Prenups: Are they worth the paper they are written on?

By Marianne Stavrou (Trainee Solicitor – Family Law, SBP Law) and Dr Don Macfarlane

Prenuptial agreements (PNAs) are frequently associated in the context of “high net worth” individuals and celebrity marriages. However, prenuptial agreements are becoming justifiably more common throughout all levels of society.

A PNA is an agreement entered into by parties before marriage, setting out what will happen to their respective finances and assets during the marriage and if the marriage fails. Taking the initiative to make a PNA, similar to making a will, helps the parties to ensure that their finances and assets will be dealt with in the way that they would like. This begs the question that if you would not wish the Court to deal with your finances and assets upon death, why would you upon marriage?

It could be the lack of romance that deters parties from taking precautionary steps to protect their finances and assets before marriage. However, consideration by the parties of the worst-case scenario can be a positive step that provides both parties with autonomy, reassurance, security and transparency.

Who is making a Prenuptial Agreement in 2020?

Talk to anyone who has been through a divorce, and you will often hear, “[Expletive] it was not my fault, they took all my assets, and their lawyers took me to the cleaners, it will take me 10-15 years to get back on my feet”. On this basis, it is unsurprising that more people (than you may imagine) in the UK are considering making a PNA. Those who have previously been married and understand the reality of the “financial pain” flowing from a divorce and/or wish to protect their children from a previous relationship, often come to lawyers with a desire to make a PNA.

Statistically, the “Millennials” who marry later in life frequently wish to ensure the assets one party has accumulated are protected in the event they may need to start again in the future. No doubt encouraged or at least aware of the consequences from family and friends who have been through a separation or divorce themselves.

Another example is where one party has larger debts than the other and/or may be regarded as being susceptible to taking on high levels of debt. Then again, a PNA may be a sensible precaution at least for the low-debt tolerant partner.

Furthermore, a couple where one party comes from a family business are often encouraged (presumably by their family) to enter into a PNA. We have also seen this where one family puts up the deposit for a property, and they wish to protect this capital in the event of separation often before a marriage. This may seem somewhat unromantic but often cohabiting couples will seek to use a PNA to govern future outcomes – so the question becomes, can PNAs be relied upon after marriage?

Are prenups enforceable?

It is essential to highlight that PNAs are not binding in England and Wales. This is at odds with Scotland, parts of Europe and several global jurisdictions such as the USA. Therefore, the parties in England and Wales cannot by agreement oust the Court from exercising its jurisdiction in financial matters should they wish to divorce.

Questions arising from this apparent dichotomy, particularly as to the weight that the Court will attach to a PNA, has led to calls for legal reform. The Government’s response to these calls began in 1998 with the Home Office Consultation Paper “Supporting Families”. Since its publication, the law has fortunately moved on, which is underpinned in the famous Supreme Court decision in Radmacher v Granatino [2010]⁽¹⁾ UKSC 42 and the Law Commission’s publication of its final report “Matrimonial Property, Needs and Agreements”.

Following the case of Radmacher, which involved a PNA made in Germany and entered into by a French husband and a German heiress wife, there appears to have been a shift towards enforceability. The Court now appears more willing to take the terms of a PNA into account when looking at the division of finances and assets upon divorce.

Accordingly, it is likely the Court will want to enforce the terms of a PNA to the extent that it is fair to do so. In assessing the approach to be taken to a PNA, the Court will apply the test from Radmacher. Lord Phillips made clear that “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”.

To help apply this test, the Court may consider the three questions posed by the Supreme Court:

1. Were there circumstances at the time of making the PNA that detracted from the weight that should be accorded to it?

Duress, fraud and misrepresentation: Did the parties enter into the PNA of their own free will, without undue influence, and were they informed of its likely implications if it were to be enforced?
Exploitation of a dominant position: Was there inequality of bargaining positions or the exploitation of a dominant position to secure an unfair advantage, for example, was one party more wealthy, educated and legally represented than the other?;
The parties’ circumstances: Were both parties of mature age? Was either party under any pressure when signing the PNA? Would the marriage have not gone ahead without the PNA?; and
Legal advice and disclosure: Did both parties enter into the PNA after having had independent legal advice; full and frank disclosure of their respective financial positions?

2. Were there circumstances at the time of making the PNA that enhanced the weight that should be accorded to it, for example, were both parties from and was the PNA made in a jurisdiction where it would be enforceable?

‘Foreign elements’ such as those in Radmacher (the fact the husband was French and the wife was German, and that the PNA included a German choice of law clause) could be evidence that the parties intended their agreement to be effective. However, since Radmacher, the question of whether the parties intended their agreement to be useful is unlikely to be an issue.

3. Did the circumstances prevailing at the time the Court made its order make it fair or just to depart from the PNA?

Any relevant children: A PNA must not be allowed to prejudice the reasonable needs of any children of the family;
Autonomy of the parties: The Court should respect the parties’ decision to determine their financial affairs by way of a PNA, however, this will need to be balanced against the priority of ensuring fairness for the parties and their children;
Non-matrimonial property: There is nothing intrinsically unfair in a PNA whereby the parties make provision for retaining non-matrimonial property, for example, property acquired by way of gift or inheritance. However, this too will need to be balanced against the priority of ensuring fairness for the parties and their children; and
Future changes in the parties’ circumstances: Parties’ circumstances often change over time in ways that cannot always be foreseen; for example, a party giving up their career or being made redundant. In these cases, if the PNA does not attempt to address such eventualities, it would be unfair to hold the parties to the PNA. Review clauses can be included in the PNA so that the parties can seek to amend the PNA should their circumstances change. However, this could be problematic if one party after marriage is unwilling to sign any further documents.

Despite PNAs not being enforceable in England and Wales, should you still make one?

Pros:

As there are no pre-existing matrimonial property regimes in England and Wales, parties may wish to enter into a PNA to combat the uncertainties associated with the Court’s wide discretion when it comes to making financial orders upon divorce;
More assets are preserved for family members. This is particularly useful where one or both parties have children from a previous relationship for whom they wish to provide financial security; and
The agreement is made at a time when the parties can negotiate a settlement without animosity, saving time, cost, and distress, later on, should the marriage fail.

Cons:

Goes against the principle of equal sharing (White v White)⁽²⁾;
Possibly unfair on the party in the weaker bargaining position; and
Not possible to predict the parties’ circumstances in the future.

What is the impact of the COVID-19 pandemic on PNAs?

Despite being in the peak wedding season, due to the COVID-19 pandemic, many couples are having to postpone their weddings because they cannot be held in the way they have meticulously planned and with the number of guests they have invited.

Ordinarily, a PNA is made on the basis that the marriage will take place usually 12 months after the signing of the PNA. Therefore, it may be prudent to delay making a PNA until the further lifting of restrictions on wedding ceremonies. Instead, couples may consider making a postnuptial agreement after marriage.

A postnuptial agreement is a written agreement executed after a couple gets married or enters into a civil partnership, to settle the couple’s affairs and assets in the event of a separation or divorce.

Postnuptial agreements may be made when the parties are together when they are about to separate or have already separated. Just last week, The Daily Mail wrote about the Court’s decision in upholding the postnuptial agreement between Lisa Marie Presley and her soon to be ex-husband Michael Lockwood.⁽³⁾

Key Takeaway

In terms of the future of PNAs in this country, whilst they are not for everyone, they are here to stay. Post-Radmacher, recent cases have shown a willingness by the Court to enforce PNAs or at least to view their existence as a good reason to depart from the principle of equal sharing.

The Court will approach them on a case by case basis, but it is clear that the needs of the parties and children remain paramount in determining the extent to which the terms of a PNA will be enforced.

This article is intended to provide a general overview of this topic. Specialist advice can be obtained from the family law solicitors at SBP Law.

The law applicable in this article is that in England and Wales. While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The writer does not accept any responsibility for liabilities arising as a result of reliance upon the information given.