Understanding Prenuptial and Postnuptial Agreements

Nuptial agreements, until quite recently a rarity in family cases in England and Wales, are becoming ever more popular.

Nuptial agreements are agreements between spouses setting out what should happen to their finances in the event that they should divorce. They take two forms: agreements entered into before the marriage (the ‘prenuptial agreement’, or ‘prenup’ for short), and agreements entered into after the marriage (the ‘postnuptial agreement’, or ‘postnup’ for short).

Whilst there are some differences relating to the formation of prenups and postnups, they are generally treated in the same way by the courts, under the collective name ‘marital agreements’.

Why have a marital agreement?

There are many reasons why couples enter into marital agreements.

Perhaps the most common scenario is where one of the parties has substantial assets that they acquired prior to the marriage, and wishes to protect those assets, either for themselves, or for someone else, such as their children from a previous marriage. In such a case the agreement may state that in the event of a divorce each party will keep their own assets, and any jointly owned assets acquired during the marriage will be divided equally.

Another common reason has to do with the uncertainty of contested financial remedy proceedings under our law. The law does not specify exactly how assets are to be divided on divorce. Instead, it gives judges a wide discretion as to what order they may make. Whilst this means that judges can tailor their orders to particular circumstances, it also means that couples may not know in advance what will happen to their finances when they divorce. A marital agreement can provide them with certainty.

And another reason to enter into a marital agreement is simply to avoid conflict on divorce, thereby keeping things as amicable as possible, and avoiding possibly huge legal costs.

So what do a couple have to do if they have decided to enter into a marital agreement?

What is involved in getting a martial agreement?

There are in fact few rules governing the making of marital agreements, save that the agreement should be in writing, and signed by the parties.

However, if the couple want the agreement to be enforceable (see below) then there are certain basic formalities that they should follow.

Firstly, each party should disclose to the other full details of their income and assets, before the agreement is entered into. This is to enable each party to make a judgment as to whether the terms of the agreement are reasonable.

Secondly, each party should take independent legal advice before signing the agreement, or at least be given the opportunity to seek such advice. Obviously, the lawyers will want disclosure to take place before they can give advice.

There is one other matter that should be considered when entering into a prenuptial agreement: timing. The agreement should be entered into a reasonable time before the wedding, to avoid the possibility of one or other of the parties feeling pressured to sign it. There is no set time period, but it has been suggested that the agreement should be signed no less than 21 days before the wedding.

The last thing to say about getting a marital agreement is that it really should be drafted by an expert family lawyer. A marital agreement is a complex legal document, which needs the expertise of a lawyer to ensure that it does what it is intended to do. The usual procedure will be for one party’s lawyer to prepare a draft of the agreement, and send it to the other party’s lawyer, who will check it and make any necessary alterations. Only when both parties and their lawyers are satisfied with the contents of the agreement will fair copies be prepared and signed.

Are marital agreements enforceable?

This is the big question: will the courts of England and Wales enforce the agreement?

The starting-point is that the courts are not bound by the terms of the agreement, unlike in some other countries.

And until 2010 that was about all that needed to be said. However, in that year a landmark Supreme Court case held that the court should give effect to an 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.

Whilst this case did not make marital agreements enforceable in all cases, it did have the effect that the courts now give much greater weight to them, so that marital agreements are now far more ‘useful’ to couples in England and Wales than they were previously. We will look at exactly how the agreement may affect the outcome of the case in just a moment.

There are three important points to the Supreme Court judgment.

The first is that the agreement must be freely entered into. There should be no suggestion of compulsion, or undue influence. This is where the requirements regarding legal advice and timing come into play.

The second is that the parties must fully appreciate the implications of the agreement. Again, legal advice is crucial here, as without it a party may not fully understand how they may be affected by the agreement.

And lastly, the terms of the agreement must be fair. It doesn’t matter whether the formalities have been fully complied with, if the court does not think that the terms of the agreement are fair as at the time it is considering the matter then it will not give effect to the agreement.

We will end by looking at two recent cases, which illustrate the court’s approach to marital agreements.

How the court deals with marital agreements in practice

The first case concerned that issue of fairness.

In the case the parties had been living together for some years, before they were married in 2014. They entered into a prenuptial agreement to protect the wife’s assets, which were worth some £43 million. On a strict reading of the agreement, all that the husband was entitled to was the sum of £112,000, the repayment of a £250,000 loan to the wife, and a further modest lump sum payment.

The parties separated in 2020, by which time the period of continuous cohabitation and marriage was some 18 or 19 years. The husband left the family home and moved into rented accommodation.

Divorce and financial remedy proceedings then took place.

The wife argued that the husband should be bound by the agreement, and the husband argued that it should be disregarded, seeking a lump sum of £8 million, comprising £2 million to £3 million to meet his housing needs, and £5 million to £6 million to meet his income needs.

The judge held that the agreement should not be given full effect. Most significantly, he said, it did not address the husband’s needs fairly. On the sums he would receive under the agreement he could not reasonably be expected to meet his housing nor income needs, in a way which bore at least some relation to the marital lifestyle enjoyed over nearly 20 years.

The judge therefore awarded the husband a total of about £1.9 million, plus £2.5 million to purchase a property that he could occupy for life, whereupon it would revert to the wife.

The judge did however say that if the parties had not entered into the agreement then the husband may have been awarded significantly more – his decision reflected a proper recognition of the limiting consequences of the agreement.

The second case also revolved around the issue of needs.

In this case, the assets were some £50 million, almost all of which were in the husband’s name. The parties had been married for some 5 years, and there were two children, for whom the wife was the primary carer.

The parties had entered into a prenuptial agreement, which purported to severely limit the wife’s financial remedies claims.

The judge found that the wife had signed the agreement with full knowledge of its meaning and consequences, and with the benefit of legal advice. She was aware that her claims on divorce would be heavily restricted. However, the wife would be the primary carer for the children for the rest of their minority, and the fact of marrying and having children had had a significant impact upon her financial circumstances.

The agreement had anticipated the possibility of the couple having children, but all it stated was that the agreement should be reviewed in the event of the birth of children, although this had not happened. The judge felt that this clearly indicated the parties contemplated that it might not be a fair document upon children being born.

In the circumstances the judge awarded the wife some £4 million, to meet her housing and income needs. He also commented that had the parties not signed the agreement, the wife might have received substantially more.

It can be seen from these two cases that marital agreements can have a substantial bearing upon the outcome of a financial remedies case. Indeed, if the terms of the agreement are still considered to be entirely fair, then the court may give effect to the agreement in full. On the other hand, if the agreement is not freely entered into, is entered into without a full appreciation of its implications, or is not considered to be fair, then the agreement may be disregarded entirely, or its terms may not be given full effect.

Further information

If you are considering entering into a marital agreement then it is essential that you seek expert legal advice. For further information about marital agreements and how we can help, see this page.