Balogh v. Balogh

• Citation: 332 P.3d 631,134 Hawai'i 29
• Decision Date: 11 August 2014
• Docket Number: No. SCWC–11–0001074.,SCWC–11–0001074.
• Parties: Sandra C.J. BALOGH, Respondent/Plaintiff–Appellant, v. Donald Raymond BALOGH, Petitioner/Defendant–Appellee.
• Court: Supreme Court of Hawai'i

134 Hawai'i 29

332 P.3d 631

Sandra C.J. BALOGH, Respondent/Plaintiff–Appellant,

v.Donald Raymond BALOGH, Petitioner/Defendant–Appellee.

No. SCWC–11–0001074.

Supreme Court of Hawai‘i.

Aug. 11, 2014.

Rebecca A. Copeland for petitioner.

Stephen T. Hioki for respondent.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, JJ., and Circuit Judge CHAN, in place of ACOBA, J., recused, with POLLACK, J., concurring and dissenting separately.

Opinion of the Court by RECKTENWALD, C.J.

We consider whether various documents signed by a husband and wife should control the division and distribution of their marital partnership property upon divorce. Donald Raymond Balogh (Ray) and Sandra C.J. Balogh (Sandra)¹ married in New Jersey in 1981. After moving to Oahu in 2003, the couple began constructing a home on a vacant lot they had purchased (Kahalakua property or the property). The parties held title to the property as tenants by the entirety.

On October 6, 2008, following a period of tension between Ray and Sandra, they each signed a handwritten document stating that if they separated, Sandra would receive seventy-five percent of the profit from the sale of the property, the contents of their home (excluding Ray's tools and clothes), and all of their vehicles. A few weeks later, on October 24, 2008, the parties signed a typewritten Memorandum of Understanding (MOU) stating that upon separation or divorce, Sandra would receive seventy-five percent of the proceeds from the sale of the property, the contents of their home (excluding Ray's tools and building equipment), all of their vehicles, and $100,000 from Ray in lieu of alimony and court proceedings.

After a period of continued tension between Ray and Sandra, Ray agreed to move out of the couple's home on August 15, 2009. On September 1, 2009, Ray signed a quitclaim deed transferring his entire interest in the property to Sandra for ten dollars and "other valuable consideration."

In January 2010, Sandra filed a complaint for divorce in the Family Court of the First Circuit. Notwithstanding the quitclaim deed and two agreements, the family court awarded Ray and Sandra each a one-half interest in the property, which it valued at $1.6 million at the time of divorce.² The family court concluded that it would be unconscionable to enforce the quitclaim deed and that all three agreements were unenforceable because Ray acted under duress and coercion when he signed them.

Sandra appealed, and the Intermediate Court of Appeals vacated in part the family court's divorce decree and its findings of fact and conclusions of law, and remanded for further proceedings. The ICA concluded that both the quitclaim deed and MOU were enforceable. The ICA explained that the quitclaim deed was not unconscionable and that Ray executed both the deed and the MOU voluntarily. The ICA also concluded that the deed superseded the MOU only to the extent it modified the disposition of the Kahalakua property, and therefore remanded to the family court to determine whether Ray owed Sandra an additional $100,000 pursuant to the MOU.

In his application, Ray presents two questions: (1) whether the ICA erred in vacating the family court's decision that the postmarital agreements and the quitclaim deed were unenforceable because they were unconscionable; and (2) whether the ICA erred in vacating the family court's decision that the postmarital agreements and quitclaim deed were unenforceable because they were entered into involuntarily.

As a threshold matter, we hold that the quitclaim deed does not constitute a separation agreement that alters the parties' rights to an equitable division of their marital partnership property, such that Sandra should receive the entire value of the Kahalakua property. The ICA therefore erred in concluding that the quitclaim deed was an enforceable separation agreement.

Because the quitclaim deed did not affect the disposition of the couple's marital partnership property upon divorce, we must also consider whether the MOU is enforceable. We hold that the MOU is enforceable because it is not unconscionable and was entered into voluntarily. Because we conclude that the MOU is enforceable, we do not consider the October 6, 2008 handwritten agreement. The ICA's judgment is therefore vacated, the family court's divorce decree and findings of fact and conclusions of law are vacated in part, and we remand this case to the family court for further proceedings consistent with this opinion.

I. Background

The following factual background is taken from the record on appeal and the family court's findings of fact and conclusions of law.³

A. Factual background

Ray and Sandra married in 1981 in New Jersey. At the time of the marriage, Sandra owned two properties in Monmouth County, New Jersey. Sandra sold the first property in 1982 for $89,000. The second property was a vacant lot which Sandra had purchased for $28,750 (Wall Township property). At the time of the marriage, Ray owned one property which he sold shortly thereafter for $40,000. According to Ray, after he and Sandra married, they built a home on the Wall Township property.

Ray and Sandra are both well educated. Ray has a bachelor of science and a master's degree in electrical engineering. Sandra has a bachelor of science in biological science and a master's degree in education and student personal services. While living in New Jersey, Ray worked as a contractor for various companies. Before retiring in 2002, Sandra worked as a high school guidance counselor for more than twenty-five years.

While Ray and Sandra were living in New Jersey, they regularly vacationed in Hawai‘i. In 2002, Ray and Sandra purchased the Kahalakua property, which was a vacant lot on O‘ahu on Kahalakua Street, for $280,000. Ray and Sandra took out a home-equity loan on the Wall Township property to pay for the Kahalakua property. Ray and Sandra held title to the Kahalakua property as tenants by the entirety.

In 2003, Ray and Sandra decided to move to Hawai‘i so that Sandra could care for her elderly parents. The couple sold the Wall Township property for $545,000.

Soon after arriving in Hawai‘i, Ray and Sandra hired a contractor to build a home on the Kahalakua property for $595,000. The couple used the proceeds from the sale of the Wall Township property, as well as approximately $350,000 Ray had inherited and money from their joint savings, to help pay for the Kahalakua property and the construction of the home on the property.

Construction on the property began in 2004 and the home was supposed to be completed within two years. There were problems with the construction process from the start. The builder showed up only sporadically and eventually walked off the project without completing the work. In 2006, the builder placed a mechanic's lien on the property, even though there was a list of approximately 150 incomplete items.

The homeowner's association then sought to assess Ray and Sandra a penalty totaling $350,000 because the house had not been completed within the prescribed two-year period. The couple sued the homeowner's association, and the parties agreed on a reduced penalty of $5,000 with an additional two-year period to complete construction of the home.

In order to complete the home, Ray and Sandra paid a total of $60,000 to six additional subcontractors, but the home was still not completed. About six months after the original builder had walked off the job, Ray and Sandra were able to move into the house.

During this time, Sandra was working as a part-time secretary, and Ray was working for Northrop Grumman. Sandra coordinated the work of most of the subcontractors, and Ray worked on the house when he was home from work. For example, Ray finished the kitchen.

Tension arose between Ray and Sandra after Ray began going outside their home without clothes on. Ray's behavior resulted in complaints from neighbors and a visit to the couple's home by the police. Sandra also suspected that Ray was having an affair because he had lost weight, was working out, and was well tanned. Sandra also observed Ray giving other women what she described as "lecherous looks."

Ray stopped working in July 2008, after his contract with Northrop Grumman had expired and he was unable to find additional work. At the time of his retirement, Ray was earning between $115,000 and $120,000 per year. Following his retirement, Ray continued to work on the house.

After months of arguing and still questioning Ray's fidelity, Sandra told Ray that if he was serious about being committed to the marriage, that they should "write something up." On October 6, 2008, Ray wrote an agreement, as dictated by Sandra, that provided the following:

If Sandy and Ray Balogh are to separate from each other their assets are to be divided as such:

I Donald Raymond Balogh agree that my wife Sandra C. Balogh will receive:

1. ¾ or 75% of the profits of the sale of [ ] Kahalakua St.

2. The entire contents of the house excluding Ray's tools and clothes

3. All vehicles at time of separation[.]

Both Ray and Sandra signed the agreement. Sandra was not thinking about divorce when she asked Ray to sign this agreement; instead, Sandra thought that Ray was committing to saving their marriage. Ray acknowledged that he had agreed to the terms of the agreement, and Sandra testified that she did not threaten Ray to get him to sign the agreement. According to Ray, he was not in his right mind when he signed the agreement, but nevertheless signed the agreement to show his good faith and commitment to save the marriage. Ray thought that if he did not sign the agreement, his and Sandra's relationship would further degrade and he would be thrown out of the house.

Sandra, however, remained suspicious of Ray's fidelity. Just over two weeks after they had signed the first agreement, Ray and Sandra executed the MOU in front of a notary. The MOU provided the following:

This Agreement between Donald Balogh and Sandra Balogh will be implemented if they are to separate

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