To Incorporate or not Incorporate?
Whether a separation agreement was drafted by attorneys or the parties to the agreement themselves, many parties will eventually face the question of whether or not they should incorporate their separation agreement.
So what does it mean to incorporate a separation agreement? Incorporation is the process of taking a contract and merging it with a court order. In North Carolina, what typically happens is the parties will separate, sign a separation agreement, and then incorporate their separation agreement into their eventual divorce judgment. The consequence is that what was once an ordinary contract is now a court order.
What is actually required to incorporate? All incorporated agreements are consent judgments, so the law surrounding consent judgments can guide us. The biggest requirement would seem to be both parties consenting to incorporation at the time of incorporation. An illustrative example comes from the Rockingham County DSS v. Tate, 202 N.C. App. 747 (2010). In this case, the trial court entered a consent child support order based on defendant’s signed statement from several months before the hearing where Defendant had agreed to reinstate a support order. The Defendant won on appeal because at the time of entry he did not consent, despite his previous prior consent.
The issue of incorporating separation agreements has had limited input from our appellate courts. Cavenaugh v. Cavenaugh, 317 N.C. 652, n.1 (1984), contains a single footnote on the issue. But that footnote perhaps creates more questions than it answers. The court noted that a trial judge could refuse to incorporate a separation agreement if it would not be equitable and, somewhat in contrast to the Tate case, that if the parties’ separation agreement included an agreement to incorporate the court might have authority to incorporate even over objection of a party at the time of trial.
Why even incorporate in the first place? There are some advantages to incorporating an agreement. Court orders are enforceable by the court’s power of contempt, whereas a contract like a separation agreement is only enforceable through a breach of contract claim. Contempt is a far easier path of enforcement than making a breach of contract claim. Plus, some people will be more likely to follow the terms of a court order as opposed to a contract because it is signed by a judge and has the specter of judicial power behind it.
Incorporating a separation agreement is not without pitfalls, and they can be severe. Contracts and court orders have different remedies and incorporating can create confusion as to what happens when it is not being followed. For example: you could agree in a separation agreement that late alimony payments carry a monthly penalty until paid. But if you incorporate, those penalties will be determined by the court, not your agreement. You could have further agreed that the remarriage of the party receiving alimony would not terminate the alimony payments under the contract. But if you incorporated, this agreement is now an order subject to North Carolina law. Under North Carolina law, the alimony payments would automatically terminate upon remarriage despite what you had both agreed to before.
These potential problems can be avoided. If the question of incorporation comes up the parties can always agree to incorporate only parts of their agreement through a partial merger. To avoid these issues altogether, we recommend parties instead work together to draft a consent order crafted with the powers of the court and laws of North Carolina in mind, rather than incorporate a separation agreement and deal with the accompanying confusion.
