Giving Up Your Right to Litigate in Court: Arbitration Clauses in Property Settlement Agreements

In the matter of Natoli v. Natoli the New Jersey Appellate Division upheld a Property Settlement Agreement (“PSA”) that contained a mandatory arbitration clause.  The PSA, among other things, contained an arbitration clause whereby the parties had agreed to binding arbitration for any disputes regarding personal property that had not already been mutually distributed. The appellate panel found that the PSA and arbitration clause clearly declared that the parties had agreed to arbitrate extant personal property disputes and, therefore, waived any right to a judicial determination of those disputes. All that remained for the parties was their limited right to challenge the arbitrator's determinations, which defendant waived by filing a motion that sought enforcement of certain portions of the arbitration award.

The inclusion of an arbitration clause in a PSA is not unusual.  By the time parties resolve their divorce proceeding and a PSA is entered, clients are often tired of going to court and like the idea of going to arbitration or mediation in lieu of court for disagreements that may arise after the divorce.  Parties have to be aware, however, that if they give up their right to judicial intervention in the future and agree to a mandatory mediation or arbitration clause, they will be bound by that decision and will be unable to reverse the decision, except in specific circumstances.   An arbitration clause in a PSA can afford the parties a quick resolution to any future disagreements, but the implications can be far reaching and must be contemplated when the PSA is entered.