A property settlement agreement is a written document outlining how property is to be divided between a couple upon divorce or separation. The signed agreement is binding by law if approved by a judge. Property settlement agreements are also sometimes called “spousal agreements," “property agreements," or simply, “settlement agreements.”
A valid property settlement agreement needs to be in writing and signed by both spouses in order to be effective. Each party must exercise honesty in disclosing their financial background and when listing assets. That way, the judge can make a fair determination of how the property is to be fairly distributed. Also, the settlement agreement cannot be formed under circumstances of coercion, and must not encourage divorce.
Finally, it is often helpful if the property settlement agreement to include what is known as a “valuation date.” A valuation date is the date on which the value of the assets is to be determined. A court can choose from several dates as the valuation date, including:
- The date of separation
- The date of trial
- The date of the final divorce decree.
The valuation date is important because a change in the value of an asset can sometimes affect how they are distributed between the spouses.
Yes. A court may declare any property settlement agreement to be invalid if the following are at issue:
- Mistake: If the agreement contains mistakes that would seriously affect the distribution of property, a court may order the couple to redraft the agreement. States may vary in terms of how they treat mistakes that are mutually understood by the parties versus mistakes known to only one party
- Fraud: The property settlement agreement must not be made under circumstances of fraud. Fraud in this context can include the use of deception or concealment to mislead the other party
- Coercion or Undue Influence: The agreement must be mutually agreed upon. One party cannot force the other to sign the document under threat of physical harm or financial pressure
- Unconscionable agreement: A settlement agreement is considered to be unconscionable if it is so unfair to one party as to require a re-drafting. Unconscionability is determined using many different factors, including the financial disposition of each individual spouse.
Also, a court will commonly invalidate a property settlement agreement if it was created while one spouse was independently represented by a lawyer but the other was not. Courts consider such circumstances to be unfair to the unrepresented party. Especially in situations where there is a large difference between the parties’ wealth, a judge will often require each spouse to have their own lawyer.
If the court invalidates a couple’s property settlement agreement, they may order the parties to rewrite the agreement or to draft another one that better represents the parties’ interests. Alternatively, the court can use standards from divorce laws to divide the property. For example, in some states, the Uniform Marriage and Divorce Act (UMDA) can provide judges with guidelines on how to distribute property fairly between the spouses.
Property settlement agreements need to conform to the standards set by state and local laws. If a settlement agreement is poorly written or violates the law, there is a good chance that the agreement may be invalidated. For this reason, it is a good idea to hire a family law lawyer who can help draft and review a property settlement agreement. Additionally, an attorney can be of assistance if there are any disputes over the terms of the agreement.