The Importance of Understanding Future Income in a Mediated Settlement Agreement

What is a Mediated Settlement Agreement?

If you reach an agreement in a mediation, more precisely called a Mediated settlement agreement or MSA for short, the agreement is binding on you and all other parties you are agreeing with in a family law case as long as the MSA is drafted in the way that is required under the Texas Family Code. The agreement must be the result of a mediation, hence the name, which is basically just the meeting of both parties with a neutral third person facilitating the conversation so that the parties can come to an agreement. Texas law encourages mediation as a cost-efficient and time-efficient way of settling disputes. One of the benefits of mediation is that instead of a judge who has only a glimpse into the lives of parties based on evidence presented to him or her, during a mediation the parties who know their situation and family the best get to come to an agreement that works for them and is custom to their situation.

One downside to a mediation could be that as opposed to a judge who should know what the consequences of their decision could potentially be, parties could be making agreements in a mediated settlement agreement using language that will have consequences after the agreement is entered that they did not intend. One of the reasons that we trust judges to make decisions for us in legal matters is that in general they have years of experience dealing with similar matters and they should understand what all of the legal jargon that goes into an order actually means.

Loya v. Loya and the Definition of Future Income

The issue of a mediated settlement agreement having an unintended consequence came up in the case of Loya v. Loya in the Supreme Court of Texas on March 21, 2017. In that case, the court had to decide whether a bonus that was received after the MSA was entered was or was not considered to be “future income” in the sense that future income was included in the agreement without providing a definition for what future income means. Basically, the parties had agreed that each person would keep their own future income and then disagreed later about what “future income” actually meant.

In Loya v. Loya the court made sure to distinguish the phrase “future income” from the phrase “future earnings” when making their decision. The issue in Loya v. Loya was whether a bonus received after the MSA was “future income” even though at least part of it was earned based on performance at work before the MSA. The court concluded that future income included the bonus that was received after the MSA and as a result the party who received the bonus was entitled to keep all of the bonus. Of course, the other party said that when they signed the MSA that is not what they thought they were agreeing to and that is not what they thought future income meant.

Why Does This Matter to Me?

If you are involved in a family law case mediation can have serious and unintended consequences for you. Having an experienced attorney with you in a mediation who can explain to you the meanings of different phrases and help craft a more precise MSA can be very valuable. If you have any questions about an upcoming mediation or any family law matter contact Guest and Gray today.