On August 30, 2023, the Maryland Supreme Court held that a post-nuptial agreement that contains a penalty clause (also called a “bad boy” clause) for adultery is enforceable. See Lloyd v. Niceta, __ Md. ___ (2023). The parties’ post-nuptial agreement provided that the husband would pay up to $7 million in marital property to his wife if he committed adultery or other inappropriate sexual conduct. The husband argued that this provision was not enforceable, because it constituted a penalty. The Supreme Court disagreed, stating “we conclude that Maryland’s public policy currently permits spouses to transfer assets to each other based upon adultery that leads to the dissolution of a marriage”.
There are two key points to this landmark opinion. First, it only applies to post-nuptial agreements. The issue as to whether a penalty clause would be enforceable in a pre-nuptial agreement was not decided. Secondly, the Maryland Supreme Court explained that it “is narrowly holding that spouses may allocate marital assets in the event of a divorce based on adultery”.
Marital property is defined as property acquired during the marriage, except by gift or inheritance. The following example illustrates how a penalty or “bad boy” clause in a post-nuptial agreement would work.
A couple has $1 million in marital property. After one spouse has committed adultery or other prescribed conduct, they enter into a post-nuptial agreement with a penalty clause in order to discourage conduct that would undermine the marriage. The penalty clause states that the cheating spouse will forfeit up to $500,000 if it proven that he or she commits adultery or other sexual misconduct. Such a penalty clause would be enforceable, because the spouse have agreed on how to divide their $1 million in marital property.
However, the result would be different if the couple stated in their post-nuptial agreement that the penalty for adultery is the payment of $1 million. To satisfy the penalty, the cheating spouse would forfeit his or her $500,000 share of the parties’ $1 million in marital property plus $500,000 in non-marital property. Such an agreement would not be enforceable, because it goes beyond the division of the spouses’ marital property.
Caveat: On October 1, 2023, Maryland will eliminate all fault grounds for divorce, including adultery. See my prior post: https://stewartsutton.com/maryland-eliminates-all-fault-grounds-for-divorce But even without adultery being a grounds for divorce in Maryland after October 1, 2023, spouses can still obtain a divorce on irreconcilable differences due to adultery.
Practice pointer: Don’t promise the earth and moon to your spouse in a post-nuptial agreement to save your marriage and then expect the court to declare the agreement to be unenforceable.
