Pre-nuptial Agreements Overview of topic

Pre-nuptial Agreements
Overview of topic
A pre-nuptial or ante-nuptial agreement is an agreement between A man and A woman
prior to their marriage that seeks to set out their financial liabilities and
responsibilities to one another in the event of their divorce.
From the starting point authority of Hyman v Hyman that considered the enforceability of
agreements between husband and wife to the Supreme Court decision in Radmacher v
Granatino, this area of law has undergone significant development in recent years.
Historically, an agreement that contemplated and provided for the separation of husband
and wife at a future date was considered unlawful on the grounds of public policy. The
prevalence of divorce in society paved the way for the sea-change authority of Radmacher v
Granatino, where effect will be given to a pre-nuptial agreement, provided that it is freely
entered into by each party with a full appreciation of its implications, except where it would
not be fair to hold the parties to their agreement.
Key Acts

Matrimonial Causes Act 1973 sections 24, 25 and 34(2)

Section 190 of the Supreme Court of Judicature (Consolidation) Act 1925

Divorce (Religious Marriages) Act 2002
Key Subordinate Legislation
None
Key Quasi-legislation
None
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Key European Union Legislation
None
Key Cases

Hyman v Hyman (1929) AC 601

Wright v Wright (1970) WLR 1219

Edgar v Edgar (1980) 1 WLR 1410

F v F (Ancillary Relief: Substantial Assets) (1995) 2 FLR 45

S v S (Divorce: Staying Proceedings) (1997) 2 FLR 100

N v N (Divorce: Ante-Nuptial Agreement)(1999) FCR 582

M v M (Pre-nuptial Agreement) (2002) 1 FLR 654

K v K (Ancillary Relief: Pre-Nuptial Agreement) (2003) 1 FLR 120

Radmacher v Granatino (2010) UKSC 42

B v S (Financial Remedy: Matrimonial Property Regime) (2012) EWHC 265

Kremen v Agrest (No.11)(Financial Remedies: Non-disclosure: Post-Nuptial Agreement)
(2012)EWHC 45

White v White (2001) 1 AC 596

Z v Z (2011) EWHC 2878

V v V (2011) EWHC 3230

RBS v Etridge (2001) UKHL 44
Key Texts

Prenuptial Agreements: Ian Harris and Rachel Spicer

International Pre-nuptial and Post-nuptial Agreements: Salter, Butruille-Cardew, Francis
& Grant
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Discussion of Detail
1.
A pre-nuptial or ante-nuptial agreement is distinguishable from an ante-nuptial or
maintenance agreement. The latter is defined in section 34(2) of the Matrimonial Causes
Act 1973 as “any agreement in writing made, whether before or after the commencement
of the Matrimonial Causes Act 1973, between the parties to a marriage being(a) an agreement containing financial arrangements, whether made during the
continuance of or after dissolution or annulment of the marriage; or
(b) a separation agreement which contains no financial arrangements in a case
where no other agreement in writing between the parties contains such
arrangements.”
2.
The laws governing the regulation of marriage and its breakdown are closely allied to
social and political development. The changing attitude towards women in marriage has
resulted in significant progress, resulting in the current position where parties to a
marriage have equal rights over children and assets.
3.
The use of pre-nuptial agreements in the United States and European jurisdictions is
commonplace and whilst originally the preserve of the extremely wealthy they are now
being contemplated by couples of more modest means hoping to achieve a greater
certainty over division of their assets in the event of marriage breakdown.
Analysis of authorities pre- Radmacher
4.
In Hyman v Hyman (1929) AC 601 the House of Lords held that a husband and wife
cannot agree not to invoke the jurisdiction of the court or seek to control the powers of
the court. The parties married in 1912 and executed a deed of separation in 1919. They
had no children. The husband agreed to pay the wife £20 per week maintenance and
the wife agreed not to request an increase of such maintenance, but by 1927 the wife
petitioned for divorce and sought maintenance. At first instance it was held that the wife
was not prevented from seeking increased maintenance and the husband appealed. On
appeal the Lord Chancellor, Lord Hailsham, delivered the leading opinion “ before 1857 it
was not competent for any Court to dissolve a marriage validly contracted; in order to
effect such a dissolution it was necessary to have recourse to an Act of Parliament. In
1857 the Legislature for the first time gave to the courts the power to dissolve the
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marriage tie by a decree of divorce .. the Court may compel the husband to make
adequate provision for the support of the wife .. the parties cannot validly make an
agreement either,
(a) not to invoke the jurisdiction of the Court, or
(b) to control the powers of the Court when its jurisdiction is invoked.”
This ratio was based upon the specific interpretation of section 190 of the Supreme
Court of Judicature (Consolidation) Act 1925. However, it has long been used as support
for the contention that parties to a marriage are not able to oust the jurisdiction of the
Court to impose a financial order upon them, even where they have come to their own
agreement before marriage.
5.
Wright v Wright (1970) WLR 1219 was the first reported case where a wife was held to
her agreement not to apply for further maintenance. However, this was a case
concerning a post-nuptial agreement and prior to Radmacher a distinction was often
drawn between the two.
6.
In Edgar v Edgar (1980) 1 WLR 1410 the Court of Appeal held the wife to her agreement
not to seek a capital payment. The husband was a multi-millionaire and by a deed of
separation in 1976 the wife agreed not to seek a further lump sum. Both parties received
legal advice and the wife was advised not to agree to the terms. The Court of Appeal’s
decision illustrated a willingness to hold parties to any agreement on financial matters
where they had both received legal advice and where there were no grounds for
concluding that injustice would be done.
7.
In F v F (Ancillary Relief: Substantial Assets) (1995) 2 FLR 45, and the first reported
case involving a pre-nuptial agreement (rather than a post-nuptial agreement) Thorpe J
gave no weight to the parties’ agreement, citing “in this jurisdiction they must be of very
limited significance.” Unsurprisingly, those cases which did come before the Courts
involved a foreign element. But within a few years there was a palpable indication of the
courts’ increased willingness to give effect to nuptial agreements. In S v S (Divorce:
Staying Proceedings) (1997) 2 FLR 100 the issue before the Court was solely which
jurisdiction should determine the financial application; the wife having issued in England
and the husband in New York. The parties had entered into a pre-nuptial agreement,
having first been advised by independent New York lawyers. Wilson J indicated, “but the
provisions of the prenuptial agreement, both the substantive financial provisions and in
particular the provisions as to forum, have weighted heavily on me” and later “there will
come a case .. where the circumstances surrounding the pre-nuptial agreement and the
provision therein contained might, when viewed in the context of other circumstances of
the case, prove influential or even crucial.”
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8.
N v N (Divorce: Ante-Nuptial Agreement)(1999) FCR 582 was the first case to consider
an agreement entered into in England. The parties, who were Orthodox Jews, had
entered into an ante-nuptial agreement three weeks before their marriage which
recorded that neither party would make any financial claims against the other and,
crucially, that any dispute would be determined by the Chief Rabbi, the London Beth Din
and that they would both comply with the instructions of the Beth Din. When the
husband failed to apply for a Get, in accordance with the instructions of the Beth Din, the
wife sought to hold him to his agreement. Under Jewish law as it then stood, only the
husband could apply for a Get. However, this has now been changed by the Divorce
(Religious Marriages) Act 2002 that inserted section 10A into the Matrimonial Causes
Act 1973. It was for this reason and “with considerable reluctance” that Wall J concluded
“one cannot in my judgment avoid the fundamental proposition that each is part of an
agreement entered into before marriage to regulate the parties’ affairs in the event of
divorce. The public policy argument, therefore continues to apply.” Although this was a
decision on a discrete point it continued to provide support for the contention that prenuptial agreements were not specifically enforceable.
9.
However, by 2001 and M v M (Pre-nuptial Agreement) (2002) 1 FLR 654 the attitude of
the Courts in attaching weight to such agreements was gathering strength. In this case
Connell J attached significant weight to the provisions of a pre-nuptial agreement as to
quantum. The parties were Canadian and entered into a pre-nuptial agreement in
Vancouver. The husband had net worth of £7.5 million, was considerably older than the
wife and had three children from a previous marriage. The wife had fallen pregnant
unexpectedly, citing an accident; the husband stating it was deliberate. The wife had
not wished to bring up the child as a single woman and considered abortion. The
husband had previously been married and was not prepared to marry without a prenuptial agreement. The wife had been advised not to agree to the agreement on the
basis that she had not received proper disclosure and it was unfair. However, she did
so on the basis that it was the only way the husband would agree to marry.
10. The agreement stated that in the event of marriage for 5 years the wife would receive
£275,000. The husband contended the wife should be held to that agreement and the
wife sought a lump sum of £1.3 million. The wife was awarded £875,000. Connell J
stated, “the court should look to any such agreement and decide in the particular
circumstances what weight should, in justice, be attached to it. It is clear, of course, that
the existence of such an agreement does not oust the jurisdiction of the court.”
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11. In K v K (Ancillary Relief: Pre-Nuptial Agreement) (2003) 1 FLR 120 at pages 131-132
Roger Hayward Smith QC, sitting as a Deputy High Court Judge, in what is often
referred to as the high-water authority pre- Radmacher v Granatino (2010) UKSC 42, set
out what he considered to be the pertinent factors which were necessary to determine
whether the agreement was binding or influential. They included:
(a) Did she understand the agreement?
(b) Was she properly advised as to its terms?
(c) Did the husband put her under any pressure to sign it?
(d) Was there full disclosure?
(e) Was the wife under any other pressure?
(f) Did she willingly sign the agreement?
(g) Did the husband exploit a dominant position (financial or otherwise)?
(h) Was the agreement entered into in the knowledge that there would be a child?
(i) Has any unforeseen circumstance arisen such as to make it unjust to hold the
parties to it?
(j) Is the agreement one of the circumstances to be considered under section 25 of
the Matrimonial Causes Act?
(k) Did the agreement constitute conduct such that it would be inequitable to
disregard it by virtue of section 25(2)(g)?
12. Having considered the pertinent questions he held that the wife was entitled to a
£125,000 lump sum. The agreement had been for provision of a lump sum of £100,000
within 5 years of marriage. There was dispute over whether the agreement prohibited an
application for periodical payments and the judge held that it did not and, if it had, it
would be unfair to hold the wife to it, on the basis of the enormous contribution she would
make in being the primary carer of the child.
Radmacher v Granatino
13. The wife came from a very wealthy German family and the French husband was an
investment banker. They were of similar age and in 1998 became engaged. They
entered into a pre-nuptial agreement which, in broad terms, meant that neither had any
interest in property owned by the other and any resources accrued by one during the
course of the marriage remained theirs. In the event of divorce, neither was permitted to
make capital or income claims against the other. Maintenance was waived “to the fullest
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extent permitted by law even should one of us – whether or not for reason attributable to
fault on that person’s part be in serious difficulties.”
14. The parties had two children, in 1999 and 2002. In 2006 the wife left the former
matrimonial home with the children. The husband suggested the wife’s wealth was £100
million and did not seek a percentage share, rather he put his case on a needs basis.
His case was that the pre-nuptial agreement should be disregarded as he had not
received independent legal advice, nor had the wife given any financial disclosure.
Finally, he argued that it had not provided for children and as such was manifestly unfair.
He sought £9 million. The wife’s case was that the husband should have a home in
England for life, (where he could provide a home for the children) for £1 million, a home
in Germany until the children reached majority (500,000 euros) and periodic payments of
18,000 euros per annum until the children finished secondary education.
15. At first instance, Baron J found that the pre-nuptial agreement was defective under
English law, on the basis that the husband had not been independently advised, nor had
there been disclosure or negotiations. It was also manifestly unfair, since it deprived the
husband of all claims even when needs justified it and no provision had been made for
the children. Baron J awarded the husband £5.56 million with periodic payments of
£70,000 per annum and £500,000 for a house in Germany. She awarded this on the
basis of his “needs.” In her judgment, Baron J indicated that the husband’s award was to
be tempered by his signature to the agreement. Paradoxically, she then stated that the
agreement was flawed by virtue of the aforementioned.
16. On appeal, it was held Baron J had erred in law.
Wilson LJ awarded the husband £2.5
million to provide a home for himself and the children until majority, whereupon it would
revert to the wife; £700,000 for the husband’s debts, £25,000 for a car, a sum to be
determined to provide a home in Monaco near to where the wife and children had moved
to and £70,000 per annum periodic payments.
17. The husband appealed to the Supreme Court. The Justices were not considering the
strict enforceability of nuptial agreements and averred that, although the courts were not
bound to enforce them, they had to give them weight. They observed that the issue for
any court was to determine whether the circumstances of the case detracted from or
enhanced the weight to be given, such that would justify a departure from adherence to
the agreement. The court held that there was no automatic distinction between prenuptial and post-nuptial agreements, however there would be circumstances where a
distinction was appropriate on the facts. In either case the principles to be applied to
nuptial agreements were the same:
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(a) Were there circumstances attending the making of the agreement that detract
from the weight that should be accorded to it?
(b) Were there circumstances attending the making of the agreement that enhanced
the weight that should be accorded to it?
(c) Did the circumstances prevailing when the court’s order was made make it fair or
just to depart from the agreement?
It is vital to have these considerations in mind when drafting or advising on the weight to
be attached to a pre-nuptial agreement.
18. It can be inferred as a starting point that a party who enters into such an agreement
intends to give effect to the same. The following factors might detract from the weight to
be given to such agreement:
(a) Material lack of disclosure
(b) Standard vitiating factors, fraud, duress or misrepresentation
(c) Unconscionable conduct, such as undue pressure which falls short of duress
(d) Unworthy conduct, such as exploitation of a dominant position and the emotional
state of the parties
(e) Unfair terms of the agreement.
19. The Supreme Court advanced the following about fairness, “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 in the circumstances prevailing it would not be fair to hold the
parties to their agreement.” They offered some guidance about the types of principles
that would be applied.
(a) A pre-nuptial agreement cannot prejudice the reasonable requirements of a child
of the family
(b) Parties should be afforded a degree of autonomy in terms of regulating their
financial affairs
(c) A pre-nuptial agreement is not inherently unfair on the basis that it excludes pre-
existing assets or inherited assets
(d) The change of circumstances over a long marriage might justify departure from
the agreement.
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Case law post Radmacher
20. Since Radmacher there have been four notable Family Division judgments dealing with
the weight attributable to nuptial agreements. In
B v S (Financial Remedy: Matrimonial Property Regime) (2012) EWHC 265 Mostyn J
accorded “absolutely no weight” to a tacit agreement between the parties to abide by a
Catalonian separation of goods regime, where neither party was from Catalonia and
there had been no independent legal advice on the enforceability of such a regime in
England & Wales and applied the section 25 criteria exclusively. In this matter a clear
distinction was drawn between those cases where there is an agreement to be bound by
a particular marital property regime and those concerning an individually negotiated prenuptial agreement. The courts are likely to apply less weight to regime cases than
where there has been a tailored agreement.
21. In
Kremen v Agrest (No.11)(Financial Remedies: Non-disclosure: Post-Nuptial
Agreement) (2012)EWHC 45 Fam Mostyn J again accorded no weight to an agreement
and applied the section 25 criteria. This was a case involving a wealthy Russian couple,
where there had been non-disclosure by the husband of assets of £20 to £30 million.
Further the agreement seriously prejudiced the reasonable needs of the children.
22. In Z v Z (2011) EWHC 2878 and in determining whether an agreement not to share
property had removed the sharing element from the s.25 exercise, Moor J upheld the
agreement to exclude the sharing principle, but nevertheless awarded the wife 60% or
£6 million on a needs basis.
23. In V v V (2011) EWHC 3230 on appeal Charles J instated a charge back order to
acknowledge the terms of the Swedish marriage settlement in a short marriage (3 years
plus 2 years co-habitation).
Interpretation of Fairness
24. In determining whether the pre-nuptial agreement is fair, one will need to consider what a
court would award on an application for ancillary relief. As always, the starting point will
be section 25 of the Matrimonial Causes Act 1973 which sets out the criteria to which the
court is to have regard in deciding how to exercise its powers. In order to achieve a fair
outcome one must have regard to the “yardstick of equality” as enunciated in White v
White (2001) 1 AC 596. This was a big-money case with a surplus of assets. It is much
more likely that cases would fall to be determined on an adjudication of competing
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needs. In such cases the first consideration will be to any minor child, followed by the
feasibility of a clean break and the assets each party has or is likely to have in the future.
25. In the event that by holding them to the pre-nuptial agreement one party is left in real
need, it is likely to be considered unfair. What constitutes real need appears to have
been set at a very low level, per Mostyn J “need may be interpreted as being that
minimum amount required to keep a spouse free from destitution.” The Law Commission
Consultation Paper 198 makes reference to an agreement being unfair if its effect is to
make the party reliant on state benefits.
26. Of course, the weight to be attached to any agreement is only one of the factors in the
section 25 exercise. Per Charles J in V v V (2011) EWHC 3230 “in the overall
assessment of the award to be made, it is an important factor to be weighed in the
balance and is capable of founding an award that differs from the one that would have
been made had it not been entered into.”
Practical Guidance on drafting a pre-nuptial agreement
27. It is not a contract but it should comply with basic contractual principles; each party must
intend that the agreement should be effective and acknowledge that it creates a legal
relationship between them. The terms of the agreement should be precise and
contingent on circumstances, such as the birth of a child which should be clearly
recorded. If a third party has an interest in property that is subject to the agreement,
they should obtain independent legal advice and be made a party to the agreement.
28. Both parties should obtain independent legal advice, preferably by way of written opinion
and the legal advisor should certify that such opinion has been provided on the
agreement. The appropriate form and nature of the necessary advice is outlined in RBS
v Etridge (2001) UKHL 44 by Lord Nicholls of Birkenhead. Advisors must ensure that
their client fully understands the advice and terms of the agreement.
29. The parties must fully disclose their assets and liabilities, fraud would vitiate the
agreement and material non-disclosure would likely effect the weight that would be
attached to its terms. A copy of Form E or schedule of assets and liabilities should be
attached to the agreement.
30. It is not necessary that parties should have negotiated the terms of the agreement before
entering into it, only that they had the opportunity to negotiate if they wished to.
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31. Duress would vitiate the agreement. Undue pressure falling short of duress may also do
so, depending on factors such as the timing of the agreement. There should be a
reasonable amount of time between agreement and marriage to allow for serious
reflection. The recommended time varies from 21 days to at least 42 days. The Court
will also look to the backgrounds of the parties and in particular:
(a) Their ages
(b) Whether each party has been married or in a long-term relationship before and
the circumstances in which that relationship ended
(c) Whether either party has children from a previous relationship and with whom
they live
(d) Whether the parties have a child or intend to have one in the near future
(e) Where the parties are currently domiciled/resident and where they intend to
reside
(f) Whether the parties are cohabitating and for how long
(g) Each party’s intentions as to their current and future financial positions and the
other party’s acknowledgement of the same
(h) Whether either party expects the financial position to change significantly during
the course of the marriage (i.e inheritance, sale of business)
(i) If one party was clear that they would not marry without an agreement, this
should be recorded.
32. It is important to consider what the parties consider to be fair within the context of their
financial relationship and to record that in the agreement. This is all the more so if one
party has been advised that the agreement is not necessarily what the court would
award if considering the matter afresh.
33. The existence of children, whether provided for in the agreement or envisaged by the
parties, will not necessary vitiate the agreement. However, since the first consideration
under section 25 of the Matrimonial Causes Act will be the welfare of a minor child and
since such an agreement cannot prejudice a child’s reasonable requirements, it is likely
that the birth of a child will be an important factor.
34. If parties have clear views on the division of their assets in the event of marriage
breakdown they should be set out in the agreement. If there is agreement that nonmatrimonial property is to be excluded, or that property should be divided in a particular
way, then record should be made of the way in which that property will be divided or
held.
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35. A common term of pre-nuptial agreements is that only assets acquired during the
marriage will be shared and those acquired independently or prior to the marriage will be
left out of the pot. Consideration should therefore be given to how the increase in value
of any such property will be treated and a record made of the mechanism by which to
calculate it. Often the amount due under the agreement will depend on the length of
marriage, normally rising incrementally. If the amount that is to be received is expressed
on a needs basis it should be index-linked. Finally, it may be appropriate to include
provision for review of the agreement on the occurrence of certain trigger events, such
as the birth of a child, illness, or loss of employment.
36. Whether a pre-nuptial agreement withstands the fairness hurdle years after its creation is
the ultimate test. However, assuming that the parties’ intentions are clearly recorded and
the aforementioned safeguards are adhered to, it seems likely that the agreement will be
given weight, even if not upheld entirely.
37. In 2012 the Law Commission published the “Marital Property Agreements” Consultation
Paper 198 which concluded that pre-nuptial agreements should be bound by contractual
requirements, i.e. an agreement which is legally binding, which is not vitiated by duress,
fraud or false representation and from which each party gains something. They should
be made in writing, parties should obtain legal advice and there should be full and frank
disclosure. In the event that the agreement did not meet the needs of the children, or left
one party reliant on state benefits, it would not be enforceable.
38. Arguably, the Commission’s recommendations fall short of the safeguards set out in
case law and whilst the layman would no doubt welcome definitive guidance from the
Legislature on what agreements are fair and likely to be upheld, it does not appear such
guidance can be expected soon.
Analysis
Key areas of complexity or uncertainty
39. The question of what is fair, taking into account the terms of the agreement and the
circumstances by which it was entered into, is one of the key issues in determining the
weight which will be attached to that agreement. This is just one of the factors to be
determined in the section 25 exercise.
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Latest developments
None
Possible future developments
Legislation in accordance with 2012 Consultation Paper on Marital Agreements
Human rights

ECHR Art 6 Right to fair trial

ECHR Art 8 Right to family life
European union aspects
None known
Further reading
None
Rebecca Fairbairn
Chambers of Michael Hubbard Q.C. and Karim Khail Q.C.
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