Facts: Husband and Wife were married for over 15 years before they divorced. During their marriage they owned joint accounts at the Educators Credit Union and Suntrust Bank with rights of survivorship. The parties entered into a Marital Dissolution Agreement (“MDA”) that was incorporated into their Final Decree of Divorce. Wife was represented by counsel in connection with both the execution of the MDA and the divorce proceedings.

The MDA allocated specific items of property to each party, including real property, vehicles, an annuity fund, retirement accounts, bank accounts, and also allocated debts between the parties.

Specifically, the MDA provided that “[t]he parties agree that the Husband shall take possession of the following items of personal property and shall assume responsibility of any debts thereon and indemnify and hold wife harmless from any liability and/or responsibility thereon.” The list of items following this declaration included the two numbered bank accounts at SunTrust Bank and Educators Credit Union.

Ten years later, Husband died unexpectedly without a will. The proof showed that he had not notified the bank of the ownership change on the two disputed accounts prior to his death, and it was undisputed that Wife did not access either of those accounts in the ten years between the parties’ divorce and Husband’s death. But shortly after Husband’s death, Wife withdrew virtually all of the money — $181,500 — from the two bank accounts.

The co-administrators of Husband’s estate filed a lawsuit to recoup those funds. They asked the court for a declaration that the funds that were in the two accounts at the time of Husband’s death became the sole property of his estate and that Wife had no property rights in the accounts or in the funds she withdrew from them.

Wife contended that because the Husband never changed the ownership designation on the two accounts, they belonged to her as a matter of law.

The trial court awarded the proceeds of the account to Husband’s estate. The trial court reasoned that the MDA was binding on both parties, and that it “was tantamount to an amendment to their contract that existed upon the initial establishment of the bank accounts.”

Wife appealed.

On Appeal: The Court of Appeals affirmed the trial court.

A Marital Dissolution Agreement is essentially a contract between a husband and wife in contemplation of divorce proceedings. To the extent that an MDA is an agreement as to distribution of marital property, it does not lose its contractual nature by merger into the decree of divorce and it is not subject to later modification by the court.

An MDA is subject to the same rules of construction as other contracts. The cardinal rule of contract construction is to ascertain the intention of the parties and to give effect to that intention, consistent with legal principles. Where there is no ambiguity in the contract, the intentions of the parties are derived from the usual, natural and ordinary meaning of the contractual language.

As with all contracts, the contracting parties to an MDA are bound by a duty of good faith and fair dealing. That duty requires a contracting party to do nothing that will have the effect of impairing or destroying the rights of the other party to receive the benefits of the contract.

Wife argued that she is entitled to all the funds in the two accounts at issue because the failure of Husband to remove her name from them gave her a property right that became vested at his death.

After reviewing the record, the Court found:

We agree that a joint bank account with rights of survival is a binding contract between the joint owners of the account as to the disposition of the funds in the account upon the death of one of the owners. However, contracts can be modified by the subsequent agreement of the parties. Generally, the last agreement as to the same subject matter that is signed by all the parties supersedes all their former agreements and embodies their true agreement. The MDA in this case was agreed to and signed by both parties. The agreement very clearly stated that [Husband] was to assume sole ownership of the two disputed accounts and that [Wife] was to be divested of all her interest in those accounts. Thus, the trial court was correct to find that the MDA “was tantamount to an amendment to their contract that existed upon the initial establishment of the bank accounts….”

[Wife], with advice of counsel, signed the MDA and explicitly gave up any interest in the two accounts. This agreement superseded the joint tenancy designation on the accounts.

Therefore, the trial court’s judgment was affirmed.

In re Estate of Ellis (Tennessee Court of Appeals, Middle Section, March 20, 2013).

Information provided by K.O. Herston: Knoxville, Tennessee Divorce, Matrimonial and Family Law Attorney.