Although it’s referred to as a marital settlement agreement (MSA), it means something else to you. Simply stated, it represents a statement summing up the terms of your divorce. It doesn’t matter how hard or easy it was to iron out the terms. If you or the other party fails to comply, you’ll need some critical information. What exactly happens when it comes to breaching a marital settlement agreement?
First, think of it this way. You and your former spouse basically executed a contract when you signed off on the MSA. Additionally, the court incorporated your settlement agreement into the final judgment of divorce. In many cases, negotiations over custody, support, and equitable distribution are costly. Obviously, that equates to more than just dollars and cents.
Take a typical example. The husband or wife agreed to specific hours for parenting time. Or, they settled upon an amount and time period for spousal support. When one party fails to hold to the agreement, it puts an undue burden on the other.
Without question, a change in circumstances sometimes warrants a revision to an MSA. However, that’s up to the judge to determine. Breaching a marital settlement agreement often triggers a return to court. The formal proceedings boil down to enforcement hearings.
In some cases, penalties for breaching a marital settlement agreement are clear. In fact, many MSAs contain the provisions as a matter of course. Does this make them enforceable? If you’re wondering about the answer to that question, you might be interested in how the court ruled earlier this summer.
Breaching a Marital Settlement Agreement: The Consequences
In July, the New Jersey Appellate Division decided a case involving a post-divorce matter. Generally speaking, the courts frown on assessing “unreasonably large amounts of damages” for future breach of contracts. With that in mind, the husband in this matter, disputed penalties assessed against him.
According to the MSA, the plaintiff-husband signed off on paying $150 per day for any non-compliance with the agreement. Among many other things, the settlement called for the husband to pay off the loan of his wife’s car. The $50K balance needed to be paid by July 9, 2017. Subsequently, the husband was expected to transfer the title to his former spouse.
The July date came and went with the husband failing to pay off the loan or transfer title. In October, counsel for both parties exchanged letters. The husband’s lawyer explained the hold-up. Apparently, the plaintiff wanted to assert various claims that exceeded $65K.
Notwithstanding, counsel for the wife persisted. The attorney reminded the plaintiff’s attorney of the charges associated with non-compliance with the MSA. Nonetheless, the husband didn’t pay off the car loan until November 2017. And, title to the vehicle wasn’t delivered until December 1, 2017.
Plaintiff Felt the Penalties Were Unreasonable
Two weeks before her receipt of the title, the wife’s attorney filed a motion with the court. At the time, she sought both the title and the penalties. However, the husband protested and said the “per diem charge did not constitute reasonable liquidated damages and was instead an unenforceable penalty.”
In computing the penalties, the court looked at the number of days between July 9th and November 8th. The $150 per diem figure for 123 days came to $18,450. The judge also added over $6K to pay for the defendant’s attorney’s fees.
According to the trial court judge, the husband had the ability to pay. Instead, he attempted to offset claims in issues already forfeited. Nevertheless, the plaintiff appealed the penalty as an unreasonable charge.
Upon consideration, the Appellate Division first considered the damages caused by the husband’s delay. To begin with, the wife retained full use of the car, a Mercedes. Although the delay caused her to hold off on transferring the vehicle to her name, that didn’t account for over an $18K loss.
The Appellate Division found it remarkable that the $150 penalty provision applied to both substantial and insubstantial acts of non-compliance. The upper court did not find the amount to be a reasonable prediction of damages across the board.
Contract Law Principles Did Not Apply
Notably, the basis of the husband’s appeal was based on regular contract law principles. The “penalty rule” suggests that parties can’t enforce an unreasonably large amount of damages for a future breach.
With that in mind, the Appellate Division cited prior cases that showed the distinction between divorce and contract law. However, that’s not to say that the courts don’t recognize the similarities between martial separation agreements and agreements used to resolve business disputes.
For example, the penalty provisions in this matter might be excessive in a regular contract. Meanwhile, that wasn’t necessarily the case for the MSA. In voluntarily executing a settlement agreement, the goal focuses on containing future marital discord. The parties agreed to the terms of their divorce. Both knew the consequences of non-compliance with the MSA.
In agreeing with the trial court, the New Jersey Appellate Division shared a concern. The family court could “still invalidate or reform a penalty provision in an MSA if it is unconscionable or the product of fraud, undue pressure, or coercion, or where one party lacks independent counsel.”
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Breaching a marital settlement agreement comes with its share of consequences. Have questions regarding the negotiation of your MSA or its enforcement? The Law Offices of Sam Stoia offers experienced legal advice. Contact our office to learn more.