These are headline news following recent cases like Charman with wealthy or the once bitten divorcee wanting damage limitation before marrying. Whilst the best advice (until they change the law on cohabitation) is “don’t do it”, there is a growing pressure to give ‘pre-nups’ and ‘post-nups’ more weight.

What are they?

Pre-nuptial agreements are agreements entered into by couples prior to marriage to deal with how their financial affairs will be determined in the event of marital breakdown. Post-nuptial agreements are entered into following the marriage and in theory at any point during the marriage. Such agreements are not currently binding under English law. Historically, they have been held to be void (i.e. never to have existed) on the grounds that they were against public policy and were viewed as attempts to oust the jurisdiction of the courts. In any event, a divorce court can vary them.

How to strengthen them

A pre-nup, to stand a chance of working, has to reflect what settlement a court might make on a marriage breaking down. The difficultly is that there is no fixed figure so a pre-nup has to take into consideration the factors which would apply in court.

Section 25 of the Matrimonial Causes Act 1973 contains a list of factors which govern how the Court determines applications made to the court by either party to the marriage for financial provision on marriage breakdown. The lists includes income, earning capacity, property and financial resources which each party has or is likely to have in the foreseeable future, the financial needs, obligations and responsibilities which each of the parties was or is likely to have in the foreseeable future, the duration of the marriage, the contributions made by each party to the welfare of the family during the marriage, the loss of benefits under pensions, and the welfare of any minor dependant children.

One of these factors is a catch all provision being “any other circumstance” under which the court can take into account the existence of a pre-nup. The same applies to post-nups. This does not, however, mean that the settlement or order in any subsequent divorce would necessarily follow the terms of any such agreement.

Review clauses are crucial – you can then argue about enforcing the new post-nup which would result from the review! Basically when advising on a pre-nup, we are advising on the divorce settlement before the marriage– but without the benefit of a crystal ball! So a review clause is not just prudent but vital.

There are various steps which are important to follow, in order to ensure that any pre or post nup agreement stands the best possible chance of being upheld. These factors are known as the “Edgar factors” following a case, Edgar v Edgar. Both parties need to obtain separate independent legal representation and need to provide to the other full and frank disclosure of their respective financial circumstances. It is very important that there is evidence of negotiations and the agreement should be entered into as early as possible prior to the marriage. At the very latest it must be entered in to three weeks prior to the date of the marriage. The greater the evidence of openness of disclosure, subsequent negotiations, and the more the party seeking to rely on the agreement can show that the agreement is fair and entered into freely by each party, then the greater the chance there is of the agreement being upheld, or at least carrying strong evidential weight.

Do they work?

Case law shows that it is not the presence of the agreement itself but the provisions of the agreement, the process followed by the parties entering into the agreement and the length of time which has elapsed since signing the agreement, which are the most important factors. The following two short case summaries emphasise these points:-

The case of K v K [2003], in England, where the court did substantially enforce a pre-nup agreement. This case involved a couple who separated just 10 months following the date of the marriage, the wife was aged 28 and had capital assets of £1 million, the husband was aged 39 and was worth at least £25 million. The parties had one child born shortly after the marriage. The agreement provided that if the parties were to separate within 5 years of the marriage then the wife would receive a lump sum of £100,000 which would increase by 10% per annum and the husband would make reasonable provision for children.

The wife applied for ancillary relief and sought to challenge the enforceability of the agreement. The wife was awarded £120,000 capital for herself. She was, however, also awarded periodical payments as the mother of the child and a housing fund was made available of £1.2 million for the wife and child, to revert back to the husband on the child ceasing full time education. In effect, the court upheld the pre-nuptial agreement.

In the later case of J v C [2004] the pre-nuptial agreement was dismissed by the court as something of an irrelevance. In that case, the parties’ marriage broke down after 10 years and three children. The court held that the agreement failed in every sense in that it was entered into on the eve of the marriage, the parties did not seek independent legal representation, there was no financial disclosure and the agreement was seen by the court to be totally unfair to the wife and further, did not include any allowance for the later arrival of children.

Other jurisdictions

The most recent case law concerning pre-nuptial agreements has dealt with the enforceability of agreements entered into abroad by foreign nationals and these agreements have been largely upheld. Pre-nuptial agreements are valid and enforceable in many countries and globally the trend, it seems, is for more and more people to enter in to such agreements. The fact that such agreements are not enforceable in England may, in higher net worth cases, encourage a degree of forum shopping. This is, of course, in addition to the wealth of press coverage on how generously the non earning spouse, which has to date typically been the wife, is treated on divorce in England in comparison to other places both in Europe and beyond.

The future

There has been debate for some time as to whether pre-nuptial agreements should be enforceable. The recent “Big Money” cases and the fact that a wife will almost certainly get half the assets, has lead many to explore the possibility of entering into a pre-nuptial agreement. In the recently published Court of Appeal decision of Charman v Charman, Sir Mark Potter a senior judge in the Family Court made specific reference to benefits of pre-nuptial agreements and their enabling couples to have some certainty of outcome on subsequent marital breakdown.

With people marrying later, having had the opportunity to acquire, in some cases, significant assets prior to marriage, and with more people entering into a second or subsequent marriage (frequently having had children from a previous marriage or relationship), it is highly likely that an ever increasing number of people will want to seek to ensure that they secure provision for their children and/or others in addition to their intended spouse.

The relatively recent introduction of civil partnerships and the proposed changes to the law relating to cohabitees, may lead to a significant increase in same sex couples and intended cohabitees seeking a contract to regulate their affairs in the event of relationship breakdown. Many commentators feel that the courts may be more likely to hold couples to an agreement entered into pre-civil partnership or prior to cohabitation and that this may in the long run have an impact on how the courts treat pre-nuptial agreements. This is however only speculation and unless or until there is legislative change then it is crucial that any pre-nuptial agreement, or post-nuptial agreement, is entered into after careful consideration and the parties follow the safeguards set out above.

Posted: October 8th, 2007 under Private Client.
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