Commission paves way for prenup law

Prenups protecting assets acquired before marriage could become law under proposals unveiled in a consultation launched by the Law Commission today.

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 options considered in the consultation seek 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 said, which would result in the new rules being solely a rich man's law.

In most cases prenups would be 'inappropriate', according to the consultation, and Professor Elizabeth Cooke, the commissioner leading on the consultation, accepts any reform is more likely to be relevant to wealthier individuals but she says 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 of safeguards 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.

Consultation on marital property agreements: www.lawcom.gov.uk/marital_property.htm