Reformation of Marital Dissolution Agreement Reversed in Knoxville, Tennessee Divorce: Moore v. Moore

May 25, 2020 K.O. Herston 0 Comments

Facts: Husband and Wife divorced after over 30 years of marriage. Their marital dissolution agreement said:

[Wife] shall be awarded all monetary accounts in her sole name, including but not limited to, bank accounts, 401(k) accounts, pensions, IRAs, retirement accounts, etc. as her sole property. [Husband] shall be awarded all monetary accounts in his sole name, including but not limited to, bank accounts, 401(k) accounts, pensions, IRAs, retirement accounts, etc. as his sole property.

Less than 30 days after the trial court granted the divorce, Husband moved to alter or amend the final judgment alleging that the parties have made a mutual mistake about distributing Husband’s pension. Husband alleged that he recently learned he could not remove Wife as a beneficiary of his pension. According to Husband, he was unaware of this when he signed the marital dissolution agreement.

Tennessee reform contractHusband had retired eight years before the divorce. When he retired, he chose Wife as the primary beneficiary of his pension, while their daughter was listed as a contingent beneficiary. Of the three options for designating beneficiaries, Husband selected the option that contained this sentence, underlined and bolded: “Beneficiary cannot be changed after retirement.

Husband testified he read none of the provisions about his inability to change his beneficiary after retirement. Wife also testified that she was unaware the beneficiary of Husband’s pension could not be changed. She confirmed her understanding of the marital dissolution agreement was that “he would take his stuff, and I would take mine.”

The trial court granted Husband’s motion, finding that the parties intended to refuse any interest in the other’s retirement benefits. The trial court directed Wife to pay the net pension benefit, after taxes, to their daughter. If their daughter predeceases Husband, Wife would receive all the pension benefits.

Wife appealed.

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

Tennessee courts may not make a different contract for parties that they did not intend to make for themselves. Contracts must be construed fairly and reasonably, and courts should avoid rewriting them under the guise of “construing” them.

The law’s strong policy favoring the enforcement of contracts as written must occasionally give way. That can occur through rescission or reformation.

To rescind a contract, the party seeking rescission must generally show a mutual mistake and an injury. A “mistake” exists when a person, acting on a mistaken belief of law or fact, executes an instrument he or she would not have executed but for the erroneous belief.

The judicial alteration of a written agreement is known as reformation. Reformation makes the contract conform to the real intention of the parties. To justify reformation, there must have been a mutual mistake or a mistake by one party induced by the other’s fraud. A mutual mistake exists where both parties to a contract operate under the same misconception as to a material fact. A person looking to reform a written contract must prove a mutual mistake by clear and convincing evidence.

The Court found the trial court’s reformation of the marital dissolution agreement was improper:

Wife submits that the mistake in this case was not mutual because Husband was provided the information concerning the beneficiary changes [when he retired eight years earlier] and voluntarily chose a retirement plan in which the beneficiaries could not be changed. Husband’s argument that the issue in this case constitutes a mistake for which reformation of the contract is an available remedy is not persuasive. Husband contends that he, like Wife, was unaware the time of the divorce that he was unable to change the beneficiary of his retirement benefits so as to exclude Wife. Tennessee law, however, charges Husband with knowledge in this situation.

In civil cases, the Tennessee Supreme Court has held that a party to a contract is conclusively presumed to have knowledge of a contract irrespective of whether the [party] actually read, or could read, the contract. The facts presented at the hearing on the motion to alter or amend demonstrate that Husband was provided with the contract indicating his inability to change his beneficiary post-retirement. Husband executed the documents, acknowledging that he assented to all of the terms contained therein. Husband thereafter retained the documents for his records.

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[T]he undisputed evidence shows that Wife had no knowledge of Husband’s elections with regard to his retirement accounts. As such, no false representation can outweigh Husband’s presumed knowledge of the contents of a contract that he entered into.

* * * * *

No mere drafting error is alleged in this case. Rather, the mistake involves Husband’s failure to consider information, known only to him, that impacted his ability to obtain the benefit of his bargain in the divorce.

* * * * *

The general rule is that mistakes are not excused when caused by one party’s failure to read a writing. Although the typical situation involves a failure to read the contract that is sought to be reformed, we see no reason to apply a different rule when reformation is sought because a party chose not to read the contract that affects the performance under a separate contract.

* * * * *

We agree with both Husband and the trial court that the clear intent of the parties’ agreement was to allow each spouse to retain their own retirement benefits. As previously discussed, however, the parties never entered into any agreement as to how this was to be accomplished. In order to effectuate the intent of the parties notwithstanding Husband’s “mistake” as to his own retirement benefits, the trial court chose to place additional burdens on Wife. While these obligations certainly effectuated the intent that the parties retain the benefit of their own retirement accounts, the trial court essentially ordered Wife to take on new obligations to which she did not consent. The trial court’s action was therefore not an appropriate form of reformation.

Reformation is an equitable remedy. Equity, however, aids the vigilant. Although Husband asserts that his mistake was the result of mere inattention, any fault for the situation certainly must live solely with Husband, who executed an agreement he did not read and then neglected to disclose or even consider the ramifications of his retirement plan election prior to the entry of the final divorce judgment. And despite the fact that Husband is the only party that can be attributed fault in this situation, it is Wife that suffers the burden of his mistake, being bound to Husband’s daughter not only postdivorce, but also after Husband’s death. Wife alone is therefore required to act to ameliorate Husband’s mistake.

The Court found the trial court’s decision to reform the parties’ contract was an abuse of discretion. The trial court’s judgment was reversed.

Moore v. Moore (Tennessee Court of Appeals, Eastern Section, May 15, 2020).

Reformation of Marital Dissolution Agreement Reversed in Knoxville, Tennessee Divorce: Moore v. Moore was last modified: May 24th, 2020 by K.O. Herston

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