Otherwise engaged

The proposal

Prenups have become a reality of legal life, says Richard Hogwood as he outlines the likely shape of the new rules

Love them or loathe them, prenups and postnups are here to stay. The magnum opus Law Commission consultation paper on marital property agreements (in other words, prenups and postnups) puts forward proposals for giving them a statutory basis.

The commission is sceptical of the oft-cited argument that prenups devalue marriage or encourage divorce, suggesting that in fact the case of White v White in 2000 '“ which introduced the idea of 50/50 divorce settlements '“ is more likely to give the wealthy pause for thought before tying the knot.

What appears to be a principal theme to the report is that there might be 'qualifying nuptial agreements' applying to 'special property' (essentially pre-marital, inherited and gifted wealth).

They would 'qualify' by being in writing, with 'material full and frank' financial disclosure and with each party having legal advice (and not merely, as with Mr Granatino in Radmacher, the option to procure such advice).

Even so, there would have to be a lack of coercion or mistake in entering into them, and inevitably there would also be some safety net provisions '“ mentioned are sufficient provision for children and avoiding either party unnecessarily being forced to depend upon state aid.

Additionally there is talk of 'sunset provisions' '“ the agreement losing effect after a certain period of time '“ and perhaps a guillotine in the event of children being born. Arguably neither would be fair or relevant if the agreement foresaw having children or future changes (perhaps by an escalating financial provision) or, for that matter, if the parties' circumstances remained constant. Conceivably this will be one of the more contentious elements in the consultation process.

Interestingly, the report is not in favour of specified 'cooling off' periods between the date of a prenup and the date of the wedding or civil partnership. I think this is right. From experience, it is often the case that a document may be considered, discussed and negotiated for some time but, for purely practical reasons, does not get signed until a week or two before the wedding.

Even if the commission's proposals are ultimately brought into law, it is debatable whether they will make much difference to the prenups and postnups which we currently prepare. As a matter of course ours would 'qualify'; the principal (and often only) focus is on 'special property'; and they generally include either a 'reasonable needs' safety net or a specified financial provision intended to meet at least those needs.

Similarly, while the Supreme Court decision in Radmacher made clear that, in the absence of unfairness and seeking to fetter provision for children (and the usual contractual safeguards of coercion, fraud and mistake) a prenup or postnup would be upheld, there is little legal clear water between that and the Law Commission proposal.

However, in terms of public perception, the gulf is likely to be much wider '“ those with a current or anticipated wealth imbalance (for whom nuptial agreements are best suited) are likely to garner more confidence in their agreement from statute than from case law, however similar the two. Might putting prenups and postnups on the statute book thereby encourage some to enter into marriage or civil partnership who might otherwise have been reluctant (even post Radmacher)? Probably, yes.

One point that is not clear from the paper is how it is envisaged that foreign prenups and postnups are dealt with, especially if they do not fulfil the English 'qualifying' requirements. Presumably they would end up being dealt with as present; that is, potentially a persuasive factor but not decisive.

Richard Hogwood is a partner at Speechly Bircham LLP

Decent proposal

This is the chance for ordinary people to organise their affairs in advance, says Godfrey Freeman

Despite the uncertainty surrounding the enforceability of prenups, where large sums have been involved potential spouses have been prepared to take the risks inherent in such agreements.

Radmacher has reinforced the view that the courts should uphold such agreements if freely entered into, unless it would be unfair to do so. The consultation paper gives the arguments both for and against making prenups legally enforceable, but, reading between the lines, enforceability with suitable safeguards appears to be the favourite view.

This may be all well and good when large premarital assets are concerned, but would this help in the more normal run-of-the-mill cases which constitute a large percentage of the caseload of a provincial family lawyer? We are already doing prenups (after giving all the appropriate warnings) for our more wealthy clients but are increasingly getting enquiries from prospective spouses with modest resources.

These are often clients who are contemplating a second, or indeed third, marriage and are wary of the possible split of assets on a divorce or are conscious of a moral responsibility to the children of a former union. But why should such clients not be able to regulate their own affairs in just the same way as those with more money?

The principles involved are just as important in these cases as in the higher-net-worth scenario. The present government, after all, wants to encourage couples to take more responsibility for their own affairs, rather than depending on a court-focused solution. It is anticipated legal aid will be unavailable for private law children matters and for ancillary relief. Separating couples will have to meet legal fees themselves and ADR will be encouraged to keep cases away from court. Lawyers are already looking at advising couples buying a house before cohabitation on getting legal expenses insurance to include the cost of litigation on the break up of the relationship, and some people might consider that a more cynical approach than making prenups enforceable. We also now learn of proposals by the Child Support Agency to charge their clients for using their services, thereby encouraging them to reach agreement themselves rather than use the CSA.

Clients, whatever the size of the assets, often wish to achieve certainty and to determine in advance what will happen on the unfortunate break up of a relationship. With suitable safeguards, as the Law Commission suggests, enforceability of prenuptial agreements is to be commended across the board.

Godfrey Freeman is a consultant at Morecrofts LLP in Liverpool and former national chair of Resolution

What's the point?

The success of a law recognising prenups would require a fundamental change to the way we treat the legal consequences of marriage, argues Miles Geffin

The Law Commission's decision to review marital property agreements arose from judicial and public expressions of concern that the development of matrimonial finance law during the last decade had escalated the financial consequences of divorce for the wealthy to disproportionate levels.

For the majority of divorcing couples the debate whether prenuptial agreements should be fully binding, binding only subject to the court's approval of their terms, or not binding at all is a sterile one. Their limited assets and income will be divided purely on the basis of their and their children's competing needs for housing and to make ends meet.

The Law Commission's consultation paper suggests that it will only recommend that marital agreements will be binding subject to the court's ultimate approval. The minority of couples who are wealthy enough for a marital agreement to make a difference are unlikely to be satisfied by this.

Time and effort will be spent negotiating agreements to ring-fence inherited, pre-acquired or gifted assets or to limit the receiving spouse's claim either to a share of assets accumulated during the marriage or to his or her reasonable needs.

The value of any such agreement will therefore be entirely dependent upon the couples' financial and other circumstances at the time of any divorce. Reform of this nature is no reform at all; rather it pretty much reflects the current position in English law.

Whether we ever arrive at the point at which prenuptial agreements are fully binding on a couple in English law is debateable. The development of our matrimonial finance and property laws has followed a completely different path than the majority of our European cousins for whom community of property on marriage is the norm. In fact we have no property regime (whether community or separate) on marriage; instead the distribution of assets occurs on divorce, not marriage, and is ultimately a judicial exercise.

The distinction is not as fine as it may first appear. It is understandable why under a community or separate property regime a couple may choose at the point of their marriage to exclude certain assets from sharing.

Such a decision and its consequence will be well understood. In the absence of a cultural sea change in the way in which we treat the legal consequences of marriage '“ which would require the introduction of a default matrimonial property regime '“ the instinctive difficulty that many lawyers have with fully binding prenuptial agreements will not be overcome.

Miles Geffin is legal director in Mishcon de Reya's family department

Copyright & permissions