Originally published by Kelly McClure.
A Texas premarital agreement can help protect each party’s assets in the event a marriage ends in divorce. Premarital agreements may also include other provisions, including a requirement to submit certain issues to binding arbitration instead of for determination before a judge or jury. In a recent case, a husband attempted to vacate an arbitrator’s decision, arguing he had exceeded his authority.
Premarital Agreement Provides for Binding Arbitration
The parties executed a premarital agreement that set forth the division of property if they got divorced. They also agreed to submit any dispute regarding the agreement or its enforcement to binding arbitration.
The husband filed for divorce in 2018. The parties ultimately agreed to refer the case to arbitration if it could not be tried on a certain date with a specific judge. When the judge was unable to try the case on that date, the parties moved forward with arbitration.
After arbitration, the husband moved to vacate the arbitrator’s decision and appealed when that motion was denied. On appeal, he argued certain parts of the decision exceeded the arbitrator’s authority.
Arbitrator Issues Decision Regarding Closely Held Business Entities
When the husband filed for divorce, the parties jointly owned two closely held companies and a limited partnership. The arbitrator’s decision awarded ownership of those organizations in accordance with the premarital agreement, but included some clarifications related to those entities. The husband argued that the arbitrator’s clarifications increased the wife’s interest in one of the organizations to an amount greater than she was entitled to under the premarital agreement. The arbitrator ordered that the organization’s capital account be adjusted and that the husband pay the wife $200,000. The adjustments were based on improper charges to the capital account, correction of the amounts due to the wife based on her increased ownership of the organization during the marriage, and loans made using her interest without her agreement.
The arbitrator also clarified that 20% of the organization’s net mineral income was to be paid to the wife at least monthly.
The arbitrator also prohibited the husband from taking certain actions relating to the organizations that would be adverse to the wife. The arbitrator noted the premarital agreement and the organization’s limited partnership agreement had conflicting language about who would control the wife’s interest.
The husband argued the arbitrator exceeded his powers in directing the conduct of the organizations, deciding matters not submitted to him under the agreement’s arbitration clause, and granting relief beyond what was allowed in the agreement.
Arbitration Award Not Binding on Business Entities
The appeals court found the arbitrator’s award did not bind the non-party entities, but required the husband to perform certain obligations related to his control of those entities.
The appeals court further found that the premarital agreement could support the arbitrator’s decision. The premarital agreement provided that a “spouse shall not dispose of or encumber the separate property of the other spouse.” The arbitrator determined that the clarifications prevented the husband from disposing of or encumbering the wife’s interests in the organizations. The appeals court further noted that it did not matter whether the arbitrator’s interpretation of the premarital agreement was correct. Neither the Texas General Arbitration Act nor the Federal Arbitration Act allows a court to vacate an arbitrator’s award due to an incorrect interpretation of a contract. The appeals court found the premarital agreement “plausibly supported” the arbitrator’s interpretation that it allowed the clarifications to preserve the wife’s interests in the organizations and her control of those interests. The arbitration provision allowed the arbitrator to decide “the validity, interpretation, or enforceability of the agreement. . .” The arbitrator’s decision was therefore within the authority the parties agreed to grant him. The appeals court denied the motion to vacate and affirmed the order confirming the arbitration decision.
Seek Legal Advice Before Agreeing to Arbitration
Arbitration can be an efficient and cost-effective way to resolve disputes. Before agreeing to arbitration, however, parties should keep in mind limited rights to appeal a binding arbitration decision. It is therefore important to consider the possibility of an unfavorable decision, especially when the arbitration provision is part of a premarital agreement executed when the issues to be decided in the divorce are uncertain. An experienced Texas divorce attorney can work with you to draft or negotiate a premarital agreement, including determining whether an arbitration provision is right for you. Call McClure Law Group at 214.692.8200 to schedule a consultation to discuss your situation.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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