Prenuptial Agreements

Currently a pre-nuptial agreement is not legally enforceable.

For some time however pre-nuptial agreements have had certain validity being evidence of the wishes of the parties at the start of the marriage as to how they wish to divide the assets in the event that the marriage should fail.

The law would not automatically enforce such agreements as they could often lead to injustice, particularly for example where the parties circumstances change dramatically during the course of the marriage e.g. the birth of children, loss of career, ill health or some other major event.

Increasingly however over the last few years, there has been pressure upon the courts to lend greater credence to a pre-nuptial agreement particularly where the pre-nuptial agreement meets certain important criteria.

Currently the Law Commission is embarking upon an examination of pre-nuptial agreements.

Sample Prenuptial Agreement

In a recent decision of NG v KR, Baron J has taken the opportunity in a lengthy judgment to attempt to analyse for the benefit of matrimonial practitioners the courts' present approach to the effectiveness of the impact of a pre-nuptial agreement upon divorce.

In this case the court emphasised its need to assess the deal as struck set against the recognised factors of disclosure and independent advice, the birth of children, the human rights of the parties to the agreement and their respective needs.

In the case of NG v. KR the husband was thirty seven and the wife thirty nine. They had been married in 1998 and separated in 2006. They had two children aged nine and six. The children spent 70% of their time with their mother in Germany and 30% of their time with their father in England.

Shortly before the marriage in 1998 the parties signed a pre-nuptial agreement providing for the separate property on marriage and making no provision for wither on divorce. The wife had considerable wealth from her family estimated at £100,000,000. She had no money concerns for the future and was wholly able to support the children on her own.

Her husband who had been a successful businessman had decided in 2003 to enter academic life and his income reduced to 10% of its previous level. His future income was to be in the region on £30,000 per annum and he had amassed debts of £800,000 and his future annual outgoings were assessed at £215,000.

In the financial proceedings the wife argues that the husband should receive nothing from her in view of his arrangement in the pre-nuptial agreement that neither party should make a claim against the other’s assets. She argues that the husband had the capacity to earn more money as he had done in the past and he should not expect to live a millionaire’s lifestyle at his wife’s expense. Notwithstanding that she offered him a house worth £1,000,000 in the U.K. during his lifetime with the property to revert back to her thereafter, a £500,000 property in Germany and £18,000 per annum child maintenance for each child to cover his and the children’s travelling costs between homes (i.e. when the children were spending 30% of the year with him). She argued that despite her extreme wealth the husband’s award should be restricted for the following reasons:

1. Because he consented to the pre-nuptial agreement.
2. Without him agreeing to a pre-nuptial agreement there would have been no marriage.
3. All the wife's assets were separate and sourced from her family.
4. There was effectively therefore no matrimonial property.
5. Her wealth after the pre-nuptial agreement had been enhanced by family gifts.
6. She would be the primary carer and the children's sole financial provider going forward.

The husband, accepted that his wife's wealth was family based, stated that he was limited to collect or restrict his claim to his "reasonable needs". He argued that the pre-nuptial agreement should be disregarded because he had not had independent advice before entering into it and lead not had full disclosure of her wealth and no provision had been made for the children or himself upon divorce.

He sought £6,700,000 to cover housing needs of £2,800,000, £800,000 to discharge his debts and £3,100,000 as a lump sum to cover his future earning capacity.

The Pre-Nuptial Agreement

The wife had stated to her husband at the time of the marriage that she would be disinherited if there was not a pre-nuptial agreement. She was also concerned that anybody seeking to marry her might wish to do so purely to obtain a share of her wealth. The husband expressed no wish for her to be disinherited, expressed the wish to marry her regardless of her wealth and did not envisage making a claim.

The court accepted therefore that both parties genuinely wanted the agreement whereby neither could gain financially on divorce but the court rejected the wife's suggestion that the husband's signature had been demanded as a pre-condition to marriage.

The pre-nuptial agreement had only been signed seven days before the marriage and it contained incomplete details of the wife’s full wealth. Because of the short period of time the husband had the document to consider it and because it was in German he had insufficient time to translate it and obtain separate independent legal advice upon it.

The court considered the background of the facts of this case against the six safeguards which had been set out in the government’s green paper in 1998 which safeguards were required to be in place before a pre-nuptial agreement would be found enforceable. There are as follows:

1. Where there is a child of the family whether or not that child was alive or a child of the family at the time of the agreement was made. In this case no such account had been taken of children being born and no provision was made in the pre-nuptial agreement.
2. 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.
3. Where one or both of the couple did not receive independent legal advice before entering into the agreement.
   It was clear in this case the husband had had no realistic opportunity to take independent advice within the seven day time frame allowed to him.
4. Where the court considers that the enforcement of the agreement would cause injustice.
   The court felt there was obvious unfairness at the lack of any provision in the agreement in the event of the real need on the part of one part.
5. Where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made.
   The court said in this case there was no disclosure in sufficient detail as to the wife's funds.
6. Where the agreement was made fewer than twenty-one days prior to the marriage.

Clearly this had not been done in this case.

Judgment

The court concluded that while the wife's resources were vast the husband's claim should be limited to his needs. These were a property in the UK, a base in Germany for weekend contact with the children and income to pay for the children while they were with him and to meet the shortfall between his modest earnings and reasonable means.

After eight years of marriage the court determined the husband should have a home in the UK for £2,500,000 and to avoid renting costs, the wife should provide €630,000 for a German property as a visiting base for the husband and the children, that property to revert to the wife on the children becoming independent. His litigation debt of £800,000 was still a "need" and the court ordered £700,000 towards that debt and £25,000 for a replacement car.

So far as the husband's maintenance was concerned, the court balanced the need to produce a result with took into account the pre-nuptial agreement, the wife's extensive fortune and the husband's entitlement under English law and awarded the husband £100,000 per year which it capitalised to £2,335,000.

In addition the wife was ordered to pay £70,000 per year child maintenance for the period when the children would be with their father.

This case set out all the necessary criteria and showed how courts would apply the same in a real situation.

To re-cap the key issues and therefore factors for practitioners to take into account when preparing pre-nuptial agreements were those set out in the six safeguards italicised above. The court indicated that if those six safeguards were satisfied it was then likely that the pre-nuptial agreement would become the "magnetic factor" in the court's approach and its terms were to be mirrored in the court order.

It would be essential before the pre-nuptial agreement was concluded that each party set out clearly their capital and income resources with up to date values and providing an open offer to the other party to investigate and inspect the same if they deemed it necessary.

It is equally vitally important that both parties have had the benefit of separate legal advice.

The practitioner advising the wealthier of the two parties must bear in mind the importance of assessing the probable basic needs of the other party for accommodation and maintenance in the event of divorce and must take into account the probability or possibility of children being involved.