The Law on Prenups

Are pre-nups binding? What is the current law on prenuptial agreements.

PRE AND POST NUPTIAL AGREEMENTS – ARE THEY BINDING?

Pre-Nuptial Agreements, often known as Pre-Marital Contracts or simply as “pre-nups”, have previously been seen as void and contrary to public policy as they were often considered a pre cursor to separation, rather than form of wealth management and protection of assets acquired by the sole effort of one party and brought to the marriage by that party.

However, it is relatively recently that the Courts have started to recognise Pre and Post Nuptial Agreements (those made after the marriage has been entered into rather than before) and attribute weight to them.

A Court, when considering an application for Financial Remedy, is not obliged to give effect to nuptial agreements – whether they are Pre-Nuptial or Post-Nuptial. The parties cannot, by agreement, oust the jurisdiction of the Court. The Court must, however, give appropriate weight to the agreement.

There have been a number of recent high-profile cases where the outcome of an application for financial provision has been determined, or heavily influenced, by a pre-nuptial or a post-nuptial agreement.

The case of Crossley v Crossley [2008] described the existence of such agreements as a “factor of magnetic importance.

The truly international case of Radmacher v Granatino [2010] has finally paved the way for the English Jurisdiction to join up with most of the rest of the world in recognising the validity of Pre-Nuptial Agreements entered into by financially astute individuals to be binding upon them and remove the uncertainty that many feel has plagued the English Divorce Courts Law and which has led, in many cases, to huge payouts being made to ex-spouses. This is particularly acute where marriages are relatively short and the vast bulk of the wealth emanates from one party, or even worse, from one parties wider family.

The effect of Radmacher v Granatino is that formal agreements, properly and fairly arrived at with specialist legal advice on the pre-nup, should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement. Effectively therefore, as long as both parties freely entered into the agreement and fully understood its content and impact, the Court will look to uphold its terms.

Although pre-nup agreements still cannot be used to oust the jurisdiction of the Court, the Court will exercise its discretion in accordance with the agreement’s terms if it was freely entered into, unless in the circumstances it would be unfair to hold the parties to their agreement.

WHAT SHOULD A PRE-NUP INCLUDE?

The case of V-V [2011] demonstrates the need for Pre Nuptial and Post Nuptial Agreements to be very carefully worded to allow for a realistic appraisal of their validity and the extent to which they would survive the test of time. Our specialist pre-nup solicitors can advise you each step of the way.

In this case the parties were Italian and Swedish and had lived in the UK for many years, but decided to have an pre-nup Agreement drafted by a Swedish Lawyer in accordance with Swedish Law, providing for the husbands separate property to be said to be his and therefore ‘non-marital’ and the wife’s to be hers.  Eight years and two children later, the Court had to decide whether this prenup Agreement was just a recital of what the parties owned at the date of the start of the relationship, or whether it was meant to deal with the question of what would happen to that property if they separated. The definition of marital property is Sweden is crucial, whereas in the UK it is not. In the end, the Court decided it was a form of Pre-Nuptial Agreement, but would not follow its exact terms because if it had done so, the Wife and the children could not have been effectively re-housed, bearing in mind the Agreement gave the husband the bulk of the assets as he owned them prior to the marriage. Those assets had however been changed, but nonetheless, it would have left the husband with about two and a half to three times as much assets as the wife.

Therefore, the question may be asked, what is the point of a Pre-Nuptial Agreement?

The original Order left the wife with 62% of the assets and the husband 38% but of that 38% a £100,000 of it was a pension asset, which he could not touch until retirement. Therefore, the wife got the bulk of the available capital.

The Pre-Nuptial Agreement came into its own on the Appeal when it was argued, successfully on behalf of the husband, that instead of transferring the matrimonial home to the wife absolutely, that it should be transferred with a chargeback for £200,000, so that the husband could recover that capital if the wife remarried, cohabitated, or the children reached the age of 18.

Therefore, whilst it could not necessarily be said to be a complete vindication of the argument for a Pre-Nuptial Agreement, for the sake of something that would have probably cost from £5,000 to £10,000 at the most to get sorted, the husband saved over £200,000 worth of assets, which he would otherwise have lost. If it had not been for the Pre-Nuptial Agreement it is fairly clear that the original Order, giving the wife the bulk of the assets, would have been un-appealable.

 Therefore, even if they are not absolutely bullet proof, Pre and Post-Nuptial Agreements are a very useful shield and it could be suggested that if this one had been properly drafted in accordance with the Law of England and Wales by a specialist pre-nup solicitor who would have appreciated the risks the husband was running, more perhaps a Swedish Lawyer may have done, then a much more realistic appraisal of the husband’s situation could have been given from the outset to assist him in the decision making process that led to the drafting of the pre-nup Agreement in the first place.

All in all, it demonstrates that the English discretionary system is still not without its difficulties for the wealthy, but it seems to emphasise more than ever that as much protection as can be obtained, ought to be obtained, and that ultimately to do anything else leaves those, without such insurance policies, at the complete discretion of the Court.

 WHAT TERMS SHOULD A PRE-NUP INCLUDE?

A properly drafted pre-nup Agreement entered into prior to the marriage could save lengthy and highly expensive litigation. Properly drafted, and taking into consideration all those matters that a Court on separation would likely to consider, is a very solid foundation for early settlement and the avoidance of litigation.

Pre and Post-Nuptial Agreements should, amongst other things, contain a Schedule of the parties’ assets and the source of some of those assets, particularly if they have come from third parties such as relatives or Trusts. They should also include careful provision for any children of the marriage whether pre-existing at the date of the ceremony, or to come, and to make proper provision for them in accordance with the expected lifestyle of the parties. This is one of the most crucial points, because if a Judge is going to find any way to overturn an Agreement, it will be “in the best interests of the children”

The Agreement should make provision for the present occupation of property and what the future intentions are as regards, for example, the occupation of the matrimonial home by the wife during the children’s minority and indeed beyond – to ensure continuity of living standards. Recognition needs to be inserted that the standard of living of the children will affect the living standards of the wife.

A highly experienced Divorce Lawyer, used to dealing with settlements of matrimonial cases involving wealth, would be needed to put together a realistic package that a Divorce Court (if it ever came to it) would consider to be fundamentally reasonable and make proper provision, whilst at the same time, ensuring as much protection for those assets that are not needed for the use and benefit of the spouse with the children, are retained by the owner.  This of course has particular repercussions where a large amount of the wealth consists in shares or interests in substantial Companies where a removal of large amounts of funds to satisfy a divorce settlement can lead to liquidity problems and boardroom level problems where the other members of the family, or the board, are not directly involved in the separation because they are not parties to the marriage. However, they  are nonetheless going to be gravely affected by the removal of substantial funds out of the assets of the Company or business.

Divorces are hard enough without adding the stress and costs over a prolonged period of an acrimonious battle over a precise, and often shifting entitlement. Pre-Nuptial Agreements are not necessarily cheap, but compared with many hundreds of thousands, and sometimes millions of pounds that are spent fighting these cases to a standstill, they are remarkably good value. As wealth management goes, they could be the best investments the wealthy could make.

Therefore, the costs of a carefully drafted Pre-Nuptial Agreement, could in the long run avoid the significant costs and stress associated with prolonged and protracted litigation, and those which cover all eventualities and entered into freely and willingly are now ever increasingly both recognised and upheld by the Courts.