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How to enforce a prenuptial agreement
Date: 16/02/2020 Type: Articles Topic: Finances | Modern Family |It is almost ten years since the landmark decision of the Supreme Court in Radmacher v Granatino [2010] UKSC 42 changed the law on prenuptial agreements, giving their enforceability a huge boost when holding that the parties would be held to their bargain in the event of a divorce where the agreement ‘’was 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’’.
Whilst the law in Radmacher applies to all prenuptial agreements, those drafted after the decision should contain a clause or clauses reciting that, at the time of signing, both parties understood the terms, regarded them as fair and reasonable and accepted that they would be bound by them. Many go on to record that each party has been given a copy of the judgment in Radmacher (or at least an excerpt or summary setting out the important points) and that each understands fully therefore, the terms and effects of the prenuptial agreement before they sign. Their respective legal advisers too, will sign a certificate respectively stating that has each provided advice on the agreement and whether its provisions are fair and reasonable.
The Office for National Statistics tells us that for opposite sex couples divorcing in 2018, the average duration of marriage is 12.5 years. So the number of couples divorcing with a prenuptial agreement is increasing and they need to understand the current approach of the courts to reliance, or otherwise, on the terms of a prenuptial agreement during the divorce process. Below are some tips and considerations to help you make sure that the agreement you reached before you married is upheld in the event of disagreement on divorce.
1. Read your prenuptial agreement carefully - it is likely to be a complex and lengthy document. You cannot pick and choose the parts on which you want to rely and so it is important that you remind yourself as to its entire content and its overall terms and effect.
2. Remind yourself as to the circumstances in which you signed the prenuptial agreement - try and recall the background against which you negotiated and signed the prenuptial agreement. Whose idea was it? What did you want to achieve? Did you sign heads of agreement before embarking upon the drafting the prenuptial agreement itself? The heads of agreement set out, in summary form, the clear intentions and the terms you agreed and can be an extremely useful reference document where any doubt is thrown upon original intentions and for the circumstances in which agreement was reached. Does your prenuptial agreement have a review clause? Did you discuss or review the terms of the prenuptial agreement during the marriage? If so what did you decide?
3. Consider what has changed - it will be extremely helpful to go back over the history of the marriage and set out any changes since you got married. Have you had a child or children? Are you both still in good health? Is one of both of you still working? Have you made/lost money during the intervening period? Have you received any gifts or inheritances? All these considerations will be relevant.
4. Work out what you want - consider what it is that you want from the prenuptial agreement and communicate it to your ex at the earliest opportunity. Many cases get into expensive and entrenched litigation because one or both the parties will not set out what they want or because when they do, the other will not listen. It can be very difficult to talk in the midst of relationship breakdown but consider using an experienced family law mediator to help resolve any impasse or difficulties – at a fraction of the cost of litigation and at twice the speed.
5. Be proactive - the court process for deciding competing financial applications on divorce has not changed significantly over the last few decades. One party makes an application to the court in a document known as a Form A. It is largely a pro forma, tick box document which sets out the general nature of the financial claims. It is returned by the court, with a list of requirements and important dates, culminating in a first hearing, usually at least 2 - 3 months hence. The Form A does not allow any space to explain that you want to enforce your prenuptial agreement and that you have strong arguments for it to prevail and be determined ahead of the whole financial process. You have to set it all out clearly on the face of the Form A. If you do not, the chances are that it will not be picked up by the court until later and you may lose out on the opportunity to have its terms brought straight to the attention of the Judge and for it to feature prominently in his or her early thinking.
6. Be bold - when asked to decide or give a view upon competing financial claims on divorce, the court has to look at what are known as the “s25 factors”. They take their name from s25 of the Matrimonial Causes Act 1973 and refer to eight separate matters such as income, earning capacity, property and financial resources, financial needs, obligations and responsibilities, the standard of living enjoyed, the ages of the parties, any physical or mental disability, the contribution each has made to the marriage, etc. No one factor is more important than another and the court has a wide discretion when working out how each should relate to the facts and matters before it.
There have been suggestions that the existence of a prenuptial agreement should be added as a separate factor under s 25, but in the Court of Appeal case of Crossley v Crossley [2007] EWCA Civ 1491, it was held that the essential term in the prenuptial agreement which said that “both of them should walk away from the marriage with whatever they had brought into it” was a factor of such “magnetic importance” that it would determine and importantly, cut short, the whole financial application. When the parties met in June 2005, the husband was a 62 year-old property developer who had an independent fortune of approximately £45 million. He had been married previously and had 3 children. The wife was 50 years of age and had a fortune of approximately £18 million. She had been married three times previously and had 4 children. They signed a prenuptial agreement which was negotiated by experienced lawyers some 7 weeks before they married. The marriage lasted one year, during which time they spent periods apart. The wife sought to make a full financial application, but the husband cross-applied for the matter to be determined on the basis that each should take out whatever they brought in. Because the prenuptial agreement was of such “magnetic importance”, it assumed far greater significance than the other s25 factors and the litigation was halted.
7. Always negotiate - keep your lines of communication open for negotiation purposes. An important part of the formal court process is the in court mediation meeting known as a Financial Dispute Resolution appointment. The parties and their representatives must attend court and be willing to negotiate, with the help of a judge, who will give an indication as to what he or she believes will be a fair outcome. Keep listening and responding.
8. Try and compromise - litigation is incredibly expensive. It may cost tens or even hundreds of thousands of pounds to have a judge decide on what the financial outcome should be. You are unlikely to get everything that you want so try and work out what is really important to you and what you can do without, both in terms of cash payments and actual items that you want or can forego.
9. Keep a close eye on the legal costs - the end may not justify the means. If you win the technical arguments but have spent more on retaining or recovering an item than it is worth, you may find yourself in a worse financial position. Get from your legal advisers the best, detailed and reasoned explanation they can give you as to how much, stage by stage, it will cost to uphold your prenuptial agreement. Have a long hard think about whether it is worth it.
10. Anticipate the practicalities - separating/keeping/selling/transferring your assets and income even in accordance with a prenuptial agreement will all call for some logistical, accounting and legal forethought. What will happen to the family home – will it be transferred to one of you or sold? What will happen to a company that you run together? How will you divide the household contents? What will be the tax ramifications? Think ahead and get in first. Do it ahead of the end of the tax year in which you separate to minimise any Capital Gains Tax. Divorce affects an existing will but does not revoke it. Take advice on changing your will if in doubt.
Pre and post nuptial agreements are becoming more and more popular and effective as a means of working out both how you want to organise your finances after you marry and what you want to happen if things go wrong. If done properly they can cut short any arguments on divorce and leave intact the agreement you reached as to what would happen if things do not work out.
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