Prenuptial Agreements

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.