Prenuptial Agreements prevent 'litigation roulette'

18 January 2008

Although couples who are contemplating living together, without getting married, quite often enter into an agreement before purchasing a property together, so as to define what their contributions towards the mortgage and other outgoings will be and how they will divide their property and other assets in the event that their relationship breaks down, couples who are getting married are generally far more reluctant to contemplate this sort of prenuptial agreement.

The usual objection is that such an agreement is unromantic, demonstrating a lack of trust in one's spouse or a lack of faith that the marriage will last.

I would suggest that discussions relating to money, where you are going to live, how soon you are going to have a family, whether you are both going to work full-time and how much you are going to spend on your wedding are fundamental to the business of getting married. Sensible people discuss these things in advance and a discussion as to what might happen in the unfortunate event that relationship is not lifelong does not indicate an intention to split up any more than buying insurance indicates an intention to have an accident.

Just like insurance, a prenuptial agreement could make the entire process much less expensive and much less complicated if the undesired event does occur.

The other major objection to prenuptial agreements is that, as a matter of law, they are not enforceable as a contract. This is to say that whatever agreement the parties to a marriage enter into, the agreement can always be set aside by the court on divorce if the agreement is unfair to one party.

At present there is no sign of Parliament making prenuptial agreements enforceable. However, increasingly the courts are having regard to the declared intentions of the parties in the event of divorce, when deciding how to divide their assets and in one or two cases have simply upheld the settlement which the husband and wife have agreed in advance.

At the end of last year in the case of Crossley v Crossley, the Court of Appeal held that where there was a pre-nuptial agreement the judge had a discretionary power to require a party to show good cause why a prenuptial agreement should not govern the division of assets on the dissolution of the marriage.

The parties married on January 5, 2006. By March 2007, they had separated and on August 15, 2007, the wife petitioned for divorce.

The prenuptial agreement was dated November 16, 2005. The critical clause was article 8 which provided essentially that each party should walk away with what he or she had brought and by article 8.3(c) neither party should apply for any order for financial provisions.

Mr Justice Bennett ordered that the parties did not have to produce the customary documentation annexed to their financial statements, on disclosure of assets and neither party was to prepare a questionnaire.
Instead, he ordered the wife’s solicitor to write a detailed letter setting out the wife’s case concerning alleged non-disclosure of other assets by the husband.

His order was upheld by the Court of Appeal on 19th December 2007.

Whilst it is still not possible to guarantee that the court will uphold an agreement, the burden of proof appears to have shifted on to the party who says that the agreement should be set aside.  If they are unsuccessful in that attempt, the saving in costs resulting from the usual requirement of providing full and up to date financial disclosure at the time of the proceedings will be considerable.

There are a number of ways to maximize the chances that the court will pay close attention to the settlement which both parties agreed would be fair when considering the question prior to their marriage.

The most obvious step is to ensure that both partners receive independent legal advice as to the terms of the proposed agreement.

The other important procedure which must be gone through is to disclose to your future spouse exactly what assets and expectations you have so that they can consider the proposed arrangement from an informed position. What could be more romantic and demonstrative of one's faith that the marriage will last for ever than detailing or of the worldly goods that one intends to endow upon your wife or husband to be.

Needless to say, the more eventualities that your prenuptial agreement provides for, such as the birth of children and a sliding scale of entitlement for the spouse bringing less into the marriage, so that the longer that the marriage lasts, the greater their share, the more likely it is the court will give serious consideration to the agreement.

Finally, it is very important that both partners have time to consider any agreement and to discuss any changes that they would like to make. Presenting your bride to be with an agreement the week before the wedding and telling her that if she does not sign it, the whole thing is off is unlikely to endear you to the judge in your divorce, if indeed you succeed in getting married in the first place following such an ultimatum.

Traditionally prenuptial agreements have been regarded as only suitable for the very wealthy. However, whilst I would maintain that any couple that preferred to specify the outcome of their divorce, as far as possible, rather than playing "litigation roulette", should think seriously about a prenuptial agreement, there are certain types of couple for whom they are particularly appropriate.

People who have already been through the divorce process may well be put off the whole idea of remarriage. They may feel at less risk of being dragged through the courts in arguments as some money and property a second time with a prenuptial agreement.

Divorcees and bereaved spouses with grown-up children, who may see their parent's remarriage as a threat, not least to their inheritance, may find that their children are less hostile if the possibility of divorce and the resulting financial settlement has been considered and agreed in advance.

I would also point out that it is open to a couple to define the scope of their agreement, so as to cover as many or as few issues as they wish. For instance, the agreement can deal solely with how the couple wish to deal with particular contributions such as property that they inherited before the marriage or will inherit after the marriage or property in a trust, leaving the court to deal with their other assets in the light of that agreement.

For more information contact James Muir-Little.

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