Divorce Lawyers Directory Blog

In a highly unusual divorce case, the New York Court of Appeals was forced to rule on whether contract law or property law takes precedence in settling who would control the rights to contested property.

After a long term marriage, a childless couple filed for divorce. After two years of contentious litigation, the couple signed a formal stipulation of settlement, finally settling their divorce action. As part of this stipulation of settlement, equitable distribution of marital property was agreed upon in the following way:

• The husband would receive the marital residence and one other parcel of real estate
  
• The wife would receive one parcel of real estate and $250,000
  
• Each party would keep any bank and brokerage accounts that were titled in their own separate names
  

The agreement specified that the parties were to execute deeds to the real estate in order to convey title to each other as stipulated by the settlement agreement. However, before the divorce was officially granted by the judge, and before any deeds could be drawn up, signed, and money exchanged, the husband unexpectedly died. At the time of his death, the couple was still legally married.

Since the divorce had not been made official, the real estate owned by the parties jointly as a married couple was owned as Tenants by Entirety, a special form of real estate ownership that applies only to married couples. Under the doctrine of Tenants by Entirety, each party maintains an undivided share of the entire property, and ownership is not divisible. The entirety is only broken by:

• A judgment of divorce
  
• One party executing a deed conveying his or her interest to the other party (or to a third party)
  
• The execution of a deed declaring that the property is to be held as Tenants in Common, which is a divisible form of ownership (in the event of the death of one party, 50% of the property passes to the decedent's estate, not to the survivor)
  

In this situation, none of the above requirements had been met before the husband died. Therefore, the wife still technically held title to the property under Tenancy by Entirety.

The husband's heirs (brothers and sisters) sued to obtain possession of the property, claiming that the wife should be legally required to execute deeds to them for the two parcels of real estate in accordance with the stipulation of settlement, which was a signed, valid contract between the husband and wife. In return, she would receive the $250,000 owed to her in compensation for the property. This money would be paid by the deceased husband's estate.

The husband's heirs claimed that contract law applied, making the terms of the stipulation of settlement binding, even though a divorce had not officially been granted and deeds had not been drawn up or signed. The wife claimed that since the couple was still married at the time of death, the title to all three parcels of real estate went to her by operation of law, as sole surviving Tenant by Entirety.

The New York Court of Appeals ruled in favor of the wife, declaring that only a divorce or the actual conveyance of a deed could break the Tenancy by Entirety. Since neither existed in this situation, the title to the property became owned solely by the wife at the time of the husband's death. In this case, the law of property trumped the law of contracts, making the provisions in the settlement agreement unenforceable. As a result, the wife reaped a windfall.

Several actions could have been taken to avoid this unintended result:

• The parties could have executed deeds on the same day that they executed the stipulation of settlement. The deeds could have been held in escrow by the lawyers pending the exchange of the $250,000.
  
• The draftsman of the agreement could have included very specific language in the stipulation stating that the parties intended that by the execution of this agreement, the Tenancies by Entirety of all three parcels of real estate were simultaneously dissolved and broken even in the absence of an executed deed. Instead, from that day on, the parties would own the properties as Tenants in Common until such time as deeds could be signed conveying the properties.
  

Either of these two actions would have resulted in the husband's heirs receiving the property he intended to bestow on them. This case is just one example of why it is so important to be represented by an experienced divorce attorney who will not overlook the unexpected.