A Guide to Rule 69 Agreements in Arizona

What Is A Rule 69 Agreement?

A Rule 69 Agreement is a specialized type of marital settlement agreement wherein the parties delve into detailed provisions affecting the marital property or equitable division of the same as well as other areas affecting their children, but differ from normal settlement agreements in that they are to become incorporated into an Order of the Court after the Decree of Dissolution. They are enforced in the same manner as a Judgment of the Court in the sense that a Judge may not deviate from the terms of this agreement without just cause. Just as important is the fact that if you seek enforcement of a Rule 69 agreement, it will not be subject to the appeal process or subject to a notice of appeal , nor attention of the Court of Appeals or Arizona Supreme Court. This is one of the legal advantages of a Rule 69 Agreement.
Rule 69 was designed by the Arizona Supreme Court to streamline the family law process so that one could avoid the necessary delays inherent with making a marital settlement agreement a part and parcel of the Decree on the dissolution of marriage. The rule does not define what areas the agreement can cover, only that it is limited to financial matters. Typically, parents with minor children utilize Rule 69 Agreements since these agreements do allow the parents much more flexibility incorporating specific language that provides them with flexibility in their plans of joint parenting. There is no hard fast rule as to what a Rule 69 Agreement can be used for, but it must be for financial and not custody issues.

Legal Requirements for Rule 69 Agreements

A Rule 69 Agreement requires certain documentation to be filed in order to be valid. Documentation must show the date of the occurrence of the triggering event that allows the agreement to be made. In addition, the agreeing party must provide evidence that there were assets available for distribution at the time of the agreement. Finally, evidence of a settlement conference must be provided along with any resulting written agreements and the signatures of the parties agreeing to a final Rule 69 Agreement.
It is important that everyone participating in a Rule 69 Agreement be agreeable to the terms of the document. It is also necessary that the parties involved in the agreement receive details about what the terms of the final Rule 69 Agreement will be.
Finally, a Rule 69 Agreement is only valid if approved by a judge. After preparing the documents required for the agreement, the parties must present the documents to a judge to be considered for approval.

Rule 69 Agreement Benefits

For many lenders facing the prospect of a post-judgment enforcement proceeding against a debtor, requesting new garnishments and filing new applications and motions is time consuming and costly. The judicial process requires motion practice, compliance with the rules of civil procedure and the rules of the particular court in which the garnishment proceedings are filed and, often, appearances for hearings related to the garnishments. If there are multiple garnishment proceedings, compliance with all of that stuff can take a lot of time and effort from the judgment lender. Filing new garnishments with each of the debtor’s employers can also be difficult, with one of the employers not complying with the garnishment order until directed to do so by the court. Then there is the information lost on the debtor when the creditor files new garnishment after new garnishment and doesn’t keep the debtors’ and garnishees’ various accountants informed via Rule 69(f) statements. In addition, the early garnishment order scheduling hearings on all Rule 69 proceedings can be a lot of work for the court and result in the initiation of multiple enforcement proceedings with little or no substantive results.
Not only are most of these problems eliminated (or at least greatly reduced) when Rule 69 agreements are used, but the Rule 69 agreement also saves time and costs of the creditor. For example, once the judgment creditor and debtor have agreed to the terms of the Rule 69 agreement, the agreement should be presented to the court for approval and the approved agreement sent to the debtor’s employers. Then the creditor presents the garnishment order and other pleadings to the court for a signature. Once the garnishment order is signed by the court, it is effective in all counties in Arizona, saving the time and cost of filing new garnishments in each county.
The agreement itself, of course, may provide for fees and costs to be paid by the debtor to the creditor, including fees for the use of the attorney preparing and obtaining the garnishment order. However, the creditor may be agreeing to this in exchange for getting the debtor to begin making payments toward the judgment and to completely eliminate (or at least greatly reduce) the time and present cost involved in pursuing garnishments for the judgment creditor, as discussed above.
Arizona judgment practitioners will, of course, recognize the tradeoffs involved between using Rule 69 agreements and garnishment proceedings, and that Rule 69 agreements improve the debtor’s ability to attempt to recover on the judgment.

Common Uses for Rule 69 Agreements

There are three major areas where Rule 69 agreements arise in an Arizona case – (1) property division, (2) child custody and parenting time and (3) spousal maintenance. Typically, one or more of these issues are contested between a divorcing couple. Because these are some of the most hotly litigated and disputed areas of the case, Rule 69 agreements provide a great opportunity for compromise and resolution. For example, one spouse can waive, relinguish or forgo some part of their claim in exchange for some other concession by the other party. These agreements also help to avoid unnecessary litigation and extraneous court hearings or motions.
Property Division
Property division is one of the largest issues when parties divorce and rule 69 commonly applies to "divide up" property or sales proceeds. That is to say, parties may enter into an agreement which deals with the manner in which the parties will divide up their assets. This is an area of law known as equitable distribution. For example, if a couple decides to sell a piece of real estate, and they obtain a sales price, they may wish to split the sales proceeds. They may do this by entering into a Rule 69 agreement describing the parcel of real estate, the purchase price, the sale price and the manner in which the sales proceeds will be divided. This also applies to items the parties obtain during marriage, such as a vehicle. The parties may divide the vehicle by stating what the vehicle is, who currently has possession of it (or where it currently is located), the current value (or appraised value) and how the sales proceeds will be divided if sold.
Parenting Time and Child Custody
Rule 69 agreements are often utilized to resolve child custody issues. Specifically, custody would relate to the legal and physical custody of children born during the marriage. Typically, one rule 69 agreement will govern the parties with respect to all children, and it can detail the parents’ legal custody, physical custody, natural parenting time and holiday parenting time. For example, the court could decree that the parties share joint legal and physical custody of the children. A Rule 69 agreement detailing the manner in which the parties will interact with the children can be helpful as it sets forth the custodial schedule. This enables the parties, and the court, to have clear expectations as to what is expected and required. Essentially, the parties can agree to how the children will divide their time equally with both parents.
Spousal Support
Rule 69 agreements can, and often do, encompass spousal support or other spousal maintenance. Typically, the abusive spouse or financially powerful spouse agrees to pay some amount of money to the weaker, less financially powerful spouse on a temporary or permanent basis. For example, under a Rule 69 agreement, a spouse may agree to pay their partner $1,000 per month for five years. This encompasses the spousal relationships and the lifestyles the parties have been accustomed to for the past years of being in the relationship.

How to Write a Rule 69 Agreement

This phase of a Rule 69 agreement involves the use of standard settlement agreement language (which we discussed in part one of this series). Often, parties may prepare a standard settlement agreement draft in anticipation of negotiating an agreement. Others may prepare the settlement agreement at the end of the negotiation process. While the drafting of the agreement may be handled by legal counsel, the incorporation of the Rule 69 and any financial disclosure should be discussed with all parties prior to finalizing an agreement. Further, other essential terms of the agreement should be included in the final document, which we discuss below.
When drafting the Rule 69 agreement, it may be easiest to maintain the structure of a standard settlement agreement. See: Drafting a Standard Settlement Agreement. As a quick review, each paragraph of a standard settlement agreement should address one concept: (i) the recitation, (ii) the subject matter, (iii) the operative events, (iv) the consideration, (v) the preservation clauses, (vi) the binding nature of the agreement, (vii) the amendment, (viii) the severability, and (ix) the waiver. Each of these sections can be adapted to specifically incorporate the Rule 69 information, and any other information, about the moving party.
After the recitation paragraph, the operative event paragraph follows the recitation and should include the date that the Rule 69 process commenced, or if the date cannot be identified, the date of the first appearance on a Rule 69 agenda. The operative event paragraph should also include the legal bases, as opposed to factual bases, for the Rule 69. The Rule 69 should set forth an assertion or statement of the law that was violated as the basis for the Rule 69. For example, the operative paragraph could state that "at all times relevant, Defendant held legal title . . . ." or it could state that "Defendant was not acting within the scope of employment . . . ." The operative event paragraph should not include recitation of facts or affirmations by the parties regarding the conduct of the defendant, but should be limited to the law that the moving party asserts was violated, which led to the Rule 69 process.
The operative event paragraph becomes more important to whom the Rule 69 agreement applies . Rule 69 agreements can be executed by the moving party and one or both judgment-debtors in a Rule 69 action, or they can be executed by the moving party and the judgment-debtor. In the first situation, the Rule 69 operates as a form of indemnity for the third party while in the second it operates as a settlement of the underlying action. In either situation, the operative event paragraph becomes crucial to defining which parties are bound by which parts of the Rule 69, and to what extent they are bound by the Rule 69. If the rule 69 agreement is entered into by the moving party and one or both judgment-debtors, then it may be prudent to prepare an addendum that provides for a bar order to be entered in the Rule 69 action that prohibits the moving party from executing on the judgment, and the judgment-creditor from enforcing the judgment, against the judgment-debtor. The addendum would protect the agreement from any future attempts at collection against the judgment-debtor, including a garnishment proceeding or a recovery action. The bar order thus safeguards the agreement.
In addition to the operative event paragraph, the consideration paragraph should also include information about the moving party and the judgment-creditor. When entering into an indemnity agreement with the moving party, the moving party should specifically disclaim reliance by the judgment-debtor as to any statements made by the moving party during the Rule 69 process. This statement should be included in the consideration paragraph under a parenthetical itemization of other considerations. Similarly, if during the Rule 69 process, the moving party or judgment-debtor disclaimed reliance by the moving party on any financial information provided by the judgment-creditor, such disclaimers should be included in the consideration paragraph. As with the operative event paragraph, the consideration paragraph becomes crucial when more than one party is executed in the Rule 69 process.
Once the Rule 69 agreement is drafted, execution follows the Rule 69 process outlined in part one of this blog post. The moving party and judgment-creditor will be relieved from the financial documents that were requested during the Rule 69 process. Rule 69 agreements are a useful tool for protecting the moving party, while providing the judgment-creditor with settlement often times years before a judgment would ever be paid.

Rule 69 Agreement Modification and Enforcement

In Arizona, Rule 69 agreements are enforced through the child support enforcement and collection procedures applicable to other child support obligations. If the Rule 69 agreement is incorporated into a court order, pursuant to Rule 69 and A.R.S. § 25-681(B), a provision for periodic payments by the parent under the agreement shall be considered final and the basis for ongoing enforcement unless modified by a new written agreement or future order of court. See Johnson v. McDonald, 155 Ariz. 305, 746 P.2d 1302 (App. 1987). However, modification is possible if circumstances change after the Rule 69 agreement is entered.
As a general rule, future changes to the amount of child support ordered do not affect the obligations under a Rule 69 agreement unless the parties agree to modify the agreement. Rule 69 agreements cannot be terminated before the child support obligor pays the entire amount of his or her obligation thereunder. The child support obligation continues beyond the normal termination date until fully discharged. It is the child support obligor’s responsibility to continue making the required payments. Failure to do so gives rise to sanctions. See Garabedian v. Schwartz, 146 Ariz. 585, 707 P.2d 372 (App. 1985).
Rule 69 agreements cannot be modified, modified without court involvement, or terminated without a showing of changed circumstances. See Gerding v. Huiras, 176 Ariz. 30, 859 P.2d 745 (App. 1993); Brigham v. Brigham, 169 Ariz. 168, 818 P.2d 677 (App. 1991). Originally, Rule 69 prohibited any modification of an agreement entered into under its auspices. "At one time Rule 69 did not allow for modification of agreements made pursuant to that rule." Davis v. Davis, 174 Ariz. 41, 807 P.2d 1112 (App. 1991). However, over time, via case law, Rule 69 was modified to permit a party to file an application to modify or set aside the Rule 69 agreement if there has been a material, substantial and continuing change in circumstances since the Rule 69 agreement was entered into. The circumstances which may warrant modification of Rule 69 agreements include, but are not limited to, the following: a parent’s employment status; a parent’s housing situation; a child’s age, marital status, and/or educational status; the parent’s health or disability; a parent’s income; a parent’s marriage; the effect of marriage to a new partner on the availability of income to pay a Rule 69 obligation; the inability to pay based on other child support obligations; a parent’s unemployment; and a parent’s incarceration.

Pitfalls of Rule 69 Agreements

There are many pitfalls to setting up a Rule 69 agreement and many mistakes that debtors and creditors make. It is always best to reach an agreement on the Rule 69 before disbursing any funds. Trying to backtrack after funds have been disbursed can be difficult and sometimes impossible. Agreeing to an unreasonably high rate of interest can lead to a creditor not getting full payment of its debt and possibly having to deal with future offsets by the debtor.
Another common mistake is entering into an agreement under Rule 69 when the proceeds from the sale of the property are insufficient to fully pay the creditor. For example, a creditor has a 1st mortgage security instrument, and the amount owed on that debt is $100.00. The debtor sells the real property for $50.00. If the creditor and debtor enter into a Rule 69 agreement, but the amount does not fully pay the creditor’s debt, then the creditor does not receive full payment. This also may have the effect of reducing the creditor’s judgment to an amount insufficient to avoid the "small balance" threshold for further collection activity as described above.
One of the most important terms in a Rule 69 agreement is the term for the interest on the debt, particularly if the terms are not disclosed on the face of the agreement. The rate of interest set by the parties should be no higher than that allowed by Arizona law. For example, the interest rate on a judgment owed to a natural person cannot be higher than ten percent (10%) unless the parties agreed otherwise. Arizona Revised Statutes Section 20-3494 provides that the maximum lawful interest rates and other limitations apply to "usury" and that "usury" means charging or taking interest that exceeds the maximum lawful rate of interest. Arizona Revised Statutes Section 33-1007 states that anything done "in lieu of usury" is considered "usury." It is critical to determine if non-judgment interest is being charged and, if so, to consider the total amount of interest, including any charge for usury. Usury is not enforceable in Arizona and is a complete defense to a claim for payment. Charging interest at a higher rate than allowed by Arizona law could have an impact on the creditor’s ability to collect the debt following the sale of the property.

Consulting a Legal Expert

As with any issue involving family law, it is wise to consult with a legal professional if you are thinking about a Rule 69 agreement. A rule 69 agreement permanently fixes some of your marital rights and obligations. Your attorney will provide you with clear guidance. It is critically important to have your own attorney review the Rule 69 agreement with you and explain the obligations you will be responsible for as well as the recommendations made by the Family Court Commissioner. While the Court Commissioner will give you all the information they think you need, it cannot possibly be all the information you need to obtain an understanding of the issues at hand . At the end of the day, Arizona Family Court Commissioners still work for the Family Court. They must administer the law according to the rules. Many times they will err on the side of protecting the marital interest in a property so as to give the Judge of the Family Court some space for equitable distribution by the Judge. It is very important that you have your own attorney review your Rule 69 agreement and review with you all the obligations you may have under it. Attorney’s fees may be necessary to have your attorney review the Rule 69 agreement, but that’s still less than paying him or her to go to court to "fix" a problem the attorney did not catch.