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A Penalty Provision in the Marital Settlement Agreement

 

In New Jersey divorces, marital settlement agreements include language that addresses the ramifications if either person breaches any provision of the agreement.  Often, the agreement includes a penalty provision that requires breaching party to pay the other’s counsel fees if the matter requires court intervention.  More often than not, courts have largely ignored such penalty provisions.  By not enforcing this provision, it lost its power and deterrence of breaches. 

However, a recent New Jersey appellate division case, Holtham, Jr. v. Lucas, was upheld and the penalty provision was enforced.  Previously, the trial court assessed an $18,450 sanction against the husband.  This figure represented $150 per day for each and every day he remained in violation of the agreement. 

The court placed a significant amount of weight on the public policy of enforcing agreements.  As such, it considered this bargained for penalty provision necessary ensure peace for both parties post-divorce.  Because it was a vital piece of the agreement, it warranted its enforcement. 

The court held that the parties entered into the agreement with relative bargaining power.  Similarly, the parties also had sufficient sophistication and understanding of the provision.  And, both had the benefit of counsel. 

In conclusion, this is an important case.  It empowers courts to properly sanction those who willfully and wrongfully violate bargained for terms of an agreement. 

Please contact me with questions about marital settlement agreements, or other family law matters.

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