Protecting wealth on divorce and dissolution in England & Wales and overseas — a review of domestic and international pre and post nuptial agreements
We explain what you should consider when entering into a pre or post nuptial agreements and how international jurisdictions can affect them.
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 article, we explain who needs a pre or postnuptial agreements and examine some key considerations for those entering into such an agreement.
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 from 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:
- Taken independent legal advice;
- Provided their spouse with full disclosure of their financial position; and
- 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.
With an increasingly mobile and global society, the personal circumstances, backgrounds, living and financial arrangements of many couples may spill over into a number of different places, which may mean that a different legal jurisdiction regulates a future dispute.
If a couple has any connections with other locations around the globe (as close to home as Scotland or Northern Ireland, or on the other side of the world), additional considerations need to be carefully factored into a proposal to enter into a pre or postnuptial agreement.
Expert, and early, advice is needed.
What alternative legal jurisdictions can be foreseen?
A starting point is an examination of the parties’ nationalities and citizenship, together with any future locations where the parties may make their home in the future. The location of business and financial assets, including properties, is also relevant.
Divorce jurisdiction — obtaining legal input from abroad
The legal jurisdiction(s) where a future divorce or dissolution may take place could be determined by numerous factors. Each case is different, and there may be two or multiple options.
It is strongly recommended that legal advice is taken in each potential jurisdiction to identify whether or when a future divorce or dissolution may feature, what that means for the couple, and how that jurisdiction deals with any pre or postnuptial agreements generally. They are often termed marital agreements, marital contracts or marital regimes abroad and each legal jurisdiction is likely to take a different approach.
Would an alternative legal jurisdiction for divorce/dissolution recognise a nuptial agreement drawn up in England and Wales or elsewhere? And how would the English court view an agreement entered into elsewhere?
Again that question needs to be asked and carefully considered by legal counsel in all potential jurisdictions.
For example, in England, a nuptial agreement is not binding in a court, wherever it is prepared, but it may be given considerable weight. The court will weigh up the various issues that we explored in our earlier article. In other jurisdictions, any nuptial agreement might be binding.
Should one agreement be drawn up or should there be mirror documents in the various competing jurisdictions?
Again, each case will be determined by its own facts and the couple involved, but this needs very careful consideration. Should there be a lead document, with legal input from the other jurisdictions included, or should there be a second (or more) document?
Issues such as whether it is possible to ensure that multiple documents are consistent, do not contradict the other, or even override the other, need to be considered.
What are the key features/issues that each potential jurisdiction will consider on divorce/dissolution, and how can they be factored into a nuptial agreement?
As an example, and as we explored in our first article, the English court will review whether a nuptial agreement is fair/meets both parties’ needs.
Other jurisdictions may factor in other considerations. It could be the application of principles, formulas, inheritance laws and marital property regimes.
When drafting, it would be prudent to demonstrate that these multiple issues have been considered and addressed properly by the couple and their advisors in the agreement.
Are there any contractual requirements and formalities that must be met in each potential jurisdiction, and how can they be factored into a nuptial agreement?
Again, using England as an example, the English court will want to ensure that both parties had a full appreciation of the agreement they entered into. It will consider issues such as whether both parties had legal advice, if there was an exchange of financial disclosure and whether contract law principles were properly applied and will want to see reference to that in the agreement.
Again, when drafting, it would be prudent to demonstrate that these issues have been addressed properly by the couple and their advisors.
Are there any cultural or language issues?
These need to be properly considered, including whether translators and translations of advice and/ or legal documents are required.
How is the financial settlement framed?
Once a decision has been made, in collaboration with all the various legal advisors, about which jurisdiction shall lead or where documents should be prepared, there needs to be consideration about the terms of the pre or postnuptial agreement(s).
To ensure consistency and facilitate interpretation by a future court, possibly in an alternative jurisdiction, the key is to try to make the structure as straightforward as possible.
Considerations should include (but are not limited to):
Clear definitions: how should assets to be shared be defined, likewise assets to be ringfenced? If issues such as sharing, needs or compensation are relevant, how are they defined?
Valuations: how will future valuations of assets be dealt with and by whom/where?
Maintenance: is it possible to elect a choice of forum to resolve maintenance issues? Should this be done? Should a formula or quantification of claims be recorded, or should they be resolved based on circumstances at the time of a divorce/dissolution?
Safety net: should there be a ‘safety net’ provision to ensure that needs, or other considerations required by a future court, are factored in?
Choice of law/jurisdiction forum: careful consideration with the various advisors needs to be given to whether it is prudent to elect a jurisdiction or application of a legal framework for a future dispute now.
Choice of dispute resolution forum: consider whether the parties elect to resolve any future issues, if they arise, through non-court methods such as mediation, collaborative law or arbitration, and where.
Security of assets/enforcement of the settlement: do these issues need to be considered too? Where might future proceedings be needed/how effective might any claim for enforcement be?
Death/inheritance regimes: as different jurisdictions apply different rules, some of which may be automatic regimes on death, consideration needs to be given to how this might affect a couple/whether it is prudent to address and record in a nuptial agreement or elsewhere.
Review: should there be a review clause at various points in the future? Is this of value? Any pre or postnuptial agreement, whether or not it contains a review clause, should always be kept under review to keep pace with changing circumstances.
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.
Nuptial agreements with international dimensions are complex and it can take time and resources to work out what the preferable approach is for the couple in question. Early consideration of the issues must be given. Although it may seem a daunting task, it should not be a deterrent, as grappling with potential issues now will serve the parties well if their relationship does falter.
The key ‘take away’ is to appoint the relevant experts, not only in their own jurisdictions but who have experience dealing with international matters too, ensure that they are willing to adopt a collaborative approach with the other professionals involved, and above all, try to keep it straightforward.
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.
For advice on high net worth divorce or dissolution, contact our high net worth divorce lawyers.