A no-contest clause (also known as an in terrorem clause) is a provision in a contract, testamentary instrument, settlement agreement or other legal document which states that any party who challenges or attempts to overturn the document’s validity will be penalized. This provision is intended to discourage parties from litigating potentially invalid or fraudulent agreements.
How Does a No-Contest Clause Work?
A no-contest clause typically states that any party who unsuccessfully challenges the validity of a document will be penalized in some way. This penalty can range from the offending party losing out on a portion of the money promised in the document, or having their rights or claims to the estate or other assets diminished in some other way. The specific consequences of a no-contest clause will vary depending on the document in which it’s included.
Examples of No-Contest Clauses
No-contest clauses are common in wills, trusts, prenuptial agreements and other contractual documents. For example, the clause may state that if someone contests the validity of a will and the challenge is unsuccessful, the challenger will not be eligible to receive a portion of the estate’s assets. Similarly, a prenuptial agreement may state that if one spouse attempts to contest the agreement in court and the court upholds the prenuptial agreement, the challenging spouse can no longer receive certain assets as provided by the agreement.
Benefits of a No-Contest Clause
The primary benefit of a no-contest clause is that it discourages frivolous or invalid challenges to the document in question. Since the clause may have serious consequences for anyone who challenges it, it makes it less likely that spurious arguments will be made and that court proceedings will ensue. This also helps to protect the validity of the document and ensure that the intentions of the drafter of the document are respected.
Limitations of a No-Contest Clause
No-contest clauses may not be enforceable in every case—for example, there are instances where a court may find that a no-contest clause is overly burdensome or contrary to public policy and therefore void. Additionally, some jurisdictions have laws that prohibit no-contest clauses from being included in certain types of documents. Therefore, it’s important to ensure that your no-contest clause is legally enforceable before you sign off on any document that includes it.