The Winter 2011 issue of the The Family Advocate, published by the ABA’s Family Law Section, was devoted to “The Prenuptial Agreement.” Volume 33, No. 3. In one of its pieces, “The Devil is in the Drafting,” the authors suggest inclusion, if allowed by the jurisdiction, of an “Exit Bonus Forfeiture” – or a “liquidated damages” provision. Such a provision might apply, so the suggestion goes, “if either party attempts to challenge or set aside any term of this Agreement.” Such a contest, if unsuccessful, might require the losing party to pay $_________ from his/her “Separate Estate” or, perhaps, the other’s reasonable attorney’s fees and costs incurred in the effort to enforce the agreement. The use such provisions, it is said, may “enhance one’s ability to get paid or provide a deterrent to litigation.” Id. at 25-26.
In this context, the SJC’s decision in DeMatteo ends in an interesting way. Although the agreement there (invalidated by the trial judge, but validated and enforced on appeal) provided that a party in breach of the agreement “shall indemnify the other party … as if no such breach had occurred…,” the Court upheld the trial judge’s sua sponte award of fees to the wife who unsuccessfully contested it. DeMatteo v. DeMatteo, 436 Mass. 18, 38-39 (2002). The same paragraph provided that a party in breach “shall be liable for any attorneys fees, costs and expenses incurred by the other in attempting to enforce the provisions of this Agreement.” That notwithstanding, under either G.L. c. 208, §17 and/or §38, “[t]he judge was well within her discretion in ordering the husband to pay the wife’s attorney’s fees during the pendency of the litigation to enable her to defend the action and to contest the validity and enforceability of the [premarital] agreement.” Id. at 39. The Court does not explain why the indemnification or “liquidated damages” provisions of the agreement were, effectively, given no effect.
In the commercial context, “[i]t is well settled that ‘a contract provision that clearly and reasonably establishes liquidated damages should be enforced, so long as it is not so disproportionate to anticipated damages as to constitute a penalty.’” NPS, LLC v. Minihane, 451 Mass. 417, 420 (2008), quoting from TAL Fin. Corp. v. CSC Consulting, Inc., 446 Mass. 422, 431 (2006). “Whether a liquidated damages provision in a contract is an unenforceable penalty is a question of law.” Id. at 419-420 (the burden of showing unenforceabililty is on the contesting party). See Cummings Props., LLC v. National Communications Corp., 449 Mass. 490, 494 (2007) (where damages are easily ascertainable, and liquidated damages amount is grossly disproportionate to actual damages or unconscionably excessive, the court will award the aggrieved no more than its actual damages). “In assessing reasonableness [of the measure of anticipated or liquidated damages], we look to the circumstances at the time of contract formation; we do not take a ‘second look’ at the actual damages after the contract has been breached.” NPS, LLC v. Minihane, 451 Mass. at 420, citing Kelly v. Marx, 428Mass. 877, 878 (1999).
Apart from DeMatteo’s unexplained ending, there is not an appellate case in Massachusetts that analyzes the enforceability of “liquidated damages” or indemnification clauses in the context of premarital (or marital) agreements. In Lord v. Lord, 993 So.2d 562 (Fla. 5th DCA 2008) (wife appealed an award of attorneys’ fees pendente lite to husband), the court struck this seemingly benign (and likely common) premarital agreement provision: “In the event of any separation, dissolution, or divorce proceedings, each party will pay his or her own attorneys’ fees and costs.” That provision violated Florida’s “long-standing policy against enforcing waivers of pre-dissolution support” (which includes fees awarded during the pendency of the litigation). Id. at 564. See Belcher v. Belcher, 271 So.2d 7 (Fla. 1972); Fernandez v. Fernandez, 710 So.2d 223, 225 (Fla. 2nd DCA 1998) (the law “requires one spouse, who has the ability, to support the other more needy spouse until a final judgment of dissolution is entered even in the face of an antenuptial agreement to the contrary”) (emphasis added). Morgan, Waivers of Spousal Support in Antenuptial Agreements, 17 No 4 Divorce Litg. 62 (2005) (“A good number of states have held that spouses may not contract to waive temporary spousal support or attorneys fees, because such a waiver is in denigration of the duty of spouses to support each other during the marriage.”)
It should be noted that Massachusettshas not clearly established any such bright line rule or policy. But see Osborne v. Osborne, 384 Mass. 591, 598 (1981) (though “[a premarital] contract settling the alimony and property rights of the parties upon divorce is not per se against public policy and may be specifically enforced”, the Court “express[ed] no opinion on the validity of [premarital] contracts that purport to limit the duty of each spouse to support the other during the marriage.”), citing Eule v. Eule, 24 Ill. App. 3d 83 (1974) (waiver of temporary support and alimony pendent lite held invalid), and Holliday v. Holliday, 358 So.2d 618 (La. 1978) (waiver of alimony pendente lite held void).
The Lord agreement, however, also contained a provision similar to that in DeMatteo: “Should a party retain counsel for the purpose of enforcing or preventing the breach of any provision [of this agreement] … the prevailing party will be entitled to be reimbursed by the losing party for all reasonable costs and expenses incurred, including, but not limited to, reasonable attorneys’ fees and costs for the services rendered to the prevailing party.” Lord v. Lord, 993 So.2d at 563. This sort of “prevailing party” provision, the Court reasoned, would not violate Florida’s policy against waivers of pre-dissolution support/fees. See Lashkajani v. Lashkajani, 911 So.2d 1154 (Fla. 2005) (Florida Supreme Court answers in the affirmative to the question of “Whether prevailing party attorney’s fee provisions in [premarital] agreements, concerning litigation over the validity of the agreements themselves, are enforceable.”). Thus, “[w]hile the court may ultimately enforce the [Lord agreement’s] prevailing party attorney’s fee provision concerning litigation over the enforceability of the [premarital] agreement under Lashkajani, at this point [in the dissolution litigation] there is no prevailing party.” Lord v. Lord, 993 So.2d at 565.
In such a case, how would or should a court structure the “prevailing party” fee award vis-à-vis the temporary or pendente lite fees previously awarded in favor or the unsuccessful contestant? In Langley v. Langley, 613 S.E.2d 614, 616-617 (Ga. 2005), involving a premarital agreement by which each party waived “any and all rights” to seek any form of alimony or attorney’s fees, the Supreme Court of Georgia ruled that it was error for the trial judge to reduce (entirely) the wife’s contractually due lump sum ($25,000) in order to account for temporary alimony and attorney’s fees already paid by the husband during the litigation. “[T]o allow a setoff for Mr. Langley’s payment of temporary alimony [and fees] would effectively allow [him] to use the terms of the agreement to place Ms. Langley in the untenable position of forfeiting her $25,000 entitlement or rendering herself financially, and thus legally, defenseless in the subsequent divorce action which proceeded to judgment.” Id. at 616-617, citing Urbanek v. Urbanek, 484 So.2d 597 (Fla. 4th DCA 1986) (“A rule that permitted the husband to offset temporary support and attorney’s fees against an agreed-upon lump sum … would clearly fly in the face of public policy.”; Florida law does not permit a husband to “contract away his responsibility” to support his wife while she is still married to him; offset provision held to be illegal and void ab initio).
On the other hand, in Scotto v. Scotto, 234 A.D.2d 442 (N.Y. App. Div. 2nd Dept. 1996), the appellate court found error in the trial court’s refusal to enforce a separation agreement’s “acceleration clause” that brought the husband’s otherwise periodic support obligation of $1500 per week (capped at $1,000,000 total), due and payable in full (i.e. $1,000,000 less credit for payments made) if he defaulted and did not cure the default within 60 days. Id. at 443-444. Acceleration clauses, “quite common” and “generally enforced according to their terms,” are “no less enforceable merely because they arise in the context of matrimonial actions or familial disputes….” Id. at 444. “[E]nforcement of the acceleration clause does not constitute a penalty….” Id. But see Anonymous v. Anonymous, 233 A.D.2d. 162 (1996) (Ellerin, J., concurring) (liquidated damages in the form of a $500,000-per-breach offset, contained in a confidentiality stipulation between spouses, “go[es] far beyond those which this Court has previously deemed enforceable.”).
New Yorklaw, however, often beats to a different drum than that of Massachusetts; and SJC recently recounted the qualitatively differing standards of enforceability among premarital, marital and separation agreements. Ansin v. Ansin, 457 Mass. 283, 289-290 (2010) (separation agreement negotiated when marriage has failed and the spouses intend permanent dissolution). In Vakil v. Vakil, 450 Mass. 411 (2008), the SJC expressed a “public policy” concern about a premarital agreement provision that deprived the wife of any right to seek alimony “if she contest[ed] directly or indirectly the granting of a divorce to the [husband].” Id. at 412, 420-421 (“it is one-sided, imposing consequences solely on the wife for opposing a divorce sought by the husband and not the other way around, and because it discourages the parties from seeking to resolve their differences and save the marriage.”). The analysis, unfortunately, went no further because neither party contested the agreement, and the because wife planned to not contest the husband’s request for a divorce.
At this juncture in the evolution of premarital agreement law in Massachusetts, there is no true precedent on which to base any expectation or assumption as to whether the Massachusetts appellate courts will honor or frown upon liquidated damages-type provisions such as a monetary consequence for contesting or breaching a premarital agreement contracting parties or “prevailing party” fee awards. On the one hand, parties should have an expectation that an even-handedly negotiated provision of this sort, provided that it does not rise to “penalty” level, is something for which they should be free to contract. On the other hand, given that premarital agreements are not negotiated at arm’s length in the manner of commercial contracts, it may be that yet-to-be-determined “special” rules and/or heightened scrutiny render limited utility to these types of provisions. It is, in any event, an issue ripe for determination when the appropriate case presents itself.