Lloyd v. Niceta

Thomas L. Lloyd v. Anna Cristina Niceta, No. 33, September Term, 2022. Opinion by Hotten, J. FAMILY LAW – POSTNUPTIAL AGREEMENTS – LIQUIDATED DAMAGES CLAUSES – The Supreme Court of Maryland held that a liquidated damages framework did not apply to postnuptial agreements and was inappropriate for evaluating a $7 million lump sum provision that, as applied in this case, triggered if the husband engaged in adultery. In non-marital contracts, liquidated damages operate as “a sum that will compensate the nonbreacher . . . in lieu of the compensatory contract damage[s] to which the nonbreacher would otherwise be entitled[.]” Barrie Sch. v. Patch, 401 Md. 497, 513 , 933 A.2d 382 , 392 (2007) (cleaned up). In divorce proceedings, parties are not entitled to compensatory damages.

Instead, the primary monetary sums available to aggrieved spouses are alimony, child support, and a division of marital property, including a potential monetary award, attendant to divorce. See Md. Code Ann., Family Law (“Fam. Law”) §§ 1-201(b)(2), (4), (9), 8-205(a)(1). None of those monetary sums serve as compensatory damages for which liquidated damages may substitute.

Additionally, liquidated damages cannot serve as a substitute for non-monetary relief, such as annulment, divorce, custody, or visitation. See Fam. Law § 1-201(b)(3)–(6). Marital agreements may alter the outcome of divorce, but this Court has never held that provisions in a marital agreement may substitute for the statutory remedy of divorce.

See Nouri v. Dadgar, 245 Md. App. 324, 359 , 226 A.3d 797, 818 (2020). FAMILY LAW – POSTNUPTIAL AGREEMENTS – PUBLIC POLICY – ADULTERY – The Supreme Court of Maryland held that the public policy in Maryland currently supports provisions in postnuptial agreements that distribute marital assets upon divorce when a spouse engages in adultery. The jurisdictions that have rejected adultery penalties or transfers of marital assets based on adultery have done so because those provisions violate no-fault divorce laws. See, e.g., Diosdado v. Diosdado, 118 Cal.

Rptr. 2d 494, 496 (2002) (rejecting an adultery penalty because it contravenes California’s public policy of no-fault divorce); In re Marriage of Cooper, 769 N.W.2d 582, 587 (Iowa 2009) (rejecting allocation of marital assets based on adultery in Iowa); Crofford v. Adachi, 150 Haw. 518, 526 , 506 P.3d 182, 190 (2022) (rejecting allocation of marital assets based on adultery in Hawai’i). Those decisions are not persuasive regarding the public policy in Maryland because this State: (1) currently permits divorce based on fault, including adultery; and (2) requires courts to consider “the circumstances that contributed to the estrangement of the parties[,]” such as adultery, when issuing a monetary award following divorce. Fam. Law §§ 7-103(a)(1), 8-205(b)(4); Ohm v. Ohm, 49 Md. App. 392, 410 , 431 A.2d 1371, 1381 (1981).

These statutes establish that Maryland’s public policy disfavors adultery. That public policy supports spouses transferring marital assets based on adultery when it causes the dissolution of a marriage. FAMILY LAW – POSTNUPTIAL AGREEMENTS – ALLOCATION OF MARITAL ASSETS UPON DIVORCE BASED ON ADULTERY – The Supreme Court of Maryland upheld the enforceability of a provision in a postnuptial agreement that, as applied in this case, required the husband to transfer to his wife $7 million up to the value of his share of specified marital assets if the parties divorced after he engaged in adultery. Fam.

Law § 7-103(a)(1) permits spouses to file for divorce on the grounds of adultery, which supports provisions that distribute assets based on that conduct. The lump sum provision did not restrict Petitioner’s ability to foster his platonic relationships. The provision would not trigger based on Respondent’s mere suspicions because she was required to establish “by a preponderance of the evidence” that Petitioner had engaged in adultery. Petitioner alone controlled whether the provision would trigger.

The provision only applied to Petitioner’s 50% share of specified marital assets, which prevented Respondent from pursuing Petitioner’s non-marital assets in the event his 50% share fell below $7 million. Circuit Court for Montgomery County Case No.: 165376FL Argued: June 1, 2023 IN THE SUPREME COURT OF MARYLAND* No. 33 September Term, 2022 THOMAS L. LLOYD v. ANNA CRISTINA NICETA Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves, JJ. Opinion by Hotten, J. Pursuant to the Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Filed: August 30, 2023 2023-08-30 16:04-04:00 Gregory Hilton, Clerk * During the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Appeals of Maryland to the Supreme Court of Maryland.

The name change took effect on December 14, 2022. A foundation of many marriages is the vow that spouses will, for better or for worse, remain faithful to one another. We hold that Maryland law allows spouses to allocate marital assets in a postnuptial agreement based on whether a spouse engaged in adultery, thereby causing the breakdown of the marriage. On October 23, 2019, Anna Cristina Niceta (“Respondent”) filed a Complaint for Absolute Divorce in the Circuit Court for Montgomery County against Thomas L. Lloyd (“Petitioner”) on the grounds of adultery.

Respondent requested that the circuit court incorporate the parties’ postnuptial agreement (“Agreement”) into the divorce decree, which included a $7 million lump sum provision that would trigger if Petitioner engaged in adultery and related acts. Petitioner filed a countercomplaint, seeking, in relevant part, to rescind the Agreement based on public policy and unconscionability. The circuit court determined that the lump sum provision was an enforceable penalty. On October 8, 2021, the circuit court issued a Judgment of Absolute Divorce, which incorporated, but did not merge, the Agreement.

Both parties timely appealed to the Appellate Court of Maryland.1 Lloyd v. Niceta, 255 Md. App. 663 , 671, 284 A.3d 808 , 813 (2022). The Appellate Court affirmed the circuit court’s decision and remanded for further proceedings on issues not before this Court. Id., 284 A.3d at 813. Petitioner timely sought review in this Court. 1 During the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Special Appeals of Maryland to the Appellate Court of Maryland.

The name change took effect on December 14, 2022. We granted certiorari to address the following questions, which we have rephrased for the sake of clarity:2 1. May spouses include a provision in a postnuptial agreement that distributes marital assets upon divorce based on adultery? 2. Is a lump sum provision valid and enforceable when it required a husband to transfer to his wife $7 million, up to the value of his 50% share of specified marital assets, if he committed adultery?

We conclude that the answer to both questions is “yes” and affirm the Appellate Court of Maryland. We explain below. FACTUAL AND PROCEDURAL BACKGROUND I. Underlying Factual Background. Petitioner and Respondent were married on March 25, 2006 in the District of Columbia.

Both parties have college degrees. Respondent was employed as an event planner and served as the White House Social Secretary between February 2017 and January 2021, earning between $130,000 and $200,000 per year. Petitioner was a wealth manager who earned between $70,000 and $122,000 per year. Petitioner has a wealthy 2 The original questions presented in the Petition for Writ of Certiorari were: 1.

Are penalties in postnuptial contracts void, just as penalties in all other contracts are void? 2. If there is no blanket ban on penalties in postnuptial contracts, is the penalty in the parties’ contract void? Elsberry v. Stanley Martin Companies, LLC, 482 Md. 159 , 165 n.1, 286 A.3d 1 , 4 n.1 (2022) (“This Court has discretion to rephrase questions presented.” (citation omitted)). 2 family, including his paternal grandmother, Rachel Mellon, who left him a substantial inheritance after she passed away in March 2014.3 On June 2, 2014, Respondent discovered that Petitioner was involved in an extramarital affair. The parties separated.

Although Respondent was “uncertain if she wanted to remain in the marriage[,]” the parties worked toward “build[ing] trust” and ascertaining the reason for Petitioner’s infidelity. The parties consulted a priest and a therapist beginning in the late summer. Upon Respondent’s request, Petitioner: (1) provided her with the passwords to his financial and email accounts; (2) transferred a portion of his inheritance into an account held with Respondent as tenants by the entirety; (3) converted to Catholicism; (4) sold the car he had used with his affair partner; and (5) underwent a vasectomy. During the autumn of 2014, Respondent introduced the idea of a postnuptial agreement to Petitioner.

Thereafter, the parties each retained two attorneys to prepare the Agreement. Petitioner retained Deborah Cochran, Esq., an estate law attorney, and Julie Day, Esq., a family law attorney. Respondent retained Alison Noll, Esq., an estate law attorney, and Ann Luu, Esq., a family law attorney. In April 2015, Respondent forwarded a draft of the Agreement to Petitioner.

The Agreement contained, in relevant part, a lump sum clause that would require Petitioner to pay Respondent a sum of $5 million if he engaged in adultery and related acts. On June 16, 2015 and July 16, 2015, the parties and their attorneys reviewed the draft “line by 3 Petitioner received his inheritance in two installments. He received the first installment of $5.3 million upon Ms. Mellon’s death. Petitioner received the second installment of $5.4 million when he turned forty in May 2016. 3 line[]” during extensive meetings.

Petitioner proposed a $2 million increase to the lump sum provision to demonstrate “his good faith toward” Respondent and because he anticipated that he would inherit approximately $12 million from his father’s estate. Respondent agreed to the change, and the parties signed the finalized Agreement on September 18, 2015. The lump sum provision provides, in relevant part: 10. LUMP SUM MONETARY AWARD.

A. This provision shall only be effective only in the limited situation that any one of the following conditions are satisfied: (i) If Husband is found by a preponderance of the evidence to have committed adultery, buggery or sodomy with any person; * * * (iii) If Husband is found by a preponderance of the evidence to have engaged in any Inappropriate and/or Immoral Conduct of the following with any other person, including, but not limited to: inappropriate emails; sexting; sending pornographic pictures of himself to the other person; receiving pornographic pictures of the other person; romantically kissing, hugging, fondling, or embracing another person; keeping secret email, cell phone or credit card accounts; or engaging in sexual acts with another person even if it does not lead to intercourse. B. If Wife proves by a preponderance of the evidence that Husband has engaged in any of the conduct as set forth above in subparagraph 10.A, Husband shall make a tax-free transfer to Wife of SEVEN MILLION AND 00/100 DOLLARS ($7,000,000.00) within ninety (90) days of such findings. If the parties remained married, said transfer shall be a permanent gift between husband and wife; if the parties divorce, this transfer shall constitute a lump sum monetary award not subject to taxation under the terms of the Internal Revenue Code. The transfer shall be made from Husband’s 50% share of the Column B Assets. 4 The Agreement included a chart listing Column A Assets, which were assets in accounts that only Petitioner owned, and Column B Assets, which were assets in accounts owned jointly by the parties.

Under the Agreement, Petitioner agreed to transfer certain assets that had been Column A Assets to become Column B Assets, converting them from Petitioner’s sole property into marital property. Column B Assets included “separate funds” that Petitioner received from: (1) both installments of his inheritance from Ms. Mellon; and (2) “all [other] liquid assets [that Petitioner] inherit[ed] during the marriage[.]” Per the Agreement, Petitioner would deposit those liquid assets into a specified account or, if that account no longer existed, “into another brokerage account titled in the names of both parties as tenants by the entirety with the common law rights of survivorship.” Once deposited, the funds, “including all investments or reinvestments of, subsequent accounts, increases in value and income and proceeds from such assets[,]” would be “treated as marital property . . . for as long as the parties [were] married.” Pursuant to the distribution scheme under Paragraphs 4(C) and 5(A)(i) of the Agreement, the parties would “equally divide” the Column B assets upon divorce.4 4 Paragraph 4(C) requires the parties to “equally divide all assets” pertaining to Petitioner’s inheritance from his grandmother “within sixty (60) days from the date of entry of the Final Order of Divorce. Thereafter, each party waive[d] any and all rights they may have, had or may have in the future to the assets so transferred, except as provided [in the Agreement].” Paragraph 5(A)(i) provides the same distribution procedures regarding “all liquid assets [that Petitioner] inherit[ed] during the marriage” other than the assets listed in Paragraph 4(C). 5 After the parties entered into the Agreement, Petitioner engaged in another extramarital affair in October 2018. The parties separated on April 14, 2019, after Petitioner advised Respondent that he no longer wished to remain married to her.

II

Proceeding in the Circuit Court for Montgomery County. On October 23, 2019, Respondent filed a Complaint for Absolute Divorce in the Circuit Court for Montgomery County on the grounds of adultery. She requested that the circuit court incorporate the Agreement into the divorce decree and enforce, among other things, the lump sum provision. Petitioner filed an Answer and Counterclaim, arguing that the Agreement was void because it was unconscionable and against public policy.

Petitioner also asserted that the lump sum provision constituted an unenforceable penalty because it was an excessive liquidated damages clause. The circuit court held several merits hearings between November 23, 2020 and December 9, 2020, where witnesses testified regarding the lump sum provision. Respondent testified that she “did not calculate” the initial $5 million provision. She further testified that the Agreement memorialized Petitioner’s promise to remain faithful and that its terms “put [Petitioner’s] money where [his] mouth [was].” Respondent asserted that she accepted the $2 million increase to the provision because Petitioner had proposed it.5 Anthony Joseph Delvecchio, Petitioner’s friend, described the lump sum provision as 5 Petitioner testified that Respondent coerced him into proposing the $2 million increase to the lump sum provision because “she believed that $5 million was insufficient[.]” Petitioner claimed that Respondent intended for the provision to leave him “broke” if he “ever cheated on her again[.]” In Petitioner’s view, Respondent “didn’t want to propose [the increase] herself because she wanted it to come from [him] as a way of showing good faith and . . . it would reflect better on the situation if it” did not come from 6 “a bad boy clause[.]” In an email to Petitioner, Ms. Day also described the lump sum clause as “the bad boy clause.” Ms. Day testified that she had advised Petitioner against agreeing to the lump sum provision.

In Ms. Day’s view, the lump sum provision “was intended to . . . be prohibitive so that [Petitioner] would not engage in those behaviors again, because he would know there was $5 million out there.” Ms. Day further testified that Petitioner wished to increase the provision to $7 million to “make it that much more clear that he really wouldn’t engage in those behaviors again,” and “as a showing of good faith[.]” Ms. Day referred to the lump sum provision as a “penalty” during negotiations “because that’s what it looked like to [her] at that point.” She asserted, however, that the term “penalty” “was not a legal term of art.” On January 15, 2021, the circuit court determined that the lump sum provision constituted a penalty,6 but was enforceable. The circuit court relied on McGeehan v. McGeehan, 455 Md. 268, 298 , 167 A.3d 579 , 596–97 (2017) (citation omitted), where this Court noted that “many postnuptial agreements attempt to use financial rewards and penalties to create incentives during a marriage that constrain the behavior of both spouses.” In the circuit court’s view, McGeehan stood for the proposition that spouses may include adultery penalties in postnuptial agreements. The circuit court observed that the jurisdictions that have rejected adultery penalties have held that those provisions her. The circuit court rejected these assertions and found that Petitioner entered the Agreement free of duress, undue influence, or coercion. 6 Although the parties disputed whether the lump sum provision constituted a penalty under a liquidated damages framework, the circuit court did not mention liquidated damages during its oral ruling or in its written orders. 7 undermine no-fault divorce laws in those states.7 The circuit court found those cases unpersuasive because “Maryland remains a fault-based state[.]” The circuit court determined that, although “the decision to agree to the $7 million penalty may have been improvident,” the penalty was not unconscionable.

The circuit court noted that the lump sum provision would likely be unconscionable if an individual “with a net worth of $50,000, earning $40,000 per year[]” had agreed to the provision. The circuit court explained that this “is not the situation here[,]” because the Petitioner had retained approximately $5.3 million in assets pursuant to the Agreement and anticipated a $12 million inheritance from his father’s estate when the parties had entered the Agreement. The circuit court concluded that Petitioner “took on the risk that he would not receive the inheritance from his father’s estate, and the risk that he would not commit adultery in the future.” The circuit court memorialized its ruling in an order dated February 11, 2021. The circuit court issued a Judgment of Absolute Divorce on October 8, 2021, which incorporated, but did not merge, the Agreement.

Both parties timely appealed to the Appellate Court of Maryland. Lloyd, 255 Md. App. at 671, 284 A.3d at 813.

III

Proceeding in the Appellate Court of Maryland. The Appellate Court of Maryland affirmed the circuit court’s decision and remanded for further proceedings regarding child support.8 Id., 284 A.3d at 813. Petitioner argued, 7 The circuit court considered decisions from California and Iowa, but did not identify specific cases in its oral ruling. 8 In her cross-appeal, Respondent argued that the circuit court erred because it declined to address the issue of child support. Lloyd, 255 Md. App. at 700, 284 A.3d at 8 in relevant part,9 that the lump sum provision violated public policy and constituted an unenforceable penalty.

Id. at 696, 284 A.3d at 828. Petitioner reasoned that the lump sum provision was a punitive liquidated damages clause and was “disproportionate to any damages that might have resulted from a breach.” Id., 284 A.3d at 828. Petitioner claimed that the lump sum provision was unconscionable “because he could not pay the $7 million at the time the Agreement was entered into and because the provision created an environment of fear and coercion in the marriage.” Id. at 699, 284 A.3d at 829. Respondent “disagree[d] that the lump sum provision constitute[d] liquidated damages because it was not intended to compensate her for damages she would sustain for breach of the Agreement.” Id. at 696, 284 A.3d at 828.

Respondent, however, conceded that the provision was a penalty and argued that such provisions were permissible in postnuptial agreements “to discourage certain behaviors . . . that may damage the marital relationship.” Id. at 696–97, 284 A.3d at 828. The Appellate Court held that penalty provisions are permissible in postnuptial agreements because such agreements are designed to discourage and penalize conduct that would undermine a marriage, such as adultery. Id. at 698, 284 A.3d at 829. The Appellate Court found McGeehan instructive, particularly this Court’s explanation that “many 830.

The Appellate Court agreed and remanded for further proceedings on that issue. Id. at 701, 284 A.3d at 830–31. That issue is not before this Court. 9 Petitioner also challenged the Agreement’s validity based on lack of consideration, unconscionability, and undue influence grounds. Lloyd, 255 Md. App. at 679, 284 A.3d at 818.

The Appellate Court rejected those arguments. Id. at 682–84, 690, 695–96, 284 A.3d at 820–21, 824, 827–28. Those issues are also not before this Court. 9 postnuptial agreements attempt to use financial rewards and penalties to create incentives during a marriage that constrain the behavior of both spouses.” Id., 284 A.3d at 829 (citation omitted). In the Appellate Court’s view, McGeehan “clearly stated” that “post- nuptial agreements designed to discourage certain behavior[s] are not void as a matter of public policy.” Id., 284 A.3d at 829.

The Appellate Court reasoned that the “public policy prohibition against penalties . . . does not apply with the same rigidity in the context of post-nuptial agreements[,]” because Maryland’s “public policy generally frowns on adultery, and postnuptial agreements by their very nature may be viewed as penalizing[.]” Id., 284 A.3d at 829. The Appellate Court observed that “the Agreement in no way required [Petitioner] to stay married to [Respondent].” Id. at 699, 284 A.3d at 829. The Appellate Court also held that the lump sum provision was not unconscionable because Petitioner “alone was the trigger of the penalty[.]” Id. at 700, 284 A.3d at 830. The Appellate Court agreed with the circuit court’s reasoning that Petitioner accepted the risk that he would not receive an inheritance from his father’s estate and that he would not engage in further adultery.

Id. at 699, 284 A.3d at 830. The Appellate Court observed that, “[w]hile such a provision might create fear, it could . . . create stability and peace in a marriage because the consequences of various actions in a marriage are explicitly spelled out.” Id. at 700, 284 A.3d at 830. Petitioner timely appealed to this Court. We granted certiorari on February 23, 2023.

Lloyd v. Niceta, 482 Md. 733 , 290 A.3d 602 (2023). STANDARD OF REVIEW Where an action has been tried without a jury, this Court “review[s] the case on both the law and the evidence.” Md. Rule 8-131(c). This Court “will not set aside the judgment 10 of the trial court on the evidence unless clearly erroneous, and will give due regard to the opportunity of the trial court to judge the credibility of the witnesses.” Id. This Court reviews de novo a lower court’s interpretation of a contract, as well as its interpretation and application of Maryland statutory and case law.

Clancy v. King, 405 Md. 541 , 556–57, 954 A.2d 1092, 1101 (2008); Mayor & City Council of Balt. v. Thornton Mellon, LLC, 478 Md. 396, 410 , 274 A.3d 1079, 1087 (2022) (citation omitted). PARTIES’ CONTENTIONS I. Petitioner’s Opening Brief. Petitioner argues that penalty provisions contravene the common law rule against “contractual penalties, [which] allow[s] only liquidated damages clauses designed to reasonably approximate actual damages.” Petitioner contends that the General Assembly has not statutorily authorized penalty provisions in marital contracts, which requires this Court to enforce common law principles under Article 5 of the Maryland Declaration of Rights.10 In Petitioner’s view, this Court has never expressly endorsed penalty provisions in marital contracts and this Court’s “passing reference” to penalties in postnuptial agreements in “McGeehan did not authorize” such provisions. Petitioner asserts that “[j]udicial dabbling in coercive penalties in family law is a dangerous idea[,]” because such penalties would exacerbate spousal abuse. 10 Article 5 provides, in relevant part: “That the Inhabitants of Maryland are entitled to the Common Law of England . . . according to the course of that Law, and to the benefit of such of the English statutes as existed on [July 4, 1776.]” Md. Const.

Decl. of Rts. art. 5. 11 II. Respondent’s Brief. Respondent counters that the lump sum provision was not a penalty; rather it was a monetary award that “was intended to deter conduct that . . . was detrimental to the marriage by providing a different distribution of assets in the event [Petitioner] was at fault in the breakdown of the marriage.” Respondent highlights that jurisdictions with fault- based divorce laws, as Maryland is currently, have enforced adultery provisions, while only jurisdictions with no-fault divorce laws have prohibited similar provisions. Respondent contends that Petitioner “attempts to minimize the McGeehan holding by mischaracterizing the cited language as a ‘passing reference[.]’” Respondent claims that Maryland courts should not restrict spouses’ free will to voluntarily enter valid agreements that further the public’s interest in “promot[ing] compromise and marital harmony, [as well as] minimiz[ing] litigation.”11 11 Respondent argues that Petitioner “fails to acknowledge in his Brief [] that the parties were residing in Virginia when the Agreement was negotiated.” Respondent cites Hall v. Hall, No. 2021-04-4, 2005 WL 2493382 (Va.

Ct. App. Oct. 11, 2005), an unreported decision from the Court of Appeals of Virginia, for the proposition that provisions that allocate marital assets based on adultery are enforceable. Petitioner argues that Respondent is barred from relying on a choice of law argument based on an unreported decision from Virginia, which has no precedential value in that jurisdiction. This Court “apprais[es] the persuasive value of unreported opinions from other jurisdictions[]” based on “the value of th[o]se opinions in their local courts.” See MAS Assocs., LLC v. Korotki, 465 Md. 457 , 479 n.11, 214 A.3d 1076 , 1088 n.11 (2019). As Petitioner asserts, unreported decisions in Virginia have no precedential value, and so this Court will not consider Hall in its analysis.

Va. Code Ann. § 17.1-413 (stating that only reported decisions “hav[e] precedential value or . . . significance for the law[.]”). To the extent Respondent’s arguments raise choice of law concerns, they are not before this Court. See Md. Rule 8-131(b)(1) (“[T]he Supreme Court [of Maryland] ordinarily will consider only an issue that has been raised in the petition for certiorari . . . and that has been preserved for review by the Supreme Court.”). 12 III.

Petitioner’s Reply Brief. Petitioner asserts that Respondent’s attempt to reframe the lump sum clause as a “monetary award” falls outside this Court’s scope of review under Md. Rule 8-131(b)(1). Petitioner emphasizes that both lower courts determined that the provision was a penalty and that Respondent conceded that the provision constituted a penalty during her arguments before the Appellate Court. Petitioner maintains that the $7 million penalty exceeds the value of the marital estate, which is the most the circuit court could have awarded under the Marital Property Act, Md. Code Ann., Family Law (“Fam.

Law”) § 8- 205.12 Petitioner contends that, even if McGeehan endorsed penalties in postnuptial agreements, the penalty in this case “constrained only [his] behavior[,]” rather than “the behavior of both spouses.” ANALYSIS I. Postnuptial Agreements in Maryland. A. The meaning of McGeehan’s description of penalties. The parties dispute whether this Court’s description of penalties in McGeehan constitutes binding precedent or dicta. Dicta is “[a] judicial comment made while delivering a judicial opinion, but one that is unnecessary to the decision in the case and therefore not precedential[.]” Dictum, Black’s Law Dictionary (11th ed. 2019).

In 12 Fam. Law § 8-205(a)(1) authorizes the circuit court to, in relevant part, “grant a monetary award . . . as an adjustment of the equities and rights of the parties concerning marital property,” after considering several factors, including “the circumstances that contributed to the estrangement of the parties[,]” Fam. Law § 8-205(b)(4). 13 McGeehan, this Court resolved whether an oral postnuptial agreement excluded certain properties from consideration as marital property under Fam. Law § 8-201(e)(3)(iii).13 455 Md. at 269–70, 167 A.3d at 580 .

This Court stated, without holding, that “many postnuptial agreements attempt to use financial rewards and penalties to create incentives during a marriage that constrain the behavior of both spouses.” Id. at 298 , 167 A.3d at 596–97 (citation omitted). As Petitioner contends, this description constitutes dicta because McGeehan did not involve the validity of penalties in postnuptial agreements. This dicta, however, accurately describes the law in Maryland. We adopt that dicta as holding and clarify it below.

See Kulikov v. Baffoe-Harding, 215 Md. App. 193, 204 , 79 A.3d 995, 1001 (2013) (converting dicta into holding); Judith M. Stinson, Why Dicta Becomes Holding and Why It Matters, 76 Brook. L. Rev. 219 , 262 (2010) (recommending “courts [to] expressly identify when they are relying on dicta and explain why they find it persuasive.”). The term “penalties,” as used in McGeehan, refers to provisions that operate to the detriment of a party, rather than provisions that punish a party for breach of contract under liquidated damages principles. Here, the lump sum provision required Petitioner to transfer $7 million up to the value of his 50% share of specified marital assets.

That provision operated as a “penalty” under McGeehan because it would change Petitioner’s financial position to his detriment if he engaged in adultery, thereby causing the breakdown of the parties’ marriage. 13 “‘[M]arital property’ does not include property . . . excluded by valid agreement[.]” Fam. Law § 8-201(e)(3)(iii). 14 B. Postnuptial agreements generally. Under Maryland law, spouses “may make a valid and enforceable deed or agreement that relates to alimony, support, property rights, or personal rights.” Fam. Law § 8-101(a).

A postnuptial agreement is a type of marital contract “that sets forth the rights, duties and responsibilities of the parties during and upon termination of the marriage through death or divorce.” McGeehan, 455 Md. at 297 , 167 A.3d at 596 (cleaned up). Spouses generally enter a postnuptial agreement “at a time when separation or divorce is not imminent.” Postnuptial Agreement, Black’s Law Dictionary (11th ed. 2019). Postnuptial agreements “encourage the private resolution of family issues[,]” because “they may allow couples to eliminate a source of emotional turmoil––usually, financial uncertainty––and focus instead on resolving other aspects of the marriage that may be problematic.” Bedrick v. Bedrick, 300 Conn. 691, 698 , 17 A.3d 17, 24 (2011). A postnuptial agreement is valid and enforceable, unless the agreement is unconscionable or the byproduct of fraud, duress, mistake, or undue influence.

McGeehan, 455 Md. at 298 , 167 A.3d at 597 (citation omitted). A spouse who challenges the validity of a postnuptial agreement may shift the burden of proof onto the agreement’s proponent by establishing the existence of a confidential relationship. See Blum v. Blum, 59 Md. App. 584, 595 , 477 A.2d 289, 294 (1984) (noting a party challenging a separation agreement bears the burden of establishing a confidential relationship); see also Hale v. Hale, 74 Md. App. 555, 566 , 539 A.2d 247, 252 (1988) (same). Postnuptial agreements allow spouses to alter their default rights under the Family Law Article, subject to the court’s equitable authority.

See Nouri v. Dadgar, 245 Md. App. 324 , 359–60, 226 A.3d 797, 818 (2020) 15 (noting that spouses may enter into a postnuptial agreement that relinquishes their default statutory rights to marital property). Courts evaluating a postnuptial agreement may enforce its terms “by power of contempt” when the provisions “are merged into a divorce decree[,]” or “as an independent contract not superseded by the divorce decree[.]” Fam. Law § 8-105(a)(1)–(2). Absent countervailing equitable considerations, courts will enforce the terms of a marital agreement to the extent they concern spouses and not children.

See Fam. Law § 8-103(a) (“The court may modify any provision of a[n] . . . agreement . . . with respect to the care, custody, education, or support of any minor child of the spouses, if the modification would be in the best interests of the child.”).

II

The Appropriate Framework for the Lump Sum Provision. A. The doctrine of liquidated damages is inapplicable to postnuptial agreements. Petitioner characterizes the lump sum provision as a penalty because, in his view, it is an excessive liquidated damages provision. We reject Petitioner’s interpretation because the principles governing liquidated damages provisions are incongruent with divorce law and, therefore, provide an inadequate framework for evaluating the lump sum provision.

As we explain in the next section, the lump sum provision is better viewed as an allocation of marital assets based on a party’s conduct that led to the estrangement of the parties. See Fam. Law § 8-205(b)(4) (permitting courts to consider “the circumstances that contributed to the estrangement of the parties[]” when fashioning a monetary award following divorce). Liquidated damages provisions, as applied in non-marital contracts, provide for “a specific sum stipulated to and agreed upon by the parties at the time they entered into a 16 contract, to be paid to compensate for injuries in the event of a breach of that contract.” Barrie Sch. v. Patch, 401 Md. 497, 507 , 933 A.2d 382 , 388 (2007) (citation omitted).

A valid liquidated damages clause: (1) must unambiguously provide for a specified sum; (2) must reasonably compensate a party “for the damages anticipated by the breach[;]” and (3) “may not be altered to correspond to actual damages determined after the fact[.]” Bd. of Educ. of Talbot Cnty. v. Heister, 392 Md. 140, 156 , 896 A.2d 342, 352 (2006) (cleaned up). A liquidated damages provision will be construed as a penalty when the parties intend for the sum to punish the breaching party or when the sum is “grossly excessive and out of all proportion to the damages that might reasonably have been expected to result from such breach of the contract.” Patch, 401 Md. at 508 , 933 A.2d at 389 (cleaned up). Contract law rejects penalties because “[t]he central objective behind the system of contract remedies is compensatory, not punitive.” Restatement (Second) of Contracts § 356 cmt.