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Law Commission: Plan your divorce before your marriage

About The Author

Emily Clements (Former Team Member)

Emily is a Durham University Law graduate due to start as a paralegal in the London Banking & Finance Department of a Silver Circle firm in October 2014, and currently has her targets set on qualifying as a solicitor.

The change in attitude toward pre-nuptial and post-nuptial agreements

Nuptial agreements have, in the past, been entirely disregarded and unenforceable for public policy reasons. Historically, criticism was rife, as this kind of practice was considered‘inconsistent with the fundamental, life-long and enforceable obligation of husband and wife to life with one another’ (Baroness Hale at [143] in Radmacher v Granatino 2010). Further, they were considered particularly unromantic and therefore undesirable. However, the perception of the institution of marriage has changed in recent decades, owing, in particular, to the increased rate of divorce (the most recent ONS figures estimating that 42% marriages end in divorce.) These figures give gravitas to the argument that there is no longer much value in taking an idealistic approach by focusing on the eternal nature of marriage, in order to oppose the use pre-nuptial agreements. Rather, given the likelihood a marriage will end in divorce, the courts, and society in general, are increasingly recognising the sense in making advance financial arrangements.

Past precedents minimised the authority accorded to pre-nups, describing their ‘limited significance’ (F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45 (Thorpe LJ) ) and the courts were able to merely ‘bear the agreement in mind’ as part of the overall circumstances of the case ( M v M 2002 (Connell J) ) when assessing financial orders. However in 2008, the case of Crossley v Crossley [2008] 1 FLR 1467, gave momentum to the argument in favour of their enforceability. The case involved independent wealthy middle-aged divorcees and the court held that their pre-nup, which denied any financial claims against one another, had ‘magnetic importance.’ It was the case of Radmacher v Granatino in 2010 that became the ‘landmark case’ in the area (Z v Z  2011 at [33]), since it provoked a ‘seismic shift’ in approach. The case involved a pre-nup concluded in Germany between a super-rich heiress (Radmacher) and a merchant banker (Granatino), which barred him from making any financial claims against her following divorce. Contrary to this agreement, he sought for ancillary relief in London, yet a majority in the Supreme Court (8:1) held it fair to enforce the agreement. It was said in the judgement by Lord Mance (at [129]), that following Radmacher a pre-nup would be considered the ‘starting point’ for the courts in divorce proceedings. Although the case did not render nuptial agreements binding, it was clearly stated that if certain conditions were met, including an assessment that the agreement was ‘fair’, then the agreement would be given at least ‘decisive weight’:

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.

(Supreme Court at [75])

The need to uphold the autonomy of the parties has consequentially become more widely recognised.

What is the current law for ancillary relief?

Before exploring the Law Commission’s recommendations for reform, it is useful to provide a brief outline of how the courts currently redistribute parties’ finances upon divorce or dissolution (note: the law is the same for Civil Partnerships). Under s25 Matrimonial Causes Act 1973 the courts must take into account a multitude of factors. The financial needs of any children are the ‘first consideration’. Subject to these needs, the financial needs of the parties themselves will be assessed; this may include the rearranging of property, income and debts in order to disentangle the lives of the parties. Notably, there is an emphasis on the idea of a ‘clean break’ which means longer-term periodical payments to one party are usually avoided, unless the interests of a child are at stake. Since the case of White v White2000 ‘the yardstick of equality’ means the starting point for the courts is that of equal division of assets. Nevertheless, in practice, the ‘financial needs’ consideration is so extensive that it often overrides this sharing principle. As for ‘non-matrimonial property’, which refers to property such an inheritance or assets acquired before the marriage or civil partnership took place, this may be ring-fenced as an exception to the sharing principle.

The Law Commission’s Proposals

The Commission’s project assessing this area commenced in 2009 and has included two consultation periods prior to publishing their final report on 27th February 2014. Their recommendations can effectively be split into two main focuses.

  1. A call for clarification on the law of ‘financial needs’ in divorce law;
  2. An introduction of a ‘qualifying nuptial agreement’ in England & Wales which would enable couples to make binding arrangements for the financial consequences of divorce, with the restriction that parties will not be able to contract out of meeting their spouse’s ‘financial needs’. Their recommendations also include a Nuptial Agreements Bill (see Appendix A of the report).

1) ‘Financial Needs’

The Commission are not advocating reform of the law on meeting the ‘financial needs’ of the other party; it has been stated that their consultations did not promote a detraction from allowing the court wide discretion in this area. Rather, the recommendation is for clearer guidance from the Family Justice Council, clarifying the meaning of ‘financial needs’. The aim is to make the law more accessible to the parties, especially since the recent legal aid cuts (Legal Aid Sentencing and Punishment of Offenders Act 2012), have resulted in an increase in self-representation in proceedings. Whilst the current law leaves much to the judges to expertly decide, the reality is that the majority of people no longer end up in front of a judge during their divorce (1.15 Executive Summary - it is now the ‘exception rather than the rule’). With the UK’s increased divorce rates it is no longer realistic for everyone to go to court for a Financial Order.

The Commission’s Executive Summarystates, “Our objective is to leave the framework of the law as it is but to accept that, increasingly, people will have to make use of it without lawyers.” Moreover, there is evidence that there is currently a degree of regional inconsistency in the application of the law, which must be thwarted. The Commission also discuss the potential for developing a formula which could generate guideline figures for payment between the parties, in recognition of the fact that this has become the preferred approach in other jurisdictions. For example in Canada, a formula is used to calculate a range of outcomes within which a court order may fall. However, it is not suggested that the UK formulae would ever have any greater legal force than mere guidance. The recommendation is that the Government commissions a long-term study into the workability of a formulaic model here.

2) Qualifying Nuptial Agreements

The Commission have proposed the introduction of ‘qualifying nuptial agreements’ to be made between married/engaged couples which would have contractual enforceability. Currently, such agreements can be disregarded at the discretion of a court that deems the terms to be ‘unfair’; without this arbitrary ‘fairness’ criteria qualifying nuptial agreements offer greater predictability. They have been described by the Commission as a ‘legal tool’ for promoting ‘more autonomy and control’ - a trend which is increasingly prominent in Family Law today. Nevertheless, the Recommendations do exclude the parties’ ability to irrevocably contract on issues regarding their individual ‘financial needs’, which is consistent with the position in other European jurisdictions. It is said at1.30 of the Executive summary, “The introduction of qualifying nuptial agreements without the proviso for the protection of the parties needs would be very damaging”. It would remain possible for spouses to include in their agreements plans regarding financial needs, but these terms will only be contractually enforceable if the court considers them fair. The aim is to achieve an appropriate balance between respect for party autonomy and the protection of weaker parties.

Professor Elizabeth Cooke, Law Commissioner for Property, Family and Trust law, who led the Recommendations summarises the Commission’s aims:

We believe that married couples and civil partners should have the power to decide their own financial arrangements, but should not be able to contract out of their responsibilities for each other’s financial needs, or for their children. The measures we are recommending would help couples understand and meet their financial responsibilities and, where appropriate, achieve financial independence.

The target audience appears suited to the provisions of the recommendation; namely,

  • high net worth individuals
  • parties who lead relatively financially independent lives within their marriage and are mutually able to meet their own needs (maybe married later in life)
  • where one party has a specific asset they wish to protect
  • couples who have children from a previous relationship and want to pass on property to them
  • couples from overseas jurisdictions where pre-nups are commonplace - may be able to express their overseas agreement as a qualifying nuptial agreement here in the UK.

In terms of formal requirements acting as safeguards, firstly, naturally the agreement must be contractually valid, i.e. there must be no evidence of undue influence or misrepresentation. It must also take the form of a deed, signed by both of the parties. There must be a signed recognition that both parties understand the implications of the agreement, which will partially remove the court’s discretion to make financial orders. To avoid coercion or pressure, the agreement is not to be made within 28 days of the wedding or civil partnership. Further, there must have been full disclosure of both parties’ financial situations at the time the agreement was made. A waiver of these rights to disclosure and legal advice must be disallowed. Professor Elizabeth Cooke has stressed the importance of these safeguards ‘to ensure that they cannot be used to impose hardship on either party, not to escape responsibility for children or to burden the state.’

Are these Recommendations a positive development?

Commentary so far has been predominantly positive, especially in terms of improving legal certainty and predictability. It has not been considered as an overwhelmingly controversial development, since many consider that the legal enforcement of nuptial agreements has been ‘the writing on the wall since Radmacher v Granatino’ (Michael Wells-Greco, partner and international family lawyer at Speechly Bircham). Others have commended the benefits of moving away from the previous focus on ‘merits’ and ‘fairness’, which were inherently difficult concepts to objectively define, therefore providing a source of disagreement. A partner at Winckworth Sherwood has criticised the lack of depth in the Commission’s dealing with the issue of ‘financial needs’. She has highlighted the common problematic scenario of dealing with the assets when one party is a woman who has given up her career for a family; so far the courts have provided uncertain precedent in this situation.

This particular commentator considers issues such as this to have been ‘sidestepped’ by the Commission, by instead suggesting the Family Justice Council Guidance on financial needs and discussing the use of formulae. Similarly, recognition of the issues that can arise during the breakdown of this type of relationship has been made by Lady Hale (B Hale, Equality and Autonomy in Family Law (2011) 33 JSWFL 3). In Radmacher she dissented on the basis that she was concerned the legalisation of pre-nups would ‘basically deny the weaker spouse (usually the female) provision which she would otherwise have gained.’ [137] Whilst I empathise with her concerns, the formulation of a qualifying nuptial agreement still stresses the paramount importance of providing for financial need to prevent any great hardship in a case such as this. Looking at the recommendations from a slightly different perspective, Chris Aitken (Head of Financial Planning at Investec Wealth and Investment), has welcomed the Commission’s work. He argues that currently, parents of married children, who are considering advance inheritance or financially aiding their children, are dissuaded by the chance that the marriage could breakdown, resulting in their assets leaving their immediate family. He states that ‘Given this, it’s not surprising that 72% of parents support making prenuptial agreements legally binding in the UK.’

To conclude, I find myself in sympathy with the views of Jane Keir from Kingsley Napley LLP: “We urge Parliament not to miss this opportunity to allow couples greater certainty and pre-agreed financial control should their relationship disintegrate.” The promotion of parties’ autonomy interests in an area of law which is inherently personal, is a positive development. Further, increasing the certainty surrounding nuptial agreements should save time and money for lawyers and parties alike, which can surely only ever be a good thing!

Further Reading

Pink Tape, ‘What the Law Commission is really saying about pre-nups.’ 27th February 2014

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Tagged: Family Law

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