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Pre-Nups: Headache Versus Heartbreak

As the debate hots up about how to make pre-nup agreements fully enforceable, solicitor Lauren Preedy offers a practical guide

Do you believe that love makes the world go round? Or is it money? Or both?

That’s a question that becomes pretty important for a client who is about to marry, or whose marriage is operating under changed circumstances. The thing is, though, that while a sensible and prudent client will ensure that they take action to protect their wealth, it all changes when it comes to matters of the heart. Good business sense is often forgotten and the  rose-tinted spectacles go on.

Yes, your clients will seek legal advice to deal with lifetime planning, or lasting powers of attorney, or their wills. Companies routinely obtain legal advice to minimise any risk in business, including contract and employment. So why is the same acumen not applied to the transaction of marriage?

Marriage has many risks, of course, but ultimately divorce is the main financial risk we need to consider. And in this writer’s opinion, at least, it would be foolish for a client not to take some sort of legal action to protect his or her finances following any divorce. And equally, an IFA should be vigilant in knowing when to advise their clients to take legal advice. It’s all part of providing a full value service to the client.

The New Ruling
The Law Commission's report on Matrimonial Property, Needs and Agreement was duly published on 27th February 2014 – and, as expected, it recommended that Nuptial Agreements should be formally recognised and legally enforced. Apart from seeking further clarification of the term ‘financial needs’, it pointed the way toward a parliamentary Bill, for which it also presented a draft. For more details, check the Law Commission’s website at http://tinyurl.com/njqz9mn

Know the System

As you probably know, the Matrimonial Causes Act 1973 (”MCA”) is the legislation that deals with financial Remedy following divorce and specifies the orders that the Court can make. This includes orders for periodical payments, lump sum, property adjustment/sale and pension sharing. In short, the court is powerful, and it can change the ownership of assets. Assets can be taken away from one person and given to another in their entirety.

That’s a big matter. And if you have a client currently embarking on marriage, it may be no more than prudent to suggest getting advice on a Pre-nuptial Agreement that will help to protect their interests. Especially if they are already married. (If you have a client that has any 'transaction' occurring, no matter how long they have been married, then a ‘discreet’ review to consider a post Nuptial would be sensible).

The current situation is that these Agreements are not binding. But the Supreme Court has taken action in recent years to uphold pre-and post-nuptial agreements following divorce, by considering this type of Agreement as a factor under s25 of MCA. And, as you’ll have gathered from the above flash, things may be about to change.

It’s a complex area of law, of course, and each matter is case specific. In Radmacher v Granatino [2010] UKSC 42 (www.practicallaw.com/5-503-6685) (paragraph 75), the Supreme Court stated that a Court should give effect to a Nuptial Agreement in the following situation:

  • It must be freely entered into by each party (this means there must be no mistake (www.practicallaw.com/7-107-6849), misrepresentation (www.practicallaw.com/9-107-6848), duress (www.practicallaw.com/0-536-1685) or undue influence);
  • the parties must fully appreciate the implications of the agreement when they entered into it (this includes financial disclosure issues);
  • It must be fair to hold the parties to their agreement in the circumstances prevailing (this takes into account children, ring-fenced assets and needs/compensation/sharing from the Miller case); and
  • Pre-nuptial Agreements and post-nuptial Agreements have equal legal status and should be treated no differently.

It is imperative that each party receives timely independent legal advice to deal with each of the above points. It is also prudent for the Agreement to be a Deed.

Bringing the Law Up To Date

And so to the present situation. Since 2009 the Law Commission has been working on proposals to update the practice, and in January 2011 it made formal proposals for reform of this area of the law (Law Commission: Marital Property Agreements consultation paper (www.practicallaw.com/1-537-1085) (Law Com No 198)). It provided guidance (along with Radmacher) as to how Solicitors should advise their clients.

The final proposals which are now taking shape will require parliamentary approval, and accordingly a bill has been drawn up. If the proposals do become law, then a nuptial agreement will need to be contractually valid in order to be legally binding on the parties.  One of the consequences would be that a party will be able to enforce the contract in the Civil Courts. In the meantime, case law will no doubt develop as further Pre and Post Nuptial Agreements are ‘tested’ in the Courts.

As an aside, a Nuptial Agreement (pre or post) should not be confused with a nuptial Settlement (anti or post) which is an entirely different animal (a trust). This is a very technical area of law, and if your client is the beneficiary of a trust they should seek advice as to whether it is a nuptial Settlement. Upon Divorce, an Order can be made to vary a nuptial Settlement (s24(1)(c) of the MCA).

In summary, your married clients and those about to marry would be prudent to have a review with a Family Law Specialist . Then an informed decision can be made without any ‘rose tinted glasses' and they can think with their head (without any 'ache') rather than their heart (to save any future 'break').

Lauren Preedy is an Associate Solicitor in the Family Team at Thrings LL, Bristol 

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