Qualifying and quantifying marriage

Despite their growing popularity, there is no statute to ensure that nuptial agreements, both pre and post, are binding in England and Wales. Regardless of whether you have signed a prenup*, there is nothing for now to stop you from applying to the courts for financial provision on divorce.

The courts currently consider prenups as factual circumstances when deciding how to share a divorcing couple’s financial resources, and, where appropriate, they may restrict an applicant’s entitlement to that which he or she agreed in the prenup.

In Radmacher v Granatino [2010] UKSC 42, the Supreme Court held that it will give effect to a prenup that is “freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to their agreement”.

An English prenup cannot guarantee what each party receives on divorce. Whether or not the terms of a prenup will be upheld by a court will be determined case by case.

Following Radmacher, the burden is usually on the person seeking to resile from the terms to say why they shouldn’t be held to the agreement. This is hard to argue if the contract is properly drafted and fairly negotiated.

Prenups are simply the best protection for ‘non-matrimonial assets’, such as one party’s inheritance, gifts or assets acquired before the marriage. They are also the most effective way of ringfencing specific assets, for example, to preserve a child’s future inheritance.

New recommendations

So will prenups be binding for all in the future? The publicity surrounding the Law Commission’s recent report, Matrimonial Property, Needs and Agreements, could lead people to believe so.

But leaving aside that these are just recommendations and that this government is unlikely to have the appetite or time to legislate it during this parliament, the idea of legally binding prenups, known as ‘qualifying nuptial agreements’, would not be appropriate for the majority of the population planning to marry.

They are aimed at high net worth couples whose assets exceed their needs (or are likely to exceed their needs in the future) and who want to be able to regulate their own financial affairs in the event of divorce, or those individuals who have been in previous relationships or marriages and wish to protect their assets for their children.

The Law Commission proposes that qualifying nuptial agreements would be enforceable as contracts if they meet certain requirements:

• Contractual validity: There must be a clear agreement between the couple, together with the intention to create legal relations; the contract law concept of consideration is circumvented by signing the agreement as a deed.

• Execution: The agreement must be signed as a deed, with witnesses to the signatures (already standard practice for prenups). It must include a signed statement to show that both parties understand the agreement is a qualifying nuptial agreement that will remove the court’s discretion to make financial orders unless required in relation to a party’s or children’s needs.

• Timing: The agreement must not be signed within the 28 days immediately preceding the wedding.

• Disclosure: Both parties must have received, at the time of making the agreement, disclosure of material information about the other party’s financial situation. As a minimum, the Law Commission has recommended that parties should each produce a schedule of assets that would enable lawyers to advise on the terms of
  the agreement. Whether anything further is required will depend on the particular resources of the couple. The Law Commission suggests, for example, that a person seeking to “ringfence” trust assets would need to disclose the trust deed and recent trust accounts.

• Legal advice: Both parties must have each received legal advice at the time the agreement was drawn up from separate lawyers. The lawyers and their clients would be required to sign a statement confirming this.

• Needs: The agreement cannot be used to enable one party to contract out of meeting the other’s or any children’s needs.

The Law Commission explains that qualifying nuptial agreements would “enable couples to make contractual, and truly enforceable, arrangements about the financial consequences of divorce”. If the couple divorced, the agreement would take effect and the sums provided for by it could be enforced as debts.

However, it is likely that most couples will wish to have the terms expressed as a consent order, approved by the court, as this would preclude any later challenge to the validity of the agreement or the financial settlement.

Court side

Even if the nuptial agreement did not meet all these requirements, so was not automatically enforceable, it could still be upheld by the court if it would not be unfair to do so, i.e. by virtue of the Radmacher line of authority.

So the courts could still hold parties to the terms of an agreement if, for example, they signed it three days before the wedding (so it wouldn’t be a qualifying nuptial agreement). But the court would have the discretion to decline to hold the parties to the terms.

Even with a qualifying nuptial agreement, the courts will still be asked to exercise their discretion to scrutinise the agreement if one of the spouses asserts that the terms do not properly meet their needs.

Under contract law, the agreement could be found to be void as a result of mistake or duress, or voidable because of undue influence. It could even be frustrated if circumstances change dramatically.

It is not enough to say that your fiancé(e) refused to marry you, though, if you didn’t sign a qualifying nuptial agreement. Under the Law Commission recommendations, that is neither undue influence nor duress, “it is simply a choice”.

However, in our experience such a threat after the wedding has been arranged, friends and family invited, venue booked, and wedding attire bought creates huge stress. Undoubtedly, clients in such situations have felt under duress to sign, despite the now standard recital in the agreement to the contrary.

The 28-day recommendation is to be welcomed, albeit we recognise that the deadline in itself will create its own pressure point.

Importantly, the Law Commission is clear that qualifying nuptial agreements would not “enable one or both parties to contract out of any responsibility to meet each other’s financial needs”. The door to the court therefore remains wide open to a divorcing spouse who feels their needs have not been met by such an agreement. The burden, however, would be on them to prove they need more than what they signed up for.

The commission makes it clear that qualifying nuptial agreements would not be appropriate for couples whose resources only just cover their financial needs. But, in our opinion, these couples should still consider a prenup if one party is likely to inherit or generate substantial wealth during the marriage so that in the future their assets will exceed what is required to cover the family’s needs.

Calculating needs

As the report sets out in detail, there is currently no set definition or formula to calculate a person’s financial needs, both in terms of capital (for housing) and income. The concept is subjective and takes into account the lifestyle the couple had together. It is easy to see the scope for argument on this point, particularly when a relationship has broken down.

The commission has recommended that the meaning of “financial needs” be clarified in guidance from the Family Justice Council. Some other jurisdictions, notably Canada, have introduced specific calculations to assist in working out how much parties should be paying on divorce and, for example, whether there should be ongoing maintenance or a single capital payment to achieve a clean break.

A proposed working group will consider the possible development of a formula to generate ranges of outcomes for spousal support.

Clearly the commission considers this extremely important given the geographical discrepancies between the courts in their approach to maintenance orders. The withdrawal of legal aid also means there are now many more individuals without access to legal advice, for whom such a formula would be extremely useful.

An English divorce settlement aims for a fair outcome, without discrimination between the respective roles of the husband and wife (or civil partners). White v White ([2000] UKHL 54, [2001] 1 AC 596) introduced the starting point of a 50:50 division in divorce cases.

If the government adopts the Law Commission’s recommendations, qualifying nuptial agreements would, in effect, enable couples to contract out of sharing the assets (and income), but not out of their responsibilities to provide for each other’s financial needs after divorce. Qualifying nuptial agreements would need to include a statement signed by both parties confirming that this is understood. As per now, the exact terms of the agreement must be tailor-made.

Prenups for the financially weaker spouse The emotional reality of negotiating nuptial agreements and the impact they can have on relationships can often be overlooked. We have seen couples fall out over negotiating the terms, weddings postponed or even cancelled. One bride-to-be came in to our office to sign the agreement with her wedding dress in hand, about to fly abroad to get married, and told us that she’d never been so miserable in her life. In another prenup case, a couple almost broke up two weeks before the wedding – the fiancée was shocked to read in the financial summary attached to the prenup that her intended (with whom she had lived quite frugally for more than ten years) was a multimillionaire. Prenups often lead to discussion about the future family home and how much couples anticipate spending, which can bring up stark differences about their values. In several cases where we have advised young wives-to-be, the wealthy fiancés have complained about their future wives’ expenditure (even that they shop in Waitrose).This doesn’t bode well for the future, particularly when the wives in these cases – all working – were likely, by agreement, to give up work if they had children. The hardest prenups we have dealt with are undoubtedly the ones that are being drafted and negotiated in the run-up the wedding. One fiancée we advised was flying halfway round the world for meetings to discuss the prenup. But with the stress of the travel, the time difference, and the emotional and organisational aspects involved, the wedding had to be postponed. Ultimately, like many others, she ended up signing the prenup against advice. Standard clauses are usually included in a prenup stating that each party has entered into it willingly without duress. However, duress does exist, particularly with a young couple where the financially weaker party is the woman who expects to have children. According to recent case law, these pressures are not sufficient to allow her to get out of the agreement later down the line. The Law Commission makes it clear that a refusal to marry without a qualifying nuptial agreement will not be considered enough to assert duress.

Future happiness

While the report includes a draft bill that would give effect to its recommendations, it is unlikely to be considered a priority by any government, particularly at a time when the Ministry of Justice is making such severe cut backs.

If a new bill does find its way to the statute books, we don’t think the catalyst will be qualifying nuptial agreements, but instead the Family Justice Council’s future guidance on how to calculate financial needs. In a new world without legal aid, it is crucial that we better equip couples to resolve their financial settlement without recourse to legal advice.

Prenups raise controversial arguments about the sanctity of marriage and individual autonomy versus paternalistic court intervention. Should couples be trusted to make sensible, binding agreements so that there is certainty and predictability about exactly what will happen on divorce? Or is it right that the court is able to step in when circumstances change or to protect financially weaker parties?

As the Law Commission noted, “people are willing to agree, when they are in love, to things that they would not otherwise contemplate” (the only mention of love in the entire report).

English family law has always chosen fairness over certainty, discretion over rigid rules. But the recommendations would make prenups a more reliable way for high net worth individuals to plan for the worst and protect family assets.

*References to prenups, marriage and divorce, but should be taken to include reference to postnups (signed after the wedding), civil partnerships and dissolution

Charlotte Bradley is head of the family team and Lauren Evans is a family solicitor at Kingsley Napley