The Importance of doing Pre-nups properly

In this blog, FLiP Director David Allison explains the factors that should be taken into account when preparing pre-nups properly as was highlighted in a recent article found here by This is Money.

There can be a temptation for couples to want to do their pre or post nuptial agreement as cheaply as possible.  After all, they hope never to need it and no doubt have many more exciting things to spend money on.  However, a bit like failing to get insurance, the consequences can be disastrous.

The status of Nuptial Agreement in England & Wales

Nuptial agreements are not enforceable in England & Wales.  They may though be taken into account by the court and, provided they meet certain criteria are likely to be given weight. Where a nuptial agreement is done well, it can have a magnetic importance meaning that a court is very unlikely to depart from it. If the agreement is done badly, it is unlikely to be given any weight and may be ignored.

The Supreme Court case of Radmacher v Granatino [2010] remains the leading authority on nuptial agreements.  In that case it was said that “the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless it would not be fair to hold the parties to the agreement”.  A full appreciation of its implications means that there must be financial disclosure, sufficient for each to know what they are giving up.  It will usually (though not always) also mean that legal advice for each party is necessary.

The next question is whether it would not be fair to hold the parties to the agreement.  What is fair is a complex issue that will differ depending on a whole host of factors including the length of the marriage; whether there are children (in which case their needs must be given first consideration); the contributions that each has made to the assets and to the family; whether assets excluded from sharing would otherwise be regarded as matrimonial or non-matrimonial; and crucially, whether the agreement meets needs taking into account the standard of living enjoyed during the marriage.

So, what is fair after a 2 year marriage without children may be very different from a 2 year marriage with children or a 20 year marriage with or without children.   It is necessary to think about the different scenarios that may exist at the time of divorce and to provide reasonably for each.  This requires each party to have “a full appreciation of [the] implications” for each scenario.  The outcome in each must also be fair.

It would though be dangerous for a person to assume they will not be held to an agreement because it was done badly, or they did not have advice.  In England & Wales we have a discretionary system for financial relief on divorce.  This means that different judges may come to different conclusions on the same facts.   It is therefore quite possible that a judge will decide that an agreement should be upheld, despite the circumstances in which it was prepared.

International Issues

The status of nuptial agreements varies significantly in different countries.  In some countries nuptial agreements are enforceable irrespective of the circumstances in which the agreement was prepared and irrespective of fairness.  These countries may or may not have certain requirements for an agreement to be enforceable.

A further complicating factor is that jurisdiction for divorce, meaning the ability of the court in any given country to accept the divorce will vary from country to country.  For most there is some requirement for habitual residence, but domicile and nationality may also be a factor.  Many couples may have a choice of country for their divorce.  The outcome in each country may be significantly different and so, where one spouse feels that country A is advantageous to them, this will usually mean that country B would be the preferred jurisdiction for the other.  In some countries the first in time to start the process may be important and this may lead to a race to start the divorce in the preferred country.

If we then add into the mix, whether a nuptial agreement entered into in country A is going to have effect or be taken into account in country B, the issues may become astonishingly complex, not least because of the differing requirements for such agreements in each country.

This may mean that the drafting of a nuptial agreement requires advice in a number of different countries.

Getting to an Agreement – doing it well

So, hopefully it is clear that the legal issues involved in nuptial agreements are significant and it is important to get the right advice.  A nuptial agreement may be the most legally complex contract that most people ever have.

Then there is the difficulty that many feel even raising the possibility of a nuptial agreement and the tension that may result if the process for getting to an agreement is not done well.  Too often a lawyer instructed for the wealthier person will draft an agreement for the other person to sign.  Even with independent advice this may result in the other person feeling that they have little bargaining power and may lead to feelings of resentment that undermine the marriage before it has even started.

At FLiP we always encourage people to think about preparing nuptial agreements collaboratively.  This means starting with a clean sheet and through discussion, working out what is important to the couple and what they both feel is fair. As well as creating a positive process for the couple, it will usually lead to an agreement that is given significant weight.  The prospects of arguing that the agreement is unfair because of pressure or inequality of bargaining power are then significantly diminished.

David Allison is a director at Family Law in Partnership. David specialises in financial claims on divorce, especially divorce cases with an international element. He has extensive experience in the legal issues relating to cohabitants, same sex couples, and civil partners and in preparing Pre and Post Marital Agreements, especially those with an international element.