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Reopening a Divorce Judgment Due to Fraud

In re Marriage of Brubaker, 2022 IL App (2d) 200160

Divorce litigation can be both expensive and emotionally taxing. Not surprisingly, many couples choose to settle their divorce action rather than engage in lengthy litigation. Oftentimes, parties in a divorce proceeding will exchange a limited amount of information and conclude that they know enough about the marital assets each party holds and waive their right to investigate through formal discovery the assets and income of the other party. In many cases, this means that one or both parties must rely on the other to provide truthful information about their assets and income. Sometimes, this reliance is misplaced. In Brubaker, Rockne Brubaker alleged that his ex-wife, Monica Brubaker, fraudulently concealed her ownership of a condominium worth approximately $800,000 when they settled their divorce. The Circuit Court held that Rockne could not challenge the settlement agreement, even if his allegations of fraudulent concealment were true. The Second District appellate court reversed the decision and held that Rockne was entitled to a hearing to determine whether his relying on Monica’s disclosures was reasonable.

A. The Underlying Facts

The parties were married for approximately 30 years before they divorced. Rockne had a medical practice and Monica was a co-owner of company named New Life Printing & Services. During their divorce proceeding, Rockne and Monica agreed to conduct informal discovery as to their assets and income. This informal discovery included Rockne and Monica exchanging “comprehensive financial statements,” that purported to disclose their assets and income.

Monica stated in her comprehensive disclosure statement that she earned a salary from New Life of approximately $40,000 per year. With respect to real estate she owned, Monica listed the parties’ marital residence and a vacation home the parties had used during the marriage. In regard to business interests, Monica only identified her interest in New Life.

The parties then entered into a Marital Settlement Agreement (“MSA”) in which they divided the disclosed marital assets and agreed to waive any formal discovery. In the MSA, the parties agreed that they were “fully informed of the wealth, property, and income of the other, and have waived the right to a full and complete disclosure of their respective financial conditions.” In the MSA, the parties also confirmed the accuracy and completeness of the disclosures they made to one another.

At the prove-up hearing in August of 2013, both parties testified that they provided each other complete and accurate information in regard to their assets and had not misrepresented the assets they owned. Based on the disclosures contained in the MSA, the parties’ marital estate was worth approximately $2 million. The court accepted the MSA and entered a judgment dissolving the parties’ marriage.

More than three years later, Monica’s business partner in New Life (Nelson) contacted Rockne and told him that Monica had purchased a condominium in Chicago during their marriage. Furthermore, Nelson told Rockne that Monica did not disclose the condominium to him during the divorce because she wanted to keep something for herself, and that she still owned the condominium. Rockne subsequently learned that Monica had purchased the condominium in 2009 in a cash transaction that cost over $700,000. In order to purchase the condominium, Monica created a new company called SRCM, LLC that received a check from New Life made out to “CASH.” New Life made many payments directly to the Cook County Treasurer for the condominium over the following years. It was undisputed that Monica did not disclose the condominium or SRCM, LLC to Rockne during the divorce.

In September 2017, Rockne filed a petition to vacate the divorce judgment and the settlement agreement pursuant to 735 ILCS 5/2-1401 (“Section 2-1401). Rockne alleged that Monica had fraudulently concealed the condominium from him and that he acted diligently to protect his rights when he was informed of the condominium. Rockne also alleged that he suffered substantial financial injury as a result of Monica’s fraudulent conduct given that the condominium had a value of approximately $800,000, while the entire martial estate had a value of $2 million.

Monica moved to dismiss Rockne’s petition in a summary judgment motion. Monica claimed that Rockne could have and would have learned about the condominium if he had conducted discovery during the parties’ divorce. Monica argued that Rockne’s waiving his right to conduct discovery meant, as a matter of law, that Rockne did not exercise due diligence in protecting his rights.

The Circuit Court agreed with Monica and dismissed Rockne’s petition, “because the parties waived formal discovery in the original dissolution proceedings, and because [Rockne] could have discovered the condo had he conducted such discovery, the waiver of formal discovery reflected a lack of due diligence in the original action as a matter of law.” The Second District reversed the Circuit Court’s decision and directed the Circuit Court to conduct an evidentiary hearing as to whether Rockne exercised due diligence when he relied on Monica’s disclosures in the divorce action.

B. The Second District’s Opinion

Section 2-1401 provides a “mechanism for obtaining relief from final judgments or orders that are older than 30 days.” Under Section 2-1401, a court can vacate a judgment if the court is presented facts that “if known at the time of the entry of the judgment, would have prevented” the court from entering the judgment. While this seems like an open invitation to challenge previously entered judgments, Section 2-1401 does not allow a party to challenge a judgment simply because they learned new information. Instead, a party invoking Section 2-1401 has to allege facts showing the following: “(1) the existence of a meritorious claim, (2) due diligence in presenting that claim in the original action, and (3) due diligence in seeking relief under section 2-1401.”

Fraudulent concealment is grounds for vacating a prior judgment under Section 2-1401. The mere fact that fraudulent concealment occurred, however, is not enough. The party invoking Section 2-1401 must prove that they acted with due diligence, but were nonetheless unable to discover the fraudulent concealment. Whether the party did, in fact, exercise due diligence is a factual issue that turns on the “reasonableness of a petitioner’s conduct under the circumstances.” According to the Second District, the Circuit Court should have evaluated the following factors:

Whether [Rockne] knew or reasonably should have known of [Monica’s] ownership interest in the condo prior to entering into the MSA, whether [Monica] intentionally misrepresented her assets or concealed the condo from [Rockne], and whether [Rockne] reasonably relied to his detriment on [Monica’s] representations, including those made during the settlement negotiations, in her comprehensive financials statement and at the prove-up hearing.

The Second District did not need to address whether Rockne’s actions were, in fact, reasonable, because that was not the basis of the Circuit Court’s decision. The Circuit Court took the position that a party can never claim he or she acted with due diligence in the context of a marital settlement agreement when that party waived their right to discovery. The Second District concluded that this position was not supported by existing case law, and was concerned that the Circuit Court’s position would “incentivize litigants to be less than forthcoming in their disclosure of assets whenever divorcing parties opt to forgo formal discovery.”

Closing Thoughts

The decision in Brubaker shows the potential pitfalls in settling divorce actions based on extremely limited information. In cases where the marital estate is modest in size and both parties have a good understanding of each other’s financial situation, extensive discovery may not be beneficial. However, even in these cases, some limited discovery is the prudent course to follow. When one spouse has a personal business or the marital estate is large and complex, for example, waiving formal discovery is risky. Determining the extent to which each party should seek discovery is not easy.

Discovery is expensive and can take considerable time, and the Second District in Brubaker was balancing competing policy goals. Parties can save significant time and money and settle their divorce action quickly by pursuing limited informal discovery. In this scenario, the court system also saves judicial resources. If parties could easily reopen these settlement agreements, however, they would have much less incentive to quickly settle their divorce action.

In cases where parties waive formal discovery, they will oftentimes ask for limited disclosures, like the disclosures made in Brubaker. If parties cannot rely on these disclosures, they may choose to pursue formal discovery and all of the added costs associated with the discovery process. This would also discourage the early settlement of divorce cases. A rule that prevents reopening judgments when fraud occurred would also encourage fraudulent conduct before court, which is contrary to the very purpose of the judicial system. In Brubaker, The Second District balanced these conflicting goals by allowing Rockne to get a hearing on this petition to reopen the settlement agreement, but made it clear that Rockne would face an uphill climb.

One lesson that can be learned from this case is that reopening a settlement agreement is extremely difficult. Secondly, agreeing to extremely limited discovery may cost more in the long run than you think. If you are seeking a divorce in which you or your spouse are business owners or your marital estate is complex, it is important to enlist the help of an experienced Chicago divorce attorney. At The Law Offices of George M. Sanders, we have the knowledge and experience necessary to help you navigate the process and make the best decisions possible.

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