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Law Commission paves way for new comprehensive prenup rules

10 January 2011

Opinions remain divided over the benefits of prenups as the Law Commission this week launches a consultation paving the way for the statutory recognition of marital property agreements in which it acknowledges they would remain “inappropriate” for most couples.

The rise in cases challenging the validity of prenups and the courts’ increasing willingness, culminating in Radmacher, to give them greater weight, have prompted calls for possible reform to place these agreements on a statutory footing.

The intention would be to provide more certainty and minimise divorce litigation, but some family lawyers have expressed concerns that any new legislation would have to fit in with the requirements of the Matrimonial Proceedings Act 1973. In most cases the couple’s assets are just about enough to support two separate lives, leaving little or nothing that could be the object of a prenup, they say, which would result in the new rules being solely a rich man’s law.

Professor Elizabeth Cooke, the commissioner leading on the consultation, accepts any reform is more likely to be relevant to wealthier individuals but she said it could also be useful for many other couples.

“Cases we see going to the courts do indeed involve wealthier individuals but there are circumstances where some people, without being particularly wealthy, may have property they want to protect,” she told Solicitors Journal. “This can be estate inherited from their parents, or the family business, or property which they secured in an earlier divorce settlement that they do not wish to put at risk.”

In such situations, current cases don’t distinguish between matrimonial and non-matrimonial property, and one point in the consultation is specifically whether non-matrimonial property could be identified and ring-fenced in a prenup.

While not taking a position yet on whether a reform is desirable, the commission warns that the statutory recognition of prenups would have to be subject to a number ofsafeguards beyond the ordinary rules of contract law.

These would include the requirement that prenups should always be in writing, that both parties had made full and frank disclosure of their financial situation, that both had obtained (not merely sought) legal advice and that the prenup had not been signed too close to the wedding date to reduce the risk of pressure on one of the parties.

However, unless prenups were to be limited to pre-acquired, inherited and gifted property, the commission does not recommend strict enforcement of qualifying “cast-iron” agreements, which could result in the needs of the other divorced spouse not being met.

A further concern is that the parties are unable to contemplate the consequences of the passage of time or the occurrence of significant events which could affect their respective position within the marriage.

To prevent such situations the consultation considers the usefulness of so-called sunset clauses, where the prenup would automatically terminate after a given number of years or the occurrence of a specific event such as the birth of a child.

To counter any injustice, the commission also suggests the adoption of a “manifest unfairness” or “serious injustice” test – although it also doubts “whether any such test would give any more certainty than does the current law”.

An alternative approach would be not to allow prenups where they specifically don’t meet the needs of either spouse. Here again, the commission suggests a “community of acquests” model – where assets acquired after the wedding are deemed to be jointly owned – could be more useful than a prenup regarding all assets as ‘matrimonial’ as the level of needs would be reduced accordingly.

Greater clarity is an objective few lawyers disagree with, but placing prenups on a statutory footing does not meet with unanimous approval. Introducing concepts such as sunset clauses in family law could lead to new problems.

“What date would you choose as the point at which the agreement automatically terminates?” asks Mishcon de Reya’s Miles Geffin, while also questioning how undue influence could be assessed. “Say one party refuses to marry if the other does not sign a prenup: is this undue influence or is it just being cautious?” he asks.

Geffin nonetheless agrees prenups could be useful in some circumstances, including in the case of second marriages where the spouse comes into the marriage “with their eyes wide open”, or where there is significant inherited wealth.

Richard Hogwood, a solicitor in the family department at Speechly Bircham, also sees some benefits in statute-based prenups. The main change is likely to be psychological, he said, where prenups become the norm for a certain class of individual, but it would also bring about a shift in the burden of proof which could result in greater certainty.

For James Copson too, a partner in Withers’ family department, the usefulness of statutory recognition depends on individual circumstances.

“Some people see them as completely unromantic while others just see them as a practical step,” he said.

But, irrespective of the terms of a prenup, the new rules would need to provide safeguards because it is inherently difficult to predict how the position of the parties will develop in the course of the marriage, he said. Even then, solutions such as sunset clauses come with their own problem; unless subsequent renegotiation of a prenup comes in response to specific estate planning concerns, the new terms can give rise to disputes leading to a marriage split.

The consultation can be found at www.lawcom.gov.uk and is open until 11 April 2011.

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Marriage & Civil partnership Children