Prenuptial Agreements
Prenuptial Agreements - Fact or Fiction?
The recent film "Intolerable Cruelty" starred Catherine Zeta Jones as a serial "gold digging" wife who made a living out of marrying and divorcing rich men. The film plays on the fears of wealthy individuals contemplating marriage, by suggesting that there are some people who will marry solely for economic and social gain. Although it is an intolerably bad film, it does touch on the use of prenuptial agreements as a means of protecting a person's assets from claims by his/her future spouse in the event of marriage breakdown and you do not have to suspect your future husband/wife of marrying for unscrupulous reasons in order to consider a pre-nuptial agreement!
Why Enter Into One?
Prenuptial agreements are no longer just for the super rich. A prenuptial agreement may be very useful in a variety of circumstances, for example:-
- With the increase in property values and the number of individual home owners, many people find themselves beginning their married life with a substantial amount of equity built up outside the marriage. A prenuptial agreement may assist in protecting these assets.
- To protect individual items of property passed down through your family or monies that have been inherited.
- To reduce disputes and costs relating to the division of assets on marriage breakdown.
- Where individuals are from different countries it may assist to state which jurisdiction will deal with the divorce, subject to European Regulations.
- It could also assist in ensuring your spouse will agree to divorce on religious grounds and not simply legal grounds. An example of this is a Jewish husband agreeing to grant a 'GET' to his wife thereby allowing her to remarry under Jewish Law. This may prevent the wife having to make an application at a later stage under the Divorce (Religious Marriages) Act 2002. It could also cover parties from a particular religious community agreeing not to undermine each others reputation within that community or damage their prospects of remarriage.
- It could also help to protect assets earmarked for children from a previous relationship particularly if individuals find themselves on a second or third divorce.
The Legal Position
Prenuptial agreements are commonplace in America and many EU countries. However, the traditional view in this country has always been that an agreement that contemplates the breakdown of marriage undermines the whole sanctity of that relationship. This has been reflected in English law and accordingly such agreements are generally not binding on the Court. Nevertheless, the sad reality remains that a vast number of marriages in England and Wales do end in divorce. However, recent case law has responded to social change and has attempted to take a more pragmatic approach to the validity of prenuptial agreements in England and Wales.
The division of assets upon the breakdown of marriage is currently governed by the Matrimonial Causes Act 1973. Under this Act, the Court has wide discretionary powers to make various income and capital orders.
Section 25 of the Matrimonial Causes Act sets out eight factors which the Court will consider in financial claims on marriage breakdown, in order to reach a just and equitable settlement. None of these factors state that prenuptial agreements should be considered and as the jurisdiction of the Court cannot be ousted by a prenuptial agreement, it was previously thought that such agreements were worthless.
However, more recent case law has indicated that entering into a prenuptial agreement may be regarded as "conduct which it would be inequitable to disregard" under Section 25(2)(g) - which is one of the eight factors under the Matrimonial Causes Act. In 2003 a case focused on what effect, or at least influence, a prenuptial agreement should have on the Judge's decision as to how the assets should be split. In this case both parties were independently wealthy, the husband having assets of over £25,000,000 and the wife around £1,000,000. The couple began dating exclusively in September 1999 and in November 1999 the wife became pregnant. The husband proposed marriage but had wanted a long engagement. The wife and her family did not want the child to be born out of wedlock and so the marriage was brought forward and a prenuptial agreement was drawn up in the event that the marriage broke down within a 5 year period. The marriage lasted 14 months and following its breakdown the wife claimed substantially more than proposed in the original agreement. In deciding what weight to give to the agreement the Judge asked himself some very pertinent questions which give us a good insight into how to draft a prenuptial agreement so that the parties can maximise its influence on a Judge's decision. These questions were as follows:
- Did the wife understand the agreement?
- Was she properly advised as to its terms?
- Did the husband put her under pressure to sign it?
- Was there full disclosure?
- Was the wife/husband under any other pressure?
- Did the wife willingly sign the agreement?
- Did the husband exploit a dominant position financially or otherwise?
- Was the agreement entered into with the knowledge that there would be a child?
- Has any unforeseen circumstance arisen since the agreement was made that would make it unjust to hold the parties to the agreement?
- What does the agreement mean and is it sufficiently clear?
- Does the agreement preclude an order for periodical payments for the wife?
- Are there any grounds for concluding that an injustice would be done by holding the parties to the agreement?
- Is the agreement one of the circumstances of the case to be considered under Section 25?
- Does the entry into the agreement constitute conduct which it would be inequitable to disregard under Section 25(2)(g)?
- Is the judge breaking new ground by holding the wife to the capital terms of the agreement?
- Insofar as maintenance for the wife is concerned, if the agreement does preclude a maintenance claim, would it be unjust to hold the parties to that aspect of the agreement?
To Conclude
Depending upon the circumstances and the particular concerns of the couple involved, on balance, it may be preferable to have a prenuptial agreement rather than nothing at all, although it should be understood that prenuptial agreements are not binding upon the Courts but may have influence on a Court's decision. Furthermore, this influence will decrease as the length of the marriage increases. In addition, the Court will always regard the needs of a child as paramount. Therefore, the prenuptial agreement will have maximum impact in the following circumstances:-
- A short childless marriage
- Where there is full financial disclosure from both parties
- A clear understanding of the terms of the agreement and clarity of drafting
- Where each party has received independent legal advice
- Where there is no duress or pressure to enter into the agreement
- Where the agreement states that it intends to be in full and final settlement of all claims, but continues to acknowledge that it is not attempting to oust the jurisdiction of the Court.
- Where there are no circumstances that have arisen during the marriage that make the agreement unjust, for example, neither party has won the national lottery.
On a final note, contracts similar to pre-nuptial agreements, known as 'Co-habitation Contracts', should be considered more often by unmarried couples. Many co-habiting couples continue to believe they are a "common law spouse" of their partner and as such have certain rights comparable to those of a married couple. This is a complete fallacy. Co-habiting couples remain at the mercy of property law, not family law, upon the breakdown of the relationship. There are plans for a Civil Partnership Bill which addresses the need to provide same sex couples with the same rights as married couples, but this does not extend to heterosexual couples. It is therefore perhaps even more important if you are unmarried and co-habiting to consider a contract setting out the division of assets in the event of the relationship ending.
For more specific information on prenuptial agreements and other family matters please contact Karen Wallace.
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