Michigan Court of Appeals Holds Divorce Judgment Protects Property Settlement Proceeds

On August 12th, 2014, the Michigan Court of Appeals held in a probate case that incorporation by reference of a prior property settlement agreement into a judgment of divorce makes that settlement agreement enforceable as a judgment to which the ten-year statutory period of limitations applies - as opposed to the six-year statutory period of limitations that applies to most contracts.

In In re Dimeglio Estate, Docket No. 315319, the Michigan Court of Appeals addressed the issue of whether a plaintiff's cause of action to bring breach of contract claims expired under the six-year statute of limitations.

The Court first recited the facts of the case.

Plaintiff and Paul DiMeglio (the decedent) were married in 1989, and divorced in 1995. As part of the divorce, plaintiff and decedent entered into a property settlement agreement, which was incorporated, but not merged, into a Virginia judgment of divorce by express language to that effect on December 15, 1995. The portion of the agreement relevant to this appeal deals with a piece of real property located in Colorado (the Colorado property). Paragraph 16(B)(2) of the agreement states, [']The Husband specifically agrees that he shall be responsible for and shall indemnify the Wife from any liability whatsoever arising out of . . . [the] Colorado Mortgage.['] ). Paragraph 19(B) of the agreement states,

The parties agree that the Wife is the sole owner of a property located at 1222 Colorado Boulevard, Idaho Springs, Colorado, in which the Husband has an investment interest. The parties further agree that:

(1) Said Colorado residence shall remain as an investment property.

(2) Wife shall not sell, deed over or otherwise dispose of said property in any manner.

(3) Neither party shall encumber said property by subsequent mortgages, equity loans or other means without the written agreement of the other.

(4) Husband shall be responsible for all mortgage payments on said property even though the mortgage loan on said property is in the name of the Wife.

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(7) Husband has the sole and separate option to sell said property at any time of his choosing. Wife shall have the right of first refusal to purchase said property incident to any such sale.

(8) If said property is sold, all net proceeds of sale after customary costs of sale, such as the real estate commission, closing costs, mortgage pay-off and capital gains tax responsibilities, etc., shall be divided equally between the parties. The settlement attorney of other person conducting the settlement shall receive a copy of this Agreement as his or her instructions.

Sometime before 1997, decedent missed several mortgage payments on the Colorado property. On November 27, 1997, plaintiff executed a quitclaim deed in favor of decedent conveying her entire interest in the Colorado property. This was done to remove her from the mortgage to avoid financial responsibility for the property and to allow decedent to refinance. Sometime around 2000, decedent further encumbered the property with mortgage debt.

On November 12, 2003, decedent conveyed his entire interest in the Colorado property to his new wife, defendant Marta DiMeglio, by quitclaim deed. Decedent executed a second quitclaim deed in favor of Marta on August 30, 2004. On that same day, Marta conveyed the property to a third party buyer by general warranty deed for consideration of $215,000. The proceeds from the sale were used in a §1031 [']like-kind['] exchange in which Marta purchased real property in Eaton Rapids, Michigan.

Decedent died on November 12, 2011. Plaintiff filed a claim against decedent’s estate that Marta, as personal representative, denied. Plaintiff then filed her eight-count complaint in the probate court against decedent’s estate and Marta as personal representative of the estate and individually. The complaint alleged breach of contract, breach of covenant of good faith and fair dealing, conversion, statutory conversion, concert of action, fraud, enforcement of the divorce judgment, and unjust enrichment.

The Court's analysis of the statute of limitations issue followed.

At the outset, with regard to plaintiff’s claim for enforcement of the divorce judgment in count VII of her complaint, plaintiff argues that Virginia substantive law regarding incorporation of property settlements should apply because the judgment is a Virginia divorce decree which provided for such. Michigan has adopted the uniform enforcement of foreign judgments act, MCL 691.1171, et seq., which provides in pertinent part,

A copy of a foreign judgment authenticated in accordance with an act of congress or the laws of this state may be filed in the office of the clerk of the circuit court, the district court, or a municipal court of this state. The clerk shall treat the foreign judgment in the same manner as a judgment of the circuit court, the district court, or a municipal court of this state. A judgment filed under this act has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating, or staying as a judgment of the circuit court, the district court, or a municipal court of this state and may be enforced or satisfied in like manner. [MCL 691.1173.]

Because the divorce judgment was filed in accordance with this act, the judgment is treated as a Michigan judgment and Michigan law applies to its enforcement.

Statutes of limitation are found at chapter 58 of the Revised Judicature Act of 1961 (RJA), MCL 600, et seq. MCL 600.5807(8) provides a six-year statutory period of limitations for ordinary breach of contract claims. Plaintiff, however, argues that claims to enforce a judgment are classified as [']noncontractual money obligations['] that carry a ten-year statutory period of limitations pursuant to MCL 600.5809, which provides in pertinent part,

(1) A person shall not bring or maintain an action to enforce a noncontractual money obligation unless, after the claim first accrued to the person or to someone through whom he or she claims, the person commences the action within the applicable period of time prescribed by this section.

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(3) Except as provided in subsection (4), the period of limitations is 10 years for an action founded upon a judgment or decree rendered in a court of record of this state, or in a court of record of the United States or of another state of the United States, from the time of the rendition of the judgment or decree.

In Gabler v Woditsch, 143 Mich App 709; 372 NW2d 647 (1985), we directly addressed the issue of which statute of limitations applies in this context. The Court stated,

The present action is an action to enforce the provisions of the 1968 divorce judgment and is therefore an action founded upon a judgment within RJA § 5809(3). Plaintiff's claim is not converted into a breach of contract action merely because the specific payment provision which he seeks to enforce was contained in a property settlement agreement. That agreement was expressly incorporated by reference into the divorce judgment. The trial court correctly applied the ten-year period in RJA § 5809(3). [Id. at 711 (emphasis added).]

Thus, according to Gabler, because plaintiff and decedent’s property settlement, which plaintiff seeks to enforce, was expressly incorporated by reference into the divorce judgment, the action is [']founded upon a judgment within RJA § 5809(3),['] and the ten-year statutory period of limitations would apply.

Defendant, however, persists that the provisions of the property settlement can only be enforced in an action for breach of contract and not in an action to enforce a judgment. In support of this argument, defendant relies on the following language in Marshall v Marshall, 135 Mich App 702; 355 NW2d 661 (1984):

In the within case, the divorce judgment incorporated the parties’ property settlement agreement by reference, but specifically provided that the property settlement agreement was not merged in the divorce judgment. When a property settlement agreement is incorporated and merged in a divorce judgment, it becomes a disposition by the court of the property. But, when not merged in the divorce judgment, the property settlement agreement may only be enforced by resort to the usual contract remedies and not as part of the divorce judgment.

Thus, in the within case, by providing that the property settlement agreement was not merged in the divorce judgment, the parties lifted enforcement out from under GCR 1963, 528.3. This analysis does not, however, aid plaintiff because, for the reasons indicated, we have already declined to find ambiguity, and thus find that the trial court lacked inherent power to interpret and clarify the terms of the property settlement agreement. [Id. at 712-713 (emphasis added).]

The italicized language, however, is ambiguous. The language appears to provide one outcome when an agreement is incorporated and merged, and the opposite outcome when the agreement is not merged. Marshall does not specifically address the third possible situation where the agreement is incorporated but not merged. It is unclear whether the Court confused the terms merged and incorporated, or whether it wished to create a rule that nonmerger precludes enforcement of the agreement as a judgment. Further, this language appears in the opinion after the Court stated its holding. The Court made it clear that this analysis did not aid plaintiff because it had already determined that the trial court could not interpret the property settlement agreement. Therefore, it is clear that this language was not “germane to the controversy in the case” and is therefore dictum that is not binding on this Court. Griswold Props, LLC v Lexington Ins Co, 276 Mich App 551, 563; 741 NW2d 549 (2007).

We find defendant’s argument unpersuasive, and we reaffirm the principle of law in Gabler that incorporation by reference into a judgment of divorce makes a property settlement agreement enforceable as a judgment to which the ten-year statutory period of limitations, MCL  600.5809(3), applies. In doing so, we note that our holding is consistent with the meaning of the terms [']incorporation by reference['] and [']merger,['] and respects the intent of parties. [']Incorporation by reference['] means ['][a] method of making a secondary document part of a primary document by including in the primary document a statement that the secondary document should be treated as if it were contained in the primary one.['] Black’s Law Dictionary (9th ed). [']Merger,['] as used in this context, is defined as, [']The absorption of a contract into a court order, so that an agreement between the parties (often a marital agreement incident to a divorce or separation) loses its separate identity as an enforceable contract when it is incorporated into a court order.['] Id., p 1079. When the parties to a divorce agree, through their attorneys, to incorporate the terms of a property settlement agreement by reference and specifically agree not to merge the agreement into a judgment, it could be assumed that the attorneys and the judge who enters the judgment understand the definitions of merger and incorporation. The clear intent of parties entering into such an agreement would be to make the agreement enforceable both as a court order and as an ordinary contract.

Applying Gabler to this case, we conclude that the property settlement agreement is enforceable as a judgment because it was incorporated, rather than merged, into the divorce judgment. Therefore, the probate court erred by applying the six-year statutory period of limitations for breach of contract claims to plaintiff’s claim to enforce the divorce judgment, and should have applied the ten-year statutory period of limitations for noncontractual money obligations pursuant to MCL 600.5809(3). Because plaintiff sought enforcement of the provision requiring decedent to pay plaintiff half of the proceeds from the 2004 sale of the Colorado property, her cause of action for that claim accrued in 2004 when the property was sold and decedent failed to pay plaintiff half of the proceeds. Therefore, plaintiff timely filed her complaint in 2012 pursuant to MCL 600.5809(3).