Mediator’s Proposal Net-Out Clause Does Not Alter Payment First | Graeme v. Graeme (2025)

Graeme v. Graeme, 03-25-00380-CV, July 30, 2026.

On appeal from 466th District Court of Comal County

Synopsis

A mediated settlement agreement is construed under ordinary contract principles, and a clause allowing parties to “account for and net out” repayment amounts at final distribution did not override the agreement’s express sequencing requirement. Reading Paragraph 7 together with Paragraphs 1 and 6, the Third Court held that Brian had to repay $625,000 to the trust before the remaining assets could be divided into equal one-third shares.

Relevance to Family Law

For Texas family-law litigators, Graeme is a drafting and enforcement case disguised as a trust dispute. The opinion is directly relevant to mediated settlement agreements, Rule 11 agreements, partition provisions, reimbursement provisions, equalization payments, and decree language in divorce and property cases because it confirms that a later “net-out” or accounting clause will not casually displace an earlier express payment obligation or condition precedent. In practical terms, if your MSA says one spouse must repay, refinance, tender, or contribute funds before division or transfer, a general administrative clause about offsets or netting likely will not permit unilateral self-help unless the agreement says so with precision.

Case Summary

Fact Summary

The dispute arose among three siblings over the winding up and distribution of a family trust after both parents had died. The trust was to terminate and be distributed in equal one-third shares to the children, with Paul serving as successor trustee. Litigation followed over Paul’s administration of the trust and over whether Brian still owed substantial sums to the trust based on promissory notes originating from loans made by the parents.

The siblings mediated their dispute in November 2024 and signed a Mediator’s Proposal. The critical provisions were these: Paragraph 1 required Brian to repay $625,000 to the trust in full satisfaction of principal and interest on the notes; Paragraph 2 required Paul to repay $75,000 to the trust; Paragraph 6 stated that, upon payment by Brian and Paul of those amounts and reimbursement of Paul’s expenses, the remaining trust assets would be divided one-third each to the three siblings; and Paragraph 7 stated that the parties “may choose to account for and net out” the amounts to be paid by Brian and Paul when making final distributions.

The parties later deadlocked over Paragraph 7. Brian argued that he could elect not to pay $625,000 into the trust first and instead simply reduce his own one-third distribution by that amount. Paul and Kimberlie argued that Paragraphs 1 and 6 established a payment-first structure and that Paragraph 7 did not authorize Brian unilaterally to bypass that sequence. The trial court agreed with Paul and Kimberlie, ordered Brian to repay the $625,000 within fourteen days, and directed that only after those repayments would the remaining assets be distributed.

Issues Decided

• Whether the Mediator’s Proposal permitted Brian to offset his $625,000 repayment obligation against his one-third trust distribution rather than first repaying the trust.

• Whether Paragraph 7, which provided that the parties “may choose to account for and net out” repayment amounts in making final distributions, altered the payment sequence expressly set out in Paragraphs 1 and 6.

• Whether the trial court properly construed and enforced the mediated settlement agreement by requiring repayment before final distribution.

Rules Applied

The court applied standard Texas contract-construction principles governing settlement agreements, including mediated settlement agreements.

• A mediated settlement agreement is construed according to ordinary contract principles.

• The court’s primary objective is to ascertain and enforce the parties’ intent as expressed in the instrument itself.

• Contracts must be read as a whole, with effect given to all provisions so that none is rendered meaningless.

• A contract is not ambiguous merely because the parties offer competing interpretations.

• Ambiguity exists only if both interpretations are reasonable.

The opinion specifically invoked the Texas Supreme Court’s modern contract-construction framework, including:

• URI, Inc. v. Kleberg County, 543 S.W.3d 755 (Tex. 2018)

• National Union Fire Insurance Co. of Pittsburgh, PA v. CBI Industries, Inc., 907 S.W.2d 517 (Tex. 1995)

• Piranha Partners v. Neuhoff, 596 S.W.3d 740 (Tex. 2020)

These authorities reinforce that courts do not isolate one clause from the rest of the agreement and do not adopt a construction that nullifies express language elsewhere in the instrument.

Application

The court treated the dispute as a pure contract-interpretation problem and read Paragraph 7 in context rather than in isolation. That was outcome-determinative. Brian’s argument depended on elevating the phrase “may choose to account for and net out” into a substantive unilateral right to satisfy his repayment obligation merely by taking less at the end. But the court read the full Mediator’s Proposal as establishing a sequence: Brian repays $625,000 to the trust; Paul repays $75,000 to the trust; Paul is reimbursed specified expenses; and only then are the remaining trust assets divided equally.

Paragraph 6 was especially important because it used conditional language: “Upon payment” by Brian and Paul, the remaining assets “shall be divided and distributed” one-third each. That wording created a clear condition precedent to equal distribution. Once that structure was recognized, Paragraph 7 could not reasonably be read to erase it. Instead, the court understood the “net out” language as a permissive implementation mechanism the parties could use in carrying out final distributions, not as a grant of unilateral power to ignore the required payment-first sequence.

The surrounding practical consequences reinforced that reading. Kimberlie argued that Brian’s construction would distort the equalization contemplated by the settlement because it could allow him to retain tax-advantaged cash while she absorbed a disproportionate share of appreciated securities with built-in capital gains. The court did not need to rely on tax policy to decide the case, but that real-world problem illustrated why a court construing a division agreement should resist reading a general accounting clause as undoing the settlement’s central equalization mechanics.

In short, the court harmonized the provisions rather than allowing Paragraph 7 to swallow Paragraphs 1 and 6. That is exactly how Texas appellate courts approach settlement language in property disputes, including family-law disputes.

Holding

The court held that the Mediator’s Proposal unambiguously required Brian to repay $625,000 to the trust before the trust’s remaining assets were divided into equal one-third shares. Paragraphs 1 and 6 imposed an express repayment obligation and a payment-first sequence, and the trial court correctly enforced that structure.

The court further held that Paragraph 7’s statement that the parties “may choose to account for and net out” the repayment amounts did not alter that sequence or authorize Brian unilaterally to offset the debt against his share. Read in context, Paragraph 7 was permissive and administrative, not a substantive override of the agreement’s express condition precedent.

Practical Application

This opinion has obvious consequences for divorce-property drafting and post-MSA enforcement fights. In many family cases, one party owes an equalization payment, reimbursement, temporary support arrearage, mortgage holdback, business-distribution adjustment, or community-to-separate reimbursement before final division can be completed. Lawyers often include “netting,” “credit,” “offset,” or “true-up” language without carefully specifying whether it is optional, mandatory, unilateral, mutual, ministerial, or conditioned on agreement. Graeme is a warning that a generic net-out clause will not rescue a party from a clearly sequenced payment obligation.

In divorce cases, this matters when one spouse is to refinance a marital residence, pay a cash equalization sum, restore depleted accounts, reimburse separate-property claims, or return funds withdrawn from a business or trust. If the decree or MSA says “upon payment” or otherwise conditions transfer on payment, do not assume a later accounting clause allows your client simply to reduce what he or she receives at closing. If that is the intended result, the agreement needs to say so expressly: who can elect the offset, when, against which asset class, at what valuation date, with what tax treatment, and whether the other side’s consent is required.

It also matters in custody-adjacent settlement contexts involving child-support arrearages, medical-reimbursement true-ups, or sale-of-property provisions tied to conservatorship arrangements. Sequencing language can create conditions precedent that affect possession of property, sale timing, debt retirement, and final implementation. If your client needs flexibility to offset rather than tender cash first, draft that flexibility in unmistakable terms.

Strategically, Graeme also supports early dispositive briefing in enforcement proceedings. Where the dispute is genuinely one of text and the instrument is unambiguous, courts can resolve the issue as a matter of law without turning the case into a credibility contest about what parties supposedly intended in mediation.

Checklists

Drafting Payment-First Settlement Provisions

• State the repayment obligation in mandatory terms.
• Specify the exact amount due and the payee.
• Use express condition-precedent language such as “as a condition precedent to distribution” or “upon receipt of payment.”
• Identify the deadline for payment.
• State whether failure to pay suspends, reduces, or forfeits any right to distribution.
• Clarify whether the obligation must be satisfied in cash, certified funds, wire transfer, or by some approved non-cash mechanism.
• Provide an enforcement mechanism, including judgment language if appropriate.

Drafting Valid Offset or Net-Out Provisions

• State expressly whether offset is permitted.
• Specify who may elect the offset: one party, both parties jointly, trustee, receiver, or special master.
• Define whether the offset is unilateral or requires written agreement.
• Identify the assets against which the offset may be taken.
• Address valuation date, tax allocation, and treatment of embedded gains or losses.
• Clarify whether offset replaces payment or is merely an accounting method after payment.
• Reconcile the offset clause with any earlier sequencing provisions to avoid internal conflict.

Reviewing an MSA Before Signature

• Read all payment, distribution, reimbursement, and implementation clauses together.
• Look for “upon payment,” “after reimbursement,” “conditioned on,” or similar sequencing language.
• Test whether a later “net,” “credit,” or “true-up” provision creates an unintended inconsistency.
• Confirm whether the agreement gives either party a unilateral election right.
• Run tax and liquidity consequences of each proposed implementation path.
• Reduce mediator shorthand into precise operative language before final execution when possible.
• Ensure the MSA reflects whether administrative flexibility is optional or mandatory.

Litigating an Enforcement or Entry-of-Judgment Dispute

• Frame the case as a contract-construction issue if the text is unambiguous.
• Anchor your argument in the instrument as a whole rather than isolated clauses.
• Emphasize any condition-precedent language.
• Show how the opposing reading would nullify express provisions.
• Demonstrate practical distortions caused by the opponent’s interpretation, including tax or valuation inequities.
• Request judgment language that mirrors the sequencing required by the agreement.
• Preserve appellate issues through a clear competing proposed judgment and post-judgment motion practice.

Avoiding the Non-Prevailing Party’s Problem

• Do not assume “net out” language creates a unilateral election.
• Do not rely on administrative wording to override express payment provisions.
• Do not leave tax consequences of distributions unaddressed.
• Do not postpone clarification of key implementation terms until after mediation.
• Do not present a construction that requires the court to ignore “upon payment” language.
• Do not confuse a distributive adjustment with satisfaction of an independent repayment duty.

Citation

Graeme v. Graeme, No. 03-25-00380-CV, ___ S.W.3d ___, 2026 WL ___ (Tex. App.—Austin July 30, 2026, no pet. h.) (mem. op.).

Full Opinion

Read the full opinion here

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