Legal: Confidentiality Clauses in Divorce: Are They the Prenups of the Future?
Famous former Beatle Sir Paul McCartney is fighting for one in his high-profile divorce; pro golfer Greg Norman is embroiled in a battle with his ex over violating one in their divorce settlement; and, oddly, rock idol Mick Jagger never did have one with former model Gerry Hall. And now she is telling all in a new book about their life together – the good, bad and ugly.
It is a confidentiality clause, and while it has been very common in the business world of mergers and acquisitions, in the land of matrimonial law, it is almost the exclusive property of the very rich and famous. “In my years of matrimonial law, I have never heard of or used a confidentiality clause in a divorce settlement,” said Joseph Trotti, 49, a practicing matrimonial lawyer of 26 years whose practice, Capell Vishnick LLP, is located in Lake Success, N.Y.
It’s used quite often in business agreements where there are obvious reasons why things like trade secrets need to be protected under a confidentiality clause. “I don’t understand them in divorce cases. After all, with matrimonial cases, unlike any other litigated cases, there is a already a level of confidentiality built in. Namely, only the parties or the attorneys can access the files in court. Divorce settlements are not public documents so there is a protection from the public eye already there.”
But apparently that level of confidentiality isn’t enough when you’re talking about many millions of dollars or tainting your celebrity status or good name on the front page of tabloids. “Confidentiality clauses are a must for certain high profile and or high income earners in order to protect their privacy lest it impact the ex-spouse’s professional life,” explained Manhattan-based matrimonial lawyer Dawn Cardi, 56, who handles the type of high-end divorces that implement such clauses.
In a nutshell, the clause prohibits either divorced spouse from talking about the divorce with anyone. Not mom, a best friend, and certainly not the media. Signing a confidentiality clause means that neither party will disclose anything to anyone about the terms of their divorce, unless it is court ordered, without permission from the other party, that is, parties outside those who are on a need to know basis such as their lawyers and accountants.
Cloaking the financial status of one of the main reasons for the use of a clause. That’s not surprising. “In general, most people don’t want others to know how much they are worth,” she said. For instance, you don’t want your first wife to know what the next wife got. And you don’t want her coming in and asking for more child support for previous children once she knows that. A confidentiality clause would not allow anyone to discuss net worth or the details of a person’s finances.”
“While finances play a big role in the decision of one party to push for a confidentiality clause, there are other reasons as well. Moral behavior and terptitude also come into play,” she said, noting that affairs or scurrilous behavior by a high profile individual can often be part of the confidentiality clause.
“The clause could also cover fraud, or issues regarding improper business practices. Things and past actions that can hurt people and their reputations, also their children, “ she said, adding that many times spouses know a lot about each other’s dirty laundry, and a clause in the decree can assure that those details remain unaired.
While celebrity and billionaires might consider confidentiality clauses part-and-parcel of their divorce battle paperwork, your average middle-to-upper income, soon-to-be-divorced couple, whom the majority of attorneys like Trotti represent, don’t. “I never had that experience in matrimonial cases. I don’t know if it makes any sense. There would have to be a remedy if the confidentiality clause is breached,” he said.
And there is. Standard confidentiality clauses also have built in punitive damages, according to Cardi. “If you violate it, you have to pay X amount of dollars. It’s a liquidated damages clause. Whatever the violation is, the person is always entitled to sue for damages. A solid confidentiality clause will stipulate exactly what is covered,” she said.
“The problem I have with that is that the party in good faith may not say anything, but there are other parties that were involved who might. And something could get leaked out. Then you wind up in a series of other lawsuits. I see it being a nightmare and the possibility of further litigation. It would be hard to enforce,” said Trotti.
But as Cardi explained, the enforcement is often the threat of possible litigation itself. Plus, the signee often is rewarded with some monetary incentive. There is a financial kicker for signing a confidentiality clause. Definitely. “The party will get more money as a sweetener,” she said.
To some, however, the money just makes it worse.”You are being paid off under the premise that ‘I don’t want the world knowing our business.’ But the truth is that your spouse just wants to hide something. Why are you going along with protecting his bad behavior?” says Bonnie Russell, who operates the website
www.FamilyLawCourts.com, a type of watchdog Web site for the family court system.
Russell is also the founder of www.1st-pick.com, a Del Mar, Calif.-based public relations and referral firm for attorneys, physicians and Realtors. “Anyone asking you to sign a confidentiality clause has something to hide. That’s the bottom line of a confidentiality clause. Bad behavior or sliding money around and the injured party is prohibited from talking about it. How is that different than a gag order?”
“It is different from a gag order, even though the effect is tantamount to the same thing: silencing both parties. A gag order is issued by the judge and is basically an order preventing the parties or attorneys from speaking to the media,” said Trotti. “Confidentiality agreements are crafted between the parties about what they can or cannot speak about to anyone else outside those with privilege.”
“A file can also be sealed, which is also a directive from the court, is done so that no one at all can look into it. This is most common in criminal cases and those involving juveniles. Cases can only be sealed or unsealed by the court. And you never hear that of a divorce file being sealed,” he said.
“While confidentiality clauses in divorce contracts are now standard procedure for certain high-end, high-profile divorces, even the lawyers who negotiate them understand that it boils down to one thing. Control. I personally find it very controlling, but if my client is in a position to sign one, I make sure it’s as specific and as narrow as possible. That’s the key. Broad confidentiality clauses are open to broad interpretation and can leave your client vulnerable,” said Cardi.
“Broad or narrow, paid for or not, some people just aren’t convinced that confidentiality clauses are in the best interest of both parties. They make no sense to at all. If you stipulate to them, you can be bludgeoned and find yourself back in court. What are you trying to keep confidential? People know when other people are wealthy. To me this just is once again a case of the golden rule: he who has the gold makes the rules.”
