More and more couples are entering into pre-nuptial agreements (prior to marriage) and post-nuptial agreements (during marriage) to protect their assets in the event of relationship breakdown. Rosie Stewart outlines everything you need to know about entering into nuptial agreements.
What are nuptial agreements?
A nuptial agreement is an agreement made before or during a marriage or a civil partnership that seeks to:
- regulate the couple’s financial affairs during the marriage/civil partnership, and/or
- determine how their assets should be divided in the event of a divorce or dissolution of the marriage/civil partnership.
A nuptial agreement made before a marriage/civil partnership is known as a pre-nuptial agreement (or pre-nup) and a nuptial agreement made after a marriage/civil partnership is known as a post-nuptial agreement (or post-nup).
Are nuptial agreements legally binding?
No. The court has a duty to exercise independent discretion to decide on the division of financial resources between divorcing spouses and it is not possible to use a nuptial agreement to oust the power of the court.
However, the 2010 Supreme Court judgment in Radmacher v Granatino said that such agreements should be given “decisive weight” unless the agreement is unfair.
The guiding principle is that a 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 at the time of the breakdown of the marriage, it would not be fair to hold the parties to their agreement.
What factors would a court take into account in deciding whether or not to uphold a nuptial agreement?
In determining whether or not to uphold a nuptial agreement, the court is likely to consider the following factors:
- Did the parties to the agreement enter into it voluntarily? Was undue pressure placed on either party, and did both parties understand the implications of entering into the agreement?
- Was there a material lack of disclosure, information or advice on either side?
- Would upholding the agreement result in overall unfairness to one of the parties?
The court can, and will, intervene if it considers that upholding the agreement would result in unfairness. However, such intervention is likely to only go so far as to make up the shortfall rather than start from scratch in relation to the distribution of the financial resources between the parties to the agreement.
The court will not consider an agreement to be unfair simply because it awards one party less than they would have received had their award been determined by the court. The court respects individual autonomy and a nuptial agreement may make financial provisions that conflict with what a court would otherwise consider to be fair.
High Court judgments from 2014 and 2015 reiterated that the benchmark for fairness is whether or not the terms of the agreement would leave one of the parties “in a predicament of real need”. Even in circumstances where the court does deviate from the terms of the agreement, the existence of an agreement could act as a “depressing factor” when determining the quantum of the receiving party’s needs. Their future needs may be assessed by reference to the fact that they agreed to restrict their financial claims by entering into the agreement.
What are the advantages of entering into a nuptial agreement?
The divorce court of England and Wales has rightly developed a reputation as arguably the most generous (to the receiving party) divorce jurisdiction in the world.
Where there is surplus wealth, it has become common for assets to be divided equally between the parties. However, equal division is not a hard and fast rule, and there are circumstances where the courts will depart from equality.
The obvious reasons why a couple might enter into a pre-nup or post-nup are:
- To try to protect existing assets against the full effect and or uncertainties of an English award on divorce
- To try to regulate how their financial resources should be divided in the unfortunate event that the marriage breaks down, with a view to avoiding litigation at that time. In cases where there is pre-existing wealth, whether earned, inherited, or held in family trust and/or corporate structures, it is both common and standard for parties to enter into nuptial agreements
No one knows what the future holds and it is impossible to predict the future direction of the lives of the parties to a marriage. If it is hypothetically assumed that there will be an English divorce, the sort of award that would be made would to some degree depend upon their comparative positions at the time of the divorce. Consideration should be given, before entering into a nuptial agreement, as to whether the financial or other circumstances of either or both of them could deteriorate.
What are the disadvantages of entering into a nuptial agreement?
The process of negotiating and agreeing a nuptial agreement can be stressful and cause tension in a relationship. Such stress and tension will be particularly unwelcome in relation to a pre-nup, which is likely to be negotiated alongside wedding preparation.
With good advice, and plenty of time, the stress and strain of these agreements can be minimised. It helps for parties to talk openly between themselves about what they are each looking to achieve and why.
In the long run, it can be to the benefit of any relationship to be clear from the start as to how finances will be dealt with should the marriage not work out.