moreover, if a family settlement lacks sufficient detail, the legal presumption is that a judge will not enforce it.
A judge cannot correct the contractual obligations of the agreement under the pretext of interpreting the agreement. A judge is not authorized to do so. Instead, a judge can only find an agreement to be clear and unambiguous as it is written. That said, an agreement may be deemed unenforceable if a judge determines that the agreement was not fair to both parties and not clear in its terms; which can often result in a judge refusing to enforce the family settlement agreement.
However, the presumptions may rebut the burden of proving that an agreement is void. For example, if a family settlement agreement is drafted in such a way that one party benefits while the other party suffers and it is clear and unambiguous, it is likely the agreement will be enforceable. But, if sufficient evidence shows that there were fraudulent misrepresentations made to lure or force the parties to enter into it, not only may the agreement be void, but the party committing the fraud may be held responsible for the other party’s damages.
In short, in Texas, while presuming the validity of the agreement, if an agreement is already clearly vague and ambiguous on its own, sufficient evidence will be needed from the person seeking to enforce the agreement to explain the specific terms of the agreement, and why it should be enforceable (under the exception to the presumption).