Last week (20th October 2010) the House of Lords (Supreme Court) made a landmark decision (Radmacher v Granatino) relating to Pre Nuptial Agreements by a majority of 8 to 1.
The Supreme Court did not say that Pre Nuptial Agreements are enforceable as contracts, ie enforceable without any consideration by the Court as to the terms of the agreement. The decision made by the Supreme Court was that Pre Nuptial Agreements are now just as enforceable as Separation Agreements and Post Nuptial Agreements and subject to the same safeguards, discussed below.
A Separation Agreement is an agreement made between a husband and a wife or parties to a Civil Partnership who have decided to separate and want to agree what the financial consequences of that separation should be. For whatever reason, the parties are not asking the Court to dissolve their marriage or Civil Partnership immediately and cannot, therefore, convert their agreement into a Court Order.
In effect, a Separation Agreement is an agreement as to the terms of the Court Order that the Court will be asked to make as and when Divorce proceedings are instituted.
These types of agreement have been upheld by the Court for some time, subject to the overriding jurisdiction of the Court.
The sort of reasons why the Court has not upheld this type of agreement are where one party had been subjected to undue pressure, if the agreement had been obtained through fraud or as a result of material non disclosure, if there had been a dramatic change in circumstances between the making of the agreement and the date when the Court was asked to approve it or if the agreement was unfair, for instance if it made no proper financial arrangements for the children.
More recently, the Courts have indicated that they will uphold agreements made in contemplation of separation or divorce at some future date but negotiated without any immediate intention or desire to do so (Post Nuptial Agreements).
Until the decision in the Radmacher case the Courts had drawn a distinction between agreements between couples who were already married and agreements between people who were about to become married.
Various reasons had been advanced for this. The most significant being that the parties’ bargaining positions might be too unequal until they were actually married.
The House of Lords has said that Pre Nuptial Agreements are no more likely to be set aside than either of the other agreements. Whilst some of the safeguards discussed below will apply more to Pre Nuptial Agreements, the Court’s general approach to all three types of agreements (Separation, Pre and Post Nuptial) will be the same.
When considering how the Court would exercise its discretion to override any of these agreements, the House of Lords said that there were 3 factors which the Court would consider:-
- Whether there were circumstances at the time that the agreement was made, which detracted from the weight that the Court should give to it;
- Whether there were circumstances at the time that the agreement was made, which enhanced the weight that the Court should give to it;
- Whether there were circumstances at the time of the Trial which made it fair to depart from the agreement.
1. Circumstances which detract from the weight given to the Agreement
For the agreement to be upheld by the Court the parties must enter into it of their own free will and their decision to do so must be informed.
Traditionally, the means of ensuring that both of these facts can be assumed by a Court has been to ensure that both parties give comprehensive disclosure of their financial position to each other, before entering into a agreement and that each party receives independent legal advice before the agreement is concluded.
Separation Agreements, however, have been upheld by the Courts so long as both parties have had the opportunity to take independent legal advice, even if one of them has elected not to take advantage of that opportunity. The House of Lords has said that this will now apply to Pre and Post Nuptial Agreements, so long as both parties are aware of the implications of entering into the agreement.
In addition, comprehensive financial disclosure may not be necessary, so long as both parties have all of the information that is material to their decision.
In essence, this means that if you know that your future wife or husband has more than enough money to house and maintain you and your future children, it may not matter if they do not disclose the full extent of their millions.
Most ordinary people contemplating a Pre Nuptial Agreement will wish their fiancée to take into account the affordability of any proposed settlement and more detailed financial disclosure, may have to remain the norm for those who cannot simply indicate that we have “substantial wealth”.
Under the heading of informed decision making, the House of Lords said that the parties must have intended that the agreement should be effective. For people who already have Pre Nuptial Agreements, this raises the possibility that they could argue that they only entered into the agreement because they believed that it would not be upheld by an English Court. That said, anyone entering into a Pre Nuptial Agreement after 20th October 2010 had better assume that they are likely to be held to it.
So far as free will is concerned, the Supreme Court said that agreements would not be upheld if there was evidence that one party had been unduly influenced.
Particularly relevant to Pre Nuptial Agreements will be the parties’ emotional state prior to the marriage, their ages and degree of maturity and whether they have been married or been involved in a long term relationship before.
The House of Lords also said that the question of whether the marriage would have gone ahead without the Pre Nuptial Agreement would cut both ways.
2. Factors which will enhance the weight to be given to the agreement
The only example given by the House of Lords under this heading was the fact that both parties to the marriage came from jurisdictions where Pre Nuptial Agreements were upheld. The Supreme Court said that this made it more likely that they intended that their agreement should be effective.
It remains to be seen whether the Courts will expand this category so as to allow other factors such as independent legal advice, which have traditionally been put forward to counter the detracting factors, into positive reasons for upholding the agreement or whether this will remain a very limited category.
3. Circumstances at the time of the trial which make it fair to depart from the agreement
The House of Lords redrew the distinction between the three types of agreement, saying that a significant change in circumstances between the date that the agreement was entered into and the date that the Court had to consider it could make it fair to depart from the agreement.
Separation Agreements which are generally intended to be implemented immediately, are less likely to suffer from such changes than agreements that were negotiated long before divorce or separation actually occurred.
Pre and Post Nuptial Agreements, which may be negotiated long before the actual separation, stand a much greater chance of failing to provide for all conceivable changes which may have occurred in the interim.
Clearly either agreement can make provision for foreseeable circumstances, such as the birth of children and the giving up of a career by one parent. However, even where such changes have been foreseen, the provision made might turn out to be inadequate in the light of other changes, such as a quantum leap in the family’s standard of living or illness or disability.
One circumstance which may however be foreseeable prior to a marriage, would be the inheritance, by one party, of substantial assets.
Although such assets have, in the absence of unmet needs, been treated differently on divorce, they have tended to diffuse into the matrimonial pot over a period of years.
If nothing else, a Pre Nuptial Agreement may make claims for a percentage of such assets more difficult.
The Supreme Court identified the three most important reasons making it fair to depart from an agreement as being unmet needs, compensation and sharing.
It remains the case that an agreement which makes no attempt to meet one party’s reasonable needs (which will continue to be judged in the light of the standard of living during the marriage and the length of the marriage), is unlikely to be upheld.
Similarly, an agreement which keeps all of the assets derived from income of the party who earns the income and takes no account of the contribution made by the person caring for the children, will seldom be regarded as giving the primary carer sufficient compensation for the loss of their earning capacity or future pension entitlements.
The sharing principle is a relatively recent one and has been extremely difficult to quantify, particularly in relation to marriages, which are neither short nor long (between 5 and 15 years) and where there are no children.
In future, the Court may be much more willing to accept the parties’ own agreement as to what constitutes a fair share of assets brought into the marriage through inheritance, shrewd investment, hard work or good fortune, rather than adopting the attitude that the Court always knows best.
The Dissenting Judgement
From a non-lawyer’s point of view the philosophical question raised by the minority judgement of Lady Hale is perhaps the most interesting.
Unless marriage has some religious significance for the couple, what is its status if the parties can agree that it will have little or no legal effect either?
Statistically speaking cohabiting couples are more likely to separate than married couples. At the same time, marriage is now less popular that at any time since the 1970s. Is this simply because of fear of the financial consequences or because of psychological commitment to the relationship resulting from the wedding?
One wonders whether the availability of ’marriage lite’ will make the institution (of marriage) more popular or simply undermine its significance still further.
Negotiating Pre Nuptial Agreements
Negotiating Pre Nuptial Agreements can be a delicate topic. At Furley Page we are lucky enough to have a trained mediator and a trained collaborative lawyer. If difficult areas have to be discussed before an agreement can be finalised we can help you to make sure that the discussion is sensitively handled and does not give rise to arguments which might spoil the big day.
If you would like to talk to one of our Family Law team about a Pre Nuptial Agreement please contact James Muir-Little on 01227 763939.