Are penalties for not refinancing a marital home valid?

A recent first district court of appeal case dealt with penalty provisions in marital settlement agreements. In Palmer v. Palmer, the parties agreed that the husband would have sole ownership of the marital home and that he would refinance the mortgage on the home within 90 days. The husband failed to do so and the wife moved to have him held in contempt. Before the hearing on contempt, the parties reached a separate agreement that stated “if the former husband does not have the former wife removed from liability on the HELOC on or before June 7, 2010, he agrees to pay a penalty in the amount of $1,500.00 per week, or $214.28 per day.” Unfortunately the Husband was unable to refinance and ultimately paid off the entire amount of the loan. But, in the mean time, 140 days had passed from the June 7, 2010 deadline. The trial court ultimately gave the wife a money judgment against the husband in the amount of $29,999.20 for the daily penalty.

In general, Florida family law has a long standing policy that such agreements imposing penalties is invalid. While Florida divorce law allows the imposition of liquidated damages as a remedy for breaching an agreement, it is not lawful to compel the payment of penalties for having done so. However, strangely enough, the appellate court upheld the agreement. The court reasoned that the Husband did not challenge the agreement when it was incorporated in a final judgment. In Florida, it is a general principle that a collateral challenge to the terms of a final judgment is not permitted. The courts have a strong public policy of ensuring finality of judicial proceedings. The Wife argued that if the husband really felt the terms of the agreement were such a bad deal, he should not have entered into them and at the very least should have sought to appeal the final judgment that incorporated the terms. The appellate court upheld the money judgment against the husband even though the agreement was clearly void. This ruling is a harsh reminder that it is in your best interest to hire an expert family law attorney to help negotiate your case to ensure that your best interests are always first and foremost.

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