The Basics of Contractual Alimony
Contractual alimony is an agreement between the divorcing parties that one will pay a certain amount of money over a period of time to the other spouse. These agreements usually cover the payment terms and conditions, the amount of alimony, the duration, the time of payment, the method of payment, the responsibility of taxes on the payments, the mechanism for cost of living adjustments, etc. Contractual alimony can be modified or terminated if it provides for those terms in the agreement. Unlike spousal maintenance, contractual alimony is not modifiable or terminable by the courts based on circumstances of the parties. (Tex. Fam. Code § 8.012).
Although the Texas Family Code does not have express provisions relating to the enforceability of alimony agreements, such agreements are enforceable contracts. Smith v. Brown, 51 S.W.3d 376, 383 (Tex.App.—Houston [1st Dist.] 2001, no pet.). However, contractual alimony agreements may not be enforceable if they are unreasonable in their terms as to amount or duration. Morrow v. Morrow, 797 S.W.2d 394, 396 Tex.App.—Amarillo 1990, pet. dism’d w.o.jur.), citing Acker v. France, 606 S.W.2d 843, 845 (Tex.Civ.App.—Texarkana 1980, no writ). To clarify, "The essential question is not whether the agreement is fair as between the parties, but whether the agreement is so unfair, unreasonable or unconscionable that the court should interfere for the protection of the public interest." Morrow, 797 S.W.2d at 396-97.
Like spousal maintenance, the factors considered when determining whether contractual alimony is an unreasonable amount or duration include: (1) the nature of the parties with respect to assets, abilities, and rights the spouse is waiving; (2) the probability that the spouse in question will have a sufficient financial resource to provide for the spouse’s minimum reasonable needs independently of court-ordered spousal maintenance or the ability to meet the spouse’s minimum reasonable needs if payment of contractual alimony is delayed, (3) the probable effect of allowing spousal maintenance on the spouse’s standard of living; (4) the financial resources that the spouse bring to the marriage, (5) the extent to which the spouse is incapable of earning sufficient income and (6) the contribution of the spouse as a homemaker and to the other spouse’s employment or business . Morrow, 797 S.W.2d at 397, citing Acker v. France, 606-S.W.2d at 846 (listing items to consider in determining the person’s ability to meet their needs).
Also similarly with spousal maintenance, if you believe that contractual alimony is unreasonable or unconscionable, then the burden is on you to prove that fact by a preponderance of the evidence. Morrow, 797 S.W.2d at 398. Factors that would prove that an agreement is unconscionable include, but are not limited to, where one party obtains assets to the exclusion of the other and negates the other’s role in the marriage or if the agreement does not permit the attorney’s fees to be paid from the payor’s assets. Id.
While courts of appeal are divided on whether spousal support as outlined by contract agreement is modifiable and terminable, we should allocate "alimony" into three categories for clarity – contractual, statutory (spousal maintenance), and enforceable agreements to seek spousal maintenance. Statutory spousal maintenance awards are non-modifiable by a court. Enforceable agreements for spousal maintenance are not modifiable either. However, what makes those agreements distinction from contractual alimony is that the courts will enforce them. While it seems inconsistent that the Courts can enforce the agreement but not modify it, the rationale behind this is that courts cannot make people act against their will. Thus, you as the person seeking spousal maintenance must negotiate it from your spouse and if the spousal maintenance agreement is one that is mutually acceptable, then make it enforceable. If it is not, then you must rely on usual means of spousal support, contractual alimony.
What Are the Legal Criteria for Contractual Alimony?
Texas recognizes, though does not require, the concept of contracting spousal support obligations that are enforceable under contract provisions rather than the provisions of statutory Tex.Fam. Code Sec. 8.051, et. seq. There are few cases enforcing spousal support payments under contractual provisions, and while such agreements can be enforceable in theory they are often unenforceable under the terms of the contract. Similar to all agreements that are governed by the laws of this state, the Court may only specifically enforce those provisions which are not expressly prohibited by law or which are not contrary to public policy. For example, the Family Code expressly prohibits retroactive support provisions from being enforceable. See: Tex.Fam Code Sec. 8.053 (providing that contractual agreements concerning spousal maintenance "are subject to Sec. 154.131(a), which limits the duration of support").
The enforceability of contractual support agreements, however, do not relieve the parties of their obligation to disclose the nature, extent, value, and liabilities of their property in a complete and trustworthy manner. In other words, failure to comply with the disclosure required by subchapter B of chapter 7 of the Uniform Fraudulent Transfers Act, Tex.Bus. & Com. Code Sec. 24.001, precludes equitable adoption of an enforceable agreement. As with child support, specific performance is a recognized remedy in the area of spousal support, and may even include remedy by contempt so long as the supported party can be found in the jurisdiction in which the court has entered the decree or final order.
There are several potential pitfalls in entering into property settlement agreements that contain cohabitation or remarriage clauses that are rarely taken into account. First, alimony is not either considered part of the separate estate of the recipient spouse or subject to division as community property between the spouses. As a result, unless specific language is employed, an alimony award is limited to the marital estate from which it may be paid. Second, if an alimony agreement is made as part of a divorce proceeding, the law requires that it be approved or "adopted" by the Court. If the Court refuses to "adopt" the agreement, the parties nor their attorneys are bound by it. Third, it is unclear whether the words "enforceable under contract" are included as part of the consideration for the support payment or whether they are merely a description of the "manner and method" of enforcement. There are arguments in favor of both interpretations. Fourth, there is no compact or other legislative enactment that defines the precise requirements for the form and content of a qualified contractual obligations.
Advantages of Contractual Alimony
For parties to a marital settlement agreement, the payment of contractual alimony can be a source of benefits above and beyond that which might be found in traditional spousal support. For example, contractual alimony is flexible and can allow for modifications for future changes in different life situations. Contracts can also extend longer than 5 years while traditional spousal support is set for specific duration periods. Contractual alimony allows you to include lump sum payments and property division. Perhaps one of the biggest advantages is that the parties may be able to maintain confidentiality over the amount and duration. Finally, issues of spousal support can be resolved outside of a divorce and payments are triggered by separation.
Establishing a Contractual Alimony Agreement
In the same way that prenuptial agreements and postnuptial agreements are executed, an alimony contract is simply a written agreement between the parties. The difference is that a requirement of an alimony contract is that it be in writing and signed by both parties. In order to be enforceable, an alimony contract must set out the amount of alimony being paid, the time period for payment, the frequency of payment, and the duration of payments. This may be as simple as a few short paragraphs. Absent the agreement of the parties, there are no specific formalities required for an alimony contract. Based on the case law, the most important thing is that the agreement be written and signed by both parties .
A tip on negotiating terms of an alimony contract is to use the amount of needs-based maintenance provisions in Texas as a starting point for negotiation. The need based amounts for the next few years are set out in the following chart:
The amount of needs-based maintenance is determined by the court considering the income and expenses of the requesting spouse after considering those payments made to satisfy a contractually assumed legal obligation to pay alimony. Note that if the court later orders needs-based maintenance, it can take into account any alimony that has been previously paid to that spouse.
Modification and Termination of Alimony Agreements
Unlike the Court-ordered spousal maintenance, the Contractual Alimony may be modified or terminated depending on specific circumstances. These may include when the parties mutually agree to amend or rescind the agreement pursuant to its terms or if a "material and substantial change of circumstances" occurs. The Court can modify the contractual alimony in the same manner and to the same extent as the Court can modify Court-ordered spousal maintenance, except the Court may not change an amount that was agreed upon in a stipulation or by an agreement entered into by the parties with the approval of the Court. The Court will not alter the amounts specified in the agreement unless the parties’ agreement expressly states what factors the Court may consider if a modification is requested or if the agreement contains the parties’ written consent to allow the Court to modify an amount if circumstances arise that warrant an adjustment. For both contractual alimony and Court-ordered spousal maintenance, the trial court has no authority to retroactively modify the award. A modification order can only operate only from the date of its order forward.
Modifying, Stopping and Challenging Contractual Alimony
All parties entering into a contractual alimony or spousal support agreement in Texas should take into consideration the possibility that the other party will not abide with the agreement as drafted in the post-decree setting. The period between the entrance of the divorce decree and the time when the agreement becomes enforceable may be lengthy, allowing for the other party to breaching the agreement. In a similar vein, the funds necessary for making future payments under the agreement may be problematic if an unforeseen event occurs in the life of the paying party such as the death of the payor or a significant drop in income .
It is advisable for the receiving party to consider all possible remedies in the event of a contractual alimony dispute arising post-decree. The contractual alimony agreement, if broad enough it may be possible to ask the court to enforce the agreement. Before that enforcement motion is filed, it is advisable to sit down with the other party to negotiate a possible amendment to the alimony agreement that sets forth a different method for payment or collection of past due amounts rather than the strict enforcement through contempt or otherwise. In this context, it is particularly advisable to seek an amendment to the agreement if the grounds for non-payment are due to a death of the earning party or a significant decline in income.