There was a time when pre-nuptial agreements in this country were considered by many to be against public policy and rare beasts. In contrast, they were common in other jurisdictions such as the US and many continental European countries where their legal systems had developed differently to ours.
This all changed in 2010 following the landmark Supreme Court case of Radmacher v Granatino in which the court determined it should give effect to pre-nuptial agreements that were freely entered by parties with a full appreciation of the implications unless it would be unfair to hold them to their agreement. Interestingly, the parties in Radmacher (one a wealthy German heiress and the other a not so wealthy banker) entered into a pre-nuptial agreement in Germany and then moved to England. When the marriage fell apart, the husband applied for financial relief and was awarded over £5m. The court at first instance attached little weight to the pre-nuptial agreement but on appeal, a decision upheld by the Supreme Court, found the agreement was fairly entered into and attached more weight to the bargain that had been struck and awarded the husband a much higher sum.
The effect of Radmacher
Understandably following Radmacher there was an explosion of pre-nuptial agreements in this country as future spouses sought to protect assets they had built up or acquired before their marriage (or expected to inherit in the future) and the making of which had nothing to do with their future husband or wife.
Since Radmacher many a sensibly drafted pre-nuptial agreement has avoided lengthy and costly litigation in the family courts about who should get what upon divorce. Whilst this is true for many divorcing couples others do find themselves in court fighting over how assets should be divided despite having entered into an agreement. This is because Radmacher did not make such agreements automatically binding but instead made them in effect binding if the agreement was fair at the time of the divorce.
There are no hard and fast rules as to what makes a pre-nuptial agreement fair or unfair but the court has indicated some of the following as important factors:
- Whether the parties had independent legal advice about the agreement.
- Whether one of the party’s entered into the agreement because of undue pressure or duress from the other party.
- Whether each party gave sufficient financial disclosure to the other so as to allow them to make an informed decision as to whether they should enter into an agreement or not.
- Whether implementing the terms of agreement would leave one of the party’s in a predicament of financial need.
What does the above mean in practice for those about to marry?
Where substantial non-marital assets exist – the source of which is outside the marriage – in some ways the answer is obvious. As a pre-nuptial agreement can avoid the stress, strain and cost of legal proceedings and help preserve relationships between divorcing couples (critical where they have children whom they will have to co-parent for years to come), a future wife or husband should consider very carefully whether it would be right in their individual circumstances to enter into an agreement. And if they do decide it is the right step for them, any agreement will need to have been properly entered into and fair at the time of the divorce.
But what does a pre-nuptial agreement actually look like?
The answer is no agreement looks exactly the same and the form and terms depend on the circumstances of the parties entering into the agreement. One form of pre-nuptial agreement is the tariff model pursuant to which the paying party makes increasing financial provision based on the length of the marriage. The far more common form is the needs based model which attempts to broadly adopt the approach to capital and income the court might upon divorce. Whichever form is adopted the most important aspects of a pre-nuptial agreement are identifying upon divorce what assets should be ringfenced and retained by each party as their separate property, what property should be classed as joint property and shared and what other financial provision (if any) should be made.
Since Radmacher in cases where the terms of a pre-nuptial agreement are disputed the court’s approach has been to treat the agreement as one of the factors it reviews when deciding how to exercise its discretion and divide assets. In other words, what weight (if any) should be attached to the agreement? There have thus been cases where an agreement has been found to be fair and its terms implemented and others where they have been found to be unfair and its terms not implemented.
How the timing of a divorce can impact a pre-nuptial agreement
Where a couple have entered into a pre-nuptial agreement the timing of their divorce can be a crucial factor in what weight a court attaches to an agreement. That marriages change slowly over time is an inescapable fact; children may come along, the parties may move overseas or financial positions may be drastically different from the time the marriage took place. Indeed a reason why some pre-nuptial agreements are not upheld by the court is that circumstances have materially changed making the agreement unfair. This makes it important not only for agreements to be future proofed insofar as it is possible, but for them to be reviewed by the parties with the passage of time or because important life events have taken place.
The reality of married life – and one that family lawyers understand entirely – is that this is easier said than done. The truth is that many clients having gone through the process of agreeing the terms of a pre-nuptial agreement just want to forget about it. This is understandable. However, if this means that in longer marriage cases where there has been no review of the original agreement there is a higher chance that a pre-nuptial agreement might be found to be unfair, very much the opposite is true in shorter marriages where little has changed. This is where pre-nuptial agreements tend to shine the most and offer the best protection against a party seeking to invade the other party’s ringfenced and separate property. It is an unfortunate fact that a third of marriages end in divorce with 20% ending within the first 10 years of marriage but one that those who are contemplating marriage with assets to protect need to be mindful of.
Finally, a pre-nuptial agreement is not right for everyone and the very thought of discussing the idea with their future life partner fills many with understandable dread. For a young couple starting out in life with few assets of their own there is really no need for an agreement. But where people have substantial assets to protect now or such assets will be inherited in the future, pre-nuptial agreements should not be dismissed out of hand in order to avoid uncomfortable conversations. It is these very conversations which help avoid acrimony and bitterness if what was a loving and fulfilling relationship does eventually come to an end.
If you’d like to discuss your situation with a legal professional, get in touch with KMJ Solicitors today. Contact our pre-nuptial agreement solicitors in London using our online contact form or give us a call on 020 3709 6895.
