Re-Opening Divorce Settlements | Episode 218

Welcome to Divorce at Altitude, a Colorado family law podcast hosted by experienced attorneys Ryan Kalamaya and Amy Goscha. Whether you're going through a divorce, considering one, or simply want to understand more about the intricacies of family law in Colorado, we’re here to help. We aim to provide practical guidance to make the process a bit easier and empower you with the insights you need.

In this episode, Ryan and Amy discuss Divorce 2.0, or what happens when someone wants to reopen a finalized divorce case. Using the hypothetical clients Eric and Melanie Wolf, they explore why some divorces get revisited and how Colorado courts handle these situations—especially when it involves undisclosed assets or changes in property value. They also break down the importance of mandatory disclosures and recent case law that impacts Colorado divorce proceedings, ensuring listeners understand why thorough documentation is crucial.

Episode Highlights:
- Mandatory Disclosures in Colorado: The vital role of Rule 16.2 in ensuring transparency and fairness during divorce.
- Divorce Remorse: What happens when one spouse seeks to reopen a case, claiming a raw deal or omitted assets.
-Case Spotlight: Lessons from Colorado cases like Hunt and Dury, which show the consequences of incomplete disclosure.
- Protecting Your Agreement: How attorneys ensure agreements are upheld by focusing on thorough, documented disclosures.

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What is Divorce at Altitude?

Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado.

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DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.

Transcript

ryan kalamaya: 0:03

Hey everyone. I'm Ryan Kalamaya. And I'm Amy Goscha. Welcome to the Divorce at Altittude, a podcast on Colorado family law. Divorce is not easy. It really sucks. Trust me, I know. Besides being an experienced Divorce attorney, I'm also a Divorce client. Whether you or someone considering Divorce or a fellow family law attorney, listen in for weekly tips and insight into topics related to Divorce co-parenting. And separation in Colorado. Welcome back to another episode of Divorce at Altitude. This is Ryan Kalamaya. This week, Amy and I are going to be discussing Divorce 2. 0 and specifically we're going to be talking about what happens when Eric and Melanie Wolf, our hypothetical divorce clients finalize their divorce, and then one of them seeks to open it back up because they think they got a raw deal or something wasn't disclosed or for whatever reason. Amy. How are you doing today?

Amy Goscha: 1:04

I'm good. Yeah, I think that this is interesting because circumstances are always changing, like when we're dividing property accounts are going up and down. I'm sure you've had the client who comes back, like we are done and they're like the other party just sold X, Y, Z and it's worth a lot more. So we're going to really dive in today. on how to deal with that because we do have some guidance from, the upper courts on that in Colorado.

1:30

Indeed. I call it Divorce 2. 0 or Divorce Remorse. And so it's one of those things where I tell clients you don't want to go through this again. And so one of the jobs as an attorney You know, try to get a deal, but more importantly, if there is a deal, there's a settlement, let's say Eric and Melanie talk on their own and they say, listen, we, this is what we've agreed in terms of, Eric gets the forks, Melanie gets the knives, Eric gets the house and Melanie gets the cars, whatever it may be that sticks and that people are able to move forward. And there are times when the court. Can be re involved and it's not just on parenting and it's not on modification of child support or maintenance, it's on property division. The first thing that we're going to talk about is the mandatory disclosures in a Colorado divorce, and that is required for. All divorces in Colorado and oftentimes what happens is if I'm representing Eric, Eric will say, do I really need to do this? Is this, are you serious with this? Because there will be comprehensive disclosures and Amy for listeners, can you give an overview of what the mandatory disclosures are and why they're important?

Amy Goscha: 2:51

Yeah, so in Colorado, because a husband and wife have, they're in this relationship with each other, it's an intimate relationship, they have a duty of disclosure. It's not like a civil case where you have to ask the other side for things. There's this inherent Yeah. Understanding and rule that parties have to be have to be forthwith. They have to be transparent in a divorce. And so we have 16. 2 disclosures, which essentially is you have to do a sworn financial statement. that discloses income and expenses, assets and debts. And also you have to exchange certain disclosure documents, such as three years of tax returns, most recent bank statements. If you have a business, you need to, provide the balance sheet, the profit and loss statements. So there's just certain things that we have a list of that are exchanged in every divorce case in Colorado.

3:47

And really the policy or premise is that that oftentimes in, in a marriage, there might be, Eric might be the financial kind of guy where he makes the decisions. Melanie takes the kids to the doctors and school and is really focused on like the kids and Eric in turn is the one that's making investments and, they're and really there, there should be a focus. full kind of transparency on what the financial circumstances are. And that happens in particular on premarital agreements or marital agreements. There needs to be full disclosure before any of those agreements are enforced. And the same holds true for a separation agreement that resolves divorce. So you mentioned the profit and loss and balance sheet. We'll get into that in particular on the Hunt case, which we'll talk about next. But there are these required, bare minimum disclosures and form 35. 1. It's a judicial form. It has that list of all of those things in the key component and we've talked about this before Amy on the podcast, as well as in how to episodes is the sworn financial statement. It is a critical documents, one of the most important documents that parties fill out in their divorce and. Moving, segwaying into the Hunt case the rule that you mentioned 16. 2, so it's a Colorado rule of civil procedure 16. 2. it controls disclosure and experts and deadlines and everything for a, Divorce, Colorado. Now there's a special provision. It's rule 16. 2E subsection 10, and it says that the court has up to five years to reallocate Any material misstatement, omission of assets or debts. And really it's focused on assets. If Eric, for example doesn't disclose a debt, he didn't, he says, Oh, geez, I forgot to put my American Express card on there and it wasn't considered in the divorce. What is a judge likely going to do in that circumstance, Amy?

Amy Goscha: 5:58

Depending on if it's, like it the court needs to reallocate the debt essentially. So if it's an omitted asset, that's why as a lawyer, you need to amend this foreign financial statement if you're going through the divorce.

6:11

Indeed, and I think most judges would just say, listen, that's on you. You're responsible for the debt. If, on the other hand, Eric Wolf says listen, or rather Melanie says, Listen, Eric didn't disclose this this house that he owns and, in the Virgin Islands and he was hiding money and it's 100, 000 then, that, that could be a material misstatement. It really is if it was going to change the circumstances and that kind of brings us to the Hunt case. The Hunt case was a game changer and really raised some major eyebrows for family law practitioners, because in the Hunt case, the parties agreed, they went to mediation, they agreed to resolve their disputes. And in particular, the husband in that case had a business and they said, okay, he's going to get the business. And then they reached a comprehensive agreement, apparently the wife was going to get the business. And they reached an MOU, they signed a memorandum of understanding and then what happened was the wife went and hired an attorney and the attorney said, this deal just, it doesn't seem right, it just stinks, it seems like it's fairly one sided or it seems like it's, very favorable to the husband in particular, the business seemed to be undervalued. The wife then, before the court entered the decree. Asked to, litigate and get disclosures and the trial court said, no, you reached an agreement at the at mediation. I'm going to enforce this agreement. This, this agreement is enforceable. And so then the wife appealed it and the court of appeals said no, you, you cannot enforce an agreement. Even if it was at mediation, because what was a key kind of omission by or oversight by the husband is that he didn't provide the requisite financial statements for the business. So Amy, you mentioned profit and loss balance sheet, tax returns, if they exist. The husband in, in, before they reached their agreement, he hadn't disclosed that. So then they went back to the drawing board and they. Had to re do their divorce. And you can imagine that the husband or the father the business owner, he's saying, I thought we had a deal and, it could have been a fair deal. And, people reach an agreement and they don't want to go through the expense of a divorce and doing, intensive disclose discovery. Amy, what are some of the key takeaways from that hunt case for listeners to know going forward?

Amy Goscha: 8:51

The key aspect is we have 16 2 is mandatory. So that means that if there's certain financial disclosures that are listed that you have to provide, you have to provide those. And I do think some particularities so people understand, you mentioned disclosures. So some of the things that the husband had not disclosed that there was actually a disclosure. It was a construction business and he had an appraisal done. They also had some real estate. So there was, appraisals of the real estate and we see that a lot with businesses where maybe they own their commercial property, and that's in an LLC, probably in this circumstance as a construction company, they owned the, the building and they were paying rent, to it. So there was that information he didn't provide. Yeah, and all the business, it says all the business financial statements for three years, loan applications, he failed to provide those. And to explain to the listeners about the materialities, what they specifically agreed to in the 2012 MOU was that the business was worth 500, 000 and that wife would get 50 percent of that, so that was 250, 000. So that's the value that they had put on the business at at the time of. mediation. What came out later is that the business was worth more like 2. 1 million. So that's how you can see how there's like a big difference between 500, 000 and over 2 million.

10:15

Yeah that we'll talk about the Dury case cause that was another example of a business being worth substantially more. And I think it's helpful for people to hear some of these examples to, for their own education in terms of kind of materiality. So if a party, if Eric Wolf goes through a divorce and he doesn't disclose the thousand credit card points, That is probably not a material that's not going to change the divorce agreement. If there is some sort of, a account that has a hundred dollars that he just forgot about. Again, it's not going to be a material difference. And so it really depends on the circumstances. The other thing that I think listeners should also understand is that there was a case in your marriage of daddy Otis. That. Addressed income. So in the Daddy Otis case, there was a party who received maintenance. The wife received maintenance. She apparently had a Greek gambling business on the side. Daddy Otis. I always think of this as the Greek gambling case, but she didn't disclose that Greek gambling case. Now that I don't know, the court didn't really address the materiality of the business value on it, but really what the husband was asking for relief from was maintenance because he said she didn't disclose this income stream and I shouldn't be paying maintenance. And so the court said, listen, 16. 2e subsection 10, it's all about property. It doesn't say anything about income. And, that you can that we have other episodes on modification of maintenance or child support because of a change in circumstances and, certainly he could have asked to modify maintenance if the income aspect was different. But when you're going through the sworn financial statement, the income and the expenses that is not really. You know that it's not relevant for the 16. 2 analysis Really? It's that asset section and i've seen cases where I had a case once where the parties they reached an agreement the husband got a ranch and then the wife got a particular kind of amount of money and they had various, real estate holdings The problem was that he did not put the ranch You on the sworn financial statement. And, she was aware of the ranch. There was a picture of her name in the concrete for the driveway of the ranch. Like she knew that there was a ranch, but he didn't list it on the sworn financial statement. And that was important to the court because the court has to take an independent review. of the agreement that is reached between the parties to determine whether or not is conscionable or not. And in doing so, the court relies on that sworn financial statement. And so it looks at the assets and the debts. And if that's not disclosed, if it's not on that sworn financial statement conscionable. It is, then there's arguably, an issue on disclosure but subsequent case law after Hunt, at least from my perspective, Amy, really highlights the importance of disclosing the underlying documents. So the tax returns, the financial statements. Parties can disagree and they may not know how much a business, for example is worth, but if you disclose the financial statements, that's more important than saying how much it is or is not worth. And, a lot of times Eric will say she doesn't, she's a stay at home mom, Melanie. She doesn't know how to read a profit and loss statement. She's never been interested in this. And why should I even disclose this? She's not going to read it. And that's not really the point. The point is that you have to at least give the other side the opportunity to review those those disclosures.

Amy Goscha: 14:21

And also the court in Hunt did say if Hussman had disclosed what he needed to, then the MOU would have been enforceable.

14:31

So if in that scenario, I've had circumstances where Eric and Melanie, they have been discussing informally, They're trying to keep fees or, whatever the case may be, but they'll come in and Eric will say, okay, listen, we got a deal. She, I'm going to get the business. The business is worth 500, 000. I'm going to pay her out. Then immediately I switch on and say, all right, we need to get. All of the financial disclosures over and, importantly to have a record of that. And there's a rule 16. 2 Certificate of Compliance that says these are the documents that I have disclosed. I think a lot of times, Amy, lawyers or parties, they just willy nilly fill that out. They don't really think it's all that important, but That is a record. You of course don't file the tax returns and you don't file the financial statements with the court. The court doesn't actually have those, but you as a party in a divorce say, I gave this to the other side. And if there's an email chain with the attachments or a Dropbox, it's one of the reasons that, you know, for our firm. Everything that goes to the other side, every document is Bates labeled. There's a number to it and then there's a date that of when it was disclosed. And that is so that if, 3 years down the road Melanie says, I don't like this agreement. This agreement is unfair. Then, we have a record of this is disclosed on this date. You were provided it. Here's, here's the Dropbox link and that is for posterity sake to make sure that whatever agreement was struck is enforceable.

Amy Goscha: 16:11

Yeah, and also, I think these circumstances come up, I've had them at an asset of, like someone not disclosing a house, like that's pretty clear, but when parties work together, and even if they have, limited scope attorneys, if there's one party who's the financial person, they might say we both have access to the tax returns, and I still, best practices is still make sure you send those documents to each other. It might seem a like unnecessary at the time, but that's what you need to do because this can be a big problem when you're looking at this kind of an issue.

16:43

Yeah, indeed, because people settle in one of the primary drivers to them settling is to save money. They don't want to go through expert disclosures. They don't want to continue paying people like you and me, Amy, they just want to be done. And then when, if it's reopened, they might have to spend a 100, 000 to re litigate something that they had, settled and maybe had given a better deal or a premium deal for the kind of resolution, the ability to move on. And it's just one of those things, I've seen it time and time again. And that brings us to the Durie case. So the Durie case that went all the way up to the Colorado Supreme court. And there's been the subsequent interpretations of 16. 2 E10. And what happened in the Dury case is that the parties settled, they had gone through some minimal, like they're not minimal, but they had gone through expert disclosures or expert kind of evaluations, and then they agreed on a particular number for the business. Shortly thereafter, the business owner, the husband, he turned around and sold it for substantially more. If my memory serves, I think it was like 7x the amount that was agreed on in the divorce. And it turns out. That there, the, the business owner had been having discussions about potentially selling it during the divorce. And the issue was did he have to disclose that? And the, valuations and where people and. Stand on settlement and the documents provided like it can get really messy because people then can reopen something that they thought was slam dunk or had been resolved.

Amy Goscha: 18:30

Yeah, how this case went up to the Supreme Court, there were 2 companion cases, the Rung case, which. Essentially barred disclosure and then to read essentially, essentially what the court said is you can have discovery, but it's going to be up to the court. And there was also some discussions on, what is the standard that a party has to prove in a pleading when they're asking for discovery?

18:57

Right, because they're there, in 1 example, it was like, on the last day of the 5th year that someone tried to say, I'm going to reopen this and then they wanted to get into more discovery about, with the emails and going through. And, on a certain level, it could be a shakedown, right? Where they're just like trying to get more money, squeeze more money for the cost of litigation and just trying to leverage that for more money. It does happen, but, the other thing too, is that. I think listeners should understand that there's really 2 primary paths if they're dissatisfied or there's something wrong with, a settlement, the 1st is rule 60 and so that is most of the time that's seen as within 6 months, you can if there was a mistake or there was something in there they do happen, especially, Amy, we've talked about like you're at mediation, it's seven o'clock at night, eight o'clock at night, you reach an agreement, mistakes happen. And, if you realize that there's a mistake, then in particular, within six months, you can ask the court to remedy that mistake. There can be circumstances beyond that 60 day time period Where someone can say the court can revise or reopen the divorce decree or the judgment, but the most common path is that 5 year provision under Rule 16. 2 E, Section 10 and so there can be, the court has addressed in terms of, The settlement agreement and the language in there in terms of disclosures and the basis, because let's face it, Amy, there are some people that just say, listen, I, I want to be done and I don't want to have to provide All this documentation and you're on the, the committee trying to revise the family court rules to make it a little bit easier in certain circumstances. So there's really this balancing act between, do you have to go through expert valuations of a business in all divorces? No, like you don't, you don't, we shouldn't require that. But then on the other hand, and the other side of the coin is, should you have a situation where Eric and Melanie Melanie's negotiating with Eric on the value of his business and she's not really shown full transparency and doesn't really have an idea of what that business is worth. And so there's a balancing act there.

Amy Goscha: 21:27

Yeah, definitely. I think I would also, these post judgment motions can also be Rule 59. That's another one that you need to look at. And also under Rule 60, as you said, some of the provisions are within 6 months. Some of them don't have a time frame, but it's like under limited, circumstances. And there is a balancing act. There are courts, like even Denver District Court, depending on what issues are in a case, you can waive, financial disclosures, but that's not going to be on something that is more complicated when there, there's a business. And I think everyone needs to understand in order to understand rights that you are waiving, you have to have basic information, to basically understand, or at least be given the opportunity to understand that before you, just decide that you are going to, waive those rights.

22:20

Indeed. And, it begs the question about if someone is expecting, a large inheritance or they, they're real estate broker and they have a a large property under contract, do they have to disclose that where they're, they're, it's, it might And, but there's no documentation because, rule 16. 2, it doesn't necessarily require documents, although documents are the foundation and there's a paper trail, but then there's the just general information. And so it's really that again, that balancing act between, do you. Disclose something and risk potentially having to pay more, or is it better to take that risk? And the risk is that they don't that they reopen it later on. And I think people need to understand that even if they go to mediation, and even if they have a signed separation agreement. There are circumstances in which there can be divorce remorse, and it can be re examined. And if people are trying to cut corners, and Eric is trying to pull one over on Melanie, there is a mechanism by which the court can re examine this. And one of the jobs, the key jobs that I said at the outset of a divorce lawyer in Colorado. Is to make sure that the agreements are clear that it's written and it says, who gets what, but, another aspect that I don't think in particular, less experienced attorneys realize is to make sure that people are jumping through the necessary hoops in order to make that agreement stick and 1 of the keys and the things that I have seen. Is that disclosure requirement and making sure that you are papering up an agreement that is reached and it can't even go to trial. If you go to trial and you don't disclose something, then, the court is not going to look on that favorably. And I think, we've had Amy episodes on trust interests. Certainly if someone owns a house, They know they're going to have to disclose that. There really shouldn't be any doubt about it. If they have a bank account, if they have a business, but those trust accounts or the trust interests, rather, if you are a beneficiary of a trust, you may just assume I don't that's mine that I, or I don't even know that I'm the beneficiary of a trust. And so it. Begets people asking, their parents and saying, Hey, is there anything that you've set up for me? I'm going through a call, going through a divorce. I, I heard this podcast and they said, I should ask you. And, oftentimes people just don't even realize that these interests exist. And, if later on down the road, they receive a significant inheritance, then, then it can be subject to division. And. One other thing that I think is also important is that the valuation of those assets is at the time of the hearing, not at the time of the divorce. So if you don't disclose a business or you don't disclose a bank account or a brokerage account, and that business grows and becomes more profitable and more valuable in the future, then, then really. You're going to have to address that increased valuation and, judges are not going to be happy that they're having to reallocate something. And it's, 50 50, I think is at best case scenario for someone that doesn't disclose it.

Amy Goscha: 26:02

Yeah, and I think, as a lawyer, really being strategic as to when you are doing that valuation date, right? Because if you go to mediation, and then you have to set a hearing, especially in some of the counties down here, it could be another year out. You're going to have to update that, that valuation. Yeah, and I think the only other. The other thing I, that I would mention about the Domestic Relations Rules Committee is you had mentioned rule or the Form 35. 1. We're really looking at making that more specific and making more documents required so it's easier to understand, like what those documents are. So there's not, disputes over what should or should not be disclosed.

26:41

Indeed. And you mentioned the loan application and when people they apply for loans, their incentive is to, to, it's different than in a divorce. And so when those loan applications, when people put a business or, something as a particular value, and that is. In stark contrast to what they put in the sworn financial statement, they need to realize that subjects them to potentially a claim that they're misstating or changing that value. And, people need to be really careful and ask themselves, is it better to disclose an asset? Say, I don't know what the value is versus, something where they put a particular value and that value you could disagree with and say that really over underestimates or undervalues a particular asset. And so those are the strategic decisions that I think parties really need to confront and think about when they're going through a Colorado divorce. There's a lot to be said in terms of Divorce 2. 0. Hopefully people had this been an educational and thought provoking episode, but as always, we enjoy discussing these topics and, if you've learned anything or enjoyed the episode, please tell a Divorce at Altitude.

ryan kalamaya: 28:03

hey everyone. This is Ryan again. Thank you for joining us on Divorce at Altittude. If you found our tips, insight, or discussion helpful, please tell a friend about this podcast. For show notes, additional resources or links mentioned on today's episode, visit Divorce at Altittude dot com. Follow us on Apple Podcasts, Spotify, or wherever you listen in. Many of our episodes are also posted on YouTube. You can also find Amy and. Law or 9 7 0 3 1 5 2 3 6 5. That's aaa.