Thinking About Liquidated Damages in Premarital Agreements

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 $x 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 of 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.

Read more in the Fall 2011 edition of the Family Law Section Newsletter.