When a client retains an attorney to represent him or her in a divorce or other family law dispute, usually the goal is to try and settle the matter. Trying a case is viewed as a last resort when all efforts to reach an amicable resolution have failed. From the outset, the courts do everything they can to encourage parties to reach an agreement, and participation in various forms of alternate dispute resolution, including Early Settlement Panels and Custody/Economic Mediation, are mandated in hopes of accomplishing that goal. The parties reach an agreement. They enter into a “contract’ memorializing same. The court may even “approve” it and close the case as “settled”. That’s the end of it, i.e. a contract is a contract – right? Not so fast! When it comes to family law “contracts” it is clear that the court has the last word if it is enforceable or not. “Equitable considerations” often trump “contract principles”. However, what is “equitable” seems to turn on what result is the most fair and reasonable one given the circumstances of that given case.
The extent of family law contracts being enforceable as a matter of interpretation was highlighted in the recent Appellate Division case of Holtham v. Lucas, 460 NJ Super. 380 (App. Div. 2019). In Holtham, the parties entered into a marital settlement agreement in resolution of their divorce. The agreement provided for the enforcement of a previously entered Prenuptial Agreement, as well as for the husband making certain payments and property transfers to the wife, including the payoff of an auto loan and transfer of the car title by July of 2017. The Agreement also included a provision that if the husband defaulted in any of it’s obligations, the wife would not only be entitled to reasonable counsel fees incurred to enforce, but that the husband would be subject to a per diem penalty of $150.00 for every day he failed to comply. The husband did not pay off the car loan or transfer title by the required date; rather, he asserted various offsetting claims as his reason for not doing so. He finally paid off the car loan and transferred title (although wife had always enjoyed its use and possession) but not until 4-5 months later, and after receiving wife’s enforcement motion. The trial court not only ordered the husband to pay over $6,000.00 towards wife’s attorney fees, it enforced the per diem penalty provision by ordering husband to pay $18,450.00 (for each day of non – compliance between July 9 and November 8, 2017), noting that although the husband had the ability to comply, he had unjustifiably delayed by interposing offsetting claims he had already forfeited under the Agreement’s mutual release provision. The husband appealed arguing that the $150 daily charge constituted an unenforceable penalty.
Simply applying traditional contract principles, the Appellate Division actually agreed with the husband that a $150 per diem charge would constitute an unenforceable penalty. The court noted that according to well – settled contract law, a provision that stipulates an unreasonably large amount of damages for a future breach would be an unenforceable penalty. Also referred to as the “Penalty Rule”, it was intended to avoid oppression, excessive recovery (that is recovery that far exceeds the economic losses normally recoverable for breach of contract), and the deterrence of efficient breach. Such stipulated damage provisions must be scrutinized for reasonableness and their enforceability turning primarily on the extent the stipulated amount is within a plausible range of actual damages and the difficulty of calculating damages upon breach. Analyzing these principles, the court found that the husband had met his burden to demonstrate that the $150 per diem charge was a penalty, noting that the “harm” suffered by the wife for the 4-5 month delay fell short of $18,450, that she had been able to retain full use of the vehicle, and that the “damage” under this penalty provision would have been the same regardless of the number, nature or amount of the obligation husband was deemed to be in default of. However, this did not end the court’s analysis, concluding that this “Penalty Rule” would not apply with equal force to marital settlement agreements embodied in final divorce judgments.
While the Court noted that agreements that resolve a matrimonial dispute are no less a contract than an agreement to resolve a business dispute, citing to the recent New Jersey Supreme Court decision in Quinn v. Quinn, 225 NJ 34 (2016), it also referenced other language from Quinn and other New Jersey Supreme Court cases such as Konzelman v. Konzelman, 158 NJ 185 (1999) and Lepis v. Lepis, 83 NJ 139 (1980) for the proposition that contract principles have little place in the law of domestic relations, that the interpretation, application and enforceability of divorce agreements are not governed solely by contract law, that divorce agreements are necessarily infused with equitable considerations and are construed in light of salient legal and policy concerns, and that for equitable reasons normal tenants of contract interpretation are sometimes not applicable to matrimonial matters. Hence in this instance, the court ironically found that such “equitable principles” actually warranted enforcement of the parties’ agreement where normal contract principles, i.e. the Penalty Rule, would not.
The Court noted that the “Penalty Rule” deprived a non – breaching party of adequate compensation for “idiosyncratic value”, which highlighted it’s shortcomings in the matrimonial setting. The Court found that the Rule did not recognize the premium that the court and parties place on post – divorce peace, and did not take into account that parties to matrimonial agreements may behave differently than rational economic actors participating in typical contractual relationships, who may breach not to promote efficiency but to inflict some harm, emotional or economic, on the former spouse. Indeed, the court made reference to the Rules of Court, namely R.5:3-7 and R.1:10-3 to reflect a judicially recognized policy favoring “sanctions” to deter non – compliance with matrimonial orders, which are not limited to actual damages but to impose a “sting” on the offending party. Therefore, since the principal reason to enforce such agreements is to secure post – divorce harmony and stability, enforcement of such penalty provisions may appropriately deter post – divorce non – compliance that is not economically motivated and to compensate for the emotional harm resulting from a breach. However, the Court noted that the family court retains its broad authority to scrutinize such penalty provisions in light of the totality of the circumstances and to invalidate or reform same to advance fairness and equity. In this instance, the Appellate Division concluded that the totality of the circumstances supported enforcement of the penalty provision notwithstanding the wife’s lack of substantial financial harm, given the trial court’s finding that husband’s breach was deliberate and lacking any reasoned justification, that husband was a person of great wealth and business acumen who understood and agreed to the penalty provision, and given the impact of the breach “on post – divorce peace”.
While it is the public policy to encourage settlements and to favor enforcement of voluntary divorce agreements because they presumably represent the parties’ best effort to resolve their often intensely personal and vexatious problems, the decision in Holtham confirms that the enforcement of marital agreements is clearly a matter of interpretation based upon the facts and circumstances of a given case. In that case, the husband’s position and actions did not engender any sympathies. Would the decision have been the same if the wife had been guilty of some sort of breach?
In Konzelman and Quinn, the Supreme Court upheld provisions in divorce agreements providing for the termination of alimony in the event of the ex-wife’s cohabitation without the necessity of inquiring into the financial circumstances or economic status of the of the dependent spouse, and even where the cohabitation allegedly ceased during the course of the trial as occurred in Quinn. The likely reason for the result? Because the evidence of cohabitation was so clear, as was the language of the Agreement, the ex-wife’s position did not engender the level of sympathy sufficient to justify the court’s invalidating or reforming the parties’ Agreement. If the evidence of cohabitation had not been so clear, would a different decision have been reached in regards to the enforceability of such provisions? Courts have denied enforcement of agreements reached between parents providing for a waiver of child support on the basis that the right of child support belongs to the child, not the parent. Wertlake v. Wertlake, 127 NJ Super 595 (Ch. Div. 1974); Martinetti v. Hickman, 261 NJ Super 508 (App. Div. 1993) Courts may deny enforcement of agreements reached between parents concerning the custody of their children under the court’s parens patriae jurisdiction if not being in their best interest. N.J.S.A. 9:2 – 4(d). Simply stated when it comes to family law matters, even when parties reach agreements, they can be enforced, invalidated and/or modified “in light of all the facts” bearing on what is equitable and fair. Smith v. Smith, 72 NJ 350 (1977) Given the broad “equitable” power of the family court, the facts and circumstances of a given case can truly influence the outcome. Facts, good or bad, can truly make the law.
Therefore, how a case is prepared and presented is enormously important. Let the experienced attorneys at Yudes Family Law assist you in doing so.