Nuptial Agreements - A Shared Responsibility

Family Law

Nuptial Agreements – A Shared Responsibility A White Paper for Wealth Protection Professionals

October 2015

What is a nuptial agreement?

A pre nuptial agreement, ante nuptial agreement, or pre marital agreement, commonly abbreviated to pre nup, is a contract entered into prior to marriage, civil union or any other agreement prior to the main agreement by the people intending to marry or contract with each other. The content of a pre nuptial agreement can vary widely, but commonly includes provisions for division of property and spousal support in the event of divorce or breakup of marriage.

They may also include terms for the forfeiture of assets as a result of divorce on the grounds of adultery; further conditions of guardianship may also be included.

Post nuptial agreements are similar to pre nuptial agreements, except that they are entered into after a couple is married.

Contents Introduction by Philip Barnsley – Head of Family, Higgs & Sons

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Foreword by Nicholas Cusworth QC – Head of Chambers, 1 Hare Court

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Executive Summary

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The Evolution of Nuptial Agreements

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The Future of Nuptial Agreements

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A Shared Responsibility

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Appendix 1 – Case Law Development

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Appendix 2 – Nuptial Agreements: The Key Questions

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Introduction Nuptial agreements are here to stay and are fast becoming a cornerstone of wealth protection planning, presenting professional advisors with new responsibilities.

20th October 2010 was a landmark day in the history of nuptial agreements in the UK, when the Supreme Court handed down its judgment in the case of Radmacher v Granatino. This marked the start of a series of cases where the courts have shown a clear determination to uphold such agreements.

Five years on, we have produced this White Paper to look at four key areas: 1. The evolution of nuptial agreements in the UK 2. The future for nuptial agreements 3. The opportunities nuptial agreements present for wealth protection advisors 4. The consequences of failing to advise in this new era of nuptial agreements Today, nuptial agreements present wealthy individuals and families the chance to protect their wealth in the event of a relationship breakdown. Importantly, this has also created a new responsibility on all advisors engaged in wealth protection professional services.

Higgs & Sons is at the forefront of providing robust legal advice and creative solutions to clients, families and other advisors in this developing area of law, which can help advisors deliver their services.

I am delighted to have worked with Nicholas Cusworth QC, Head of Chambers at 1 Hare Court in London and a sitting Deputy High Court Judge, in the preparation of this White Paper. I hope you find it useful and welcome your feedback on the issues it raises for the wealth protection community.

Philip Barnsley Head of Family, Higgs & Sons Philip Barnsley is a partner and head of the family department at Higgs & Sons in the West Midlands.

Recognised as a leading individual in Legal 500 and Chambers & Partners, he specialises in all aspects of matrimonial law and is highly regarded, particularly when dealing with complex financial matters. Philip is a trained Collaborative Family Lawyer and sits on the regional, national and executive committees of Resolution.

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Nuptial Agreements – A Shared Responsibility

Foreword Until 2000 there was no need for a system to recognise pre nuptial or post nuptial agreements in England and Wales. No claimant spouses would ever hope to achieve an award which amounted to more than their reasonable needs via court proceedings, so by definition any agreement which was relied on by a respondent to such a claim was one which did not meet those needs in a way that the court considered fair.

It was therefore easy to see how such agreements came to be viewed as void for public policy reasons.

They were no more and no less than instruments of oppression.

After the landmark decision of White v White (2000) everything changed. The ‘yardstick of equality’ was born, and the landscape of financial provision was changed forever. It was not insignificant that many of the arguments developed in that case (decisively so in the Court of Appeal, although not ultimately in the House of Lords) turned on questions of entitlement. The paternalistic discretion exercised by the English court was being challenged by a party saying: ‘hold on: we already hold our assets differently from how the court might otherwise deal with them, and that should be given significant respect.’

What is surprising in these circumstances is that although concepts of equality, sharing and entitlement were to become common currency, the notion of the court actually giving force to a prior agreement between the parties took a further decade to develop. Once the law became capable of significant asset re-distribution on the back of marital acquest, it was surely inevitable that parties would become able to contract out of such a system, if their circumstances suggested or required it.

The courts were slow to react, still troubled by the old notions of oppression and the exploitation of a dominant position. But a glance overseas should have given significant reassurance. In very many countries around the world, a nuptial agreement has long been commonplace - and all that is needed is a system that enables the court to police the operation of such a contract when that operation is challenged before the English courts.

The outcome in Radmacher v Granatino (2010) which finally forced the English court to respect such contracts, albeit still within a general but ever more circumscribed discretion, has now led to what we must hope is the best of both worlds - a system that respects the ostensibly fair contract, but still seeks to protect those for whom the operation of such agreement produces a ‘predicament of real need’.

At a time when the issue of transparency within court proceedings is very much a live issue, the confidentiality and common sense afforded by these agreements looks set very much to become the way of the future for the marriages and separations of those with assets of significant value in this jurisdiction. Failure to enter into such arrangements in future will likely lead to the equal sharing of all that was generated or even used in the marriage, and a risk that significant wealth may pass in a way that neither spouse intended at the outset of their marriage.

I am pleased to be involved in the preparation and launch of this document, which aims to provide a comprehensive update for wealth protection advisors about the increasing stature of nuptial agreements in the UK. Nicholas Cusworth QC Nicholas Cusworth QC is Head of Chambers at 1 Hare Court in London, a foremost set of specialist chambers in the field of financial provision on marriage or relationship breakdown. He was Chair of the Family Law Bar Association in 2012/13 and sits as a Deputy High Court Judge in the Family Division where his recent reported decisions have included the significant cases of Hopkins v Hopkins and WW v HW.

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Executive Summary Here to Stay A nuptial agreement is a vital instrument in any wealth protection strategy.

We are advising clients more frequently than ever before on the effect of separation on wealth and the use of nuptial agreements to mitigate those risks.

Courts demonstrate an increasing willingness to uphold properly executed agreements between divorcing parties.

The body of case law in this area is growing quickly and provides a rich source of information for professionals engaged in wealth protection planning for individuals and families.

Case law is defining and clarifying the key elements that courts expect to see within nuptial agreements.

In recent years this has led to attempts by weaker financial parties to overturn the contents of agreements being rebuffed by the higher courts, thereby strengthening the presumption that agreements will be upheld.

To quote the leading case in this area, Radmacher v Granatino [2010] UKSC 42:

court should give effect to a nuptial agreement that is “ Afreely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement.

”

Although we do not currently have legislation in place to make nuptial agreements legally binding, they are here to stay. There was a recommendation in February 2014 from the Law Commission to introduce a system of Qualifying Nuptial Agreements (QNA). The proposals are that if an agreement satisfies certain criteria, the court’s powers to make financial orders would be limited. We await further developments, but if the idea of protecting pre-acquired or inherited assets is to chime with any political party, it is likely to be the Conservatives.

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Nuptial Agreements – A Shared Responsibility

The Role for Wealth Protection Advisors Professionals offering advice on wealth protection strategies need to be aware of the potential that nuptial agreements offer to their clients as part of a comprehensive and effective long term wealth protection strategy.

There is a clear distinction between those who have agreements, and those who do not.

The press is full of examples of wealthy individuals who have not availed themselves of such protection.

They find themselves losing vast sums of their wealth in court imposed divorce settlements, as well as bearing the brunt of what one Judge has recently described as “eye watering� levels of legal fees.

Today, clients are seeking advice from wealth protection advisors, not only on the mitigation of tax, but increasingly on the protection of wealth for future generations.

From the extensive experience we have of working on nuptial agreements we have observed that wealthier individuals and families are often driven by a strong desire for anonymity in the event of divorce, as well as seeking certainty of outcome and limiting their financial exposure upon separation.

With this in mind, it is the responsibility of every wealth protection professional to advise their clients of the availability and opportunity that entering into such agreements may offer.

The Future for Nuptial Agreements The approach to nuptial agreements is changing rapidly, as social and judicial attitudes and awareness develop. We are seeing much more negotiation by weaker financial parties in the initial preparation of agreements. Given the increasing willingness of the court to uphold agreements, we expect there to be an increasing trend towards this.

We also anticipate that other methods of reaching agreements will become more popular, including mediation, collaborative law and round table meetings.

Failing to Advise It is incumbent upon every wealth protection advisor to counsel their clients to prepare early to mitigate the consequences of separation, and ensure that they have the right levels of professional support.

In our experience, this approach has increased client satisfaction because they feel their advisory team is proactive and genuinely ahead of the game.

Those who fail to understand the full implications of nuptial agreements for their clients will be out of step with a rapidly evolving area of wealth protection.

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The Evolution of Nuptial Agreements Agreements Contrary to Public Policy As recently as 2002, Mr Justice Munby, then sitting as a High Court Judge and now the President of the Family Division, considered that the use of nuptial agreements to be “contrary to public policy and void” (X v X [2002] 1 FLR 508).

They were seen as a weapon for undermining the basis of marriage, rather than a tool capable of building the foundations of a transparent relationship with a full appreciation of each party’s financial circumstances.

The development of such agreements since then, has been remarkable.

A more detailed chronological analysis of the development of case law in this area can be found at Appendix 1 on pages 20 to 25.

Social Changes and Radmacher Since 2002 we have received significantly more enquiries regarding the use of nuptial agreements from individuals and families. A common theme amongst those enquiring has been that they cannot understand why they are not allowed to enter into a contract before marriage, as they would be able to in any other situation.

Across much of Europe and the United States, such contractual agreements are afforded full legal status and there was an increase in the numbers of such agreements entered into prior to 2010.

There may have been many reasons for this, but in our experience as the average age of couples marrying has increased, so has their respective wealth as they enter into marriage. There has also been an increase in second and third marriages over this period and the economic uncertainty that has prevailed since 2008 has also played a major role in this.

Whilst there is still no statutory basis for nuptial agreements under English law and the assets of spouses who separate are still governed by the Matrimonial Causes Act 1973, social attitudes and the approach by courts towards nuptial agreement has changed.

The use of nuptial agreements has become much more widespread since the landmark case of Radmacher v Granatino [2010] UKSC 42 (“Radmacher”). The case received huge media coverage and represented a significant change in the approach of the court to nuptial agreements. Faced with competing arguments from the parties on the validity and weight to be attached to a nuptial agreement, the Supreme Court decided that:

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Nuptial Agreements – A Shared Responsibility

court should give effect to a nuptial agreement that is “ Afreely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement.

”

The German newspaper heiress, Katrin Radmacher was worth in excess of £100 million. She and her husband, Nicolas Granatino, a French ex-banker turned biological researcher, had entered into a pre nuptial agreement in Germany. It was recorded that the agreement was drafted by the Radmacher family’s German lawyer and explained to Mr Granatino in “pigeon English”, although English was not the first language of anyone involved in the agreement.

The agreement provided a payment to Mr Granatino in the event of separation equating to less than 1% of the overall assets.

The Supreme Court upheld the terms of the agreement. They did make some further provision for Ms Radmacher to provide funds to Mr Granatino to enable him to purchase housing, but this was for the benefit of the children, whilst they stayed with their father in London.

The Law Today • Since the Supreme Court ruling in Radmacher, nuptial agreements are now recognised in divorce cases and will be considered by the court as a relevant factor under section 25 of the Matrimonial Causes Act 1973 • It is worth noting that the discretion of family courts to make financial awards on all assets that the parties to a marriage have access to, is almost limitless • A properly executed nuptial agreement can help to ensure that these assets are protected, sitting alongside more traditional methods of wealth protection, such as trusts • In the event that there is no nuptial agreement in place, the full force of the courts’ discretion may be felt by a financially stronger party. This can often result in all varieties of wealth being attacked, from sole entrepreneurial wealth through to longstanding family wealth. This also extends to assets held in trust, inherited assets, family businesses and assets acquired prior to the marriage taking place

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The Evolution of Nuptial Agreements The Recognition of Autonomy Many legal issues arose from Radmacher, but most importantly of all, it represented an historic turning of the tide and attitudes towards allowing individuals the opportunity to protect their wealth in the event of separation.

It recognised the importance of autonomy for the individuals involved, allowing them to make sensible and effective decisions about their wealth rather than relying on the court to do this for them.

The fact that this was also heard in the highest UK court gave the judgment added significance, as the effect was to bind all lower courts to follow the Judges’ reasoning.

Almost five years to the day have passed since the judgment of the Supreme Court in Radmacher.

In that time courts have been challenged by a series of arguments on the validity and weight to be given to nuptial agreements.

Developing Criteria In Luckwell v Limata [2014] EWHC 502 (Fam) the Judge presiding over the case in the High Court expressed that the outcome of the case had been heavily influenced by the nuptial agreements. More importantly, he also commented that the division of assets would have been very different, had no agreement been entered into by the parties.

This was followed in Hopkins v Hopkins [2015] EWHC 812 (Fam). The parties had entered into a post nuptial agreement. The agreement was signed a number of years after their marriage at the time that they were separating. The agreement was upheld by the court in full. The Judge observed that:

this couple’s age, maturity and experience would count “ Plainly, in favour of this agreement being upheld. So too would the fact that the wife had received detailed legal advice expressed by her lawyers to be watertight.

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The pace of case law development has been remarkably speedy. Whilst we have seen a number of nuptial agreements upheld, we have also seen a number that have failed. Our experience in examining and understanding the numerous decisions that have been handed down over the course of the past thirteen years, means that we are able to identify the key issues that the court will look for when making decisions on the validity and weight to be attached to any nuptial agreement.

During this time we have observed a worrying lack of knowledge about the evolution of nuptial agreements in the UK. Those involved in wealth protection must be aware of the opportunities and risks associated with such agreements for their clients.

Looking ahead, lawyers will inevitably work more closely with other wealth protection professionals on nuptial agreements to bridge this gap and ensure the client is well protected.

Nuptial Agreements – A Shared Responsibility

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X v X – Munby J says nuptial agreements are “against public policy and void”

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KvK– pre nuptial agreement upheld for the first time, but confined to the specifics of the case

Nuptial Agreements – A Shared Responsibility

J v V – court holds that nuptial agreements are not binding on parties

A v A – court reiterates nuptial agreements are not binding on parties

2007

2006

2004

2003

2002

The Evolution of Nuptial Agreements

Crossley v Crossley – the “magnetic importance” of a pre nuptial agreement recognised by the court

v – etic e” uptial t d urt

Radmacher v Granatino – the watershed moment

Z v Z – pre nuptial agreement entered into overseas was upheld in full

by UK court VvV–a Judge’s “pre Radmacher” approach overturned on appeal

BN v MA – Radmacher ruling applied and the autonomy of individuals respected in this case

2015

2013

2011

2010

2008 MacLeod v MacLeod – post nuptial agreement upheld by the Privy Council

Hopkins v Hopkins – post nuptial agreement upheld, despite only being entered into upon separation

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The Future of Nuptial Agreements We have watched the case law since 2010 with interest and, having been involved in a number of such cases, ensured our advice has evolved with the decisions of the courts during this time.

A Two Tier System We have witnessed a clear pattern in divorce cases over the past five years and the creation of a “two tier” system – one for those who have nuptial agreements and one for those who do not.

We consider that the gap created by this two tier system will only widen. The courts are in favour of recognising an individual’s autonomy to enter into a binding contract to determine how wealth should be divided in the event that their marriage comes to an end.

Given this clear and unequivocal message from the courts we believe that this approach is here to stay.

There will be no return to the 2002 position. This creates a responsibility for all wealth protection professionals to make nuptial agreements a key part of any wealth protection strategy.

Nuptial agreements are not legally binding in the UK. In order to become binding, parliament will have to pass legislation. This obviously creates some uncertainty for individuals. However, it is equally apparent to us that there is a real appetite by the courts to uphold nuptial agreements whenever and wherever possible.

We are now at a point where nuptial agreements are being considered as binding, despite primary legislation not having being passed by parliament to that effect. Whilst the long term future of such agreements will be determined by legislation, nuptial agreements offer protection to wealthy individuals and families now.

Nuptial agreements work in UK courts today. Where nuptial agreements exist, we are seeing increasing numbers of matters settling without the need for lengthy and costly litigation.

We predict a future where cases involving nuptial agreements will not be heard in court, as both parties will understand and accept, from the outset, the terms as binding.

Qualifying Nuptial Agreements The judiciary is upholding nuptial agreements. If they cannot, we are seeing an emerging trend towards treating agreements as Qualifying Nuptial Agreements (QNA). The court does this by making orders in excess of the provision in the agreement, but only to the extent necessary to meet the weaker financial party’s needs.

In the case of WW v HW [2015] EWHC 1844 (Fam) the court followed the Law Commission recommendations in making an award to the weaker financial party, only so far as to meet his financial needs during his life.

On his death, the award will revert to the stronger financial party. It is unimaginable that without a nuptial agreement having been a feature in the case that the Judge would have been able to make such an award due to the constraints of the Matrimonial Causes Act criteria.

The benefits for clients of such an outcome on their long term financial planning strategy are obvious.

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Changes in Legislation The appetite for binding nuptial agreements is not just that of the judiciary. In February 2014 the Law Commission made recommendations to parliament about the introduction of a system of QNAs in law.

The recommendations are that if an agreement satisfies certain pre-determined and clear criteria, then the court’s powers to make financial orders on divorce would be limited.

In those circumstances, the Law Commission recommended that no order could then be made that would be inconsistent with the terms of the QNA, except to meet the weaker party’s financial needs, or in the interests of a child of the family.

Whilst the recommendations included a draft Bill, we are awaiting further progress of that Bill through Parliament.

There were no clear indications as to the enthusiasm of the coalition government about legislating for binding nuptial agreements at the time that the Law Commission report was presented.

However, now that we have an overall majority Conservative government, we have already seen a more determinative and robust approach being taken on legislative and agenda driven policies. We anticipate that, like most Conservative governments this one will retain a key focus on the creation and preservation of wealth.

There may be a tendency amongst more cautious advisors to wait until such time as legislation is passed to offer advice about nuptial agreements. Caution and prudence are important in any wealth protection strategy, but waiting for legislation may prove to be a risky approach. In the meantime, wealth protection professionals with clients for whom divorce is a concern could be unnecessarily “burned” by the current court system in the UK. The UK is now described as “the divorce capital of the world” due to the exceptionally generous awards made to weaker financial parties in the absence of a nuptial agreement.

Increased Negotiation We are experiencing weaker financial parties beginning to negotiate more on the initial terms of an agreement, rather than simply accepting the first proposition put forward.

An exercise that may otherwise have taken place upon separation (possibly in court) is increasingly happening in preparation for marriage. In addition, married couples are using post nuptial agreements to agree settlement terms privately, before separating.

Courts cannot offer this flexibility and are actively encouraging couples to avoid litigation by using non-court led alternatives such as mediation, collaborative law, round table meetings and arbitration, in the event of separation.

We consider that these processes will also be used to negotiate the terms of nuptial agreements.

Family Charters There has been a significant rise in families seeking advice on protecting wealth. As a result, we advise clients about using Family Charters.

Families are using Charters to set out their rules to protect wealth. Nuptial agreements are central to any such plan. Family Charters can insist on family members having nuptial agreements. In our experience, this can take away the “difficult conversation” with their intended spouse.

Family Charters are becoming increasingly popular and will become the norm for families with significant wealth who are committed to dynastic planning.

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A Shared Responsibility A shared responsibility exists for all advisors to confront the issue of divorce in their clients’ wealth protection strategies.

Advising alongside our Private Client team, we have noticed a trend towards our clients’ strategies being increasingly focussed on the protection of wealth for future generations, and less about the pure mitigation of tax.

We recognise that conversations about relationship breakdown are hard, often worse than other “worst case scenarios” you ask clients to contemplate.

By creating the right advisory team at the outset, a client’s trust and confidence in the integrity of their professional advisors increases.

Sitting down together, at a time when a couple wants the best for each other, is often where the most effective nuptial agreements are made.

Nuptial agreements are a key part of providing holistic advice. We have found that clients value this approach from their advisory team.

There is a key role for advisors in presenting and preparing the financial information, conducting accurate budgeting exercises and providing the lawyers with information about an individual’s financial needs and wishes.

A Leading Role for Advisors Anyone engaged in wealth protection has the ability to lead and shape individuals’ and families’ financial affairs for future generations.

It is essential that advisors understand their clients’ motivations and drivers. Over and above this, they need to be mindful of the significant opportunity that nuptial agreements can offer clients.

In light of our knowledge and understanding of nuptial agreements, we are now considering the replies that we get to the following types of questions in a different way: • What does the client want?

• What is the client asking us to do?

• Is their wealth protection strategy purely “tax” focussed?

• Is it becoming more about the preservation of wealth for future generations?

• Are they focussed on the growth of existing wealth?

• Are they concerned about the preservation of capital?

• How risk averse are they?

• Are they aware of the risks associated with marriage breakdown?

• Do they know that the wealth you help them create, grow and protect could be lost if they separated from their spouse?

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• Could the divorce court be potentially more damaging to their wealth than tax?

• Is the family court the biggest gamble of their wealth they will ever take?

• Are they prepared to take that risk?

If you asked your clients these questions tomorrow, how would your advice change, knowing the risks around separation and divorce, and the opportunities to protect wealth that now exist?

The Risk of Failing to Advise The division of assets when there is no nuptial agreement can often be an emotionally and financially draining experience. Cases are determined with reference to principles arrived at over the past five decades.

Today, courts dealing with cases where there is no nuptial agreement will take into account the following factors: • Financial resources, irrespective of source • Contributions of the parties • Economic detriment created by the marriage • Fairness • Needs of the parties, sometimes generously interpreted • Needs of children • Sharing • Compensation • Any other factor the court considers relevant This list is not exhaustive.

Whilst some Judges in the High Court now appear to be seeking to limit the ambit of the court’s discretion, by restricting distribution beyond needs, to one half of what was generated in the marriage, there is still significant uncertainty about the way in which the law will ultimately develop.

The effect of the huge power and discretion available to the court and the uncertain rules, leads to complex, lengthy, public and costly arguments, and often litigation. This can destroy wealth.

In our experience, wealthy individuals and families would want to know about anything that could assist them in avoiding this kind of situation.

Nuptial agreements are a discreet way of dividing assets upon divorce and provide a level of certainty and cost which is appealing to anyone who may be concerned about the consequences of divorce or separation.

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Creating Opportunities There will be more “front loading� of work for those wanting nuptial agreements and this will involve input from advisors. Advisors may also benefit from any collateral investment or protection planning that results from discussions about nuptial agreements.

Full, frank and clear financial disclosure is essential to avoid claims by the weaker party that they did not know what the financial situation was before signing the agreement.

A more collaborative approach can be adopted if lawyers and advisors are involved early in discussions as to the terms of a nuptial agreement. This will inevitably lead to increased client satisfaction and opportunities to advise clients on a more regular basis.

Conclusion There is no doubt that nuptial agreements have taken a central position in the treatment of assets on divorce. It is equally clear that those individuals and families with wealth to protect in the event of divorce will have more opportunities in the future to do so by using the terms of such agreements.

What is also evident is that if clients and families who want to protect their assets in this way are not advised of this opportunity, this will leave them at considerable risk upon a future divorce. The full discretionary power of the court to distribute wealth in accordance with the Matrimonial Causes Act 1973 will be applied to those assets, however created or obtained, that are often the most precious.

While a potential divorce is difficult for clients to contemplate, it is the responsibility of wealth protection professionals to raise potentially difficult or sensitive issues with clients to ensure they are aware of new opportunities to protect their wealth for the long term.

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“

Nuptial agreements present wealthy individuals and families the chance to protect their wealth in the event of a relationship breakdown. Importantly, this has also created a new responsibility on all advisors engaged in wealth protection professional services.

Philip Barnsley

”

Head of Family, Higgs & Sons

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Appendix 1 – Case Law Development Case

Key points

1. X v X

As recently as 2002, Munby J, now the President of the Family Division, said that pre

[2002] 1 FLR 508

nuptial agreements were “against public policy and void” and held that the agreement in this case was to be given no weight before deciding the matter on the basis of the usual section 25 Matrimonial Causes Act 1973 criteria.

2. K v K (Ancillary Relief: Pre-nuptial Agreements) [2003] 1 FLR 120

This case marked the first time in that a pre nuptial agreement was substantially upheld by a court in the UK. The wife’s father was the architect of the pre nuptial agreement, seeing it as an incentive to the husband to marry his daughter before the birth of the child.

The agreement failed to comply with several important criteria, as there was a lack of proper financial disclosure and it was signed on the day of the marriage. Significantly, both parties had received independent legal advice and had been advised that the agreement would not be strictly binding.

The marriage was short and the wife attempted to depart from the agreement but the court held her to its terms.

3. J v V (Disclosure: Off-shore Corporations) [2004] 1 FLR 1042

By contrast to K v K, and later that same year, the court in this case held that a pre nuptial agreement was of no significance as: 1. it made no allowance for the arrival of children 2. it purported to prevent the wife from claiming against the husband’s assets 3. it was signed on the eve of the marriage 4. there was no independent legal advice; and 5. there has been no financial disclosure

4. A v A

In this post nuptial agreement case, the husband discovered that his wife was

[2006] EWHC 2900

committing adultery. He made it clear to the wife that he would only reconcile if she signed a post nuptial agreement awarding her a house worth £3m and an income of £240,000 per annum.

The agreement was signed and thereafter the husband found out that the wife had rekindled her affair and issued proceedings for divorce, relying upon the post nuptial agreement.

The court held that the agreement could not be enforced upon the wife as the husband’s demands had amounted to undue pressure upon the wife, preventing her from making a clear, calm or rational decision. She was awarded just over £9m by the court.

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Case

Key points

5. Crossley v Crossley

The Court of Appeal acknowledged that in certain cases a pre nuptial agreement could

[2007] EWCA Civ 1491

be a factor of ‘magnetic importance’. Irrespective of the husband’s resources, the claim of the already wealthy wife was met with a finding that the pre nuptial contract held decisive weight.

“If ever there is to be a paradigm case in which the court will look into the pre nuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic importance, it seems to me that this is just such a case” (Thorpe L.J para 15).

The case confirmed that that the court has a discretionary power to require a party as a preliminary issue to show cause why the pre nuptial agreement should not govern the distribution of the assets.

6. MacLeod v MacLeod [2008] UKPC 64

The Privy Council decided that it could not review the long-standing rule of pre nuptial agreements being contrary to public policy and not contractually binding on the parties.

Further, it held that a significant difference existed between post nuptial agreements and pre nuptial agreements and as such the court should approach them differently.

The court considered that it should treat post nuptial agreements in a similar way to maintenance agreements governed by the provisions of sections 34 to 36 of the Matrimonial Causes Act 1973 and subject to variation under section 35.

7. Radmacher v Granatino [2010] UKSC 42 [2011] 1 All ER 373

The Supreme Court established the key test for nuptial agreements.

“A court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing, it would not be fair to hold the parties to their agreement” (Baroness Hale, para 75) “...did each party freely enter into an agreement, intending it to have legal effect and with a full appreciation of its implications? If so, in the circumstances as they now are, would it be fair to hold them to their agreement?” (Hale, para 169) The presence of duress, fraud or misrepresentation will negate the agreement.

Further, the court may take into account other factors such as undue pressure, exploitation of a dominant position, the emotional state, age and maturity of the parties and any previous marriages. In determining the fairness in the prevailing circumstances, the agreement cannot be allowed to prejudice the reasonable requirements of children of the family; and is likely to be unfair if one spouse is left in real need, while the other enjoys a sufficiency or more. Where, however, each party is in a position to meet their own needs, fairness might well not require a departure from the agreement.

Overall, respect should be accorded to individual autonomy and the parties’ desire to make specific provision for the disposal of their property.

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Case

Key points

8. Z v Z (No.2)

The pre nuptial agreement was found to be binding; the court confirmed that it was

[2011] EWHC 2878

not unfair to enforce a pre marital property agreement that had been entered into in France and which excluded the sharing of assets upon divorce. Both parties had entered freely into the agreement with a full understanding of its implications.

However, the agreement did not deal with claims for maintenance, and the wife was granted ownership of a property and a Duxbury fund to address maintenance and cover her reasonable needs.

9. GS v L (No.1) [2011] EWHC 1759

The Judge found that Spanish documents outlining the division of the parties’ assets should not be given weight. The court held that there was no free meeting of minds; neither party had a full appreciation of the effects of the agreement and they had not discussed (or contemplated) divorce at the time of signing the documents.

Further, they had not taken legal advice on the implications of the agreement, and even if they had, the effect of the documents under Spanish law was unclear.

10. V vV [2011] EWHC 3230

An appeal was allowed on the basis the Judge had erred in law in her approach to the assessment of the weight to be given to the pre nuptial agreement, in reaching her conclusion that it should only be given little weight. On the findings of fact made by the Judge, the parties had entered into it honestly, freely and knowingly.

In giving little weight to the agreement, she had adopted a pre-Radmacher approach and, by doing so, had failed to properly recognise the weight the Supreme Court had decided should be given to the autonomy of both parties.

11. Kremen v Agrest [2012] EWHC 45

The court held that the post nuptial agreement was to be given no weight whatsoever.

On the evidence, it had been instigated by the husband who had not made a true disclosure of his means but had instead set out to actively mislead. It had been highly disadvantageous to the wife from both a needs and a sharing perspective; she had not had any independent advice and therefore did not have a full appreciation of its implications.

“It will only be an unusual case where it can be said that absent legal advice and full disclosure, a party can be taken to have freely entered into a marital agreement with a full appreciation of its implications.” (Mr Justice Mostyn, para 73)

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Case 12. B v S [2012] EWHC 265

Key points The court held that an agreement to enter into a default matrimonial property regime in a foreign jurisdiction should not carry as much weight as a negotiated nuptial agreement. In this case, there had been no discussion by the foreign national parties as to whether the separation of property agreement was intended to be influential, let alone binding, were the parties to divorce in England. There was no advice provided as to whether the agreement was intended to fetter a right to seek the exercise of the statutory discretion were there to be a divorce in an equitable distribution jurisdiction.

Neither party had therefore entered into the agreement with “a full appreciation of its implications” and as a consequence no weight was placed on the agreement.

For a foreign nuptial agreement to have influence in England and Wales, the parties must intend the agreement to have effect wherever they might be divorced, and receive legal advice to that effect.

13. AH v PH [2013] EWHC 3873

The court found that the wife did not have a full appreciation of the implications of the Scandinavian marriage settlement, so the parties could not be held to its terms.

The parties were Scandinavian nationals living in London, but did not obtain English legal advice. The wife had no idea what claims she was potentially giving up and could not be said to have intended the agreement to determine the financial consequences of the marriage ending in England.

This case emphasises that for a nuptial agreement to be upheld, the parties should intend its terms to apply in any jurisdiction and the nuptial agreement must include a clause stating that fact.

14. BN v MA [2013] EWHC 4250

The court upheld the pre nuptial agreement, pursuant to the Radmacher test.

The court considered the principle of autonomy; heavy respect should be accorded to an agreement reached by parties who are, as in this case, “sophisticated, highly intelligent and have the benefit of the best legal advice obtainable”. The question of autonomy is particularly relevant where the agreement seeks to protect pre marital property. By contrast, if an agreement seeks to allocate money yet to be earned in a way which is disproportionately in favour of the earner rather than the home-keeper, it might be easier to find such an agreement unfair. Moreover, no agreement can overreach basic need.

When considering an application for interim maintenance in a case where there is a pre nuptial agreement, the court should seek to apply the terms of the agreement as closely and as practically as possible, unless the evidence in support of the application demonstrates that there is a likely prospect of the agreement being overturned. There was no such evidence in this case.

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Case

Key points

15. SA v PA

The court upheld a Dutch pre nuptial agreement, as it was satisfied that the wife

[2014] EWHC 392

entered into it freely and with sufficient advice to enable her to appreciate its implications.

16. Luckwell v Limata [2014] EWHC 502

This case confirmed that agreements are vulnerable to having less weight attributed to them where the financial needs of either party are not envisaged and provided for in the event of a divorce.

The court expressed that “very great weight indeed” should be given to the pre nuptial agreements as they had been freely entered into and with the benefit of expert legal advice on both sides. Only one consideration was capable of having the effect that the agreements should not be applied, that being the needs of the husband.

The husband had ‘real need’ and the wife had a ‘sufficiency’, pursuant to the Radmacher test.

The court held that it would not be fair to implement the pre nuptial agreement and two supplemental agreements in full. The children’s welfare was a factor and would be safeguarded and promoted if awards were made to the father which departed from the agreements. Holman J noted the importance, when achievable, of both parents having adequate homes in which the children could stay and visit.

17. Y v Y [2014] EWHC 2920

The court did not uphold the pre nuptial marriage contract on the basis that the wife did not understand its intended effect on death or divorce, despite the fact she fully appreciated it would govern the arrangement of finances during the marriage.

The wife saw the contract for the first time when she attended the notary’s office 48 hours before the wedding and had not obtained independent legal advice.

While it is customary for notaries to explain the legal effect of a marriage contract, there was no primary evidence confirming this had been done.

The court confirmed that each party must possess all the information material to their decision to sign a nuptial agreement and intend the agreement to govern the financial consequences of the marriage coming to an end.

18. Gray v Work [2015] EWHC 834

The court held that the post nuptial agreement was of no relevance given its terms, and, in any event, it did not comply with the Radmacher principles. The purpose of the agreement was essentially to avoid tax. It was clear that the agreement would not have come into existence but for the husband’s desire to expatriate himself from the USA, where the family was previously based, to save tax.

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Case

Key points Such an arrangement did not display the parties’ autonomous desire to enter into an agreement that would bind them on any future divorce. It was simply a means to an end, unconnected with the parties freely deciding a post nuptial agreement would be appropriate for their relationship. The positive reasons for entering into a nuptial agreement, such as certainty and saving future time, costs and emotional angst, were not in evidence here.

19. Hopkins v Hopkins [2015] EWHC 812

In this case the wife argued she should not be held to the terms of a post nuptial agreement due to duress, or alternatively unconscionable conduct such as undue pressure, or exploitation of a dominant position to secure an unfair advantage.

Her claims were unsuccessful and the post nuptial agreement was upheld. The court took into account the wife’s age, maturity and previous experience of long-term relationships. Further, the court noted that she had received “copious amounts of specialist matrimonial advice”.

The wife alleged she had not properly read or understood the legal advice she received, but the Judge found that was difficult to accept, given the matter’s history. The husband’s confession to bullying behaviour in two letters was not sufficient to vitiate the agreement.

The wife’s award was “some distance” from the order the court may have made had there been no post nuptial agreement, or had it been accorded no weight. However, the agreement was freely entered into by both parties with full legal advice and the agreement achieved what the wife was keen to achieve at the time - the separation from her husband.

The wife understood at that time it was a watertight agreement that would bind her.

20. WW v HW [2015] EWHC 1844

The High Court found that the pre nuptial agreement carried significant weight, even though it did not provide for the husband’s needs. Both parties had been fully legally advised beforehand and had freely entered into it. The husband had wrongly claimed he was financially independent when the agreement was signed; he was aware the agreement was a condition of his wife marrying him and individual autonomy was important.

Any needs based award to the husband would not impact on the quality of life for the wife or the children, but would come from the non-matrimonial assets protected by the agreement, so would not be generously assessed.

The husband was given a housing fund with a future step down. The court held this was fair, given the husband’s financial conduct and the agreement. In assessing the husband’s income needs, he should not be over protected, as the risks to his future financial security arose from uncertainties created by his conduct.

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Appendix 2 – Nuptial Agreements: The Key Questions These are some of the questions wealth protection advisors should address with their clients in preparing them to take advice on nuptial agreements.

• When is the proposed wedding or separation due to take place?

• Does your client have an expectation about cost?

• Does your client know what a nuptial agreement is?

• Does the agreement take account of needs, compensation and sharing?

• Does the agreement prejudice the needs of any minor children of the family?

• Does the agreement leave either party in a “predicament of real need”?

• If advising an international couple, have they obtained legal advice regarding the enforceability of an English nuptial agreement in jurisdictions in which they may live in the future?

• Is your client acting of their own volition?

• Are you concerned about non-disclosure, fraud, misrepresentation, duress or undue influence?

• Has your client provided/seen “material” financial disclosure?

• Will your client provide for a review or formal mechanisms for variation within the proposed agreement?

• Should adultery alter the terms of the agreement?

• If advised by foreign lawyers, has your client received independent legal advice?

• Is your client clear that agreements are not currently legally binding in the UK? • Does the proposed agreement prejudice the property rights or interests of third parties (for example parents, siblings or other shareholders)?

• Are there any court proceedings pending against either party?

• Does your client understand that the agreement will take time and high participation levels to conclude?

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