For the time being, pre-nup agreements will remain non-binding; a wider debate goes on about the role of the state in protecting financially weaker parties in relationships.

The following article about marital law comes from Alex Brereton, partner at Hunters and Priya Mohanakumar, trainee solicitor, at the same firm. The authors discuss a recent report from the Law Commisson in 2024, and how case law has evolved, suggesting that financial “needs” in the context of prenuptial agreements (PNAs) should be considered less generously than would otherwise be the case, in the absence of a PNA. For HNW individuals and their advisors, such complex issues aren’t particularly appealing but they are, given inevitabilities of some relationships coming to an end, facts of life. We hope this article is a useful contribution to advisors’ understanding of the issues their clients may face. The usual editorial disclaimers apply to views of guest contributors. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

On 18 December 2024, the Law Commission published its long-awaited scoping report on the laws governing finances on divorce and the ending of civil partnerships in England & Wales. While it’s unlikely to be top of the poolside reading list for those dashing off for some winter sun this month, the report does nevertheless make an absorbing read for anyone interested in how financial separation could be made a less painful and time-consuming process than it is today.  

The report concludes that both the law and procedure need fundamental reform to provide separating couples with greater certainty, finding that the high level of judicial discretion built in to the current system too often serves to broaden the level of dispute, rather than encouraging settlement. As this is a scoping report, rather than advising on the structure of reform, the report sets out various options for government to consider and commission further advisory reports on. 

That is all well and good, but what does this have to do with pre-nups, one might well ask? Well, with certainty being the overriding aim, it follows that the report recommends that qualifying pre- and post-nuptial agreements should be considered legally binding documents – thereby removing the current discretion for judges to disregard these agreements. 

Why the proposed change?
Pre-nuptial agreements (PNAs) are entered into by couples prior to or during their marriage or civil partnership. Their purpose is to allow people to decide between themselves how they intend their assets to be divided in the event of the breakdown of their relationship. 

Whilst PNAs are not strictly binding in England & Wales, they have been given greater consideration since the case of Radmacher [2010], where the UK Supreme Court held that PNAs should be followed where they are entered into with appropriate formality and provide for a “fair” outcome. The concept of fairness is inherently nebulous and provides significant scope for judicial interpretation, but broadly it is taken as meaning that the agreement must provide for both parties and any children’s financial “needs”.

The concept of “needs” is a key factor that the court is required to consider when determining the division of assets on divorce/dissolution and refers to the amount of capital and income each party will require going forward. It is an elastic concept with no clear definition and is determined on a highly discretionary basis with reference to all relevant circumstances, including the standard of living enjoyed during the marriage or civil partnership. In circumstances where the lack of a clear definition of “needs” makes it hard enough to determine at the time of the breakdown of a marriage or civil partnership, it becomes almost impossible to predict what it may be several years or decades down the line when drafting a PNA. 

To add to the confusion, there is currently a significant judicial debate as to whether “needs” – when considered in cases where a PNA exists – should be determined less generously than would otherwise be the case. In practice, all of this serves to increase the scope for dispute, which is plainly the opposite of what a PNA is intended for. 

Accordingly, the Law Commission’s scoping report reiterates what was set out in a previous Law Commission paper in 2014, recommending legislation that would see “qualifying nuptial agreements” become legally binding and enforceable in England & Wales. A PNA would class as “qualifying” where certain procedural requirements are followed, and where “needs” are met. 

However, importantly, in this new report the Law Commission advise that if “needs” is to remain a useful concept then it should be much more clearly defined, particularly if it is to be set at a lower level where there is a PNA. The report suggests consideration be given as to whether a formula could be developed to quantify financial “needs,” which would be a dramatic departure from the current law.

What next?
Don’t hold your breath. The new report reiterates what was previously proposed a decade ago, and no relevant changes to the law were made as a result of that report. Further, as this is only a scoping report, it cannot form the basis of new legislation. It could easily be another decade before a full report is produced making specific legislative proposals for government and, even then, it could be several more years before the government actually legislates (if at all)!

Interestingly, the proposals in relation to PNAs should be seen in the context of a wider debate about the future of family law and the role of the state in protecting financially weaker parties in relationships. For instance: do we support a greater role for the state and bring in cohabitation reform, extending greater financial provision to unmarried couples (which the Labour party committed to reviewing in their last manifesto); or do we say that people should have more autonomy to contract-out of the financial regime that applies to married couples and civil partners by entering into binding PNAs (and more broadly, is that regime still fit for purpose)? The two paths feel quite incongruous; and it remains to be seen whether it is possible to do both.

In the meantime, PNAs will continue to remain non-binding, with good practice dictating that they comply with the procedural parameters of “qualifying nuptial agreements” and have some mechanism for ensuring that the “needs” of both parties are capable of being met. This is both so that they remain persuasive for the courts, and so that if there is a change to the law; they will automatically fall within the new regime. Whether such a change will actually happen remains to be seen.