Nuptial Agreements, Why Are They a Good Idea?
Case law has evolved so that where there are significant assets an equal division will be the starting point unless there are good reasons otherwise. Outcomes on divorce are uncertain and subject to the wide discretion of a judge. Ever evolving case law and the lack of clarity (such as for example whether assets accrued during a short marriage will be shared equally or what duration of maintenance order might be appropriate) makes the court process uncertain and expensive. For many, avoiding the stress, expense, uncertainty and acrimony if their marriage breaks down is the main reason for entering into a prenup. Another motive is where one of the couple brings significant assets to the marriage, created either from their own endeavours or from gifts or inheritance from their family, or expects to inherit during the marriage and they want to ring-fence those assets in the event the marriage breaks down.
What is the Current Attitude of the Courts Towards Prenups?
Whilst pre-nuptial agreements are not legally binding, (and therefore unenforceable as a contract), the attitude of the English courts towards them has changed considerably over the years and following the 2010 Supreme Court Radmacher v Granatino judgment a prenuptial agreement may be determinative. Following this decision, there would need to be unusual features to the case for the court to depart materially from the terms of a prenup.
The significance of Radmacher is that, when considering all the facts and weighing up all the circumstances, a court should give effect to a nuptial agreement (whether made before or after the marriage) where it has been freely entered into by each party with a full appreciation of its implications, unless in the circumstances it would not be fair to hold the parties to it.
Since Radmacher, English nuptial agreements have increased in popularity and in February 2014 the Law Commission recommended that qualifying nuptial agreements should be given the status of enforceable contacts.
What is a Postnup and is it more or less effective?
A postnup can set out the financial provision that will be made for both parties on divorce in exactly the same way as a prenup only it is entered into after the marriage. Radmacher provided that there is no distinction between the two but a postnup entered into some years into the marriage is likely to be more reflective of the parties’ circumstances than a prenup and thus less susceptible to challenge.
So what value does a nuptial agreement have?
The weight that the court gives to it is likely to be influenced by the length of the marriage (and periods of pre-marital cohabitation effectively lengthen the duration of the marriage), the comparative financial resources of the couple on divorce and whether or not there are any children. The extent to which the agreement foresees future events and deals with them in a fair manner will also determine the eventual influence on the decision that the court makes.
How to Ensure the best for the English courts to give effect to a prenup
An agreement is more likely to be upheld upon a later challenge at the time of a divorce, if it has been properly constructed; entered into without any undue influence and will not lead to hardship.
The best advice to those wishing to enter into a prenup is:
- There must be disclosure of each other’s financial positions or a waiver concerning financial disclosure. Proper disclosure is advised. This can be done by way of a schedule summarising the respective capital (including pensions) and income positions.
- Have independent legal advice from a family lawyer (preferably one who specialises in such agreements) on both sides. While Radmacher does not make it absolutely necessary for independent legal advice on both sides, it will help to demonstrate that no pressure was applied by one party.
- Suitable provision for a spouse and for children should be included to ensure the agreement is not viewed as being unfair and therefore less likely to be upheld by the courts.
- It should be signed in good time before the wedding. We recommend that is signed no fewer than 4 weeks beforehand and preferably well before then. If it is concluded any closer than that it could denote undue pressure upon the financially weaker spouse. If you are considering a prenup ideally discussions would begin and lawyers instructed about 6 months prior to the wedding. The last thing a happy and busy couple want is for it to interfere with the run up to the wedding.
What sort of terms should the agreement include?
It is a deed which sets out the financial provision that will be made for both parties in the event of a divorce. Every agreement is different and will be tailor made to individual circumstances. It might simply seek to ring fence assets acquired or inherited before the marriage or property inherited during the marriage and leave the other assets to the discretion of the court on divorce. Or, it can be prescriptive about what the award should be say after a 5 year marriage, a 10 year marriage and so on and envisage alternative provision if there are children.
The bottom line so far as the division of assets on divorce is to meet the “needs” that the parties have. “Needs” means providing appropriate accommodation, the right level of income (or capitalised income) and if appropriate suitable pension provision. This will be influenced by the standard of living enjoyed by the parties to the marriage. The agreement is more likely to be viewed as fair if it ensures that both parties’ needs and the needs of any children of the family are appropriately met.
The extent to which a prenup foresees future events and allows for changing circumstances will determine its eventual influence. For this reason, drafting an agreement for a young couple contemplating children bears careful consideration. While it is possible to build in a review of the agreement upon for example the birth of a child, reviews can be unsettling and would often by triggered by events that would be difficult in themselves, the birth of a child, ill health, unemployment etc. A review can exacerbate problems if the marriage happens to be going through a difficult or stressful time. Far better for the agreement to build in sufficient flexibility at the outset so that a review is not needed.
Who should get one?
- Those with particular assets they wish to protect such as inheritance or trust interests or a share in a family business, or perhaps the performance related element of their income.
- Couples who have independent wealth and who wish to maintain financial independence should their marriage end.
- International couples moving between countries.
- Couples for whom it is not their first marriage who have assets they wish to protect perhaps for children from a previous marriage.
And who doesn’t need to?
As the bottom line in a prenup is to meet needs (which means providing accommodation/income if appropriate), there is limited value for those of modest means who are unlikely to accrue significant wealth. Such as in the example of a young couple with little or no assets getting married for the first time who plan to have children and who are looking to accumulate their wealth during their marriage with no expectation of significant inheritances.
How can we help?
Please get in touch with us as far in advance of your wedding as possible to discuss costs (which are far less than for a divorce) and to make an initial appointment to discuss your particular circumstances. In our experience it is far better if there are open discussions between you as a couple about the agreement and what you are seeking to achieve before the drafting process begins and indeed throughout the process. We will always endeavour to work constructively with solicitor acting for your future spouse to make the experience as non-contentious and straightforward as possible.
[email protected] +44 (0)208 899 6345 www.helenpidgeonsolicitors.com