Briefings
FAMILY: PRE-NUPTIAL AGREEMENTS
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28 April 2009
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Pre-nuptial agreements are not currently enforceable in the event of the spouses’ divorce or the dissolution of the civil partnership. The court may, however, have regard to them in determining what financial relief is appropriate on divorce.
The 1998 Government Green Paper, Supporting Families, raised the possibility of legislation making prenuptial agreements binding (in the context of a principle of equality of division of assets on divorce). The response to the consultation was lukewarm (particularly from the Judges of the Family Division) and the proposals were shelved.
More recently, in June 2008, the Law Commission identified the law relating to marital agreements (pre and post nuptial agreements) as ripe for review. In the course of its 10th programme for law reform, the Commission will examine the status and enforceability of agreements made between spouses or civil partners (or those contemplating marriage or civil partnership) concerning their property and finances.
The timetable will involve a consultation beginning September 2009; with a report and draft Bill published in September 2012.
In the meantime, when drafting prenuptial agreements, reference should be made to the proposals in the Green Paper which made it clear that if any one of the following factors was present the Court would retain jurisdiction – as such, at the very least these factors need to be avoided:
- where there is a child of the family, whether or not that child was alive at the time the agreement was made;
- where under the general law of contract the agreement is unenforceable, including if the contract attempted to lay an obligation on a third party who had not agreed in advance;
- where one or both of the couple did not receive independent legal advice before entering into the agreement;
- where the court considers that the enforcement of the agreement would cause significant injustice;
- where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made; or
- where the agreement is made fewer than 21 days prior to the marriage.
Therefore, a court might attach more weight to the agreement if the following conditions are satisfied:
- there had been mutual full and frank disclosure of assets; there was equality of bargaining power;
- the agreement records provision for independent legal advice for each party;
- suitable financial provision was made in the event of future children; and
- the terms were inherently fair when they were negotiated and remain so in the circumstances prevailing at the time of the divorce.
However, it is a difficult task to provide an agreement that will adapt to the changing fortunes of married life, especially if the marriage is a long one - what might have seemed a fair settlement years earlier might be viewed as an unfair settlement years later.
In MacLeod v. MacLeod (Isle of Man) [2008] UKPC 64 (see below) – The Privy Council held that it was not open to them to reverse the rule that ante-nuptial agreements are contrary to public policy and thus not valid or binding in the contractual sense. The Board had been referred to the position in other parts of the common law world. It was clear that they all adopted the rule established in the 19th century cases. It was also clear that most of them had changed that rule, and provided for ante-nuptial agreements to be valid in certain circumstances. But with the exception of certain of the United States of America, including Florida, this had been done by legislation rather than judicial decision.
According the Privy Council "There is an enormous difference in principle and in practice between an agreement providing for a present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future. Hence where legislation does provide for such agreements to be valid, it gives careful thought to the necessary safeguards."
Post nuptial agreements
Although in MacLeod the Privy Council declined to reverse the long standing rule relating to the validity of pre nuptial agreements, it said post nuptial contracts were a different matter.
According to the Privy Council: "Postnuptial agreements, however, are very different from pre-nuptial agreements. The couple are now married. They have undertaken towards one another the obligations and responsibilities of the married state. A pre-nuptial agreement is no longer the price which one party may extract for his or her willingness to marry. There is nothing to stop a couple entering into contractual financial arrangements governing their life together, as this couple did as part of their 2002 agreement. There is a presumption that the parties do not intend to create legal relations: see Balfour v Balfour [1919] 2 KB 571. There may also be occasional problems in identifying consideration for the financial promises made (now is not the time to enter into debate about whether domestic services constitute good consideration for such promises).
But both of these are readily soluble by executing a deed, as was done here. There is also nothing to stop a married couple from entering into a separation agreement, which will then be governed by sections 49 to 51 of the 2003 Act (sections 34 to 36 of the 1973 Act).
As already noted, section 49 applies to "any agreement in writing made at any time between the parties to a marriage". There is nothing to limit this to people who are already separated or on the point of separating. It is limited to agreements containing "financial arrangements" or to separation agreements which contain no financial arrangements. And "financial arrangements" are limited to those governing their rights and liabilities towards one another when living separately. But section 49(1)(b) provides that such financial arrangements shall be binding "unless they are void or unenforceable for any other reason".
The question remains of the weight to be given to such an agreement if an application is made to the court for ancillary relief.
In those circumstances, the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family. On top of that, of course, even if there is no change in the circumstances, it is contrary to public policy to cast onto the public purse an obligation which ought properly to be shouldered within the family.
But the mere fact that the agreement is not what a court would have done cannot be enough to have it set aside.
A solution?
Couples who sign pre-nuptial agreements would therefore also be advised to make a post-nuptial agreements after the marriage has taken place (on the basis that, following MacLeod, post-nuptial contracts are binding and can only be varied by the court in limited circumstances). Re-signing the original will not be sufficient, parties wishing to ‘validate’ pre-nuptial agreements after the marriage should do so on a different document, with additional terms.
If a spouse were subsequently to refuse to ‘validate’ the pre-nup, the likelihood is that, were the refusal to lead to divorce, then the pre-nuptial agreement would be a factor of ‘magnetic importance’ to which a court would give significant weight.