Pre-nuptial Agreements

A pre-nuptial agreement is a difficult thing to raise with your spouse to be. But given that two in three marriages end in divorce, should we be burying our heads in the sand, or planning for that possibility?

Pre-nuptial agreements are currently not enforceable or legally binding in England and Wales. This is now seen by many as old fashioned and out of line with the law in other jurisdictions. However, pre-nuptial agreements can be taken into account now as one of the circumstances of the case on divorce. Whether the pre-nuptial agreement has 'magnetic importance' depends on the circumstances of the case.

The Court has a wide discretion when it comes to deciding how much significance to attach to such an agreement. It could hold the parties to it in full, in part or ignore it completely. Recent case law has demonstrated that Judges will increasingly examine the precise terms of the agreement and seek to implement it provided that the circumstances are appropriate.

The law on pre-nuptial agreements could change when we get the Supreme Court's decision in the case of Radmacher v Granatino - judgment is currently reserved.

The facts of Radmacher:

• Granatino (husband - H) and Radmacher (wife - W) married in 1998 and separated in 2006. There were 2 children of the marriage, aged 9 and 6. W came from a very wealthy German family, with her wealth estimated at £54.3m. H had been employed in the city but was now a student.
• The Pre-nuptial Agreement was entered into shortly before the marriage with the final draft being given to H just 7 days before it was signed. It made no provision for either H or W on divorce. It contained incomplete detail of W's wealth and made no provision for the birth of a child.
• W said H should receive nothing because he signed the pre-nuptial agreement. H said that the pre-nuptial agreement should be disregarded entirely because of a lack of independent legal advice and because the terms were unfair. H sought £9m from W.
• H was initially awarded total capital of £5,560,000, £504,000 for a home in Germany and £70,000 per annum for the children.
• The Court held that the pre-nuptial agreement was defective because H received no independent legal advice, it deprived H of all claims to the furthest permissible legal extent, there was no disclosure by W, there were no negotiations and two children were born during the marriage which hadn't been considered in the pre-nuptial agreement.
• W took the case to the Court of Appeal where the decision at first instance was revoked. H appealed to the Supreme Court.
• The Supreme Court could change everything, as could the Law Commission.
  The Law Commission is currently considering what the effect of a pre-nuptial agreement should be. The Report is due to be published in 2012. It will then be for Parliament to consider what, if any, recommendations to accept.

Pending the Supreme Court's decision, clients can seek to be protected by following the guidelines in the 2003 case of K v K:

• Did the parties understand the agreement?
• Did the parties receive proper advice on the terms?
• Was either of the parties put under any pressure by the other to sign the Agreement ('sign this or we're not getting married') and how close to the date of the marriage was it signed?
• Was there full financial disclosure?
• Were the parties put under any pressure to sign by third parties (parents etc)?
• Did one of the parties exploit a dominant position either financially or otherwise?
• Has any unforeseen circumstance arisen since the Agreement was made that would make it unjust for the parties to be held to it?
• Was the Agreement entered into in the knowledge that there would be a child? If yes, what do you do about it?
• What does the Agreement mean?
• Did the Agreement preclude an order for maintenance for the wife?
• Are there grounds for concluding that an injustice would be done by holding the parties to the terms of the agreement?
• Is it one of the circumstances of the case to be considered?
• Does entering into the Agreement constitute conduct?

Other points to consider include compliance with the law of contract, whether the Agreement needs to be mirrored or registered overseas and what is it that the client could be giving up by signing the Agreement.

Post-nuptial Agreements

Do Post-nuptial agreements give more certainty? Apparently so, as highlighted by the Privy Council case of McLeod.
The facts of McLeod:

• Mr (H) and Mrs McLeod (W) were married in Florida on Valentines Day 1994.
• H was an established and wealthy business man with assets at the time of the marriage of about $7m.
• On the day of the wedding, H and W signed an agreement setting out what provision W would receive in the event of the breakdown of the marriage.
• A post-nuptial agreement was signed in 1997 and then a further post-nuptial agreement in 2002. The negotiations for the third agreement had begun some 14 months before it was executed and at the first trial the judge was satisfied that W had entered into it because she wanted to. It said that W would get a lump sum of £1m in the event of divorce.
• The marriage broke down in 2003 and H petitioned for divorce. W issued a financial application in 2005 and H then sought to enforce the 2002 agreement. W said that it should be disregarded altogether.
• At first instance the Judge upheld the agreement save that W got an extra lump sum outright (H said it should be on trust) of £1,250,000 for housing.
• Both H and W appealed. W sought 30% of H's wealth at the date of the marriage and 50% of its increase in value during the marriage - she put her total claim at £5,000,000. H said that the additional £1,250,000 for housing could stand but should be on trust.
• On appeal, the Court rejected W's claims for herself but agreed that maintenance for the children were too low. It maintained that the additional £1,250,000 should be paid outright.
• H then appealed to the Privy Council - the spotlight was then directly on the enforceability of the post-nuptial agreement and the sole argument was whether or not H could persuade the Court that it was valid and should be upheld.
• The Privy Council allowed H's appeal. It held that the 2002 Agreement was valid and enforceable. It substituted the lump sum for the trust proposed by H.
• The Privy Council ruled that there is nothing to stop a married couple from entering into contractual financial arrangements governing their life together, or their separation.

Post-nuptial agreements are, subject to conventional safeguards (law of contact, no fraud, misrepresentation, duress etc), generally considered to be binding.