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Pre-nuptial agreements

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What is marriage? A legal contract between a man and a woman establishing their decision and commitment to live together as husband and wife. 

If marriage is a legal contract why cannot that include terms as to how they conduct affairs if that contract breaks down? This would of course be better known as a pre-nuptial agreement: an agreement made between two people entered into prior to marriage with the intention of regulating their financial position in the event the parties divorce.

Until 1857 in the UK such contract did legally exist in common law as they were originally designed to deal with property on death, as divorce was not permitted; post 1857 the court powers were limited, they had no power to order a spouse to transfer property or pay a lump sum. The Married Women’s Property Act 1872 and 1882 allowed women for the first time to own property in their own right. 

The current law stems from the case of Hyman V Hyman (1929) in which it was said that such agreements were contrary to public policy thus not enforceable. Surely therefore it is about time the law was changed to take into account modern times and the social changes towards relationships.

There has been growing pressure on the government over the last five years to introduce law regulating the enforceability of pre-nuptial agreements, increasingly so since the media coverage of the recent case known as Radmacher. Contrary to popular belief however, the courts in that case did not make pre-nuptial agreements binding; they did however take a step further towards that eventuality. 

It had been established by previous case law that such agreements fell within “all the circumstances of the case” or “conduct” which the court is take into account under section 25 of the Matrimonial Causes Act 1979. The Supreme Court, in the case of Racmacher however, upheld that “decisive weight” should be given to such agreements. 

Previous case law had established the principle of “fairness” to be considered under three strands:  “needs, compensation and sharing”; needs being primary the housing needs of both parties and any children; compensation for example when one party has given up a career to care of the family allowing the other party to pursue a career; sharing because is marriage is a partnership in which each party is equally entitled to a share of the assets unless there is good reason for them not to.

Generally speaking pre-nuptial agreements forego such principles as they are usually entered into to “ring fence” assets and safeguard them from a claim by their spouse in the event of a divorce.

So why now should “decisive weight” be given to pre-nuptial agreements. There has been a shift in thinking. Why shouldn’t parties to a marriage be free to enter into an agreement as to how they conduct their financial (and other) matters during the course of that marriage. If one thinks of marriage as a partnership, partnerships usually enter into partnership agreements which are of course enforceable!

The Supreme Court essentially said that provided such agreements are “freely entered into” and both parties have “a full appreciation of its implications” then they should be upheld “unless it would not be fair”. In other words, such agreements should now be upheld unless it would be unfair to do so. But what is “fair”?

The Court appreciated that as individuals we should have autonomy to deal with our own affairs as we wish provided such agreement does not oust the jurisdiction of the court. The court will still be required to use its discretion and powers under section 25 of the Matrimonial Causes Act 1979 in considering whether the agreement should be upheld or not. In particular the court will need to consider the fairness of the agreement in terms of provision for children and meeting their reasonable requirements, over and above any such provisions set out in a pre-nuptial agreement. The courts first consideration in these cases in that of minor children to ensure their needs, whatever they may be (usually housing) are met.

The fairness of the agreement in meeting the party’s needs must be considered. This in itself however may raise a debate in any future separation. This will largely depend on the individual circumstances of the party’s.

What should be noted is that there is nothing inherently unfair about entering into such an agreement to protect existing or inherited assets rather than merely to provide for the contingencies of an uncertain future. 

Before entering into a pre-nuptial agreement the previous guidelines should still be complied with as far as possible, in that there should be full disclosure of financial circumstances prior to entering into the agreement; the agreement should not be entered into less than 21 days prior to marriage; and each party should obtain independent legal advice as to the implications of the agreement. It must also be considered why a pre-nuptial agreement is being entered into. It is worth noting that pre-nuptial agreements can be reviewed and amended during the course of the marriage, for example upon the birth of a child to make provision for the child’s future and future carer in the event of divorce.

The court will also consider whether there is any evidence of duress, undue pressure, fraud or misrepresentation by any party to the agreement; whether it was the intention of the parties to enter into a binding agreement; and the ages, maturity and previous experience of relationships and marriage of the parties. All of which considerations could affect the weight the court places on any such agreement. Where there are such findings less weight, if in fact any at all, will be placed on such agreements.

It is worth also considering post-nuptial agreements. The Supreme Court in Radmacher concluded there should no longer be a distinction between pre-nuptial and post-nuptial agreements. These are agreements entered into during the course of the marriage and to which the same legal principles apply. Post nuptial agreements can be entered into at any time after marriage, usually on a change in circumstances (for example acquisition of a family asset by one party which they want to “ring fence” etc). 

So what for the future of pre-nuptial agreements? The Law Commission published its consultation paper on 11 January 2011, “Marital Property Agreements”. Under the proposals only “qualifying nuptial agreements” will be upheld and may be limited in scope to deal only with wealth acquired prior to marriage, gifts or wealth inherited during the marriage, and thus not an all-encompassing agreement. A number of criteria have been set out in the consultation paper which would need to be met to ensure an agreement was “qualifying” and it is clear from those that much more “meat” will need to be put on the “bones” and care taken in any drafting of legislation to ensure any reform is effective but be sure reform is on its way!

This article was written by Sarah Richardson from our Family Law team. Sarah deals mainly with the financial consequences of the breakdown of relationships, including those with an international aspect. She qualified as a family mediator in 2008 and has a degree in Master of Laws with distinction.

Sarah is based at our Malton office and can be contacted on 01653 600070.