Legal

GUEST ARTICLE: To Pre-Nup Or Not To Pre-Nup?

Joanna Pratt Rahanna Choudhury, Thomson Snell & Passmore , 19 April 2016

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A vexed issue for English and Welsh courts remains the viability of pre-nup agreements; there also is debate about their benefits and costs. This article examines recent cases and looks to how law may evolve, and what wealthy individuals should consider.

The rules governing divorce in England and Wales (matters are different in Scotland in the UK, and Scotland has its own system regarding marital law) means that one of the most complex areas is when foreign nationals, or relations of said, have marital difficulties and where there might have been a pre-nuptial agreement, or where such an agreement might have been drawn up, but had not been. Courts, under English law, do not automatically recognise pre-nups. The wealth management implications of divorce law are important from the point of view of seeking to structure wealth to minimise bitter fights amid a divorce. While an unpleasant fact of life, it needs to be considered.

This article is written by Joanna Pratt, partner and head of family department, and Rahanna Choudhury, trainee solicitor, at Thomson Snell & Passmore]. The editors of this news service are pleased to share these views but do not necessarily endorse all the opinions expressed and invite readers to respond. (To view some other recent articles looking at divorce cases and their implications, see here and here.)

The recent reports in the media of the son of a Russian oligarch marrying a student from a very modest background have again highlighted prenuptial agreements (“pre-nups”). More and more people are considering whether a prenuptial agreement is appropriate or necessary, particularly if they have significant assets and their fiancé(e) does not, and where they are likely to be gifted or inherit significant assets. There are still many questions regarding the courts in England and Wales treat pre-nups, both those drafted here and pre-nups signed abroad. 

Under English law, the courts do not automatically enforce prenuptial agreements. Historically, they were viewed as contrary to public policy, since they sought to fetter the discretion of the divorce courts. A pre-nup is an agreement which seeks to set out in advance what the financial arrangements will be between a couple if they separate, rather than leave it to the divorce courts to impose something. 

Over recent years, the courts have been more willing to take into account the terms of prenuptial agreements when considering financial arrangements on divorce. Following the decision in the case of Radmacher v Granatino in 2010, the courts have been more willing to follow the provisions of a prenuptial agreement. 

In the Radmacher case, the Supreme Court set out clear principles stating that where a prenuptial agreement has been entered into freely by the parties, they understand the implications of its terms, and enforcement of those terms in the circumstances would not be unfair, then the courts should uphold the agreement.  

To ensure these standards have been met, the court will have regard to factors including whether the parties made full financial disclosure before entering into the pre-nup. Not being aware of the financial reality will dramatically reduce the likelihood of a party having entered into the agreement freely and fully understanding all the implications.

One of the most important things the parties must do is to obtain legal advice from independent lawyers before they sign the agreement. 

It is important to bear in mind that pre-nups will only be enforced if it is fair in all the circumstances. In the case of Luckwell v Limata [2014], despite the parties having obtained legal advice and the prenuptial agreement being thoroughly prepared, enforcement of its terms would have left the husband in real need. He would not have been able to re-house himself and have somewhere appropriate where his children could visit him. The court in that case did not therefore follow the terms of the prenuptial agreement. 

Although the courts will not necessarily uphold the provisions of a pre-nup, it is still highly advisable to have a prenuptial agreement if the parties want to try to agree in advance what their financial arrangements will be in the event that they separate. In more and more cases, provided the criteria laid down by the court are followed, a divorce court will not interfere with the terms of a pre-nup. 

And what of prenuptial agreements entered into outside of the UK? Are they considered enforceable in the UK? 

In the Radmacher case itself, the prenuptial agreement had been drawn up in Germany and contained a clause that the German law should govern how the wealth and assets should be dealt with. However, the Supreme Court held that despite the choice of jurisdiction clause, the issues before the court were governed exclusively by English law. Although it demonstrated the couple’s intention, English legal principles would prevail. 

If there is a possibility that if a couple were to divorce, proceedings would take place abroad, then the couple should take advice from independent family lawyers in the relevant country as well as here.
Since the Radmacher case, although the law remains the same, it is more likely that prenuptial agreements will be followed. There are obvious benefits to a couple entering into one. The main benefit is certainty. The certainty that one will know how the matrimonial assets will be split if the marriage comes to an end, avoiding the potential for a costly and acrimonious divorce. And, perhaps one of the important benefits of entering into a prenuptial agreement is that you know that your partner is not marrying you for your money. 

Pre-nups may not be top of everyone’s wedding list, but they have become more important and worthwhile. 

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