Pre-nuptial agreements: should you draw one up before you get married?
Mark Reeves, 21st October, 2016
The last few years have seen a growth in the number of pre-nuptial agreements entered into by couples before marriage. It’s safe to say they’re gaining popularity and aren’t just for celebrities, footballers and members of the aristocracy.
So what exactly is a pre-nuptial agreement? And should you consider having one drawn up before you get married?
What is a pre-nuptial agreement?
A pre-nuptial agreement is an agreement that parties enter into before marriage to regulate what will happen in the event of a future breakdown of their marriage.
It’s, hopefully, a document that can be put in the drawer and not to be looked at again. But the reality is that marriages can break down.
Should the parties be in that position, a little forethought can help to ensure they don’t become embroiled in lengthy and expensive litigation after separation or divorce, and matters can be finalised amicably and smoothly.
What can be contained in a pre-nuptial agreement?
The most common thing covered by a pre-nuptial agreement is the future financial arrangements between the parties should the marriage break down.
Some couples simply want a list of what each owned before they got married, in effect ‘ring-fencing’ those assets to avoid confusion about who owned what.
In other instances, the agreement is used to detail exactly who gets what, when and how.
A well-drafted agreement should involve careful consideration of the future, and parties’ aspirations and plans.
However, it’s also possible to set out arrangements for divorce and the future arrangements for children.
Is it legally binding?
The simple answer is no.
In England and Wales, pre-nuptial agreements are not automatically enforceable in courts or seen as a contractually or legally binding document.
So there are no guarantees that the parties will be held to the terms of the agreement in the event of a breakdown of the marriage.
However, this isn’t the end of the matter. It’s possible for a court to hold the parties to the terms of their agreement in certain circumstances.
In Scotland, properly prepared pre-nuptial agreements are enforceable and legally binding.
Why bother with a pre-nuptial agreement then?
While not automatically binding in law, there has been a marked increase in the willingness of courts to uphold the terms of pre-nuptial agreements, and prevent one or both parties from going back on the terms of the agreement.
There is now reliable and authoritative case law on this issue, and the ‘mood’ of courts has now shifted more towards holding spouses to the terms of their agreement than ever before.
When might parties be held to the terms of their pre-nuptial agreement?
For there to be a good chance of the terms of the pre-nuptial agreement being upheld, there are some basic requirements.
It’s imperative that each party has either taken independent legal advice or had the opportunity to seek independent legal advice from a lawyer.
This ensures that there can be no argument in the future that one party was coerced or pressured into signing a document, the terms and implications of which, they did not understand.
The provision of full financial disclosure is necessary so that the parties each have a full picture of the assets and liabilities of themselves and each other.
For example, if one or both parties are agreeing not to claim against the other’s assets in the event of marriage breakdown, then they need to know what they’re actually giving up in monetary terms.
It follows that any fraud, misrepresentation or non-disclosure could render an agreement void.
It’s also necessary to ensure that the agreement is signed no less than one month before the marriage ceremony.
This ensures once again that no-one has been placed under any undue pressure by being presented with a document only a couple of days before their wedding and ensures that they have enough time to get legal advice before signing the document.
Finally, the terms of the agreement should be substantively fair and reasonable. Providing the terms are considered to be broadly fair and reasonable, a court would not interfere in changing the terms to something other than what was agreed.
Courts are mindful, though, of respecting each party’s individual autonomy in making their own decisions.
If the principles set out above are observed then the pre-nuptial agreement has a good chance of being upheld in the future, should the parties be in the unfortunate position of having to deal with the breakdown of their marriage.
When might a pre-nuptial agreement be suitable?
There are many reasons why people are looking at entering into a pre-nuptial agreement. The common thread is usually the protection of wealth accrued pre-marriage.
This could be a younger person who has received money from family (for example from a trust, a will or from parents gifting money for IHT planning purposes), or an older person (for example where this is not their first marriage or where they have no children together and want to protect provision made for their own children from a previous marriage).
When might parties not be held to the terms of their pre-nuptial agreement?
Clearly, if one or more of the principles referred to above are not observed then it is highly likely that the agreement will be set aside. This means that it would then be open to the court to make its own decision about the assets and liabilities.
The most common reason tends to be that the bargain entered into is no longer considered fair by one party. Clearly where children were born, and this was not contemplated and/or provided for by the agreement, then this could cause an agreement to be deemed as no longer fair.
It’s also likely that the longer the marriage, the more likelihood that changes, unforeseen at the time of agreeing the pre-nuptial agreement, may render the terms unfair.
Radmacher v Granatino: why is this case significant?
The landmark ruling of Radmacher v Granatino has become the leading case law authority on pre-nuptial agreements, and for the time being still represents the current state of the law regarding these agreements in England and Wales.
The wife (Radmacher) was a wealthy German heiress, the husband (Granatino) was French and had been a successful investment banker who later embarked on research studies at Oxford.
Before their marriage, both signed a pre-nuptial agreement in Germany, which declared that neither party would gain financially from the other if they divorced.
The contract was valid and enforceable under both German and French civil law.
The couple married in England in 1998 and were based in London where their two children were born in 1999 and 2002. They separated in 2006 after 8 years of marriage and the wife petitioned for divorce in England in 2007.
In the High Court proceedings, the husband sought to claim £6.9 million in financial settlement and argued that the agreement should play no role in determining the case.
In response, the wife offered a much smaller settlement as in the terms of the agreement. The case was eventually decided by the Supreme Court in October 2010.
The Court considered the question of whether pre-nuptial agreements should be given ‘decisive weight’, when entered into freely.
It also considered the financial arrangements and the fairness of the agreement, including any implications arising from the clauses within it, following the breakdown of the marriage.
The Supreme Court held, on an 8 to 1 majority, that pre-nuptial agreements can have decisive or compelling weight, and laid out the basic requirements, as highlighted above, for them to be given such weight.
The husband’s settlement was reduced to around £1m, and he also received a £2.5m fund for a house, which would return to Ms Radmacher when the younger of their two daughters reached the age of 22.
You can read the full judgement here.
What this means for you...
This ruling doesn’t make pre-nuptial agreements binding for all cases in England and Wales.
The fairness of upholding any particular agreement will be considered by the court on a case’s own merits and circumstances.
How we can help
If you or your partner are considering a pre-nuptial agreement, we recommend getting professional legal advice before making your decision.
We can draft your agreement to reflect the agreed terms, or we can advise about the terms of the agreement you’ve received from your future spouse’s lawyer.
As part of the Family Law department’s wider work, we’d help with future divorce proceedings should the situation arise in the future. And if a pre-nuptial agreement is in place, we’ll help ensure the terms are implemented quickly and efficiently.
We can also represent you in court concerning financial arrangements after separation or divorce, and the future arrangements for children.
Need advice? Get in touch today
Please call our Head of Family Law, Mark Reeves, on 01482 590220.
Or email Mark here.