Oftentimes clients will ask once an Order or Judgment of Divorce is entered, what happens if he/she does not comply with its terms? The bitter and harsh truth is that an Order or Judgment is a piece of paper that is enforceable by the Court. So what does that mean exactly? Well, in simplest terms, if a spouse or ex-spouse does not comply with its terms, then a enforcement application will have to be filed with the Court. That application, among seeking enforcement of the Order or Judgment, can also request additional relief such as the payment of counsel fees, sanctions, interest payments, possible jail time, etc.
Recently, the Appellate Division addressed this issue in the unpublished decision of Scheps v. Paparazzo, A-0717-08T1, decided July 29, 2009. This appeal stemmed after Wife filed several post judgment applications seeking to enforce the parties’ Property Settlement Agreement for her payments of alimony and a subsequent more detailed Consent Order regarding these payments. From the record it appears as though Husband had the ability to pay the monies owed, however he would not make these payments according to the schedule set forth in the Agreement and subsequent Orders.
After Husband had been found in violation of litigant’s rights on more than one occasion and judgments were entered and recorded against him , the parties entered into negotiations. As a result, a Consent Order was drafted and executed which carefully delineated the result of Husband’s continued non-compliance. The relevant portions stated that Husband would “pay any and all legal fees and costs associated with plaintiff’s enforcement of the terms of this Consent Order….., if defendant does not make timely payments on or before the first of each month as defined above, the defendant expressly agrees to pay the plaintiff interest in the amount of 6% per month on any balances due and owing…” The 6% monthly interest was in addition to a 7% annual interest on the monies owed.
Despite the Consent Order, Husband remained non-complaint with his payments. Wife filed a motion seeking to enforce the Consent Order, sanctions of $50/day, counsel fees, and other relief. Before the judge heard oral argument but while the motion was pending, Husband paid the lump sum amount owed.
The judge noted at oral argument that the parties should follow the agreement strictly. Despite his comments, he denied Wife’s request for sanctions and counsel fees. The judge ordered Husband to pay interest on the late payments but calculated interest at $1.055 per day instead of the 6% monthly interest set forth in the Consent Order. From that Order, this appeal followed.
The Appellate Division in its written decision made specific note that despite two judgments and two Orders, Husband was always non-compliant in the timing and amount of his payments. Further, he only came current after Wife filed her motion. The Court went on to state that Wife was entitled to an award of “any and all” counsel fees and costs for her motion and remanded the issue back to the trial court to determine the amount of reasonable counsel fees and costs incurred. Secondly, the Court found that the provision in the Consent Order that required Husband to pay monthly interest of 6% for late payments may not be reasonable and remanded that issue to the trial court to determine the reasonableness of that provision of the Consent Order.
Courts have long held that contracts should be enforced as the parties intended. Especially in family law matters, settlements reached by parties should be given considerable weight when it comes to judging their validity and enforceability. Moreover, the Court Rule governing counsel fees in matrimonial matters specifically states in the comments, “[i]f the parties have stipulated by agreement that the husband will pay counsel fees to the wife in an amount to be fixed by the court, the court cannot refuse to allow any counsel fees at all.” Pressler, Current N.J. Court Rules, comment 4.5 on R. 5:3-5 (2009). Thus, the counsel fee provision in the parties’ Consent Order is enforceable and shall be applied.
As to the discussion of interest owed to Wife, the Court went through a somewhat lengthy discussion of contract law cases that discuss at length liquidated damages clauses and penalties as seen in contracts. Liquidated damages is the amount a party in a contract agrees to pay for their breach of that contract. A penalty is the amount a party agrees to pay for a breach of the contract that is fixed, not as a pre-estimate of probable damages but as a punishment. Generally, parties to a contract may not fix a penalty for a breach- such a provision would make a contract unenforceable.
The Court went on to discuss a two part test used in Metlife Capital Fin. Corp v. Wash. Ave. Assocs. L.P., 159 N.J. 484, 493 (1999), which states that an agreement that contains a provision fixing the amount to be paid for a breach is not enforceable unless:
“a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation.” Id.
Focusing on the reasonableness prong, the Court remanded to the trial court to determine if the 6% monthly interest rate, which amounts to 72% per year and a 7% annual interest rate is reasonable under the totality of the circumstances.
When drafting orders or agreements it is tempting to include such penalty provisions. However, proceed with caution as not all such provisions will be enforceable. More specifically, the provision cannot be a penalty for an anticipatory breach but rather should be crafted in an effort to estimate in advance the damages that will probably ensue from the breach.