How would people circumvent this (because I know they will) ?
At the moment, stopping a war requires the agreement of both sides. If one side is getting hammered by penalties, the other side may not agree to stop the war out of simple spite, or the belief that they can use the penalties to gain an upper hand and take back what they lost. If both sides are getting hammered by penalties, you still have the spite factor to worry about - it will go exactly like the Exile mechanic does. The losing realm will simply hold out as long as it can (maybe forever) just to spite the winning realm and take them down with them, and the losing realm will end up virtually (if not actually) destroyed anyway.
To accomplish this I think you have implement mechanics that will automatically end wars. This can be based on player input by allowing players to outline a specific duration when making a war dec, after which the war immediately ends, or maybe it can involve setting recognizable goals (i.e. gaining control of regions x, y and z), which once met will also automatically end the war.
