Robin Charrot writes: Prenuptial and postnuptial agreements have been in and out of the news over the past year. Here at Stowe Family Law, the number of new enquiries about prenups and postnups has risen sharply. The same questions come up often: is such an agreement advisable, and what can be done to ensure that it is effective?
This was the subject of my talk on Thursday evening, when Stowe Family Law and Lane-Smith & Shindler, a firm of specialist trusts and estates practitioners based in central Manchester, held a joint seminar at the Marriott Hotel in Hale Barns. The audience comprised of retail and private banks, accountants, investment managers and IFAs.
Speakers from both firms discussed the impact of relationship breakdown on family wealth, and advised on steps to protect family wealth. Marilyn Stowe spoke about the changes in ancillary relief law over the last 10 years, which have led to far larger payouts to spouses in big money cases. Geoffrey Shindler of Lane-Smith & Shindler explored the impact of this change in the law on family trusts, and described how trusts could be vulnerable to different forms of attack from spouses. Paul Davies of Lane-Smith & Shindler explained how different drafting techniques can be used to provide added protection to trusts.
I chose to speak about the rise of prenuptial and postnuptial agreements to their current status, and described the mechanics by which the agreements are constructed. At the time of writing, such agreements are extremely influential on decisions made by our family courts in England and Wales.
Because of the level of interest in this talk, and the question and answers that followed, we are reprinting the accompanying handout here. If you are considering a prenuptial or postnuptial agreement, we hope that this information is useful. This is an area in which Stowe Family Law specialises, so you can always leave a comment or contact us directly with any additional queries.
Prenuptial and postnuptial agreements: are they any good?
A recent seismic shift in the law
Historically, the UK courts, and UK legislation have paid scant, if any, regard to pre-nuptial agreements. However, the UK courts have, over several years, radically changed their views, largely as a result of changing attitudes within society. In particular, there have been three cases during 2008 and 2009 that have changed the landscape.
Where are you without one?
Usually in court! The courts have wide discretionary powers, and they take into account a whole host of factors, so therefore the results are very hard to predict. Delay (18-24 months is not unusual). Very significant legal costs. The starting point is capital split 50:50, but there can be departures from this. There may also need to be a substantial division of future income.
How effective are prenuptial agreements?
Legally: A prenuptial agreement cannot completely exclude any involvement by the family court. However, a properly done agreement will carry substantial weight with the courts. It was said to be: “A factor of magnetic importance” in the 2008 Court of Appeal case of Crossley v Crossley (involving a ‘career divorcee’).
Psychologically: The agreement will manage expectations. Who would risk trying to get out of one?
What makes an effective prenuptial agreement?
1. Independent specialist legal advice – on both sides.
2. Financial disclosure.
3. Reasonable financial provision
4. Not at the altar!
…although there may even be a relaxation of those criteria
In the Court of Appeal case of Radmacher v Granatino in July 2009 the husband (the poorer party) had not received legal advice, there had been no proper financial disclosure, and the financial provision for the husband was not reasonable, yet the court still upheld the prenuptial agreement to a large extent. However, the husband is taking his case to the Supreme Court later this year.
Prenuptial agreements can be linked with the creation of Trusts.
This can add another layer of protection. The trusts can be created at the same time. Their existence would be disclosed during the negotiations for the pre-nuptial agreement. One should choose the legal jurisdiction for the trust carefully. Perhaps a selection? Dynastic trusts are better.
Are prenuptial agreements useful for everyone?
They are of considerable benefit where either or both of the couple are wealthy, or have very high incomes, or where either or both expect to acquire family money at some stage in the future.
Even if the couple are not wealthy and don’t expect to come into money, it may well be useful to have a short, low cost agreement which deals only with issues of principle, e.g. the parties will have shared care of the children.
Limited shelf life?
The value of a prenuptial agreement is likely to fall away after 20+ years of marriage.
Postnuptial agreements are even more influential than prenuptial agreements
Exactly the same concept as a prenuptial agreement,only done after the wedding. This can be done whether the marriage is in trouble or not. If the parties have independent legal advice, if they provide financial disclosure, if there is no duress, and as long as there is reasonable financial provision for any children, the House of Lords decided (in the Privy Council case of MacLeod v MacLeod in December 2008) that a post-nuptial agreement should be upheld: “However lacking in generosity the provision made for the wife…”. However, the family courts do still have power to vary them, so they cannot be seen as a guarantee of a particular result, particularly if they do not even meet the poorer party’s financial needs.
Keep them under review
If the family’s circumstances change considerably, the pre- or postnuptial agreement might need to be reviewed and altered. However a well drafted agreement can normally take account of most potential changes. There could even be a periodic review clause in the original agreement. However, even if the agreement does not properly allow for changes, or is not reviewed, it can still be of persuasive value to the court.
A word on cohabitation.
The government’s plans to change the current unclear and outdated law were shelved in 2008. It is not clear whether a Conservative government would take them off the shelf!
Cohabitation agreements, either before or after the cohabitation has actually started, can be drawn up in a very similar way to pre or post nuptial agreements, and can deal with the same issues. Similar procedures to the creation of pre and post nuptial agreements should be followed
They have not yet been fully tested by the courts, but they are likely to be highly persuasive.