What are they ?

A prenuptial agreement is a written contract made between a couple engaged to be married, which sets out how their assets would be distributed between them should they ever get divorced.

Why have a prenuptial agreement ?

Whilst to some the thought of making such an agreement would indicate a lack of commitment to each other, for others there are legitimate reasons for wanting to put in writing their wishes of what should happen to their assets in the event of a divorce. Such reasons include:

• Under the current Court system, particularly in cases of wealthy parties, the Judge in a Financial Settlement case will start off with an assumption of a 50:50 split of all property and assets. This can be a very unfair result, particularly when one party to the marriage is considerably wealthier than the other and the marriage was of a reasonable short duration. By having a properly executed prenuptial agreement, the parties can go a long way to try and redress any such potential unfairness in any Court imposed financial settlement.

• Certain people can have inherited family wealth which has remained in the family for generations and they wish for this to be perpetuated. No member of the family wants to see such inheritance sold and divided simply to satisfy a Court imposed financial order. It can be either inheritance which they have already received, or inheritance which they have reasonable anticipation of receiving. By having a prenuptial agreement it can be possible to ring fence those assets to a degree with an expectation that such assets will be kept out of any eventual settlement on divorce.

• The parties may have assets or property in other Countries which they wish not to be taken into account in any financial settlement. The Court will look at any assets wherever they are situated. The only way to redress this is by entering into a prenuptial agreement stating your wishes and expectations to exclude such assets from any settlement.

• Each party may have dependent relatives or children from previous marriages of whom they want to protect their interests in the relevant party’s assets. Having such intentions set out in a prenuptial agreement will provide some ability to protect those children or dependents in any divorce settlement.

As everyone’s circumstances are different, any prenuptial agreement would need to be customised and drafted to the parties’ particular needs.

Are they legal and enforceable ?

It is a common misconception that in the UK prenuptial agreements are not legal or enforceable. The reality that these are two separate points and each needs to be dealt with in turn:

Legality of a Prenuptial Agreement

Prenuptial Agreements are legal agreements between the two parties. Such an agreement would need to be properly drafted, just like any other legal contract. In addition there are several legal pitfalls specific to prenuptial agreements which could invalidate its legality. These include:

 a)            Lack of independent legal advice – If it can be shown that one of the parties to the agreement did not get proper independent legal advice before signing the agreement, then it is likely that the agreement will not be considered legally binding. This will especially be the case where that person has been prejudiced under the agreement. Normally the Court will insist that each party has been independently represented by a solicitor with experience of advising on and drawing up prenuptial agreements.

b)            Lack of disclosure – If it can be shown that one of the parties had failed to disclose the extent of their financial assets at the time of entering into the prenuptial agreement, then it allows for the validity of such an agreement to be challenged. The best way of avoiding this problem is to identify the assets in a schedule attached to the agreement.

c)            Duress – If either party has undue pressure placed on them, then it is likely the Court will consider the agreement to be invalid.

Enforceability of a Prenuptial Agreement

Unlike the common belief, prenuptial agreements are enforceable, provided that they are properly entered into and there is no reason preventing the Court from agreeing to the provisions set out in it.

The way the Court system works in the UK in relation to financial settlements is that the Court will take into account specific criteria as set out in s.25 of the Matrimonial Causes Act (MCA) 1973. The purpose of this is that it looks to achieve what it sees as a just and fair result in the financial settlement. This power allows the Court full discretion to divide the assets as they see fit. Any prenuptial agreement can be ignored by the Courts should they see it as resulting in a manifestly unfair and unjust result.

Whilst this would seem to negate the power and purpose of any prenuptial agreement, the Courts have been increasingly disposed to adopt provisions of prenuptial agreements and they will enforce it where they believe that it is equitable to do so.

In a more recent change the Courts now seem willing to allow the result that would have been imposed by following the s.25 principles to be modified considerably by the provisions stated in the parties’ prenuptial agreement. This is as long as the requirements for a prenuptial agreement have been complied with and that giving effect to the provisions of the agreement does not unfairly prejudice the parties or any child of the marriage, or in any other way create an unfair result.

This change was seen in the recent case of Radmacher –v- Granatino [2009] where the Court of Appeal enforced the provisions of a prenuptial agreement and the three Judges in the case forcefully expressed the view that the parties should be free to make such agreements. This case subsequently went to the Supreme Court where they upheld the Court of Appeal’s decision.

However, it should be noted that in this case what the husband was expected to receive under the provisions still amounted to millions of pounds and so in these circumstances it is relatively easy to adhere to the agreement’s provisions whilst providing for reasonable needs as required under s.25 MCA 1973. More often than not there is not as much capital to be split between the parties and it is yet to be made clear how the Courts will act in such situations and whether they will enforce a prenuptial agreement in its entirety in such a case. It is more likely that whilst great weight will be placed on the fact that there is such an agreement, its effect will be simply to move any ‘reasonable award’ considered the Court to the lower end of the scale, rather than to have the Court simply enforcing the agreement itself.

This article from Shmuel Portnoy of Darlingtons Solicitors, who offer specialist family law advice in London.

Money issues are often a significant factor in divorces and a rise in the number of divorces in difficult economic times should therefore be expected. However, research on the past year has suggested that many couples are holding off from divorcing as they simply can’t afford to divorce. Consequently, the rise in divorces reported this week would probably have been quite a lot higher had economics not been so bad. The figures disclosed by the Office for National statistics disclose that :-

• The annual divorce rate has risen by 5%
• In 2010 there were just under 120,000 divorces in England and Wales in 2010. In 2009 the number was just under 114,000.

Whilst the percentage of marriages ending in divorce seems to be increasing and number of divorces later in life where the marriage has survived over 15 years is on the up, the overall number of divorces, notwithstanding the increase in 2010, is on a  long term decline due to the fact less people are getting married inj the first place.

When the County Court awards Judgment of a financial nature to one party to a divorce, it can often happen that the Respondent will want to challenge such an Order. Whilst on many occasions this will be simply out of a personal conviction that the Order is unfair, there are procedures in place to allow the Respondent to appeal or set aside the Financial Order if they have valid reasons. Additionally the Applicant may wish to appeal or set aside the decision if they are dissatisfied with the amount eventually awarded to them.

 Appeal

 Whichever party makes the appeal against the Judge’s Order, it can only be made within 14 days of the Order itself. It is therefore crucial that each party seek advice on the outcome of the hearing and the Order as soon as possible so as to decide whether it is appropriate to pursue an appeal.

Any appeal will usually only review the decision itself rather than the actual facts of the case. In certain cases, where there was an inadequate finding of fact by the Judge or there had been a procedural irregularity, then the Judge can rehear the entire case.

Should a party wish to introduce new evidence to an appeal they can only do so where the Court considers it to be in the interests of justice. An example of this would be where the evidence was not available to that party at the original hearing and had they been aware of it the information would have formed an important factor in the result of the case.

If an appeal fails there is a possibility to take the matter further, to the Court of Appeal, however this is only available where the Court of Appeal considers that such a case would raise an important point of principle or practice, or there is some other compelling reason for it to be heard.

Setting Aside

Whilst this procedure is available to either party, the Courts are generally reluctant to set aside Financial Settlement Orders on Divorce for reasons of certainty.  Both parties should be able to live and plan their future lives without worrying whether their Divorce Settlement will be re-opened and change the basis of their plans.

In order to limit this from happening an application to set aside the Order can only be made on narrow grounds, including:

• Non-disclosure of material evidence – Where the duty of full and frank disclosure by each side has been breached the Order may be set aside, however not every non disclosure will have this result. The non-disclosure must have resulted in the Court granting an Order which was substantially different from that which would have been granted had the true facts been known.
• Fraud – for example where one party has deliberately misrepresented the size of their assets.
• Events occurring after the Order was made – to use any subsequent event as the basis for an application to set aside the Order, the event must invalidate the basis upon which the Court Order was made, it must occur in a relatively short period of time after the Order was made, the application to set aside must be made promptly after the event and the granting of the application must not prejudice the rights of a purchaser for value of any property in question between the parties.

Where the Order deals with assets which have a dramatic change in value shortly after the Order is made, the Courts have set out guidelines for when they would be willing to set aside the Order due to these changes.

1. Where an asset was taken into account which was valued correctly at the time of the hearing, only its value changed shortly afterwards owing to the natural process of price fluctuation, the Court will not view this as justifying an application to set aside the Order.
2. Where the wrong value was given to an asset considered at the hearing and the difference in value would have led to a different Order and the mistake was not due to the person making the application, then the Court has discretion to set aside the Order.
3. Where something unforeseen and unforeseeable happens to an asset to change its value drastically after the hearing which causes a substantial change in the balance of assets split between the parties, then the Court should set aside the Order, provided the other conditions in relation to time and property have been met.

It should be noted that this means there are only very limited circumstances where a change in value shortly after an Order is made will allow for an application for the Order to be set aside. Even a huge drop in share prices, changing the parties wealth drastically, has been seen by the Court to be ‘owing to the natural process of price fluctuation’ and therefore not a reason to set aside the Judgment.

When looking to set aside a Judgment it can be done in one of two ways; either by applying for permission to appeal out of time to the relevant appeal court, or to apply for the Order to be set aside at the Court which heard the original case. In most cases either procedure can be used, however it would seem that where the applicant is basing his grounds on non-disclosure or fraud, the appropriate method would be to apply to set aside the Judgement, whereas if they were using supervening events as their basis, then leave to appeal out of time is to be preferred.

The ground for divorce is the fact that the marriage has “irretrievably broken down”. In order to petition for a divorce you must then rely on one of 5 factors:

• 2 years separation

• 5 years separation

• unreasonable behaviour

• adultery

• desertion

Both 2 years separation and adultery require consent/ admittance. The other factors however do not.

Should you not know the whereabouts of your spouse or he/she is simply refusing to co-operate then all is not lost, you can still petition for a divorce. Once the petition has been issued at Court you then have the following options:

1. Apply to the Court by way of an affidavit requesting that the Petition be deemed served. It would be necessary for you to swear an affidavit stating what evidence you have that the Petition was served. It can be served by the Court, who will simply post it to her/him or you can request to receive the papers yourself and you can hire a process server to personally hand the papers to your husband/wife. The process server will then provide you with an affidavit of proof of service.If the Court has sent the papers and you know s/he lives at the address to which they have been sent, and you have spoken to or heard from her/him and s/he mentioned that s/he has received them but just doesn’t want to respond the you can draft an affidavit setting out those details. Should it be that s/he is no longer at that address and you are unaware of her/his location, then this application will be of no benefit. It should be noted that such an application currently attracts a Court fee of £45.
2. Apply to the Court for directions. This is usually done in cases where the other party has disappeared and you have tried to locate them. You would need to swear an affidavit stating what means you have used to try and locate her/him and what the results of that search were. Should the Court be happy that you have undertaken all reasonable means to try and locate her/him and have failed, then they may dispense with service and allow your Petition to proceed anyway. This application also currently attracts a Court fee of £45.
3. Alternatively, you could apply to Court for substituted service, via email for example, if you know that s/he responds to this form of communication. This again attracts a £45 Court fee.

Once you have an order from the Court for either Deemed Service, an Order Dispensing with Service or an Order for Substituted Service then you can apply for your Decree Nisi exhibiting that Order and your divorce can continue down the usual route.

Alicia C Cenizo

The writer is a Solicitor, Partner and head of  Family law at Darlingtons Solicitors, and a member of Resolution.

It appears that middle income couples who decide to divorce are having to agree to postpone financial resolution as part of their divorce due to the recession. This also ties in with the overall reduction in the number of divorces as couples put off divorcing due to financial conditions.

Clean breaks have been quite common where there are either no children or children have reached adulthood but threats to job security and the significantly increased difficulty of obtaining new mortgages (not only for the individuals after divorce but also because many adult children also cannot obtain mortgages and therefore stay in the marital home) are the primary reasons why clean breaks are becoming less common.

Instead of a clean break, in the more challenging current conditions, Mesher orders are on the increase.

With these orders, the sale is postponed, but such order cause some of the same difficulties with mortgages because the older the parties are when the matrimonial home is sold or transferred to one of the parties, the harder it is for the other party to obtain a mortgage to either pay for a buy out or buy a new property. There can also be Capital Gains Tax ramifications.

A recent survey from an unusual source suggests that divorce numbers are down simply because people can’t afford to divorce, so find alternative ways to cope. In a survey from the website Illicit encounters, a large number (some 31,000) of it’s members provided the following information :-

• 38% state that the stress of selling their home is preventing them divorcing
• 42% say they aren’t getting divorced as it’s too expensive.

Average legal fees for divorce are in the region of £13,000.00.

The reality of the situation is, that having worked upon matrimonial cases for many years, issues concerning the parties should be a matter between the parties themselves and not for public consumption.  The argument goes by the Press, that if a celebrity has used the Press to promote their career, that in turn it would appear that they have sold their soul to the Press to dissect every part of their private lives as a matter of inalienable right.  Accordingly the Press are entitled to comment on their clothing, their expenditure, where they choose to live, how they choose to bring up their children, but more particularly how they conduct their personal lives even though it is private to them.  I take the view that the persons’ private life is their own and simply because they choose to put their head above the parapet in that, their record, film or career is promoted by the media, does not as of right give the Press an entitlement to have every single personal detail thrust into the forefront of media attention.

Regrettably, it is a fact of life, that probably the best part of 75% of all married men are having affairs in this country as we speak.  Some get caught, some don’t, some lead completely double lives, some have casual relationships.  But it is entirely their own choice.  Furthermore, if we were to assume as has been suggested recently that by having an affair a man is incapable of carrying out his job, this means that three quarters of the entire British Isles would come to a shuddering halt on a daily basis.  Furthermore, France, Italy, Spain etc would be at an absolute standstill.

When a woman discovers that her husband has committed adultery or vice a versa, often they can agonise in front of me as to whether or not they wish their marriage to end.  Trust issues clearly arise, some people depending on their background and self esteem can overcome this and stay with their partner and some can’t.  This decision is a personal one and must be taken by the couple themselves.  The media, do not simply want to have a right of freedom of expression to comment that someone has had an affair, they go much further than this and that is my objection and concern.  The media are not content simply to report the issue but do then for the post part go on to turn the matter into a witch hunt.  Accordingly, they will hound and hound the couple encouraging the wife that her husband has had affair to abandon him, and will criticise her if she chooses to consider remaining with the spouse if it is their view that the marriage should end.  This is surely an extension of freedom of Press into “trial by media”.

One only has to look at the case of Wayne and Coleen Rooney to see that that is exactly what occurred.  The argument ran from the media that there was a public interest in reporting these matters and that the sponsors were concerned that this wholesome family imagine had been dented.  Who are they kidding?  Wayne Rooney was given sponsorship as are so many footballers) not because he had a squeaky clean family imagine, but because he was good at football and by his popularity would boost sales.  Tiger Woods, was given sponsorship because he was brilliant and continues to be brilliant at golf.  It was the media who interlaid the image of the family man, it was the media who have interlaid the imagine of Ryan Giggs as a family man. The reality is that many sports personalities are ambitious, focused and can be very naughty.  It is the media who build up, and the media who feel they have a right to crush.

A similar scenario arose in the case of Cheryl and Ashley Cole.  The media again felt that there had to be trial by newspaper, tv and radio.  The media felt that Cheryl should not remain with Ashley and if Cheryl had been given the space and understanding and not been caught in such media frenzy, it may well have been the case that she would not have divorced Ashley in the way and manner that she did.  The fact is that celebrities are people like anyone else.  Their egos may be fragile, or huge, but they are susceptible to distress and hardship in the same way as anyone else except that they have the added pressure of having to experience all of those emotions in the public glare.

If a celebrity wishes to protect their children from being bullied at school from the fact that one of their parents had extra marital relationship then why should the media take priority over the need to protect that child’s interest.  The fact that their father or mother may have been entirely stupid, flawed or misguided, is a matter for the couple, and it should not be a matter for the Press to decide.  Why should the Press be the arbiters of what is best for the child, what is best for the couple, when the decision contains within it an element of self interest, which is to sell newspapers by using sensational comments.

The media are whipping the public up yet again into a frenzy over the super injunction on the basis that the public should know and why should facts about adultery or other matters be hidden from public consumption.   However, whilst I don’t believe that the public should ever be misled, nevertheless, there is a deeper and wider issue that is being overlooked in the frenzy to deal with the public’s right to know.

I do not believe that all super injunctions are correct or have been obtained for the right reasons but I do believe that this idiotic media frenzy surrounding celebrities personal lives, has now spiralled out of control and with the advent of social networking websites expressing every thought of the day, the issue becomes ever more complicated.   Because celebrities are choosing to share their inner most thoughts and issues with the public, when do you then draw the line on the right to know?

It is my personal and passionate view that the individual has a right to reveal such information as they wish and that by so doing they do not forfeit entirely their right not to reveal items that they do not wish to be made public.

There surely must be a sensible public enquiry into this issue once and for all since to totally deny media freedom of expression would be wrong, yet to allow them to continue on unabated is also too intrusive and fundamentally wrong.

The above views are courtesy of Vanessa Lloyd Platt, a very prominent divorce solicitor in London.

Consideration is needed on the following preliminary issues :-

• Who is the settlor?
• What type of trust is needed?
• Who does the settlor want as trustee
• Who are the beneficiaries?
• What are the trust assets?
• Who will administer the trust?
• How will the trust’s running costs be funded?

Even if the trust itself is not attacked, the trust assets may be treated as if still they belonged to the settlor if:

• The settlor or his close family members can benefit from the trust (see Who are the beneficiaries?).
• The settlor gives away assets to avoid paying care fees.

What type of trust is needed?

Tax issues

The type of trust determines what tax is payable when the settlor creates the trust and during the lifetime of the trust. The taxes most likely to apply are:

• IHT. Almost all new lifetime settlements are relevant property trusts subject to a special IHT regime, with charges:
• when the trust is created;
• on ten-year anniversaries of creation; and
• when assets are distributed from the trust.

The only exceptions are lifetime trusts that qualify as a disabled person’s interest  which are generally taxed as if the disabled person owned the trust assets personally.

A trust created by will, on the other hand, may also qualify as one of the following:

• an immediate post-death interest, which is an interest in possession  (IIP) trust where the capital is treated as if it belonged to the life tenant
• a trust for bereaved minors, which is a trust for children at 18, with favourable IHT treatment; or
• an 18 to 25 trust, which is a trust for children at 25, with favourable IHT treatment until the children reach 18 and a modified version of the relevant property regime after that time.

Capital gains tax (CGT). Relevant property trusts qualify for hold-over relief

• on creation (unless they are settlor-interested, see Practice note, Taxation of UK trusts: overview: CGT: no hold-over for gifts to settlor-interested trusts ; and
• when assets are distributed from the trust.

Income tax. IIP trusts are taxed on the basis that the life tenant is entitled to the income personally. Non-IIP trusts are subject to special trust rates of tax. There is no difference between trusts created by a settlor during his lifetime and trusts created by will.

Special rules apply if the settlor or his close family members can benefit from the trust (see Who are the beneficiaries?).

Whether the trustees will be family members, professional advisers or a trust company. If there are professional trustees, there must be a clause in the trust document allowing them to charge for their services and they should provide the settlor with details of their charging rates.

• How many trustees there will be. The usual number is two to four, because this falls within statutory rules affecting the number of trustees.
• Whether the trustees must act unanimously, or can make decisions by majority. (They can only act by majority if the trust document allows them to do so.)

What are the trust assets ?

You need to know what the trust assets will be, so that you can:

• Advise on whether tax will arise when the settlor gives the assets to the trust, for example, IHT on creating a relevant property trust. To do this, you need at least an estimated value for the assets.

Providing information to the trustees

The trustees need information about the trust so that they can fulfil their duties as trustees. The amount of information they need depends on the situation. For example, a sole corporate trustee, which is dealing with the trust administration, needs more information than an individual trustee where professional advisers carry out the trust administration.

All trustees should receive a copy of the trust document and any letter of wishes. Advisers will often have provided additional information to the trustees when dealing with the creation of the trust. Depending on the circumstances, however, the trustees may also need:

• A family tree, particularly if any trustee does not know the family, or if there are beneficiaries from several different branches or generations.
• A summary of the terms of the trust, particularly if the trustees have no legal knowledge.
• A list of key dates (for example, when each grandchild reaches 18 and so obtains an IIP).
• A summary of the tax treatment of the trust.
• Information about the trust assets. For example, if a valuable property is the main trust asset, the trustee should know who occupies it and who is responsible for insuring and maintaining it.
• Guidance on the role of a trustee, if they do not have experience of being a trustee.

The trustees should consider whether they need to meet regularly and, if so, at what intervals. This depends on whether the trust holds assets that need active management. For example, trustees of a large portfolio of commercial property will need to meet more often than trustees of a life insurance policy, who may not need to meet regularly unless something changes. The trust administrator should prepare agendas for the meetings and record decisions taken.

The trust administrators should:

• Arrange for the original trust document and any other original documents (such as a letter of wishes) to be stored safely.
• Consider keeping a copy of key attendance notes and written advice to the settlor about creating the trust (and about trustee exemption clauses) with the trust document, if the correspondence file is likely to be destroyed after a few years.
• Keep copies of original documents on working files for easy access.
• Set up reminders in advance of key dates, including when beneficiaries become entitled to income or capital (for example, on reaching 18), ten-year anniversary charges in relevant property, when the accumulation period ends (if there is one, Statutory restrictions on accumulation are abolished for new non-charitable trusts; and when the perpetuity period ends, if a fixed period.
• Establish a system for recording information needed for the trust accounts and tax returns (such as income and expenses).
• Record decisions taken by the trustees when they begin to act (for example, decisions to appoint advisers).

Trust points to deal with

• Allowing professional trustees to charge for their services. Even if there are no professional trustees, it is good practice to include a charging clause in case it is needed in future. It may cause practical difficulties if, for example, a family trustee dies unexpectedly and a professional cannot act.
• Allowing trustees to be paid for acting as an officer or employee of a company whose shares are trust assets.
• Limiting the liability of trustees, if there are non-professional trustees.
• Allowing trustees to buy and sell assets from the trust, if family members are (or may become) trustees.
• Allowing trustees to benefit one of their number, if a beneficiary is (or may become) a trustee.
• Allowing trustees to act by majority, if the settlor wants this.