Lloyd v. Niceta

301 A.3d 94, 485 Md. 422

• Court: Court of Appeals of Maryland
• Decided: August 30, 2023
• Docket: 33/22
• Status: Published

Opinion

Thomas L. Lloyd v. Anna Cristina Niceta, No. 33, September Term, 2022. Opinion by Hotten, J.

FAMILY LAW – POSTNUPTIAL AGREEMENTS – LIQUIDATED DAMAGES CLAUSES – The Supreme Court of Maryland held that a liquidated damages framework did not apply to postnuptial agreements and was inappropriate for evaluating a $7 million lump sum provision that, as applied in this case, triggered if the husband engaged in adultery. In non-marital contracts, liquidated damages operate as “a sum that will compensate the nonbreacher . . . in lieu of the compensatory contract damage[s] to which the nonbreacher would otherwise be entitled[.]” Barrie Sch. v. Patch, 401 Md. 497, 513, 933 A.2d 382, 392 (2007) (cleaned up). In divorce proceedings, parties are not entitled to compensatory damages. Instead, the primary monetary sums available to aggrieved spouses are alimony, child support, and a division of marital property, including a potential monetary award, attendant to divorce. See Md. Code Ann., Family Law (“Fam. Law”) §§ 1-201(b)(2), (4), (9), 8-205(a)(1). None of those monetary sums serve as compensatory damages for which liquidated damages may substitute. Additionally, liquidated damages cannot serve as a substitute for non-monetary relief, such as annulment, divorce, custody, or visitation. See Fam. Law § 1-201(b)(3)–(6). Marital agreements may alter the outcome of divorce, but this Court has never held that provisions in a marital agreement may substitute for the statutory remedy of divorce. See Nouri v. Dadgar, 245 Md. App. 324, 359, 226 A.3d 797, 818 (2020).

FAMILY LAW – POSTNUPTIAL AGREEMENTS – PUBLIC POLICY – ADULTERY – The Supreme Court of Maryland held that the public policy in Maryland currently supports provisions in postnuptial agreements that distribute marital assets upon divorce when a spouse engages in adultery. The jurisdictions that have rejected adultery penalties or transfers of marital assets based on adultery have done so because those provisions violate no-fault divorce laws. See, e.g., Diosdado v. Diosdado, 118 Cal. Rptr. 2d 494, 496 (2002) (rejecting an adultery penalty because it contravenes California’s public policy of no-fault divorce); In re Marriage of Cooper, 769 N.W.2d 582, 587 (Iowa 2009) (rejecting allocation of marital assets based on adultery in Iowa); Crofford v. Adachi, 150 Haw. 518, 526, 506 P.3d 182, 190 (2022) (rejecting allocation of marital assets based on adultery in Hawai’i). Those decisions are not persuasive regarding the public policy in Maryland because this State: (1) currently permits divorce based on fault, including adultery; and (2) requires courts to consider “the circumstances that contributed to the estrangement of the parties[,]” such as adultery, when issuing a monetary award following divorce. Fam. Law §§ 7-103(a)(1), 8-205(b)(4); Ohm v. Ohm, 49 Md. App. 392, 410, 431 A.2d 1371, 1381 (1981). These statutes establish that Maryland’s public policy disfavors adultery. That public policy supports spouses transferring marital assets based on adultery when it causes the dissolution of a marriage. FAMILY LAW – POSTNUPTIAL AGREEMENTS – ALLOCATION OF MARITAL ASSETS UPON DIVORCE BASED ON ADULTERY – The Supreme Court of Maryland upheld the enforceability of a provision in a postnuptial agreement that, as applied in this case, required the husband to transfer to his wife $7 million up to the value of his share of specified marital assets if the parties divorced after he engaged in adultery. Fam. Law § 7-103(a)(1) permits spouses to file for divorce on the grounds of adultery, which supports provisions that distribute assets based on that conduct. The lump sum provision did not restrict Petitioner’s ability to foster his platonic relationships. The provision would not trigger based on Respondent’s mere suspicions because she was required to establish “by a preponderance of the evidence” that Petitioner had engaged in adultery. Petitioner alone controlled whether the provision would trigger. The provision only applied to Petitioner’s 50% share of specified marital assets, which prevented Respondent from pursuing Petitioner’s non-marital assets in the event his 50% share fell below $7 million. Circuit Court for Montgomery County Case No.: 165376FL Argued: June 1, 2023

IN THE SUPREME COURT

OF MARYLAND*

No. 33

September Term, 2022

THOMAS L. LLOYD

v.

ANNA CRISTINA NICETA

Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves,

JJ.

Opinion by Hotten, J.

Pursuant to the Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Filed: August 30, 2023 2023-08-30 16:04-04:00

Gregory Hilton, Clerk

* During the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Appeals of Maryland to the Supreme Court of Maryland. The name change took effect on December 14, 2022. A foundation of many marriages is the vow that spouses will, for better or for worse,

remain faithful to one another. We hold that Maryland law allows spouses to allocate

marital assets in a postnuptial agreement based on whether a spouse engaged in adultery,

thereby causing the breakdown of the marriage.

On October 23, 2019, Anna Cristina Niceta (“Respondent”) filed a Complaint for

Absolute Divorce in the Circuit Court for Montgomery County against Thomas L. Lloyd

(“Petitioner”) on the grounds of adultery. Respondent requested that the circuit court

incorporate the parties’ postnuptial agreement (“Agreement”) into the divorce decree,

which included a $7 million lump sum provision that would trigger if Petitioner engaged

in adultery and related acts. Petitioner filed a countercomplaint, seeking, in relevant part,

to rescind the Agreement based on public policy and unconscionability. The circuit court

determined that the lump sum provision was an enforceable penalty. On October 8, 2021,

the circuit court issued a Judgment of Absolute Divorce, which incorporated, but did not

merge, the Agreement. Both parties timely appealed to the Appellate Court of Maryland.1

Lloyd v. Niceta, 255 Md. App. 663, 671, 284 A.3d 808, 813 (2022). The Appellate Court

affirmed the circuit court’s decision and remanded for further proceedings on issues not

before this Court. Id., 284 A.3d at 813. Petitioner timely sought review in this Court.

1 During the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Special Appeals of Maryland to the Appellate Court of Maryland. The name change took effect on December 14, 2022. We granted certiorari to address the following questions, which we have rephrased

for the sake of clarity:2

1. May spouses include a provision in a postnuptial agreement that distributes marital assets upon divorce based on adultery?

2. Is a lump sum provision valid and enforceable when it required a husband to transfer to his wife $7 million, up to the value of his 50% share of specified marital assets, if he committed adultery?

We conclude that the answer to both questions is “yes” and affirm the Appellate

Court of Maryland. We explain below.

FACTUAL AND PROCEDURAL BACKGROUND

I. Underlying Factual Background.

Petitioner and Respondent were married on March 25, 2006 in the District of

Columbia. Both parties have college degrees. Respondent was employed as an event

planner and served as the White House Social Secretary between February 2017 and

January 2021, earning between $130,000 and $200,000 per year. Petitioner was a wealth

manager who earned between $70,000 and $122,000 per year. Petitioner has a wealthy

2 The original questions presented in the Petition for Writ of Certiorari were:

1. Are penalties in postnuptial contracts void, just as penalties in all other contracts are void?

2. If there is no blanket ban on penalties in postnuptial contracts, is the penalty in the parties’ contract void?

Elsberry v. Stanley Martin Companies, LLC, 482 Md. 159, 165 n.1, 286 A.3d 1, 4 n.1 (2022) (“This Court has discretion to rephrase questions presented.” (citation omitted)).

2 family, including his paternal grandmother, Rachel Mellon, who left him a substantial

inheritance after she passed away in March 2014.3

On June 2, 2014, Respondent discovered that Petitioner was involved in an

extramarital affair. The parties separated. Although Respondent was “uncertain if she

wanted to remain in the marriage[,]” the parties worked toward “build[ing] trust” and

ascertaining the reason for Petitioner’s infidelity. The parties consulted a priest and a

therapist beginning in the late summer. Upon Respondent’s request, Petitioner: (1)

provided her with the passwords to his financial and email accounts; (2) transferred a

portion of his inheritance into an account held with Respondent as tenants by the entirety;

(3) converted to Catholicism; (4) sold the car he had used with his affair partner; and (5)

underwent a vasectomy. During the autumn of 2014, Respondent introduced the idea of a

postnuptial agreement to Petitioner. Thereafter, the parties each retained two attorneys to

prepare the Agreement. Petitioner retained Deborah Cochran, Esq., an estate law attorney,

and Julie Day, Esq., a family law attorney. Respondent retained Alison Noll, Esq., an estate

law attorney, and Ann Luu, Esq., a family law attorney.

In April 2015, Respondent forwarded a draft of the Agreement to Petitioner. The

Agreement contained, in relevant part, a lump sum clause that would require Petitioner to

pay Respondent a sum of $5 million if he engaged in adultery and related acts. On June

16, 2015 and July 16, 2015, the parties and their attorneys reviewed the draft “line by

3 Petitioner received his inheritance in two installments. He received the first installment of $5.3 million upon Ms. Mellon’s death. Petitioner received the second installment of $5.4 million when he turned forty in May 2016.

3 line[]” during extensive meetings. Petitioner proposed a $2 million increase to the lump

sum provision to demonstrate “his good faith toward” Respondent and because he

anticipated that he would inherit approximately $12 million from his father’s estate.

Respondent agreed to the change, and the parties signed the finalized Agreement on

September 18, 2015. The lump sum provision provides, in relevant part:

10. LUMP SUM MONETARY AWARD.

A. This provision shall only be effective only in the limited situation that any one of the following conditions are satisfied:

(i) If Husband is found by a preponderance of the evidence to have committed adultery, buggery or sodomy with any person;

* * *

(iii) If Husband is found by a preponderance of the evidence to have engaged in any Inappropriate and/or Immoral Conduct of the following with any other person, including, but not limited to: inappropriate emails; sexting; sending pornographic pictures of himself to the other person; receiving pornographic pictures of the other person; romantically kissing, hugging, fondling, or embracing another person; keeping secret email, cell phone or credit card accounts; or engaging in sexual acts with another person even if it does not lead to intercourse.

B. If Wife proves by a preponderance of the evidence that Husband has engaged in any of the conduct as set forth above in subparagraph 10.A, Husband shall make a tax-free transfer to Wife of SEVEN MILLION AND 00/100 DOLLARS ($7,000,000.00) within ninety (90) days of such findings. If the parties remained married, said transfer shall be a permanent gift between husband and wife; if the parties divorce, this transfer shall constitute a lump sum monetary award not subject to taxation under the terms of the Internal Revenue Code. The transfer shall be made from Husband’s 50% share of the Column B Assets.

4 The Agreement included a chart listing Column A Assets, which were assets in

accounts that only Petitioner owned, and Column B Assets, which were assets in accounts

owned jointly by the parties. Under the Agreement, Petitioner agreed to transfer certain

assets that had been Column A Assets to become Column B Assets, converting them from

Petitioner’s sole property into marital property. Column B Assets included “separate

funds” that Petitioner received from: (1) both installments of his inheritance from Ms.

Mellon; and (2) “all [other] liquid assets [that Petitioner] inherit[ed] during the marriage[.]”

Per the Agreement, Petitioner would deposit those liquid assets into a specified account or,

if that account no longer existed, “into another brokerage account titled in the names of

both parties as tenants by the entirety with the common law rights of survivorship.” Once

deposited, the funds, “including all investments or reinvestments of, subsequent accounts,

increases in value and income and proceeds from such assets[,]” would be “treated as

marital property . . . for as long as the parties [were] married.” Pursuant to the distribution

scheme under Paragraphs 4(C) and 5(A)(i) of the Agreement, the parties would “equally

divide” the Column B assets upon divorce.4

4 Paragraph 4(C) requires the parties to “equally divide all assets” pertaining to Petitioner’s inheritance from his grandmother “within sixty (60) days from the date of entry of the Final Order of Divorce. Thereafter, each party waive[d] any and all rights they may have, had or may have in the future to the assets so transferred, except as provided [in the Agreement].” Paragraph 5(A)(i) provides the same distribution procedures regarding “all liquid assets [that Petitioner] inherit[ed] during the marriage” other than the assets listed in Paragraph 4(C).

5 After the parties entered into the Agreement, Petitioner engaged in another

extramarital affair in October 2018. The parties separated on April 14, 2019, after

Petitioner advised Respondent that he no longer wished to remain married to her.

II. Proceeding in the Circuit Court for Montgomery County.

On October 23, 2019, Respondent filed a Complaint for Absolute Divorce in the

Circuit Court for Montgomery County on the grounds of adultery. She requested that the

circuit court incorporate the Agreement into the divorce decree and enforce, among other

things, the lump sum provision. Petitioner filed an Answer and Counterclaim, arguing that

the Agreement was void because it was unconscionable and against public policy.

Petitioner also asserted that the lump sum provision constituted an unenforceable penalty

because it was an excessive liquidated damages clause.

The circuit court held several merits hearings between November 23, 2020 and

December 9, 2020, where witnesses testified regarding the lump sum provision.

Respondent testified that she “did not calculate” the initial $5 million provision. She

further testified that the Agreement memorialized Petitioner’s promise to remain faithful

and that its terms “put [Petitioner’s] money where [his] mouth [was].” Respondent asserted

that she accepted the $2 million increase to the provision because Petitioner had proposed

it.5 Anthony Joseph Delvecchio, Petitioner’s friend, described the lump sum provision as

5 Petitioner testified that Respondent coerced him into proposing the $2 million increase to the lump sum provision because “she believed that $5 million was insufficient[.]” Petitioner claimed that Respondent intended for the provision to leave him “broke” if he “ever cheated on her again[.]” In Petitioner’s view, Respondent “didn’t want to propose [the increase] herself because she wanted it to come from [him] as a way of showing good faith and . . . it would reflect better on the situation if it” did not come from

6 “a bad boy clause[.]” In an email to Petitioner, Ms. Day also described the lump sum clause

as “the bad boy clause.” Ms. Day testified that she had advised Petitioner against agreeing

to the lump sum provision. In Ms. Day’s view, the lump sum provision “was intended to .

. . be prohibitive so that [Petitioner] would not engage in those behaviors again, because

he would know there was $5 million out there.” Ms. Day further testified that Petitioner

wished to increase the provision to $7 million to “make it that much more clear that he

really wouldn’t engage in those behaviors again,” and “as a showing of good faith[.]” Ms.

Day referred to the lump sum provision as a “penalty” during negotiations “because that’s

what it looked like to [her] at that point.” She asserted, however, that the term “penalty”

“was not a legal term of art.”

On January 15, 2021, the circuit court determined that the lump sum provision

constituted a penalty,6 but was enforceable. The circuit court relied on McGeehan v.

McGeehan, 455 Md. 268, 298, 167 A.3d 579, 596–97 (2017) (citation omitted), where this

Court noted that “many postnuptial agreements attempt to use financial rewards and

penalties to create incentives during a marriage that constrain the behavior of both

spouses.” In the circuit court’s view, McGeehan stood for the proposition that spouses

may include adultery penalties in postnuptial agreements. The circuit court observed that

the jurisdictions that have rejected adultery penalties have held that those provisions

her. The circuit court rejected these assertions and found that Petitioner entered the Agreement free of duress, undue influence, or coercion. 6 Although the parties disputed whether the lump sum provision constituted a penalty under a liquidated damages framework, the circuit court did not mention liquidated damages during its oral ruling or in its written orders.

7 undermine no-fault divorce laws in those states.7 The circuit court found those cases

unpersuasive because “Maryland remains a fault-based state[.]”

The circuit court determined that, although “the decision to agree to the $7 million

penalty may have been improvident,” the penalty was not unconscionable. The circuit

court noted that the lump sum provision would likely be unconscionable if an individual

“with a net worth of $50,000, earning $40,000 per year[]” had agreed to the provision. The

circuit court explained that this “is not the situation here[,]” because the Petitioner had

retained approximately $5.3 million in assets pursuant to the Agreement and anticipated a

$12 million inheritance from his father’s estate when the parties had entered the

Agreement. The circuit court concluded that Petitioner “took on the risk that he would not

receive the inheritance from his father’s estate, and the risk that he would not commit

adultery in the future.” The circuit court memorialized its ruling in an order dated February

11, 2021. The circuit court issued a Judgment of Absolute Divorce on October 8, 2021,

which incorporated, but did not merge, the Agreement. Both parties timely appealed to the

Appellate Court of Maryland. Lloyd, 255 Md. App. at 671, 284 A.3d at 813.

III. Proceeding in the Appellate Court of Maryland.

The Appellate Court of Maryland affirmed the circuit court’s decision and remanded

for further proceedings regarding child support.8 Id., 284 A.3d at 813. Petitioner argued,

7 The circuit court considered decisions from California and Iowa, but did not identify specific cases in its oral ruling. 8 In her cross-appeal, Respondent argued that the circuit court erred because it declined to address the issue of child support. Lloyd, 255 Md. App. at 700, 284 A.3d at

8 in relevant part,9 that the lump sum provision violated public policy and constituted an

unenforceable penalty. Id. at 696, 284 A.3d at 828. Petitioner reasoned that the lump sum

provision was a punitive liquidated damages clause and was “disproportionate to any

damages that might have resulted from a breach.” Id., 284 A.3d at 828. Petitioner claimed

that the lump sum provision was unconscionable “because he could not pay the $7 million

at the time the Agreement was entered into and because the provision created an

environment of fear and coercion in the marriage.” Id. at 699, 284 A.3d at 829. Respondent

“disagree[d] that the lump sum provision constitute[d] liquidated damages because it was

not intended to compensate her for damages she would sustain for breach of the

Agreement.” Id. at 696, 284 A.3d at 828. Respondent, however, conceded that the

provision was a penalty and argued that such provisions were permissible in postnuptial

agreements “to discourage certain behaviors . . . that may damage the marital relationship.”

Id. at 696–97, 284 A.3d at 828.

The Appellate Court held that penalty provisions are permissible in postnuptial

agreements because such agreements are designed to discourage and penalize conduct that

would undermine a marriage, such as adultery. Id. at 698, 284 A.3d at 829. The Appellate

Court found McGeehan instructive, particularly this Court’s explanation that “many

830. The Appellate Court agreed and remanded for further proceedings on that issue. Id. at 701, 284 A.3d at 830–31. That issue is not before this Court. 9 Petitioner also challenged the Agreement’s validity based on lack of consideration, unconscionability, and undue influence grounds. Lloyd, 255 Md. App. at 679, 284 A.3d at 818. The Appellate Court rejected those arguments. Id. at 682–84, 690, 695–96, 284 A.3d at 820–21, 824, 827–28. Those issues are also not before this Court.

9 postnuptial agreements attempt to use financial rewards and penalties to create incentives

during a marriage that constrain the behavior of both spouses.” Id., 284 A.3d at 829

(citation omitted). In the Appellate Court’s view, McGeehan “clearly stated” that “post-

nuptial agreements designed to discourage certain behavior[s] are not void as a matter of

public policy.” Id., 284 A.3d at 829. The Appellate Court reasoned that the “public policy

prohibition against penalties . . . does not apply with the same rigidity in the context of

post-nuptial agreements[,]” because Maryland’s “public policy generally frowns on

adultery, and postnuptial agreements by their very nature may be viewed as penalizing[.]”

Id., 284 A.3d at 829. The Appellate Court observed that “the Agreement in no way required

[Petitioner] to stay married to [Respondent].” Id. at 699, 284 A.3d at 829.

The Appellate Court also held that the lump sum provision was not unconscionable

because Petitioner “alone was the trigger of the penalty[.]” Id. at 700, 284 A.3d at 830.

The Appellate Court agreed with the circuit court’s reasoning that Petitioner accepted the

risk that he would not receive an inheritance from his father’s estate and that he would not

engage in further adultery. Id. at 699, 284 A.3d at 830. The Appellate Court observed that,

“[w]hile such a provision might create fear, it could . . . create stability and peace in a

marriage because the consequences of various actions in a marriage are explicitly spelled

out.” Id. at 700, 284 A.3d at 830. Petitioner timely appealed to this Court. We granted

certiorari on February 23, 2023. Lloyd v. Niceta, 482 Md. 733, 290 A.3d 602 (2023).

STANDARD OF REVIEW

Where an action has been tried without a jury, this Court “review[s] the case on both

the law and the evidence.” Md. Rule 8-131(c). This Court “will not set aside the judgment

10 of the trial court on the evidence unless clearly erroneous, and will give due regard to the

opportunity of the trial court to judge the credibility of the witnesses.” Id. This Court

reviews de novo a lower court’s interpretation of a contract, as well as its interpretation and

application of Maryland statutory and case law. Clancy v. King, 405 Md. 541, 556–57,

954 A.2d 1092, 1101 (2008); Mayor & City Council of Balt. v. Thornton Mellon, LLC, 478

Md. 396, 410, 274 A.3d 1079, 1087 (2022) (citation omitted).

PARTIES’ CONTENTIONS

I. Petitioner’s Opening Brief.

Petitioner argues that penalty provisions contravene the common law rule against

“contractual penalties, [which] allow[s] only liquidated damages clauses designed to

reasonably approximate actual damages.” Petitioner contends that the General Assembly

has not statutorily authorized penalty provisions in marital contracts, which requires this

Court to enforce common law principles under Article 5 of the Maryland Declaration of

Rights.10 In Petitioner’s view, this Court has never expressly endorsed penalty provisions

in marital contracts and this Court’s “passing reference” to penalties in postnuptial

agreements in “McGeehan did not authorize” such provisions. Petitioner asserts that

“[j]udicial dabbling in coercive penalties in family law is a dangerous idea[,]” because such

penalties would exacerbate spousal abuse.

10 Article 5 provides, in relevant part: “That the Inhabitants of Maryland are entitled to the Common Law of England . . . according to the course of that Law, and to the benefit of such of the English statutes as existed on [July 4, 1776.]” Md. Const. Decl. of Rts. art. 5.

11 II. Respondent’s Brief.

Respondent counters that the lump sum provision was not a penalty; rather it was a

monetary award that “was intended to deter conduct that . . . was detrimental to the

marriage by providing a different distribution of assets in the event [Petitioner] was at fault

in the breakdown of the marriage.” Respondent highlights that jurisdictions with fault-

based divorce laws, as Maryland is currently, have enforced adultery provisions, while only

jurisdictions with no-fault divorce laws have prohibited similar provisions. Respondent

contends that Petitioner “attempts to minimize the McGeehan holding by mischaracterizing

the cited language as a ‘passing reference[.]’” Respondent claims that Maryland courts

should not restrict spouses’ free will to voluntarily enter valid agreements that further the

public’s interest in “promot[ing] compromise and marital harmony, [as well as]

minimiz[ing] litigation.”11

11 Respondent argues that Petitioner “fails to acknowledge in his Brief [] that the parties were residing in Virginia when the Agreement was negotiated.” Respondent cites Hall v. Hall, No. 2021-04-4, 2005 WL 2493382 (Va. Ct. App. Oct. 11, 2005), an unreported decision from the Court of Appeals of Virginia, for the proposition that provisions that allocate marital assets based on adultery are enforceable. Petitioner argues that Respondent is barred from relying on a choice of law argument based on an unreported decision from Virginia, which has no precedential value in that jurisdiction. This Court “apprais[es] the persuasive value of unreported opinions from other jurisdictions[]” based on “the value of th[o]se opinions in their local courts.” See MAS Assocs., LLC v. Korotki, 465 Md. 457, 479 n.11, 214 A.3d 1076, 1088 n.11 (2019). As Petitioner asserts, unreported decisions in Virginia have no precedential value, and so this Court will not consider Hall in its analysis. Va. Code Ann. § 17.1-413 (stating that only reported decisions “hav[e] precedential value or . . . significance for the law[.]”). To the extent Respondent’s arguments raise choice of law concerns, they are not before this Court. See Md. Rule 8-131(b)(1) (“[T]he Supreme Court [of Maryland] ordinarily will consider only an issue that has been raised in the petition for certiorari . . . and that has been preserved for review by the Supreme Court.”).

12 III. Petitioner’s Reply Brief.

Petitioner asserts that Respondent’s attempt to reframe the lump sum clause as a

“monetary award” falls outside this Court’s scope of review under Md. Rule 8-131(b)(1).

Petitioner emphasizes that both lower courts determined that the provision was a penalty

and that Respondent conceded that the provision constituted a penalty during her

arguments before the Appellate Court. Petitioner maintains that the $7 million penalty

exceeds the value of the marital estate, which is the most the circuit court could have

awarded under the Marital Property Act, Md. Code Ann., Family Law (“Fam. Law”) § 8-

205.12 Petitioner contends that, even if McGeehan endorsed penalties in postnuptial

agreements, the penalty in this case “constrained only [his] behavior[,]” rather than “the

behavior of both spouses.”

ANALYSIS

I. Postnuptial Agreements in Maryland.

A. The meaning of McGeehan’s description of penalties.

The parties dispute whether this Court’s description of penalties in McGeehan

constitutes binding precedent or dicta. Dicta is “[a] judicial comment made while

delivering a judicial opinion, but one that is unnecessary to the decision in the case and

therefore not precedential[.]” Dictum, Black’s Law Dictionary (11th ed. 2019). In

12 Fam. Law § 8-205(a)(1) authorizes the circuit court to, in relevant part, “grant a monetary award . . . as an adjustment of the equities and rights of the parties concerning marital property,” after considering several factors, including “the circumstances that contributed to the estrangement of the parties[,]” Fam. Law § 8-205(b)(4).

13 McGeehan, this Court resolved whether an oral postnuptial agreement excluded certain

properties from consideration as marital property under Fam. Law § 8-201(e)(3)(iii).13 455

Md. at 269–70, 167 A.3d at 580. This Court stated, without holding, that “many postnuptial

agreements attempt to use financial rewards and penalties to create incentives during a

marriage that constrain the behavior of both spouses.” Id. at 298, 167 A.3d at 596–97

(citation omitted). As Petitioner contends, this description constitutes dicta because

McGeehan did not involve the validity of penalties in postnuptial agreements. This dicta,

however, accurately describes the law in Maryland.

We adopt that dicta as holding and clarify it below. See Kulikov v. Baffoe-Harding,

215 Md. App. 193, 204, 79 A.3d 995, 1001 (2013) (converting dicta into holding); Judith

M. Stinson, Why Dicta Becomes Holding and Why It Matters, 76 Brook. L. Rev. 219, 262

(2010) (recommending “courts [to] expressly identify when they are relying on dicta and

explain why they find it persuasive.”). The term “penalties,” as used in McGeehan, refers

to provisions that operate to the detriment of a party, rather than provisions that punish a

party for breach of contract under liquidated damages principles. Here, the lump sum

provision required Petitioner to transfer $7 million up to the value of his 50% share of

specified marital assets. That provision operated as a “penalty” under McGeehan because

it would change Petitioner’s financial position to his detriment if he engaged in adultery,

thereby causing the breakdown of the parties’ marriage.

13 “‘[M]arital property’ does not include property . . . excluded by valid agreement[.]” Fam. Law § 8-201(e)(3)(iii).

14 B. Postnuptial agreements generally.

Under Maryland law, spouses “may make a valid and enforceable deed or agreement

that relates to alimony, support, property rights, or personal rights.” Fam. Law § 8-101(a).

A postnuptial agreement is a type of marital contract “that sets forth the rights, duties and

responsibilities of the parties during and upon termination of the marriage through death

or divorce.” McGeehan, 455 Md. at 297, 167 A.3d at 596 (cleaned up). Spouses generally

enter a postnuptial agreement “at a time when separation or divorce is not imminent.”

Postnuptial Agreement, Black’s Law Dictionary (11th ed. 2019). Postnuptial agreements

“encourage the private resolution of family issues[,]” because “they may allow couples to

eliminate a source of emotional turmoil––usually, financial uncertainty––and focus instead

on resolving other aspects of the marriage that may be problematic.” Bedrick v. Bedrick,

300 Conn. 691, 698, 17 A.3d 17, 24 (2011).

A postnuptial agreement is valid and enforceable, unless the agreement is

unconscionable or the byproduct of fraud, duress, mistake, or undue influence. McGeehan,

455 Md. at 298, 167 A.3d at 597 (citation omitted). A spouse who challenges the validity

of a postnuptial agreement may shift the burden of proof onto the agreement’s proponent

by establishing the existence of a confidential relationship. See Blum v. Blum, 59 Md. App.

584, 595, 477 A.2d 289, 294 (1984) (noting a party challenging a separation agreement

bears the burden of establishing a confidential relationship); see also Hale v. Hale, 74 Md.

App. 555, 566, 539 A.2d 247, 252 (1988) (same). Postnuptial agreements allow spouses

to alter their default rights under the Family Law Article, subject to the court’s equitable

authority. See Nouri v. Dadgar, 245 Md. App. 324, 359–60, 226 A.3d 797, 818 (2020)

15 (noting that spouses may enter into a postnuptial agreement that relinquishes their default

statutory rights to marital property). Courts evaluating a postnuptial agreement may

enforce its terms “by power of contempt” when the provisions “are merged into a divorce

decree[,]” or “as an independent contract not superseded by the divorce decree[.]” Fam.

Law § 8-105(a)(1)–(2). Absent countervailing equitable considerations, courts will enforce

the terms of a marital agreement to the extent they concern spouses and not children. See

Fam. Law § 8-103(a) (“The court may modify any provision of a[n] . . . agreement . . . with

respect to the care, custody, education, or support of any minor child of the spouses, if the

modification would be in the best interests of the child.”).

II. The Appropriate Framework for the Lump Sum Provision.

A. The doctrine of liquidated damages is inapplicable to postnuptial agreements.

Petitioner characterizes the lump sum provision as a penalty because, in his view, it

is an excessive liquidated damages provision. We reject Petitioner’s interpretation because

the principles governing liquidated damages provisions are incongruent with divorce law

and, therefore, provide an inadequate framework for evaluating the lump sum provision.

As we explain in the next section, the lump sum provision is better viewed as an allocation

of marital assets based on a party’s conduct that led to the estrangement of the parties. See

Fam. Law § 8-205(b)(4) (permitting courts to consider “the circumstances that contributed

to the estrangement of the parties[]” when fashioning a monetary award following divorce).

Liquidated damages provisions, as applied in non-marital contracts, provide for “a

specific sum stipulated to and agreed upon by the parties at the time they entered into a

16 contract, to be paid to compensate for injuries in the event of a breach of that contract.”

Barrie Sch. v. Patch, 401 Md. 497, 507, 933 A.2d 382, 388 (2007) (citation omitted). A

valid liquidated damages clause: (1) must unambiguously provide for a specified sum; (2)

must reasonably compensate a party “for the damages anticipated by the breach[;]” and (3)

“may not be altered to correspond to actual damages determined after the fact[.]” Bd. of

Educ. of Talbot Cnty. v. Heister, 392 Md. 140, 156, 896 A.2d 342, 352 (2006) (cleaned

up). A liquidated damages provision will be construed as a penalty when the parties intend

for the sum to punish the breaching party or when the sum is “grossly excessive and out of

all proportion to the damages that might reasonably have been expected to result from such

breach of the contract.” Patch, 401 Md. at 508, 933 A.2d at 389 (cleaned up). Contract

law rejects penalties because “[t]he central objective behind the system of contract

remedies is compensatory, not punitive.” Restatement (Second) of Contracts § 356 cmt. a

(1981).

We agree with Petitioner that the lump sum provision would constitute an

unenforceable penalty had the Agreement been a traditional common law contract, rather

than a marital contract.14 The Agreement arose following Petitioner’s infidelity, which

14 We recognize that, “[i]n its broadest sense, a[] [marital] agreement is, of course, a [common law] contract.” See Cannon v. Cannon, 384 Md. 537, 553, 865 A.2d 563, 572 (2005). The distinction between a “traditional” common law contract and a marital contract lies, in relevant part, in the available remedies for breach of contract, which we discuss further below. Compare Restatement (Second) of Contracts § 346 cmt. a (1981) (“[A] judgment awarding a sum of money as damages is the most common judicial remedy for breach of [a traditional common law] contract[.]”) with Fam. Law §§ 8-101, 8- 105(a)(1), 8-205(a)(1) (empowering family courts to enforce marital agreements regarding “alimony, support, property rights, or personal rights[,]” and limiting any monetary award in divorce proceedings to the value of marital property).

17 established a backdrop for negotiations. The Agreement provided that any further act of

infidelity would require payment of the $7 million lump sum, thus deterring Petitioner from

engaging in conduct that was repugnant to the marriage. Ms. Day’s testimony supports

this interpretation because she stated that the lump sum provision “was intended to [] be

prohibitive . . . so that [Petitioner] would not” commence another extramarital affair.

Additionally, Ms. Day and Mr. Delvecchio both referred to the lump sum provision as the

“bad boy clause.” That phrase implied that the operation of the lump sum provision would

compel Petitioner to comport himself or face a consequence. Therefore, the record

demonstrates that the parties intended for the lump sum provision to deter Petitioner from

engaging in adultery again and, if the deterrent did not work, to reallocate marital assets to

reflect his responsibility for the breakdown of the marriage.

Petitioner contends that this Court’s inquiry should end here because marital

agreements are governed by the same principles as common law contracts, which prohibit

penalties. We disagree. We recognize that “[t]he general principles governing other types

of contracts apply to” marital agreements. Bruce v. Dyer, 309 Md. 421, 439, 524 A.2d

777, 786 (1987) (citations omitted). This approach, however, does not prohibit this Court

from deviating from common law contract principles when they are incongruent with

principles governing marital contracts. See, e.g., McGeehan, 455 Md. at 294, 167 A.3d at

594 (“Unlike other contracts, . . . a confidential relationship exists between the parties, as

a matter of law[,] in an antenuptial agreement.” (cleaned up) (emphasis added)). Indeed,

marital “agreements are necessarily infused with equitable considerations and are

construed in light of salient legal and policy concerns[,]” which may occasionally render

18 “normal tenets of contract interpretation” inapplicable. Holtham v. Lucas, 460 N.J. Super.

308, 319–20, 214 A.3d 1226, 1232 (App. Div. 2019) (cleaned up).

Petitioner’s position presumes that the doctrine of liquidated damages and, by

extension, the rule against penalties, apply to marital agreements. This is because

liquidated damages provisions and penalties exist on a spectrum of enforceability, and one

doctrine cannot be imported into family law without the other. See Patch, 401 Md. at 510,

933 A.2d at 390 (noting that the boundary between liquidated damages clauses and

penalties is “one of the most difficult and perplexing inquiries encountered in the

construction of written agreements[.]” (cleaned up)). We hold that such a framework is

ill-suited for marital agreements.

In non-marital agreements, liquidated damages operate as “a sum that will

compensate the nonbreacher for any harm caused by the breach, in lieu of the compensatory

contract damage[s] to which the nonbreacher would otherwise be entitled[.]” Id. at 513,

933 A.2d at 392 (cleaned up) (emphasis added). In divorce proceedings, parties are not

entitled to compensatory damages. Instead, the primary monetary sums available to an

aggrieved spouse are alimony, child support, and a division of marital assets, including a

potential monetary award, attendant to divorce, which are statutory remedies and subject

to the court’s equitable authority.15 See Fam. Law §§ 1-201(b)(2), (4), (9) (“An equity

court has jurisdiction over: . . . (2) alimony; . . . (4) divorce; . . . (9) support of a child[.]”),

15 Parties may also recover litigation costs, subject to the court’s discretion. See Fam. Law § 7-107(e) (providing that parties may seek “reimbursement for any reasonable and necessary expense” incurred during litigation).

19 8-205(a)(1) (authorizing courts to “grant a monetary award, . . . as an adjustment of the

equities and rights of the parties concerning marital property[.]”). None of those monetary

sums serve as compensatory damages for which liquidated damages may substitute.

Additionally, liquidated damages cannot serve as a substitute for non-monetary relief, such

as annulment, divorce, custody, or visitation. See Fam. Law § 1-201(b)(3)–(6). Marital

agreements may “alter the presumptive consequences of” divorce, but this Court has never

held that provisions in a marital agreement may substitute for the statutory remedy of

divorce. See Nouri, 245 Md. App. at 359, 226 A.3d at 818 (citations omitted). We decline

to do so in this case.

Additionally, as a practical matter, applying a liquidated damages framework would

place this Court in the untenable position of assigning a dollar value to a marriage for

purposes of evaluating when a liquidated damages provision becomes a penalty. See Patch,

401 Md. at 508–09, 933 A.2d at 388–89 (explaining that a liquidated damages provision

operates as a substitute for ordinary contractual remedies); Restatement (Second) of

Contracts § 346 cmt. a (1981) (“[A] judgment awarding a sum of money as damages is the

most common judicial remedy for breach of contract[.]”). Even if this Court were inclined

to try to make such a calculation, any measure of damages would be speculative. The

speculative nature of damages undermines a liquidated damages framework because

liquidated damages must “provide a fair estimate of potential damages[.]” See Patch, 401

Md. at 510, 933 A.2d at 390 (citations omitted). Accordingly, we decline to apply a

liquidated damages framework in evaluating the lump sum provision in this case.

20 Treating provisions in marital agreements as penalties under a liquidated damages

framework would also undermine the goals of marital agreements. Courts in other

jurisdictions have rejected doing so even when faced with provisions that more clearly

resemble traditional contract penalties. The Superior Court of New Jersey, Appellate

Division’s decision in Holtham is instructive. In that case, a husband challenged a marital

settlement agreement that required him to pay off an automobile loan and transfer title of

that automobile to his wife. Holtham, 460 N.J. Super. at 314, 214 A.3d at 1229. The

agreement imposed a $150 fee for each day that the husband failed to comply. Id., 214

A.3d at 1229. The trial court incorporated the agreement into the parties’ divorce decree

and ordered the husband to pay $18,450 pursuant to the agreement. Id., 214 A.3d at 1229.

On appeal, the Superior Court of New Jersey, Appellate Division “agree[d] that $18,450

would constitute an unenforceable penalty under traditional contract law principles,” but

held that “the penalty rule does not apply with equal force to marital settlement agreements

embodied in final divorce judgments.” Id., 214 A.3d at 1229.

The court considered the policies underlying the penalty rule, which “protect[ed]

against both oppression and . . . recovery that far exceed[ed] the economic losses normally

recoverable for breach of contract.” Id. at 320, 214 A.3d at 1232–33 (citations omitted).

In the court’s view, the penalty rule was incompatible with marital contracts because it

“fail[ed] to account for non-market-based ‘idiosyncratic value’” or “recognize the premium

that the court and parties place on post-divorce peace.” Id. at 321, 214 A.3d at 1233

(citations omitted). The court explained that “[t]he penalty rule also does not account for

the fact that parties to matrimonial agreements may behave far differently than the rational

21 economic actors presumed to participate in typical contractual relationships.” Id. at 322,

214 A.3d at 1233. The court observed that, unlike common law contracts, marital

agreements “are necessarily infused with equitable considerations and are construed in

light of salient legal and policy concerns.” Id. at 319, 214 A.3d at 1232 (cleaned up). The

court concluded that “a per diem fee that may fail as a penalty under traditional contract

principles may reasonably deter or remedy the emotional harm caused by a breach of post-

marital peace.” Id. at 322, 214 A.3d at 1233.

Similarly, the Appellate Court of Connecticut upheld a penalty provision in a

separation agreement that required a husband to pay his wife an additional 10% annual

interest if he failed to timely pay her approximately $15 million over two installments.

Dougan v. Dougan, 114 Conn. App. 379, 381, 970 A.2d 131, 134 (2009), aff’d on other

grounds, 301 Conn. 361, 21 A.3d 791 (2011). The court declined to apply the rule against

penalties because the state had an interest in spouses entering into agreements that

“conserve[] judicial resources and encourage[] private resolution of family issues.” Id. at

385, 970 A.2d at 136–37. The court noted that “the parties were both represented by

counsel, [] reached an agreement after a long negotiation period, . . . participated actively

in the negotiations[,] and found the agreement fair, reasonable[,] and in line with their

expectations.” Id. at 387–88, 970 A.2d at 138.

Unlike economic and arms-length transactions between business entities,

transactions between spouses involve a marriage, which “is a coming together for better or

for worse, hopefully enduring, and intimate to the degree of being sacred.” Obergefell v.

Hodges, 576 U.S. 644, 667, 135 S. Ct. 2584, 2599 (2015) (cleaned up). The intimacy of

22 marriage and the equitable considerations in divorce proceedings undermine the economic-

based rationale of the rule against penalties because spouses have an emotional stake in

ensuring their marriage endures or, in the alternative, securing their future following

divorce. See Holtham, 460 N.J. Super. at 322, 214 A.3d at 1233 (noting that parties to a

marital agreement “may behave far differently than the rational economic actors presumed

to participate in typical contractual relationships.”).

Postnuptial agreements offer a vehicle through which spouses may: (1) memorialize

their commitment to each other by deterring conduct that is repugnant to their marriage;

(2) resolve their marital disputes without judicial intervention; and (3) financially secure

their post-divorce future, particularly where one spouse is culpable for the failure of the

marriage. See McGeehan, 455 Md. at 298, 167 A.3d at 596–97 (noting that postnuptial

agreements may incorporate “financial rewards and penalties to create incentives during a

marriage that constrain the behavior of both spouses.” (citation omitted)); see also Bedrick,

300 Conn. at 698, 17 A.3d at 24 (“Postnuptial agreements may also encourage the private

resolution of family issues[,]” thereby “eliminat[ing] a source of emotional turmoil . . . and

[allowing spouses to] focus instead on resolving other aspects of the marriage that may be

problematic.”).

Assuming, arguendo, that the lump sum provision was akin to a traditional

contractual penalty provision, we would not agree that it should be governed by principles

of liquidated damages. As we explain further in the next section, the term “penalty,” as

used in a liquidated damages framework, is inapplicable to postnuptial agreements.

Accordingly, the issue before this Court is best framed as whether a provision in a

23 postnuptial agreement may allocate marital assets based on one party committing adultery,

thereby being primarily responsible for the breakdown of the marriage. Maryland statutory

law enshrines the ability of spouses to mold their marriage, as well as the consequences of

any divorce, through agreements. See Fam. Law § 8-101(a). Embedded in that statutory

right is the power for spouses to include interspousal transfers of marital assets based on

adultery in their postnuptial agreements.

B. The lump sum provision is akin to a transfer of marital property upon divorce under Fam. Law § 8-101(a) based on adultery.

The lump sum provision is properly understood as an interspousal distribution of

marital assets that is contingent upon infidelity as the cause of the breakdown of the

marriage. We note that the Agreement describes the provision as either a “permanent gift”

or “a lump sum monetary award[,]” depending on whether the parties divorced. This

provision memorializes Respondent’s contingent interest in $7 million from Petitioner’s

“50% share of the Column B Assets[,]” i.e., marital assets, in exchange for her forbearance

of filing for divorce on the grounds of adultery following Petitioner’s initial extramarital

affair. See Blumenthal v. Heron, 261 Md. 234, 243, 274 A.2d 636, 640 (1971) (noting that

forbearance from bringing a legal claim constitutes valid consideration). Respondent

contends that the lump sum provision is not a penalty, but a “monetary award[.]” In this

context, we agree.

Fam. Law 8-205(a)(1) provides that, after determining which property is marital

property and the value of that property, “the court may . . . grant a monetary award . . . as

an adjustment of the equities and rights of the parties concerning marital property[.]” Fam.

24 Law 8-205(b) then identifies eleven factors a court is required to consider in determining,

in relevant part, “the amount and the method of payment of a monetary award[.]” One of

those factors is “the circumstances that contributed to the estrangement of the parties[.]”

Fam. Law § 8-205(b)(4). Thus, the Family Law Article expressly authorizes a monetary

award as an equitable adjustment based, in part, on which of the parties is responsible for

the breakdown of the marriage. As noted above, Fam. Law § 8-101(a) permits spouses to

“make a valid and enforceable . . . agreement that relates to . . . property rights[.]” This

Court concludes that the lump sum monetary award constitutes a “valid and enforceable .

. . agreement” regarding the parties’ “property rights[]” upon the dissolution of their

marriage pursuant to Fam. Law § 8-101(a). The Agreement was premised on the

permissible consideration of “the circumstances that contributed to the estrangement of the

parties[.]” Fam. Law § 8-205(b)(4).16

We find the rationale in Laudig v. Laudig, 425 Pa. Super. 228, 624 A.2d 651 (1993),

instructive. In Laudig, the Superior Court of Pennsylvania upheld a provision in a

postnuptial agreement under which a wife agreed to waive her right to marital property if

she engaged in adultery. Id. at 236, 624 A.2d at 655. The court reasoned that marital

agreements “allow the parties to avoid the operation of equitable distribution[,]” and “to

dispose of their property rights regardless of the reasons behind” divorce. Id., 624 A.2d at

16 We observe that the Agreement required Petitioner to transfer $7 million up to the value of his 50% share of Column B Assets even if the parties did not divorce. Specifically, the Agreement provided that, “[i]f the parties remained married, [the] transfer shall be a permanent gift between husband and wife[.]” This Court’s holding does not address the enforceability of this language. This Court’s holding only addresses the enforceability of the transfer based on adultery “if the parties divorce[.]”

25 655. The court concluded that, “[i]f such property rights can be transferred without

providing any reason to support the transfer, there should be no reason why a transfer would

be invalid if it be conditioned on the occurrence of a specified type of conduct.” Id., 624

A.2d at 655.

Petitioner argues that Laudig is unpersuasive because that case did not involve a

penalty provision. Although Laudig did not involve a penalty under liquidated damages

principles, it did involve an interspousal transfer of assets based on adultery, like the lump

sum provision in this case. As noted above, spouses “may make a valid and enforceable .

. . agreement that relates to . . . property rights[.]” Fam. Law § 8-101(a). This freedom of

contract encompasses interspousal transfers of marital assets upon divorce, regardless of

whether the transfer occurs immediately, prospectively, or contingently on the occurrence

of a specified event. See id.; Nouri, 245 Md. App. at 359, 226 A.3d at 818 (“Maryland law

expressly permits couples to enter contracts that alter the presumptive consequences of the

dissolution of a marriage.” (citations omitted)).

The greater includes the lesser. As the Laudig court observed, “there should be no

reason why a transfer would be invalid if it be conditioned on the occurrence of a specified

type of conduct[,]” because spouses are permitted to transfer assets to each other for any

reason. 425 Pa. Super. at 236, 624 A.2d at 655. It follows that spouses may place

conditions upon the distribution of marital assets, provided those conditions comport with

public policy. See id., 624 A.2d at 655 (evaluating the validity of an infidelity clause based

on the public policy of Pennsylvania); Weichert Co. of Md. v. Faust, 419 Md. 306, 325, 19

A.3d 393, 404 (2011) (“[A]bsent . . . some countervailing public policy, courts should

26 enforce the terms of unambiguous written contracts without regard to the consequences of

that enforcement.” (cleaned up)).

IV. The Public Policy of Maryland.

We hold that the public policy in Maryland currently supports spouses negotiating

in good faith to condition a transfer of marital assets upon the dissolution of the marriage

when a spouse commits adultery. Petitioner argues that the General Assembly has not

expressly authorized penalties in marital agreements, which requires this Court to apply

common law principles under Article 5(a)(1) of the Maryland Declaration of Rights.

Petitioner’s reliance on Article 5 is misplaced because this Court’s holding is not disturbing

common law precedent. As explained above, the lump sum provision is not a penalty as

that term pertains to liquidated damages clauses. Instead, the lump sum provision is a

conditional allocation of marital assets, which is an exercise of the parties’ power to “make

a valid and enforceable . . . agreement that relates to . . . property rights[.]” Fam. Law § 8-

101(a).

“[T]he declaration of public policy is normally the function of the legislative

branch[,]” but “[c]ourts may [also] rely on prior judicial opinions, legislative enactments,

or administrative regulations as the chief sources of public policy[.]” Yuan v. Johns

Hopkins Univ., 452 Md. 436, 451, 157 A.3d 254, 263 (2017) (cleaned up). Given the dearth

of case law regarding postnuptial agreements in Maryland, we consider decisions from

other jurisdictions to ascertain the public policy that is relevant to distributions of assets

based on adultery. See Rochkind v. Stevenson, 454 Md. 277, 288, 164 A.3d 254, 261 (2017)

(considering case law from other jurisdictions when evaluating a novel issue); Givens v.

27 State, 449 Md. 433, 466, 144 A.3d 717, 736 (2016) (same); Peters v. Early Healthcare

Giver, Inc., 439 Md. 646, 657, 97 A.3d 621, 627 (2014) (same).

Some of our sister jurisdictions have rejected provisions in marital agreements that

are similar to the lump sum provision in this case on the grounds that they undermine no-

fault divorce laws. In Diosdado v. Diosdado, the Court of Appeal of California declined

to enforce a liquidated damages clause in a marital settlement agreement that imposed a

$50,000 penalty for adultery because the “penalty [was] in direct contravention of the

public policy underlying no-fault divorce.” 118 Cal. Rptr. 2d 494, 496 (2002). In In re

Marriage of Cooper, the Supreme Court of Iowa invalidated a postnuptial agreement that

would have required a husband to pay $2,600 in temporary monthly spousal support if he

committed adultery. 769 N.W.2d 582, 583–84 (Iowa 2009). The court “reject[ed] the idea

of injecting the courts into the complex web of interpersonal relationships[,]” because

Iowa’s “no-fault divorce law [was] designed to limit acrimonious proceedings[]” and “a

contrary approach would empower spouses” to contractually circumvent those laws. Id. at

586–87. In Crofford v. Adachi, the Supreme Court of Hawai’i found the reasoning in

Cooper persuasive in a case involving a postnuptial agreement that would award a wife

most of the parties’ marital assets if the husband either engaged in an extramarital affair or

physically harmed her. 150 Haw. 518, 519, 506 P.3d 182, 183 (2022). The court held that

the agreement violated “Hawai’i’s no-fault divorce policy and must be voided[,]” because

it “require[d] the family court to evaluate the parties’ fault[.]” Id. at 526, 506 P.3d at 190.

The Supreme Court of Hawai’i stated that the reasoning of cases supporting the

transfer of marital assets based on adultery from jurisdictions that permit fault-based

28 divorce was “less persuasive in a no-fault state such as Hawai’i.” Id. at 527, 506 P.3d at

191. The same is true for the persuasive force of Diosdado, Cooper, and Crofford in

Maryland, because this State currently permits divorce based on fault, including adultery.

Fam. Law § 7-103(a)(1).17 Further indicia of this State’s public policy lies in Fam. Law §

8-205(b)(4), which requires courts to “determine the amount and the method of payment

of a monetary award[]” based on several factors, including “the circumstances that

contributed to the estrangement of the parties[.]” Those “circumstances” may include

adultery. Ohm v. Ohm, 49 Md. App. 392, 410, 431 A.2d 1371, 1381 (1981) (“[A]dultery

is a factor to be considered . . . in making a monetary award.”). In light of these statutes,

the General Assembly has recognized that adultery is repugnant to a marriage and courts

should consider adultery, to the extent it contributed to the breakdown of a marriage, as a

factor when fashioning a monetary award during divorce proceedings. As the Appellate

Court observed, Maryland’s public policy, at a minimum, “generally frowns on adultery[.]”

Lloyd, 255 Md. App. at 698, 284 A.3d at 829. Permitting spouses to allocate marital assets

upon divorce based on adultery comports with that public policy.

Petitioner argues that it “is a dangerous idea[]” for this Court to “dabbl[e]” with

adultery penalties in marital agreements. In his view, penalties will exacerbate spousal

17 Fam. Law § 7-103(a)(1) currently provides that “[t]he court may decree an absolute divorce on the following grounds . . . adultery[.]” Governor Westley Moore signed a bill on May 16, 2023 that removed, among other things, “adultery” as a ground for absolute divorce and replaced it with “irreconcilable differences based on the reasons stated by the complainant for the permanent termination of the marriage[.]” 2023 Maryland Laws Ch. 645 (S.B. 36). The law shall take effect on October 1, 2023. Petitioner concedes that the former grounds for fault-based divorce, such as adultery, “will be among the reasons that a petition may cite for irreconcilable differences.”

29 abuse and become “instruments of fear and coercion[.]” Petitioner’s policy arguments

would be more appropriate for the General Assembly. Furthermore, Petitioner’s

contentions belie the record in this case, which reflects that he recommended the $2 million

increase to the lump sum provision and subsequently entered into the Agreement against

the advice of counsel following months of negotiation. Regarding infidelity provisions

that follow this Court’s decision, we encourage trial courts to exercise their equitable

authority to address the specter of abuse whenever it invades the negotiations or language

of postnuptial agreements. See Holtham, 460 N.J. Super. at 325, 214 A.3d at 1235 (holding

that “the family court, in exercising its broad authority, may reform a penalty provision to

achieve fairness and equity.”).

Based on the above principles, we conclude that Maryland’s public policy currently

permits spouses to transfer assets to each other based on adultery that leads to the

dissolution of a marriage. The Court is not holding that spouses may impose on each other

monetary penalties unrelated to marital assets or unrelated to the division of such assets

during a divorce; rather, the Court is narrowly holding that spouses may allocate marital

assets in the event of divorce based on adultery. We have not decided whether the above

principles apply to prenuptial agreements. Our decision does not disturb precedent

regarding the prohibition against “tort damages based upon adultery[,]” and penalties in

traditional common law contracts. Doe v. Doe, 358 Md. 113, 127, 747 A.2d 617, 624

(2000) (citation omitted); Holtham, 460 N.J. Super. at 314, 214 A.3d at 1229 (noting that

an adultery provision is unenforceable if it is included in a traditional common law

contract).

30 V. The $7 Million Lump Sum Provision in the Case at Bar.

With the above principles in mind, we hold that the $7 million lump sum provision

in this case is valid and enforceable. Petitioner argues that the provision is overly broad

because it imposed the same $7 million “penalty” to conduct ranging from trivial physical

contact to sexual relations. Petitioner also claims that the $7 million lump sum is excessive

because it “awarded [Respondent] more than 100% of the marital estate.” These arguments

are unpersuasive.

We have limited our review to the applicability of the lump sum provision under the

facts of this record.18 Here, the lump sum provision required Petitioner to transfer $7

million up to the value of his 50% share of Column B Assets if the parties divorced after

he engaged in adultery. Fam. Law § 7-103(a)(1) permits spouses to file for divorce on the

grounds of adultery, which supports provisions that distribute assets based on that conduct.

The lump sum provision did not restrict Petitioner’s ability to foster his platonic

relationships. Respondent’s mere suspicions were insufficient to trigger the provision

because she was required to establish “by a preponderance of the evidence” that Petitioner

had engaged in adultery. Petitioner alone controlled whether the provision would trigger.

18 The Court has not addressed whether the lump sum provision would be enforceable if Petitioner had engaged in the other specified conduct. The lump sum provision triggered if Petitioner engaged in “adultery, buggery, or sodomy[,] as well as the following “[i]nappropriate and/or [i]mmoral [c]onduct”:

inappropriate emails; sexting; sending pornographic pictures of himself to the other person; receiving pornographic pictures of the other person; romantically kissing, hugging, fondling, or embracing another person; keeping secret email, cell phone or credit card accounts; or engaging in sexual acts with another person even if it does not lead to intercourse.

31 The lump sum provision did not require the parties to remain married. Indeed, nothing

prevented Petitioner from divorcing Respondent, thereby rendering the provision

inoperative, and subsequently pursuing a romantic or sexual relationship with another

person. In essence, the lump sum provision required Petitioner to remain faithful to

Respondent. We reject the contention that remaining faithful to a spouse is too onerous of

an obligation.

There is no dispute that Petitioner could have transferred $7 million to Respondent

had the transfer not been conditioned upon his infidelity. As the Laudig court observed,

this broad power to contract allows parties to place conditions upon those transfers based

“on the occurrence of a specified type of conduct[,]” such as adultery. 425 Pa. Super. at

236, 624 A.2d at 655. Like the spouses in Dougan, Petitioner and Respondent entered into

the Agreement after consulting attorneys, participating in lengthy negotiations, and

thoroughly reviewing the terms. 114 Conn. App at 387–88, 970 A.2d at 138. As with the

husband in Holtham, Petitioner’s access to counsel establishes that “he understood the

nature of the [adultery] provision and was prepared to abide by it[.]” 460 N.J. Super. at

325, 214 A.3d at 1235.19 We note that Petitioner proposed the $2 million increase to the

19 Courts evaluating the “negotiations preceding the provision’s adoption[]” may consider “the parties’ relative bargaining power and sophistication, their understanding of the provision, and whether they were assisted by independent counsel.” Holtham, 460 N.J. Super. at 324–25, 214 A.3d at 1235; see also Kreter v. HealthSTAR Comm’ns, Inc., 172 Md. App. 243, 263, 914 A.2d 168, 180 (2007) (“Maryland courts’ recalcitrance in voiding contracts on public policy grounds is particularly acute when the involved parties are sophisticated, knowledgeable about the matter at hand, and of equal bargaining power[.]”). The non-exclusive hallmarks of a sophisticated party include: (1) “[c]orporate entity or . . . an individual [corporate] investor[;]” (2) “[g]overnment or quasi-public entity;” (3) “[e]ntity . . . represented by counsel – or that has access to lawyers and accountants;” (4)

32 lump sum provision and thereafter entered into the Agreement against the advice of

counsel. It is immaterial that the provision applied exclusively to Petitioner because he

could have negotiated for it to apply to Respondent as well. Additionally, that limitation

was logical because Petitioner was the only party who had previously been unfaithful.

Petitioner’s promise to remain faithful was part of his consideration for Respondent

agreeing to remain married to him.

Regarding whether the sum was too severe, we recognize, as Petitioner states, that

monetary awards under Fam. Law § 8-205(a)(1) “cannot exceed the value of the marital

[estate].”20 Odunukwe v. Odunukwe, 98 Md. App. 273, 282, 633 A.2d 418, 422 (1993).

We need not address whether this limitation applies to interspousal transfers in postnuptial

agreements because the Agreement already provides a limitation to the $7 million transfer.

Here, the “[t]he transfer [of $7 million would] be made from [Petitioner’s] 50% share of

the Column B Assets.” By identifying a source, i.e., marital property, for the $7 million,

“[e]ducated – especially doctors and lawyers;” (5) [e]xperienced in business or specific field[;]” (6) “[w]ealthy or significant market share in a given industry;” or (7) “[t]he deal is complicated, long-term or expensive.” Meredith R. Miller, Contract Law, Party Sophistication and the New Formalism, 75 Mo. L. Rev. 493, 522–24 (2010) (cleaned up). Party sophistication is based on a totality of the circumstances regarding “the relative experience and resources of the parties to the contract in the context of the particular type of transaction.” Id. at 533. 20 Under Fam. Law § 8-205(a)(1), parties may request a monetary award, which requires the court to: (1) “determine which property is ‘marital property’ subject to allocation[;]” (2) “determine the value of the marital property[;]” and (3) consider several factors before fashioning an award. Alston v. Alston, 331 Md. 496, 498–500, 629 A.2d 70, 71–72 (1993) (citations omitted); Fam. Law §§ 8-203 (providing for the determination of marital property), 8-204 (providing for the valuation of marital property), 8-205 (providing various factors for the court to consider before granting a monetary award).

33 the Agreement limits the transfer to the cumulative value of those assets. Indeed, Petitioner

cannot transfer $7 million from his 50% share if its value falls below $7 million. For

example, if the value of Column B Assets was $28 million when the lump sum provision

triggered, then Petitioner’s 50% share would be $14 million. In that case, he could fully

satisfy the $7 million transfer. However, if the value of Column B Assets fell below $14

million, then Petitioner’s 50% share would be less than $7 million. In this second scenario,

Petitioner would be unable to transfer the full $7 million.

Since the lump sum provision only addressed Petitioner’s 50% share and no other

asset, Respondent would be unable to pursue Petitioner’s non-marital assets to satisfy the

difference. As a result, Petitioner only risked the value of his 50% share of Column B

Assets or $7 million, whichever was less. By limiting its scope to marital assets, the lump

sum provision “eliminate[d] a source of emotional turmoil––[specifically], financial

uncertainty––and [allowed the spouses to] focus instead on resolving other aspects of the

marriage that may be problematic.” Bedrick, 300 Conn. at 698, 17 A.3d at 24. Absent the

trigger based on adultery, these provisions would be unremarkable because the lump sum

provision simply recategorized certain non-marital property as marital property and

“alter[ed] the presumptive consequences of the dissolution of a marriage.” Nouri, 245 Md.

App. at 359, 226 A.3d at 818 (citations omitted). Therefore, we hold that the lump sum

provision was valid and enforceable. We further hold that Respondent is entitled to no

more than Petitioner’s “50% share of the Column B Assets.”

34 CONCLUSION

The lump sum provision cannot be evaluated under a liquidated damages framework

because that framework is inapplicable to postnuptial agreements. Spouses may enter into

valid and enforceable agreements, under which they may freely transfer assets to each other

and place conditions that comport with public policy on those transfers. We hold that the

public policy in Maryland supports interspousal distributions of marital assets based on

adultery in postnuptial agreements because this State: (1) currently permits divorce based

on fault, including adultery; and (2) permits courts to consider adultery, where it

contributes to the estrangement of the parties, as a factor in making a monetary award under

Fam. Law § 8-205(b)(4). In the case at bar, the lump sum provision was applied based on

Petitioner’s adultery, did not restrict Petitioner from building his platonic relationships, and

did not require him to remain married to Respondent. We agree with the circuit court’s

observation that “the decision to agree to the $7 million [transfer] may have been

improvident,” but that alone does not warrant voiding a provision that both parties had

negotiated over several months with the assistance of counsel. Pursuant to the plain

language of the lump sum provision, we conclude that Respondent cannot collect more

than the value of Petitioner’s “50% share of the Column B Assets.” For the foregoing

reasons, we affirm the decision of the Appellate Court of Maryland.

JUDGMENT OF THE APPELLATE COURT OF MARYLAND IS AFFIRMED. COSTS TO BE PAID BY PETITIONER.