Pre-nuptial agreements

We’ve heard a lot about “pre-nups” or pre-nuptial agreements in the US, but what about in this country? Do “pre-nups” exist? If so, what do they do and are they conclusive? Denise Bullock of Colemans explains how the concept of pre-nuptial agreements has been carried over into English law and the significance of them in this jurisdiction.

What is the legal status of pre-nuptial agreements?

The law relating to pre-nuptial agreements in England has developed following the Supreme Court decision in Radmacher v Granatino in October 2010.

The Supreme Court said in Radmacher v Granatino that the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement.

So what does this mean? Essentially, if the Judge dealing with your divorce approves of the terms of the pre-nuptial agreement and thinks that they are “fair” then he or she will honour the terms of the agreement and apply them in the divorce. If, however, the Judge doesn’t “like” the terms of the pre-nup, even though the parties agreed to them before they got married, the Judge can overturn the agreed terms and order what her or she think is “fair” in the circumstances.

Agreement must be freely entered into

Both parties must enter into the agreement of their own free will, without any pressure from each other or anyone else. The agreement is unlikely to be upheld if the court finds evidence of mistake, duress, undue influence, misrepresentation or unconscionable conduct, such as one party (probably the wealthier spouse-to-be) exploiting a dominant position to secure an unfair advantage over the other party.

The Court will take into account individual circumstances such as a party’s emotional state at the time of making the agreement and factors such as age and maturity and previous experience of long term relationships. Such circumstances may inform what pressures a party felt under to sign and enter into the agreement. If a Court considers the parties entering into a pre-nuptial agreement are mature, with a wealth of life experience and knowledgeable in relation to financial matters, the Court is more likely to attribute greater weight to the agreement. Conversely, if the parties are young, immature and inexperienced, that is likely to work against the pre-nuptial agreement being given decisive weight by a divorce Judge.

The court may also consider whether the marriage would have gone ahead in the absence of a pre-nuptial agreement. If a party would have refused to proceed with the wedding without a pre-nuptial agreement in place, that may reinforce the view that it should be given substantial weight on divorce.

Parties must have a full appreciation of the implications of the agreement

In order to fully understanding the agreement’s implications, both parties should both receive independent specialist family law advice before entering into the agreement.

Both parties should each provide financial disclosure to be included in the pre-nuptial agreement, setting out details of their respective assets, income and potential future assets such as inheritances and any interests under discretionary trusts.

It must be fair to hold the parties to the agreement in the circumstances prevailing

The Supreme Court has provided some guidance for assessing “fairness”:

• It is not “fair” for a pre-nuptial agreement to prejudice the reasonable requirements of any children of the family.
• The autonomy of adults should be respected: it is “paternalistic” and “patronising” to override the terms of an agreement simply on the basis that the court “knows best”.
• There is nothing inherently unfair about a pre-nuptial agreement that seeks to ring fence what is often referred to as “non-matrimonial property”. The Supreme Court judgment sanctions the use of a pre-nuptial agreement to shield historic family wealth and assets acquired before the marriage.
• The longer a marriage lasts following a pre-nuptial agreement being signed, the greater the chance it may not be “fair” to hold the parties to its terms because of unforeseen changes in circumstances that are more likely when a long marriage comes to an end.
• If the effect of the pre-nuptial agreement would be to leave one party with less than his or her needs, while the other party is comfortably provided for, this is likely to be “unfair”. “Needs” are based on the amount a party needs to spend to maintain a standard of living not too dissimilar from that enjoyed during the marriage.
• If one party has a valid argument for an element of compensation (for loss of earning power following a joint decision that he or she should give up a career to care for the family) then a pre-nuptial agreement which ignores this compensation is likely to be unfair.
• If needs and compensation are adequately covered in the provision offered in the pre-nuptial agreement, then further sharing of the assets may be prohibited. This limits a spouse’s ability to claim an interest in non-matrimonial property, such as inheritances, gifts and property owned by the other spouse before the marriage.

Effect of the Supreme Court test

Even if a pre-nuptial agreement is given decisive weight, the court still has the power to make financial awards on divorce. A pre-nuptial agreement will be only one of the factors considered when the court is exercising its discretion to deal with the parties’ finances.

The law commission recommendations

On 27 February 2014, the Law Commission published a report entitled Matrimonial Property, Needs and Agreements. In this report, the Law Commission recommends legislative reform to make nuptial agreements that follow a prescribed form, and adhere to certain safeguards, legally binding. A nuptial agreement that meets the criteria would be called a “qualifying nuptial agreement”. Qualifying nuptial agreements would prevent the court from making financial orders on divorce that are inconsistent with the terms of the nuptial agreement, unless an order needed to be made to meet one of the parties’ financial needs, or for the benefit of a child of the family. Nuptial agreements that do not adhere to the criteria would continue to be treated as a “relevant factor” of the case by a judge deciding what financial orders to make on divorce.

While the government has not yet issued its final response to the Law Commission proposals, some of the proposed reforms may become law in due course.

At Colemans Solicitors we can assist you in complying with these requirements which will mean that the pre-nuptial agreement has the best chance of being legally binding in the future and will provide you with as much clarity and certainty as possible regarding the division of your finances if your marriage should break down in the future. This will also hopefully save you both the stress, time and legal costs of contested financial proceedings. To find out more or for legal advice on a pre-nuptial agreement please contact Denise on 01628 631051 or by email to denise.bullock@colemans.huntersserver.co.uk

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This post was written by Colemans Solicitors LLP