Watch out for Domestic Property Settlement Traps
Chris Burti, Vice President and Legal Counsel

In McIntyre v. McIntyre, 188 N.C. App. ___, 654 S.E.2d 798 (2008), COA07-235,  affirmed per curiam, North Carolina Supreme Court, 58A08, October 10, 2008 the North Carolina Court of Appeals has laid a trap for the unwary, both in realm of family law and real property law. The Court of Appeals has determined, and the Supreme Court has affirmed, that a marital property agreement  that “hereby releases, renounces and forever quitclaims … all right, title, interest, claim and demand whatsoever including all marital rights in the real estate and personal property … and agrees that [spouse] may at all times hereafter purchase, acquire, own, hold, possess, encumber, dispose of and convey any and all kinds and classes of property, both real and personal, as though still unmarried and without the consent, joinder or interference…”, is not a waiver of equitable distribution rights.

Hours before their wedding in 1986, the parties to this action executed a prenuptial agreement that included the following provisions the Court of Appeals considered pertinent:
            

THAT WHEREAS, said parties have agreed to be married, each to the other; and WHEREAS said parties each own property; and WHEREAS said parties, deeming the same to be just and fair to the other party, have mutually agreed as herein set out:

            NOW, THEREFORE, in consideration of said contemplated marriage and of the covenants hereby entered into, the parties mutually agree as follows:

            FIRST: STEVE A. McINTYRE hereby releases, renounces and forever quitclaims to VICKIE [sic] GAIL TRUELL all right, title, interest, claim and demand whatsoever including all marital rights in the real estate and personal property of VICKIE [sic] GAIL TRUELL and agrees that VICKIE [sic] GAIL TRUELL may at all times hereafter purchase, acquire, own[,] hold, possess, encumber, dispose of and convey any and all kinds and classes of property, both real and personal, as though still unmarried and without the consent, joinder or interference of the party of STEVE A. McINTYRE.

            SECOND: VICKIE [sic] GAIL TRUELL hereby releases, renounces and forever quitclaims to STEVE A. McINTYRE all right, title, interest, claim and demand whatsoever including all marital rights in the real estate and personal property of STEVE A. McINTYRE and agrees that STEVE A. McIntyre may at all times hereafter purchase, acquire, own, hold, possess, encumber, dispose of and convey any and all kinds and classes of property, both real and personal, as though still unmarried and without the consent, joinder or interference of VICKIE [sic] GAIL TRUELL.

The plaintiff commenced this action in 1999 seeking a divorce from bed and board and equitable distribution of the marital estate. The defendant filed an answer and counterclaim seeking post-separation support, alimony, equitable distribution of the marital estate, and other relief and the plaintiff’s response pled the Agreement as an affirmative defense to Defendant's counterclaim for equitable distribution.  The validity and applicability of the agreement was contested and the trial court entered an order determining that while the Agreement was valid as between the parties, the terms of the Agreement did not waive either party's right to equitable distribution of marital property and subsequently entered an equitable distribution judgment and order. The plaintiff argued, in the appeal, that the trial court erred by allowing equitable distribution of the property acquired during their marriage and by not ruling that the Agreement waived the parties' rights to equitable distribution.

North Carolina law provides that upon separation, a party to a marriage may institute an action for equitable distribution of the marital estate but agree to a division of the parties between themselves by written agreement before or after being married. The Court of Appeals notes that such contracts “between husband and wife not inconsistent with public policy are valid, and any persons of full age about to be married and married persons may, with or without a valuable consideration, release and quitclaim such rights which they might respectively acquire or may have acquired by marriage in the property of each other; and such releases may be pleaded in bar of any action or proceeding for the recovery of the rights and estate so released.” Both parties cited Hagler v. Hagler, 319 N.C. 287, 290, 354 S.E.2d 228, 232 (1987) in support of their positions, and the court quoted liberally from that opinion.

Here, the plaintiff contended that the Agreement constituted a clear and unambiguous waiver of the parties' rights to equitable distribution as it contained the following reciprocal release provision even though the Agreement did not contain a clear and express waiver of equitable distribution:
       “ [Each spouse] does hereby release and relinquish unto [the other spouse] . . . all right of future support . . . and all right of [dower or courtesy], inheritance, descent and distribution, and any and all other rights arising out of the marriage relation in and to any and all property now owned by the [other spouse], or which may be hereafter acquired by [the other spouse][.]”

In Hagler the North Carolina Supreme Court noted that when the language of a release provision “does not refer specifically to the right of equitable distribution, we must consider whether the language nonetheless sufficiently encompasses this right to be a valid release of it.” The Court of Appeals did not accept the plaintiff’s contention that the language that provided that “all marital rights in the real estate and personal property" of the other spouse clearly and unambiguously evidenced the parties' intent to waive rights to equitable distribution. The Court discusses the breadth of the Hagler agreement and discusses the similarities between the release provision in Hagler and the Agreement signed by Plaintiff and Defendant. As in Hagler, the Agreement in the present case specifically provides that each party "releases" certain rights. The defendant claimed that it was a mere "free trader" agreement rather than a waiver of equitable distribution since it did not fully dispose of the parties' property rights, it did not waive the parties' equitable distribution rights by implication.

The defendant argued that as the separation agreement in Hagler was a comprehensive, fifteen-paragraph settlement that addressed alimony, child support, the marital residence, property acquisition, and distribution of existing property it was fair to find that it was a complete waiver of equitable distribution even absent the express provision. The defendant contrasted according to the Agreement in the present case by characterizing it as a short document that contains "free-trader" language and does not actually distribute any property between the parties. Thus, with no express waiver of equitable distribution and no actual division of property, the defendant contended that the Agreement “merely set out rules regarding how the parties were able to own, buy, and sell property once married” and that the presumption in Hagler should not apply here.

In the trial and on appeal, the defendant contended that the Agreement only referenced “‘marital rights in the real estate and personal property’ of each spouse (emphasis added)” and that this language should only encompass a waiver of rights in property owned by the parties at the time they entered into the Agreement. The defendant’s argument is that this wording was intended for the Agreement to apply only to the property owned by the parties at the time of signing the ante nuptial agreement and not to any property acquired afterward. The defendant argued that as the cases that would control in determining that the Agreement was to apply as a waiver of equitable distribution of after acquired property all contained language that said that those agreement specifically applied to property those parties “may hereafter acquire” Prevatte v. Prevatte, 104 N.C. App. 777, 781-82, 411 S.E.2d 386, 389 (1991).

If the parties had intended for the Agreement to constitute a waiver of rights in property acquired during marriage, they would have expressly extended its coverage to property later acquired by the parties. In support of this argument, defendant notes that in prior cases finding equitable distribution barred by a prenuptial or postnuptial agreement, such agreements clearly referenced property to be acquired. See, e.g., Stewart v. Stewart, 141 N.C. App. 236, 240, 541 S.E.2d 209, 212 (2000) (finding equitable distribution precluded based on agreement in which each party "forever waive[d], release[d] and relinquishe[d] any right or claim that he or she now has, or, pursuant to the provisions of [Chapter 50 of the General Statutes]"); (finding equitable distribution precluded based on agreement where each party waived all rights or claims regarding "the property, real, personal and mixed, now owned, or hereafter acquired by the [other party]"); Hagler, 319 N.C. at 288, 354 S.E.2d at 231 (finding equitable distribution precluded based on agreement in which each party waived "all other rights arising out of the marriage relation in and to any and all property now owned by the [other spouse], or which may be hereafter acquired by [the other spouse]").

While some might be inclined to characterize this argument as specious, the majority of this panel of the Court of Appeals found sufficient substance to declare that there was an ambiguity and apparently, the Supreme Court agreed. The following is excerpted directly from the opinion.

“Plaintiff's evidence at trial tended to demonstrate that the parties may have intended for the Agreement to bar equitable distribution. Plaintiff testified that before his marriage to Defendant, Defendant had agreed to sign a prenuptial agreement to protect both parties' financial interests. Plaintiff then retained an attorney, Charles Harp (Mr. Harp), to draft the Agreement. Plaintiff told Mr. Harp that he wanted to protect his financial interests after marriage in case of divorce, and that he wanted to be able to buy, sell, and trade property as if single during the marriage. Mr. Harp testified that he had only prepared three prenuptial agreements during his entire legal career, and that he "probably" prepared the prenuptial agreement by using language from a Douglas Forms book. Mr. Harp also testified that he had never drafted a "free-trader" document during his legal career. However, neither Plaintiff nor Mr. Harp could recall if they had ever specifically discussed whether the prenuptial agreement was to contain language barring equitable distribution.”
    

“Further, Plaintiff argues that the trial court ignored the fact that after he and Defendant separated, they entered into a separation agreement containing a "free-trader provision." According to Plaintiff, had the original Agreement truly been a mere free-trader agreement, there would have been no need for the parties to enter into another free-trader agreement after they separated.”
    

“Defendant's evidence at trial tended to show that Plaintiff presented Defendant with the Agreement just hours before the wedding and told Defendant that the wedding would be cancelled unless she signed the document. Defendant testified that she did not understand the document and signed it without reading it. Defendant and Plaintiff never discussed equitable distribution…”

“Based on this evidence, and after its own review of the Agreement's language, the trial court found, in pertinent part:

            XVII. The Court finds that the Plaintiff, at the time of the execution of the Agreement, desired to protect his financial interest and retain the ability to buy and sell property without the consent or interference of the Defendant.

            XVIII. The Court finds that the language set out in [the Agreement] does allow the Plaintiff to conduct himself as a "free trader" and allows him, in fact, to do exactly what he desired, that is, to buy and sell property without the consent or interference of the Defendant.

            XIX. The Court finds that [the Agreement] specifically releases all right, title and interest in the real estate owned by Plaintiff at the time of his marriage to the Defendant on July 17, 1986.

            XX. The Court finds that the provision of [the Agreement] which referred to "the" real estate and personal property of the parties refers to property owned at the time of the parties' marriage and does not apply to property acquired during the course of the parties' marriage.

            XXI. The Court therefore finds that although [the Agreement] is valid, the terms of the Agreement distinguish the property that the parties owned at the time of their marriage rather than property acquired after their marriage and that further, the document simply provided that the Plaintiff and the Defendant were "free traders".

            XXII. The Court finds that [the Agreement] does not bar the Defendant's claim for Equitable Distribution (emphases in original).”

It is clear that the parties did not engage in any negotiations over the specific language used in the agreement or even the specific provisions. It is clear from the testimony shared by the Court of Appeals that no consideration was in any way given to the use of any specific language either by the parties or the draftsman. It is clear that the parties intended to and did enter into an ante nuptial agreement. These are not done piecemeal and with no evidence of any intent to limit the ordinary meaning of the words. They each released “all marital rights” and agreed that the other spouse “may at all times hereafter purchase, acquire, own, hold, possess, encumber, dispose of and convey any and all kinds and classes of property, both real and personal, as though still unmarried and without the consent, joinder or interference…” this language is unambiguous and only mean what it says. An action for equitable distribution is an adverse claim on the property and interferes with a spouse’s right to hold the property free of the interference of the other. Thus, bringing the action violates the Agreement’s express terms. The ultimate irony of the decision is that the Court is implying that the spouse was a free trader, yet without a complete acquittal of spousal rights they weren’t free traders at all.

Judge Tyson concurring only in the majority’s position on the summary judgment issue dissented in a separate opinion. It is clearly written and we include it unedited.

Judge TYSON
    I disagree with the majority's holding that the trial court properly allowed equitable distribution to proceed in contravention to a valid prenuptial agreement and properly classified plaintiff's separate property as marital property. I vote to reverse and respectfully dissent.

I. Analysis

Plaintiff argues the parties' prenuptial agreement waived the parties' rights to equitable distribution and the trial court erred when it allowed equitable distribution and classified property acquired by the parties individually during their marriage as marital property. I agree.
    

The parties' prenuptial agreement expressly states that each party “releases . . . all marital rights in the real estate and personal property . . . .” of the other spouse. (Emphasis supplied). The trial court specifically and correctly concluded: (1) defendant was not unduly influenced, coerced, or under duress when she signed the prenuptial agreement and (2) the prenuptial agreement was valid. Defendant did not cross-appeal any error in either of these conclusions and does not argue the invalidity of either conclusion.
   

 “[T]he very existence of the [prenuptial] agreement evinces an intention by the parties to determine for themselves what their property division should be . . . rather than to leave th[is] decision[] to a court of law.” Hagler v. Hagler, 319 N.C. 287, 293, 354 S.E.2d 228, 233 (1987). “The value of such agreement[] lies in the ability to have [it] enforced in the courts.” Id. at 295, 354 S.E.2d at 235.
    

“Premarital agreements, like all contracts, must be interpreted according to the intent of the parties.” Howell v. Landry, 96 N.C. App. 516, 532, 386 S.E.2d 610, 619 (1989), disc. rev. denied, 326 N.C. 482, 392 S.E.2d 90 (1990).        When the language of a contract is clear and unambiguous, construction of the contract is a matter of law for the court.

It is a well-settled principle of legal construction that it must be presumed the parties intended what the language used clearly expresses, and the contract must be construed to mean what on its face it purports to mean.

Hagler, 319 N.C. at 294, 354 S.E.2d at 234 (internal citations and quotation omitted).
    

The unambiguous language of the parties' prenuptial agreement clearly established the parties' intention to fully resolve “all marital rights in the real estate and personal property . . . .”
        

Where the language of a contract is plain and unambiguous, the construction of the agreement is a matter of law; and the court may not ignore nor delete any of its provisions, nor insert words into it, but must construe the contract as written, in the light of the undisputed evidence as to the custom, usage, and meaning of its terms. If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract.

Hemric v. Groce, 169 N.C. App. 69, 76, 609 S.E.2d 276, 282 (internal quotations omitted), cert. denied, 359 N.C. 631, 616 S.E.2d 234 (2005).
   

 “[T]he object of all interpretation is to arrive at the intent and purpose expressed in the writing, looking at the instrument from its four corners, and to effectuate this intent and purpose unless at variance with some rule of law or contrary to public policy.” Bank v. Corl, 225 N.C. 96, 102, 33 S.E.2d 613, 616 (1945). “Courts are not at liberty to rewrite contracts for the parties. We are not their guardians, but the interpreters of their words. We must, therefore, determine what they meant by what they have said-what their contract is, and not what it should have been.” Penn v. Insurance Co., 160 N.C. 399, 402, 76 S.E. 262, 263 (1912).
    

The language the parties used in the prenuptial agreement is clear and unambiguous. The trial court erred when it concluded the prenuptial agreement did not waive “all marital rights . . . .” of the parties and allowed an equitable distribution of property.

The parties' intent must be gleaned from the four corners of the unambiguous and valid written agreement. Corl, 225 N.C. at 102, 33 S.E.2d at 616. The plain and unambiguous language of the prenuptial agreement entered into by the parties fully disposed of “all marital rights . . . .” and bars equitable distribution. This Court cannot under the guise of judicial construction divine a different intent than that shown by the express terms of the binding agreement. Id.
…

The real problem that the appellate division failed to grasp is that this opinion is far more significant than merely determining how to divide up the property between a pair of squabbling spouses.  Third parties have been relying on this kind of language in the public record for decades as a complete acquittal of spousal rights. Now a title examiner will need to question and parse every word of every agreement to determine whether a spouse is free to convey their property without the consent or interference of the other spouse, both in fact and in law.

Dirt Tales From the Deed Vault - Episode 20
John Dillard, Vice President and Legal Counsel

In this month’s installment, Statewide Title’s Dirt Tales examines the scope of the grant for easement that has been given.

Real estate developer Carlton Shucks found the perfect tract of land on which he wanted to develop and build residential homes.   The land had everything - rolling hills, beautiful views and streams running through it.  However, there seemed to be a problem.  The property had a 40-foot easement for road use, but it had not been granted an easement to run utility lines.  Carlton was about to back out of the deal when the realtor, fast-talking Billy Mayes, convinced Carlton to go forward with the transaction.  Billy made the argument that since the tract had been restricted to residential use it would be reasonably necessary that an easement for residential use include, not only the right for ingress and egress, but also the right to lay utility lines.  Any other conclusion would render the lot restricted for residential use basically uninhabitable and useless. He further argued that a 30-foot wide road was plenty wide enough for ingress and egress and that left 10 feet to run the utility lines.

Billy was convincing when he talked, and it was no wonder he was a top-selling realtor.  Carlton bought into Billy’s line of reasoning and proceeded with the purchase.  He had the tract surveyed, divided into lots and a plat filed of record.  Then he cut roads through the subdivision.  He contacted the electric company to have underground power lines installed along the roads.  When the electric company came out and began digging a trench along the road, the neighbor, who owned the servient land, took notice.  The neighbor pointed out to Carlton that he did not have an easement across his land for utilities, only for a road.  Carlton offered to buy an easement from him, but the neighbor declined, as he did not want to see the tract developed, as he was fearful of the heavy amount of traffic that would be passing by his house daily.

When Carlton and the neighbor could not work out an agreement, attorneys became involved and eventually a declaratory action was filed.  The court heard the evidence and argument by Carlton’s attorney that when property was restricted for residential use and an easement given for roads it had to be implied that an easement also was given for utilities or else the property would be rendered useless.  The court ruled against Carlton citing authority in Swaim v. Simpson 120 NC App 863, 463 SE 2nd 785 (1995) affirmed in 343 NC 298, 469 SE 2nd 553 (1996).  In Swaim the Plaintiff had been granted an easement for ingress and egress only and when they attempted to install and maintain utilities within the easement for ingress and egress, the court held this would be increasing the burden on the servient tract.  The court went on to point out that an easement granted for ingress and egress cannot be expanded in scope beyond what the parties intended when the easement was granted.  In the case at hand, the easement that had been granted for road use for Carlton’s tract could not be expanded in scope to include utilities as to do so would be expanding the easement beyond the scope the original parties intended and over burdening the easement.