Prenuptial Agreements – If a job is worth doing…

Clients are much more aware of the benefits of prenuptial agreements than they were 3 to 4 years ago. However, clients can think that they are a smaller piece of work than is, in fact, the case.

The making of a prenuptial agreement is more a process than the prenuptial agreement is a piece of paper.

Think of it this way:

The couple are about to embark upon the voyage that is marriage.

They hope that their marriage (the ship) will be well constructed and will see them through stormy weather.

Unfortunately, not all marriages are successful. Sometimes the stormy weather is too much or they will hit unexpected rocks. Sometimes the crew find out simply don’t get on.

In this analogy, the prenuptial agreement is a lifeboat. The idea of the lifeboat is to enable the couple to escape the sinking ship in a straightforward and safe way (avoiding the costs of a messy divorce).

The lifeboat has been constructed so that it is ready to be used when the boat is sinking – often in stormy weather.

If the lifeboat has not been well constructed it may sink.

You will not know how well the lifeboat works until it enters the water.

So, when constructing a prenuptial agreement – is it better to try and cut corners – or is it better to try and do it properly?

The Purpose of a Prenuptial Agreement

The prenuptial agreement is designed to bind the court and the other party to and agreed financial settlement – should the marriage breakdown. It is designed to assist either or both of the parties entering the marriage to protect their assets.

Prenuptial agreements are particularly suited to remarriage or to marriage later in life. Particularly when one or the other party has children (perhaps grown-up children) from a previous relationship.

At the time of a divorce the court will seek to uphold pre-nuptial contracts that are not tainted by unfairness.

When the agreement was entered into, was there duress, fraud or misrepresentation? Was there unconscionable conduct such as undue pressure (falling short of duress), or other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage.

The court may take into account a party’s emotional state, and what pressures he or she was under to agree. But that again cannot be considered in isolation from what would have happened had he or she not been under those pressures.

The circumstances of the parties at the time of the agreement will be relevant. Those will include such matters as their age and maturity, whether either or both had been married or been in long-term relationships before. For such couples their experience of previous relationships may explain the terms of the agreement, and may also show what they foresaw when they entered into the agreement. What may not be easily foreseeable for less mature couples may well be in contemplation of more mature couples. Another important factor may be whether the marriage would have gone ahead without an agreement, or without the terms which had been agreed.

It is important is that each party should have all the information that is material to his or her decision, and that each party should intend that the agreement should govern the financial consequences of the marriage coming to an end.

The arrival of children or some other changing circumstances may impact on the finances in such a way as to render the pre-nuptial agreement unfair.

The Law Commission’s report of 27 February 2014

The Law Commission’s report, Matrimonial Property, Needs & Agreements recommended legislative reform to make nuptial agreements binding if thhey fulfil certain criteria which would make them a “Qualifying Nuptial Agreement” (“QNA”),

The litmus test to whether an agreement will be binding will be “needs” rather than “fairness” which the Supreme Court adopted in the case of Radmacher.

Parties would not be able to contract out of needs.

Providing needs are met and the following conditions would apply, the Commission recommends that the agreement would be a “Qualifying Nuptial Agreement” and should be an enforceable contract which would take effect on divorce and its terms be enforced:

• The agreement must be contractually valid and enforceable
• The agreement must be made by deed
• It must contain a statement signed by each party that he or she understands that the Qualifying Nuptial Agreement will restrict the court’s discretion to make financial orders
• The agreement must not be made during the 28 days ending with the day on which the marriage or civil partnership is formed
• At the time the agreement is formed both parties must have received:
  • Disclosure of material information about the other party’s finances; and
  • Independent legal advice (the provision of a statement signed by each party and their lawyer confirming that such advice has been provided will create a presumption that this requirement has been

However no legislation has been brought forward by Parliament since the Law Commission reported.Indeed, the reform of family law has never been a Parliamentary priority – hence the fact that we still have fault based divorce.

Whilst the recommendations of Law Commissionare not legally binding – it would be unwise not to follow them – without good reason.

Taking sensible steps to achieve a binding agreement

If it is the case that you are considering a prenuptial agreement the sensible way forward is to seek advice as far in advance of the wedding as possible. There is no 28 day rule – but the nearer in time the agreement is entered into to the wedding – the more concern there would be as to the pressures upon one or both parties.

The courts will treat postnuptial agreements – contracts entered into after the marriage – in a similar way to prenuptial agreements. If the wedding is just too close when this issue arises – perhaps it’s something which should be left until after the honeymoon? If both are freely entering into the agreement the passage of a few weeks should make no difference to them?

To show that the prenuptial agreement was freely entered into by each party it would clearly seem to be extremely sensible for both parties to have received legal advice and for both solicitors to sign the prenuptial agreement in confirmation of this.

There should also be a good and clear letter from the solicitor who drafted the agreement to the other party – explaining the draft agreement and recommending that they seek legal advice before signing.

If there are to be amendments then it is perhaps best for these to be recorded at arms length in the solicitor/solicitor correspondence.

It is sensible to over disclosure financial information than under disclosure. Certainly there should be a clear record of each party’s financial position in the agreement document.

The parties also need to consider carefully potential changes in circumstances and perhaps refer to these in the agreement or alternatively to build in a periodic review – which would turn the prenuptial agreement essentially into a postnuptial agreement. It could be adapted any change in circumstances to ensure that it remains enforceable. If both are happy that there have not been any material change in circumstances this can be recorded.

Investing in the time to do things properly

The starting point is however a good meeting between the client and the drafting solicitor to go through what is required and then for the agreement to be carefully drafted. For the client to reflect upon its contents and then for there to be the process through which the terms are finalised with the other party – with input from their legal adviser. This is difficult to achieve in a couple of days!

If you want to go to the trouble of entering into a prenuptial agreement – which may well be a sensible thing to do – it is worth investing the time in doing it properly. This could mean costs which are likely to be  several hours legal time. The more complicated the agreement/financial situation – the more work – but the costs will be much less than the potential implications of not having such an agreement incircumstances where it would be sensible to have one.

If a job’s worth doing… It’s worth doing well.