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Protecting wealth on divorce and dissolution in England & Wales and overseas - a review of domestic and international pre and post nuptial agreements - Part 1

Any agreement should be freely entered into, the parties should fully appreciate the implications of the agreement.

Those considering marriage or a civil partnership formation should always give thought to entering into a prenuptial agreement, particularly if there is an imbalance of wealth between the parties. It may be that one party has built up a very successful business, is entering into a second marriage or has inherited significant wealth from a family member. In such circumstances one party may wish to preserve/retain the capital they have accumulated prior to the union, in the event of a future divorce or dissolution. Alternatively, they may simply wish to ‘pre-determine’ the scope of a financial settlement if the relationship faltered and avoid the stress and cost of contested litigation on the issue later down the line.

Newfound wealth can also arise during the course of a marriage or partnership, perhaps as a result of a management buy-out or sale of a company, or an inheritance. Wealth protection strategies should include consideration of a postnuptial agreement, whether for the recipient of the wealth or for future generations of their family if lifetime estate planning is being undertaken.

Similarly, in the event of a business restructure, and if consideration is being given to allocating shareholdings to extended family members, pre and postnuptial agreements can be a useful tool to regulate how those shareholdings should be dealt with, should there be a future relationship breakdown for the recipient, in order to best protect the business moving forwards.

In this first article of a two-part series, we examine domestic pre and postnuptial agreements based on the law in England and Wales.

The growing popularity of pre and postnuptial agreements

As entering a pre or postnuptial agreement is a highly confidential and personal decision, it is impossible to accurately gauge the volume of agreements being signed. They will often contain strict confidentiality clauses preventing the contents of the agreement being disclosed without the other person’s permission.

However, family lawyers across England and Wales have reported a significant increase in the number of people seeking advice and entering into prenuptial agreements since the Supreme Court heard the case of Radmacher v Granatino in 2010, which found that prenuptial agreements should be given decisive weight in divorce proceedings.

Who tends to use pre and postnuptial agreements?

Prenuptial agreements (often called marital agreements or contracts overseas) are typically associated with celebrities and the super wealthy, but the reality is quite different. They are growing in popularity with entrepreneurs, people with shares in a limited company, or those with a stake in a family business.

Equally, people who have received an inheritance (be it large or small) may feel that this money should be considered separately from matrimonial assets. Similarly, if they have introduced assets into the relationship over and above those of their partner.

It may also be the protection of future shareholdings or a future windfall that is the motivating factor or ensuring that children from a first marriage do not lose out on their inheritance as a result of a divorce or dissolution.

Are ‘prenups’ and ‘postnups’ legally enforceable in England & Wales?

Although not legally binding in England & Wales, since the Supreme Court judgment in the case of Radmacher v Granatino in 2010, the law has been developed in the courts such as to provide significant protection to those seeking to protect their assets in either a pre or postnuptial agreement.

Although the courts are not obliged to give effect to the agreement and parties cannot oust the jurisdiction of the court to determine a reasonable and fair settlement, the court must give a pre or postnuptial agreement appropriate weight when exercising its discretion, should there be a divorce or dissolution. This is subject to certain safeguards being put in place when entering into the agreement.

If safeguards are adhered to, the advice given to parties is that they can – and should - expect to be held to the terms of any pre or postnuptial agreement entered into on a future relationship breakdown.

What are those safeguards?

Any agreement should be freely entered into, the parties should fully appreciate the implications of the agreement, and it must not be unfair in the prevailing circumstances at the time of divorce to uphold the agreement.

The Law Commission has also recommended legislative reforms to the Government to put further safeguards in place. The Law Commission is keen to promote certainty and consistency upon divorce, although it recommends that pre and postnups should only be enforceable after the financial ‘needs’ of both parties, and any children, have been met.

It has been proposed that any such agreements have to comply with various conditions before they will be upheld by the court. By way of example, each of the parties would have to be able to demonstrate that prior to entering into the agreement they had:

  1. Taken independent legal advice;
  2. Provided their spouse with full disclosure of their financial position; and
  3. Signed the agreement more than 28 days before the wedding or civil partnership formation.

The Law Commission proposals have been referred to the Ministry of Justice, but we have yet to see whether they will lead to new legislation emerging as a result.

Summary

In England and Wales, pre and post nuptial agreements are a powerful tool in limiting claims on divorce or dissolution, even if it cannot be guaranteed that the claims will be limited precisely along the same terms as provided for in that agreement.

Our second article will review the additional issues that need to be considered in the event that there are international aspects to a couple’s circumstances.

 

If there is anything you want to discuss or if you require any further assistance relating to the issues raised, please contact our Family law team.

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