A Tangled Mess in New Hampshire

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Characterization plays an important role in conflict of laws. When the choice-of-law rules for contracts are different than the choice-of-law rules for property, a court’s decision to characterize an issue as sounding in “contract” or “property” will inevitably affect which jurisdiction’s law is applied.

The New Hampshire Supreme Court grappled with the issue of characterization—though it did not label it as such—in its recent decision in In the Matter of Whitehead.  I am sorry to report that this case does not reflect well on New Hampshire. While the outcome reached by the court is defensible, the analysis that preceded it can only be described as exasperating.

Facts

In 1999, Michael Whitehead suffered a spinal cord injury in a car accident in Ontario, Canada. Michael, then a resident of Ontario, brought two lawsuits in Canada relating to the accident. In 2003, Michael settled the first lawsuit in exchange for a lifetime annuity.

After his injury, Michael began playing wheelchair rugby for the Canadian Paralympic team. He met his wife, Kerri, while playing in the United States. Michael and Kerri married in Maine in 2004 and moved to New Hampshire in 2014. Several years after the wedding, the second lawsuit relating to Michael’s accident was resolved. Michael began receiving a second annuity.

In 2021, Kerri initiated divorce proceedings. She requested an equitable share of both annuities. Michael opposed this request. The trial court held that Michael should retain the entirety of the first annuity because it had vested before the marriage. It also held that the payments from the second annuity—which had vested after the marriage—should be divided equally between Michael and Kerri.

Michael appealed the court’s decision with respect to the second annuity. The resolution of this appeal required the New Hampshire Supreme Court to decide whether to apply the law of Ontario or the law of New Hampshire.

Choice of Law

Michael argued for the law of Ontario. Under Ontario law, the division of personal injury settlement funds is forbidden in divorce. Kerri argued for the law of New Hampshire. Under New Hampshire law, the court may equitably divide personal injury settlement funds in divorce proceedings.

The New Hampshire Supreme Court began its analysis by considering whether the issue presented was substantive or procedural. It held that the issue was substantive—and hence subject to a choice-of-law analysis—because the underlying issue related to whether the second annuity should be considered marital property.

The court then observed that while New Hampshire applies the better rule approach (which it describes as choice-influencing considerations) to resolve some conflicts, it follows Section 188 of the Restatement (Second) of Conflict of Laws in contracts cases. The court acknowledged that it had used the better rule approach in at least one prior case relating to the dissolution of a marriage. In this case, however, the court held that Section 188 of the Restatement (Second) was the correct rule to apply. It explained:

To determine whether New Hampshire or Ontario law governs the annuity payments’ status as divisible marital property, we . . . apply the Second Restatement’s approach to the parties’ contract: their marriage agreement. Under this approach, we consider whether New Hampshire or Ontario has “the most significant relationship” with the marriage.

This line of reasoning is curious for three reasons. First, the court treats its choice-of-law options as binary. The issue is either governed by the better rule approach or Section 188 of the Restatement (Second). There are apparently no other choices. Second, the issue presented—whether the second annuity should be treated as divisible marital property—does not directly implicate issues in contract law. It is more fairly characterized as raising issues relating to family law or (especially) property law. Third, the Restatement (Second) contains a rule—Section 258—in the chapter devoted to property law that is directly on point:

(1) The interest of a spouse in a movable [defined to include “rights embodied in a document”] acquired by the other spouse during the marriage is determined by the local law of the state which, with respect to the particular issue, has the most significant relationship to the spouses and the movable under the principles stated in § 6.

(2) In the absence of an effective choice of law by the spouses, greater weight will usually be given to the state where the spouses were domiciled at the time the movable was acquired than to any other contact in determining the state of the applicable law.

Since an annuity is a right embodied in a document, the rule in Section 258 maps neatly onto facts of this case. Nevertheless, the New Hampshire Supreme Court applied Section 188—not Section 258—to assess which jurisdiction had the most significant relationship with the “marital contract.”

Applying Section 188, the court held that New Hampshire had a significant relationship to the marriage and the marital contract because: (1) the couple moved to New Hampshire in 2014; (2) the couple continued to reside in New Hampshire; and (3) the couple used the annuity to support their family and considered it in their long-term financial planning while living in New Hampshire. Ontario, on the other hand, had a weak connection to the marriage because the wedding took place in Maine and the parties did not live in Ontario either before or after their marriage.

In light of these facts, the court held that New Hampshire had the more significant relationship to the marriage and that it was appropriate to apply New Hampshire law to determine whether the second annuity should be treated as divisible marital property. Since New Hampshire law permitted courts to equitably divide personal injury settlement funds in divorce, the court affirmed the decision of the lower court on this issue.

Conclusion

The decision by the New Hampshire Supreme Court to apply New Hampshire law to resolve this issue is defensible. The modern trend is to apply the law of the marital domicile to determine the matrimonial property rights between spouses upon divorce and the marital domicile in In the Matter of Whitehead was New Hampshire. My issue with the decision is not so much with the destination as with the journey. If the New Hampshire Supreme Court has misgivings about the continued use of the better rule approach, it should jettison that test and adopt the Restatement (Second) its entirety. Its current approach—in which it nibbles away at the better rule approach by characterizing property issues as contract issues and then applying the rule in Section 188—is exasperating and confusing.