United States: It Turns Out The Statute Of Limitations Does Affect Divorce Agreements

A panel decision of the Pennsylvania Superior Court on December 23, 2014 informs us that despite recent decisions refusing statute of limitation defenses in actions to enforce property settlement agreements, the defense still lives.   It comes down to the nature of the obligation for which enforcement is sought.

We start with the older cases.   In a 2006 decision Crispo v. Crispo,   909 A.2d 308 (Pa. Super, 2006) the parties concluded their property agreement in 1995.   In 2004 Wife sued to enforce the agreement and after a hearing at which Husband asserted the statute of limitations as a defense held him in contempt subject to purge upon obtaining life insurance in the amount of $300,000.00 paying a Sears charge in the amount of $2,048.49 and a MasterCard bill in the amount of $4,662.76 plus the sum of $22,500 to Appellee.  The agreement had called upon husband to maintain the life insurance until his children reached 22 and to pay off Wife's credit card debt.  It also required him to pay the $22,500 for his interest in a business he owned.  Under the terms of the agreement the lump sum was due in 1997.  He appealed stating that the credit card and cash payment provisions were beyond the four year statute of limitations.

In Crispo, the Superior Court held that these were continuing obligations and therefore not subject to the statute of limitations.  The authority cited for this proposition was a Monroe County Common Pleas case.  Jenkins v. Jenkins, 2004 WL 3406186 (Pa.Com.Pl. Oct. 25, 2004), 71 Pa. D. & C. 4th 205.  According to the case decided on by the Superior Court on December 23, 2014 if an agreement does not contain a specific deadline, the contract is continuing. K.A.R. v. T.G.L. 2014 Pa. Super. 285.

In 2009, the Superior Court decided Miller v. Miller, 983 A.2d 736 (Pa. Super. 2009).  That was an agreement to continue to pay mortgage payments associated with a marital residence.  In November, 2005, Wife sued to recover payments she made because Husband had not.  He asserted that statute of limitations with respect to any amounts due for more than four years. Again, the Superior Court held this was a continuing contract because there was no deadline for payments nor was the amount specified.

Last month's ruling has a decidedly different flavor.  Husband and wife formed an agreement in August, 2003 related to payment to Wife of certain sums defined by formula if and when Husband's stock or warrants in his business were sold.  In March, 2011 Wife sued to enforce the agreement alleging that Husband sold a portion of the stock in January, 2004.  In 2004 and 2005 husband did make payments to Wife of $450,000 for her business interest but he retained part of the business and morphed it twice before selling it without additional compensation to her. Husband answered that she was beyond the statute of limitations on the 2004 transaction and that the portion of the business that she claimed he retained in the 2004 sale was "completely distinct."

As one might expect from reading this far, Wife asserted this was a continuing contract.  She cited Crispo and Miller.

The trial court found that husband sold all of his stock in the business in January 2004.  Thus, that was the date Wife was entitled to her payments.  It turned out that in addition to the sales piece of the transaction husband received something the court deemed a "stay" bonus for remaining with the acquiring purchaser of his business.  So this contract that called for a fixed payment in January, 2004 and the statute ran in January 2008 per 42 Pa.C.S. 5528(a)(8).  Wife argued that she had stayed the statute by filing a writ of summons in 2005.  Apparently this was done because she was already unhappy with the payments she had received.  The Superior Court held that filing a civil action does not preserve claims brought under 23 Pa.C.S. 3105 to enforce agreements.  She argued that she did not discover the claim until she secured copies of tax returns filed in 2011 and 2012.  The response of the court is that husband did provide closing binders for the 2004 sale within a year of the transaction and that even back then she was asserting in writing that she was still due money.  The Superior Court opined that for purposes of the discovery rule the statute would have run from the date the closing binders were delivered, a date one year after the sales transaction.  Wife's argument that they were negotiating during this time was dismissed under the well established principle that negotiations do not stay a statute of limitation.

The Court held that this was not a continuing contract and said this case is distinguishable from Crispo and Miller.

At one level, this writer is happy to see the statute of limitations brought back to a field where we are told time and again that contract law governs.  But, this ruling does not really reconcile with either Crispo or Miller.  In this case, the Superior Court cites Crispo for the proposition that even in the case of continuing contracts, "the statute of limitations will run either from the time the breach occurs or when the contract is terminated."  It further states that a continuing contract is one with no definite time for payment or where there are several separate contracts."

So let's get the chains out and measure these cases.  In Crispo, the parties divided their credit card debt and each agreed to pay some.  Husband did not pay.  Wife knew that Husband didn't pay as the opinion states that she began making the payments he had due under the agreement on his behalf.  So, clearly he defaulted and just as clearly, she knew it.  Using what I will call the Crispo standard, the breach occurred for statute of limitation purposes the moment she knew that he had not paid.  As for the $22,500 amount to be paid for the business interest it was to be deferred to 2001 unless Husband filed a petition to modify support in which case the payment was due on filing of the modification.  Again the opinion states that in 1997 Husband decided to seek modification of support.  Under the contract this made the $22,500 due immediately.  Her enforcement claim was filed in 2004, seven years after the default.  Despite what the opinion says, these are not continuing obligations.  They are clear defaults known to the innocent party.

Miller is much the same.  Per the contract, Husband was to pay the mortgage.  He did not.  Wife knew this because she began paying the mortgage herself.  So we have a breach and it is known to the innocent party.  The argument that there was no deadline for the payments just doesn't hold water.  Promissory notes associated with mortgages are pretty clear about what is required and when.

There are facts buried in the K.A.R. opinion from which one gets the impression that the Plaintiff did not get a fair shake from her settlement agreement.  But, the facts are equally clear that she knew her spouse had sold the business because she got $450,000 in payments and a settlement binder from the transaction within twelve months of the closing on the business sale.  The facts also show that she was not happy about the amount she got and was vocal about it.  So imposition of the four year statute of limitations made perfect sense.  But, it would have made perfect sense in Crispo and Miller as well.  It just didn't turn out that way.

Viva la K.A.R.  If property settlement agreements in divorce are contracts, it would seem that the laws affecting contracts, including statutes of limitation, should be invoked as well.

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