LLOYD V. NICETA

By: Evagevelly (Eva) Posadas

The Supreme Court of Maryland held that a postnuptial agreement’s lump sum provision conditioned on a spouse engaging in adultery is valid and enforceable under Maryland law. Lloyd v. Niceta, 485 Md. 422, 460, 301 A.3d 94, 116 (2023). A penalty contingent on adultery aligns with Maryland’s public policy, as reflected in its divorce laws and equitable property distribution. Id. at 460, 301 A.3d at 117.

Anna Cristina Niceta (“Niceta”) discovered that her husband, Thomas L. Lloyd (“Lloyd”), engaged in an adulterous relationship during their marriage. To rebuild trust in their relationship, Lloyd agreed to a postnuptial agreement (the “Agreement”). The Agreement contained a provision in which Lloyd would pay Niceta five million dollars if he engaged in adultery again. After both parties reviewed the Agreement with their attorneys, Lloyd proposed an additional two million dollars to the lump sum to show his commitment to Niceta, and because Lloyd expected to receive a substantial inheritance soon. The Agreement stated that the lump sum shall be made up from Lloyd’s share of the marital assets. After the parties consented to the Agreement, Lloyd committed adultery again and the parties finally ended their marriage.

Niceta filed for divorce in the Circuit Court for Montgomery County, requesting that the court enforce the Agreement. Lloyd argued that the Agreement was unenforceable because the lump sum provision was an “excessive liquidated damage” provision that created an “unenforceable penalty,” contrary to Maryland’s public policy. The court held that postnuptial agreements may include a lump sum provision to deter adultery. Both parties appealed to the Appellate Court of Maryland, which affirmed the lower court’s decision.

Lloyd appealed to the Supreme Court of Maryland, which granted certiorari. The issue before the court was whether a postnuptial agreement may contain a provision that supports a transfer of marital assets between spouses based on one spouse’s engagement in adultery.

The court began its analysis by defining “penalties” in the context of marital agreements. Lloyd, 485 Md. at 442, 301 A.3d at 106. In McGeehan, the court stated that postnuptial agreements commonly contain penalties that restrict spouses’ behavior in the marriage. Id. at 442, 301 A.3d at 106 (citing McGeehan v. McGeehan, 455 Md. 268, 298, 167 A.3d 579, 596-97). The term “penalties” describes provisions that operate to the disadvantage of a spouse rather than punishing a spouse for breaching a marital agreement. Lloyd, 485 Md. at 443, 301 A.3d at 106. In the present case, the Agreement’s lump sum provision required Lloyd to surrender assets to Niceta to his disadvantage if he committed adultery, operating as a penalty in the context of marital agreements. Id.

The court then briefly reviewed postnuptial agreements and their enforceability in court. Lloyd, 485 Md. at 443-44, 301 A.3d at 106-07. Maryland law allows spouses to create an enforceable contract that dictates the marriage’s assets. Id. at 443, 301 A.3d at 106. A court will not enforce a postnuptial agreement if it is “unconscionable” or contains any “fraud, duress, mistake, or undue influence.” Id. at 443, 301 A.3d at 107.

The court next addressed whether the lump sum provision in the instant case is an “excessive liquidated damages” provision. Lloyd, 485 Md. at 444, 301 A.3d at 107. A liquidated damages provision is considered an unenforceable penalty when it serves to punish the breaching party in a traditional contract. Id. at 445, 301 A.3d at 107-08. However, the Agreement was not a traditional contract; instead, it was a marital agreement that arose from Lloyd’s infidelity. Id. at 445-46, 301 A.3d at 108. The court declined to apply the liquidated damages framework to marital agreements because it would force the court to place a speculative monetary value on the marriage to determine damages. Id. at 448, 301 A.3d at 109. Further, parties in divorce proceedings are not entitled to compensatory damages. Id. at 447, 301 A.3d at 109.

In addition, applying a liquidated damages analysis would diminish the goals of postnuptial agreements, preventing judicial intervention and deterring repulsive spousal conduct. Id. at 448, 450, 301 A.3d at 109, 111. Here, the lump sum provision was meant to hold Lloyd accountable for his behavior to create trust among the marriage or pay the lump sum. Id. at 451, 301 A.3d at 111. Applying the liquidated damages framework to the Agreement would prevent Lloyd and Niceta from shaping their marriage and, eventually, their divorce. Id.

The court equated the lump sum provision to the transfer of marital assets in a divorce under Md. Code Ann., Fam. Law § 8-101(a). Lloyd, 486 Md. at 451, 301 A.3d at 111. During a divorce, a court considers equity in dividing marital property. Id. at 451-52, 301 A.3d at 111. One of the factors in determining equitable distribution is the circumstances that harmed the marriage. Id. at 452, 301 A.3d at 111. The Agreement was based on Lloyd’s infidelity, which was a contributing factor to the parties’ estrangement. Id. at 452, 301 A.3d at 112.

The court also relied on Laudig, a Pennsylvania state court decision upholding an agreement requiring a wife to surrender her marital property if the wife committed adultery. Id. at 452, 301 A.3d at 112 (citing Laudig v. Laudig, 425 Pa. Super. 228, 236, 624 A.2d 651, 655 (1993)). In Laudig, the court reasoned that if spouses can determine property distribution without a reason in an agreement, then conditional distribution should be allowed. Lloyd, 485 Md. at 452-53, 301 A.3d at 112 (citing Laudig, 425 Pa. Super. at 236, 624 A.2d at 655). Therefore, the present court concluded that spouses may create conditional distributions of marital assets, like the lump sum provision conditioned on Lloyd’s infidelity, so long as the provision aligns with Maryland’s public policy. Lloyd, 485 Md. at 453, 301 A.3d at 112.

Finally, the court reviewed whether Maryland’s public policy supports a good faith transfer of marital assets conditioned on adultery. Lloyd, 485 Md. at 453, 301 A.3d at 112-13. Due to Maryland’s lack of case law regarding postnuptial agreements, the court turned to other jurisdictions to determine the public policy that is applicable to the distribution of assets based on adultery. Id. at 454, 301 A.3d at 113. The court found that other jurisdictions invalidated provisions conditioned on adultery because of their no-fault divorce laws. Id. at 455, 301 A.3d at 113. However, Maryland has maintained fault-based divorce laws and considers adultery in determining monetary awards. Id. at 455, 301 A.3d at 113-14. Maryland’s current public policy supports spouses transferring marital assets on the condition of adultery, permitting the Agreement’s lump sum provision. Id. at 456, A.3d at 114. Furthermore, the court held that the seven-million-dollar transfer was made in good faith because Lloyd, even with legal representation present, proposed and agreed to the two million dollar increase and had the assets to satisfy the provision. Id. at 458-59, 301 A.3d at 115-16. Based on these principles, the court upheld the seven-million-dollar lump sum provision. Id. at 457, 301 A.3d at 114-15.

In Lloyd, the Supreme Court of Maryland concluded that postnuptial agreements with a lump sum provision conditioned on a spouse’s adultery are enforceable upon divorce. The court further clarified that penalties in a postnuptial agreement differ from those in a traditional contract. Practitioners should advise their clients that such provisions are valid in a postnuptial agreement, either to their advantage or disadvantage. However, Maryland recently changed its divorce laws to no-fault grounds.[1] With no-fault grounds, Maryland may find itself in a similar situation as its sister states that held penalty provisions contrary to its laws. Practitioners and judges should be mindful of the law change and how this can affect the Lloyd decision. At the same time, Maryland courts and lawmakers should clarify whether Maryland’s new public policy still supports the Lloyd decision.

[1] On May 16, 2023, the 2023 Regular Session of the General Assembly approved a statutory amendment that repealed the fault-grounds in Maryland’s divorce laws, replacing it with no-fault grounds. The amendment took effect on October 1, 2023. See Md. Code. Ann., Fam. Law § 7-103 (West 2023).

Evagevelly (Eva) Posadas is a third-year student at the University of Baltimore School of Law and an associate editor for Law Forum. She received her bachelor’s degree in Law and American Civilization from Towson University. Eva has experience in family law and immigration law, having interned at multiple family law firms and served as a student attorney at the school’s Immigrant Rights Clinic. She is also the secretary for the school’s Latin American Law Student Association. After graduation, she will clerk for the Honorable Mary Kramer in the Circuit Court of Howard County.