Posted on September 30, 2023

Liquidated Damages In An Illinois Divorce

People who get divorced both know each other and hate each other. The clever soon-to-be divorcee will enjoy putting a clause in their Marital Settlement Agreement which they know their soon-to-be former spouse cannot resist triggering. These clauses usually trigger some kind of payout from the triggering spouse to the clever spouse who included the clause. Such awards known as “liquidated damages” in the world of contract law and must, therefore, observe the rules surrounding liquidated damages when applied in an Illinois divorce.

In Illinois divorce agreements are enforceable contracts. However, individual clauses of an agreement may be invalidated under certain circumstances. Liquidated damages clauses are usually invalid if they are part of an Illinois divorce agreement.

Divorce Agreements Are Enforceable Contracts

Signing a Judgment for Dissolution, a Marital Settlement, an Allocation of Parenting Time and Parental Responsibilities, an agreed order or any signed document between two divorcing or divorce parties is an enforceable contract.

“To promote amicable settlement of disputes between parties to a marriage attendant upon the dissolution of their marriage, the parties may enter into an agreement containing provisions for disposition of any property owned by either of them, maintenance of either of them, support, parental responsibility allocation of their children, and support of their children” 750 ILCS 5/502(a)

“It is well settled in Illinois that the law favors the amicable settlement of property rights in cases of marital dissolution.” In re Marriage of Lorton, 203 Ill. App. 3d 823, 825 (Ill. App. Ct. 1990)

Most people understand that signing a piece of paper is binding. When a particular clause of a contract is considered months or years later, one party might think “this one aspect of the contract does not seem fair now under the circumstances…so I do not want to follow it.”

All the provisions of a contract are deemed valid initially.

When considering the enforceability of a contractual provision, an Illinois divorce court should start with the premise that “[t]he law and the public policy of Illinois permit and require that competent parties be free to contract with one another.” Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 549 (1997).

If one party is not satisfied with the agreement after entering into said agreement, an Illinois court “will not rewrite a contract to suit one of the parties, but will enforce the terms as written.” Wright v. Chicago Title Insurance Co., 196 Ill. App. 3d 920, 925 (1990).

Parties to a contract may agree to any terms they choose, so long as those terms are not contrary to some positive rule of law or “manifestly injurious” to the public welfare. County of Jackson v. Mediacom Illinois, LLC, 2012 IL App (5th) 110350, ¶ 11.

While not void for public policy, liquidated damages are often deemed invalid in an Illinois divorce agreement for other reasons.

Liquidated Damages In An Illinois Divorce

When someone violates an agreement, something must happen to make the other party whole. Usually, the determination of what the non-violating party is owed depends on an analysis of what they lost because of the violation.

Calculations in a world of “could have been” are inherently unreliable and the will be determined based on opinions and arguments…from expensive lawyers.

In lieu of determining the amount owed for a contract violation, the parties can just determine the penalty in advance by specifying “liquidated damages.”

“A liquidated damages clause is the agreement of the parties as to the amount of damages which must be paid in the event of default.” Northern Illinois Gas Co. v. Energy Cooperative, Inc., 122 Ill. App. 3d 940, 947 (1984)

Just because the clause is not specified as “liquidated damages” does not mean that a court will not interpret the clause as such. “A court [typically] looks to the substance, not the form, of an order to determine [its nature].” Skolnick v. Altheimer & Gray, 730 NE 2d 4 – Ill: Supreme Court 2000

Illinois courts will uphold the validity and enforceability of a liquidated damages provision when “(1) the parties intended to agree in advance to the settlement of damages that might arise from the breach; (2) the amount of liquidated damages was reasonable at the time of contracting, bearing some relation to the damages which might be sustained; and (3) actual damages would be uncertain in amount and difficult to prove.” Jameson Realty Group v. Kostiner, 351 Ill. App. 3d 416, 423 (2004) (Internal quotation marks omitted.)

A divorce agreement with a liquidated damages clause is likely to easily satisfy the 1st prong, the 2nd and 3rd prong of the Jameson test require some evidence that the parties at least thought about what the reasonable consequences of breach would be.

In a divorce, a liquidated damages clause will rarely be an efficient compromise for a possible future breach of an agreement. In an divorce, a liquidated damages clause will almost always be a potential threat to assure a certain behavior.

Some examples of liquidated damages in an Illinois divorce would be: “If you do not sell the house by January 1st, I will be awarded the entire house on January 2nd” or “If the child is not dropped off at noon each Saturday, an additional $ 500 will be owed in support.”

The point of liquid damages is to avoid future conflict NOT to make future conflict scarier.

“A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.” Penske Truck Leasing Co., 311 Ill. App. 3d at 454 (quoting Restatement (Second) of Contracts § 356 (1979)).

“It is a general rule of contract law that, for reasons of public policy, a liquidated damages clause that operates as a penalty for nonperformance or as a threat to secure performance will not be enforced.” Jameson Realty Group v. Kostiner, 351 Ill. App. 3d 416, 423 (2004)

If an Illinois court cannot determine whether a liquidated damages clause is a penalty or not, that Illinois court will just presume it is an unenforceable penalty.

“In doubtful cases, we are inclined to construe the stipulated sum as a penalty.” GK Development, Inc. v. Iowa Malls Financing Corp., 2013 IL App (1st) 112802

“The purpose of damages is to place the nonbreaching party in a position that he or she would have been in had the contract been performed, not to provide the nonbreaching party with a windfall recovery.” Jones v. Hryn Development, Inc., 334 Ill. App. 3d 413, 418 (2002).

Furthermore, virtually any clause that can be seen as liquidated damages clause is unenforceable under the Illinois Marriage and Dissolution of Marriage Act (which governs all Illinois divorces).

“The dissolution of marriage is entirely statutory in origin and nature. Courts in dissolution cases may exercise their powers within the limits of the jurisdiction conferred by the statute, and this jurisdiction depends on the grant of the statute. When a trial court presides over matters relating to the dissolution of marriage, it must act in accordance with the authority vested in it by the applicable provisions of the Illinois Marriage and Dissolution of Marriage Act. When a trial court in a dissolution of marriage proceeding enters an order that it lacks the inherent power to make under the Marriage Act, its order is void and may be collaterally attacked at any time. However, a trial court’s order in a dissolution proceeding is voidable when the trial court has the authority to enter an order but makes an error “`in determining either the facts, the law or both…Because [an Illinois divorce]…court…lack[s] authority to impose a security to guarantee [some behavior] the traditional rule governing void and voidable judgments…indicates that the entirety of the liquidated damages portion of the judgment of dissolution is void.” In re Roe, 817 NE 2d 544 – Ill: Appellate Court, 2nd Dist. 2004

Enforcing An Illinois Divorce Agreement Without A Liquidated Damages Clause

A liquidated damages clause would never have been considered unless it was presumed that a party would eventually violate the agreement.

The invalidity of liquidated damages clauses does not mean that divorce agreements can be broken without penalty.

Most agreements in an Illinois divorce are also court orders. Courts can enforce their orders by holding the violator in contempt of court. There is nothing to prove, you just allege that the order has not been followed.

“In a civil context, noncompliance with a court order is prima facie evidence of contempt.” In re Estate of Baldassarre, 2018 IL App (2d) 170996

“Courts must be independently vested with power to impose silence, respect, and decorum in their presence and submission to their lawful mandates. Courts have thus embraced an inherent contempt authority as a necessity to ensure they can enforce their other powers.” Door Properties, LLC v. Nahlawi, 2023 IL App (1st) 230012

Illinois divorce judges can enforce an order or agreement almost any way they want…including ordering the offending party to be jailed.

“[C]ivil contempt proceedings leave the offended judge solely responsible for identifying, prosecuting, adjudicating, and sanctioning the contumacious conduct.” Mine Workers v. Bagwell, 512 U.S. 821, 831 (1994)

The threat of jail only goes so far. Compliance with the original terms of the agreement guarantees automatic release from jail.

“Whether for direct or indirect civil contempt, the order must specify what the contemnor is required to do, so that by compliance contemnor can purge himself of contempt and be discharged from jail.” Pancotto v. Mayes, 304 Ill. App. 3d 108, 112, 709 N.E.2d 287, 290 (1999)

Order and agreement violators “are imprisoned only until they comply with the orders of the court, and this they may do at any time. They carry the keys of their prison in their own pockets.” In re Nevitt, 117 F. 448, 460 (8th Cir. 1902)

So, Illinois courts can guarantee compliance…but not punishment. Perhaps the most punitive action divorce enforcement action is the requirement that the court to award the non-violating party attorney’s fees.

“In every proceeding for the enforcement of an order or judgment when the court finds that the failure to comply with the order or judgment was without compelling cause or justification, the court shall order the party against whom the proceeding is brought to pay promptly the costs and reasonable attorney’s fees of the prevailing party.” 750 ILCS 508(b).

A divorce lawyer must know how to write a contract that cannot be challenged in court and invalidate a contract that includes voidable language such as liquidated damages. If you would like a free consultation with an Illinois divorce lawyer who knows how to do both, contact my Chicago Illinois family law firm today.

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Russell Knight

Russell D. Knight has been practicing family law as a Chicago divorce lawyer since 2006. Russell D. Knight amicably resolves tough cases while remaining a strong advocate for his client’s interests.

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