Pragmatic prenups

We already know that, increasingly, couples are cohabiting but choosing not to marry. However, more and more of those who do decide to marry are exploring the option of entering into prenuptial agreements.

People may consider entering into such an agreement when their spouse’s assets are much greater than the others’, when one or both parties have property acquired before they met, or when they wish to protect the financial interests of any children from a previous relationship.

The Law Commission has made recommendations for reform of the law in this area, and this is currently still in the pipeline. If implemented, the proposed changes would mean that nuptial agreements that ‘are in a prescribed form, and that adhere to certain safeguards’ and would be legally binding.

However, prenuptial agreements are at present not legally binding in England and Wales. That being said, they are almost as good as binding, provided they satisfy certain criteria:

• That they are freely entered into by both parties;

• That both parties have a full appreciation of the implications of entering into the agreement; and

• That at the time of divorce it must be fair to hold the parties to the terms of the prenuptial agreement.

It is very important to understand that no agreement between parties to a marriage can prevent a judge from deciding what an appropriate and fair division of assets is upon divorce. This means a prenuptial agreement cannot prevent a spouse from applying to the court for financial provision.

The law does require the judge to consider all the relevant circumstances of the case when deciding how to divide the parties’ finances, and any prenuptial agreement will certainly be taken into account. Parties should presume the agreement will meet the legal criteria and, therefore, expect to be held to its terms.

H v H [2015] EWHC B24 (Fam) has been described as a ‘paradigm case for upholding such an agreement’. The husband and wife were aged 72 and 64 respectively. They met in 2002 and began cohabiting in September 2013. They married in December 2013 and, following an approximately 12 week marriage, separated in March 2014. Both parties had been married previously and had children from those respective relationships. The husband was fairly well off whereas the wife had no substantial assets.

They chose to enter into a prenuptial agreement which broadly provided for an outcome where both parties left the marriage with what they brought into it and neither should have a claim for financial relief against the other. Following separation the wife argued it would be unfair for her to be held to its terms, based on the assertion that it was the husband’s conduct that led to the relationship breakdown.

As the couple had not been married for a year, neither could initiate divorce proceedings immediately. In January 2015 the wife commenced proceedings and in May 2015, she made an application for financial relief. In broad terms, she pursued a total settlement of £361,000, whereas the husband wished for both parties to be held to the terms of the prenuptial agreement.

The court ultimately upheld the agreement, on the basis both parties had entered into it for a particular purpose, with full knowledge of that purpose and the implications of doing so. The judge pointed out that both husband and wife had been married before and that it was a very short marriage with no significant change in circumstances between the signing of the agreement and separation.

While prenuptial agreements are far from the most romantic of concepts, studies have shown that one of the most common causes of marriage breakdown is arguments over finances. Arguably, it would therefore appear to be eminently sensible to have a frank and comprehensive conversation about finances from the outset, thus lessening the chances of arguments taking place both during the marriage and in the event of a divorce. That being said, it is inescapable that mentioning a prenuptial agreement to a partner remains a tricky subject to broach, albeit an altogether pragmatic one.

Pippa Allsop is a solicitor at Michelmores

@MichelmoresLaw www.michelmores.com