There is much publicity regarding pre-nuptial agreements (pre-nups) entered into by the rich and famous particularly in the USA but more commonly now in the UK too. This can be due to people marrying later for socio economic reasons and increasing divorce rates leading to 2nd and 3rd marriages. But are they relevant to those with less deep pockets? The answer is often yes.
So what does a pre nup do?
A pre nup sets out in a legal agreement prior to the marriage how the couple intend their assets to be divided if they separate or divorce, and can include financial arrangements during the marriage.
Entering into a pre – nup allows:
- PROTECTION – protecting previous acquired wealth or inheritance (non matrimonial property), family business interests etc.
- CERTAINTY – allowing couples certainty as to how the assets would be divided if the relationship fails which could save money on costly litigation and minimise acrimony
- CLARIFICATION – how the couples finances are dealt with during the marriage giving transparency
So are they binding?
Currently they are not legally binding. On divorce the court still has the discretion to override the pre-nup when considering how to share the assets and income of a marriage. However, that being said, the court must also consider the pre nup as a ‘circumstance of the case’ along with all the other factors set out in s25 of the Matrimonial Causes Act 1973 which determine the division of assets on divorce.
In 2010, the Supreme Court dealt with a landmark case Radmacher v Granatino concerning the issue of pre nup agreements. The court said that if a nuptial agreement is freely entered into by both parties with full appreciation off its implications, then they should be held to it unless it would not be fair to do so.
So how does the court decide what is fair?
Radmacher said that to be fair:
- The agreement must be freely entered into without any duress , fraud, misrepresentation or one party exerting their dominant position over the other
- The parties must have a full appreciation of the implications, and whilst full and frank disclosure of finances is desirable, it is not essential if the party is aware of the full implication
- It must be fair to hold the parties to the agreement in the circumstances. It may not be for instance if it prejudices a child of the family.
To determine this, consider the principles set down by previous case law (White v White, Miller v Miller and McFarlane v McFarlane):
- Needs – this covers housing and financial needs. Again it goes back to the factors in s25 mentioned earlier and includes earning capacity both now and in the future, party’s ages, standard of living, health and any children.
- Compensation – has one party been able to pursue a career at the expense of the other, perhaps giving up their aspirations to care for children and support the other and in so doing has lost our on their own lucrative career? Fairness could in such a case lead to compensation being awarded
- Sharing – There is an expectation in a marriage that all assets will be shared. However there may be assets brought into the marriage by one party which they wish to preserve as non matrimonial property as opposed to assets generated during the marriage and this may be provided for within a pre nup. So if the pre nup provides that assets be shared in a way that meets those criteria, then it is more likely that the court will uphold it in the event of a dispute. However if one party is left in need whilst the other is comfortably well off, it is unlikely to be seen as fair. The Law Commission have been examining this difficult area of law since 2009. Their final report was published in 2014 together with a draft Bill. However the law remains the same currently.
However they propose that in future a nuptial agreement should be legally binding if it meets both parties’ financial needs and those of any children and complies with the following criteria:
- Valid – It must be contractually valid
- Formation – It must be validly executed as a deed
- Timing – It must not have been made within 28 days prior to the marriage
- Disclosure – Both parties must have received disclosure of material information about the other party’s situation when they entered into the agreement
- Legal advice- Both parties must have received legal advice at the time they entered into the agreement
This article only provides an overview and is not intended to replace individual advice. Each situation is different and needs expert advice based on your particular circumstances.
For an initial discussion and more detailed advice contact Janice Leyland on 01905 730450 or email firstname.lastname@example.org