FREE CHAPTER from ‘A Practical Guide to Pre-Nuptial and Post-Nuptial Agreements’ by Nicola Frost

CHAPTER ONE – NUPTIAL AGREEMENTS

This chapter aims to provide an overview as to what is meant by the term ‘nuptial agreement’, the development of such agreements and the circumstances which may lead a couple to create one.

What is a Nuptial Agreement?

The term ‘nuptial agreement’ is used in relation to agreements made between parties to a marriage or civil partnership. It covers pre-nuptial (or ante-nuptial) agreements made prior to marriage, post-nuptial agreements made during marriage, and their civil partnership counterparts: pre-registration agreements and post-registration agreements.¹ They are sometimes referred to as ‘marital’ agreements or contracts; this term would also encompass separation agreements.

Whilst separation agreements do appear in the development of case law relating to nuptial agreements,² they are quite a different form of marital agreement because the parties have already separated and the terms of the agreement are based on contemporaneous circumstances. Pre-nuptial and post-nuptial agreements, which this book focuses upon, are agreements entered into contingent upon a future set of circumstances which may have changed by the time the agreement comes to be relied upon.

Nuptial agreements commonly set out which party owns – or will own – certain capital assets and how they will be dealt with in the event of a future breakdown of the marriage or civil partnership. It is usual for an agreement to define ‘matrimonial’, or ‘joint’, property and ‘non-matrimonial’, or ‘separate’, property.

Matrimonial (or joint) property usually includes assets held in joint names and non-matrimonial (or separate) property normally comprises pre-owned or pre-acquired assets, inherited assets and gifts received during the marriage or civil partnership. A nuptial agreement should ringfence only surplus, separate, property and those drafting should always ensure that both parties’ needs are met.

A nuptial agreement may also include reference to income, insofar as how earnings, future earnings and interests under trusts will be dealt with during and at the conclusion of a marriage or civil partnership. However, it should be noted that a nuptial agreement cannot purport to exclude periodical payments; to do so would put the entire agreement at risk.³

It is not uncommon for a pre-nuptial agreement to be updated, perhaps when a change in circumstances arises, and made into a post-nuptial agreement, although it is also possible to create a post-nuptial agreement afresh within a marriage without first having a pre-nuptial agreement.

As the law currently stands, a nuptial agreement is not binding in the jurisdiction of England and Wales, but it is certainly persuasive and could well be determinative. Since the Supreme Court’s landmark ruling in Radmacher v Granatino,⁴ over a decade ago, it is more likely that a nuptial agreement will be upheld, providing it is ‘fair’; however, it will remain subject to the court’s discretionary exercise.⁵

Evolution of Nuptial Agreements

Pre-nuptial agreements were initially introduced to the jurisdiction of England and Wales in order to protect the property of women of wealthy families from their husbands, usually by placing their family property upon trust. Prior to the Married Women’s Property Act of 1882, the law was that any property owned or brought into the marriage by the wife became her husband’s property; indeed, the wife herself became the property of her husband.

As the law in respect of matrimonial finance has developed, notably with the seminal case of White v White,⁶ there has been a shift in the approach taken by the courts when apportioning the assets of the parties to a divorce. The contributions of both parties to a marriage, whether financial or practical (i.e. caring for the family and home), are viewed as equivalent to one another. The starting point is therefore equality of division, as between the parties.⁷ This also applies in respect of the dissolution of a civil partnership.

Lady Hale, in her dissenting judgment in Radmacher,⁸ clearly considered a gender dimension to have evolved in respect of pre-nuptial agreements. Lady Hale considered nuptial agreements were created – almost exclusively – to protect a wealthier soon-to-be husband’s property from their soon-to-be wife, as an unintended consequence of establishing a foundation of equality upon divorce. It may be seen as an interesting twist of fate that the leading Supreme Court authority on nuptial agreements⁹, in which the gender issue was highlighted, actually involved a very wealthy wife and the balance of financial power laid with her.

Today, the picture in respect of the purported gender imbalance is likely reduced by the introduction of civil partnerships (in 2005) and same-sex marriage (in 2014). It is, though, unlikely to be evidenced for some years. It has been surmised that the imbalance may not only be financial; there could be emotional inequality¹⁰, which may be more difficult to identify and prove.

Where inequity exists between the parties to an agreement, whether financial or emotional (and sometimes neither will be present), any purported disparity in status is either diminished or negated if both parties freely choose to enter an agreement, have a full appreciation of the terms and implications and have had the benefit of (or at least the opportunity to obtain) independent legal advice. The Supreme Court made it very clear that individuals’ autonomous choice to deal with their finances as set out in their agreement ought to be respected, although the court retains its overall discretion so as to ensure that any financial settlement on divorce or dissolution is fair.

The court must approve all financial orders on divorce or dissolution, whether a consent order has been filed for the court’s approval (with no court hearings) or if the parties have required the assistance of the court to decide how their assets should be divided between them. The court will carry out its discretionary exercise taking into account all the circumstances of the case. As practitioners will be aware, it is simply not possible to oust the jurisdiction of the court.

Reasons for Creating an Agreement

A nuptial agreement is a way of setting out the parties’ financial intentions at the outset of, or within, a marriage or civil partnership in order to define joint and separate property. Some consider nuptial agreements to be unromantic, but they allow individuals to command their independence and create a mutual understanding of how they intend to deal with their finances. They perhaps ought to be viewed, alongside wills and wedding cake, as an essential part of wedding planning. It has even been suggested (by Katrin Radmacher) that the existence of a pre-nuptial agreement would be proof that the parties married for love and not for money.¹¹

As a nuptial agreement is neither contractually binding nor automatically upheld by a court, it remains to be considered as one of the circumstances of the case¹² or conduct it would be inequitable to disregard.¹³ Given its lack of contractual force, some wonder whether it is worth going to the time and expense of creating a nuptial agreement; however, post Radmacher, it is likely that an agreement that is well drafted, well considered and – above all – ‘fair’ will be upheld. However, what is ‘fair’ is subjective and may change over time.

Nuptial agreements may be used in order to protect assets owned prior to marriage and are particularly beneficial where:

• there are children from a previous marriage (to ringfence pre-acquired assets for the benefit of these children and general inheritance planning);

• there are business assets;

• there are family trusts or properties;

• there are future inheritance prospects¹⁴ or inherited assets;

• either party has a connection with another jurisdiction;

• one party has a substantially greater asset base or income than the other;

• both parties have pre-acquired wealth or assets;

• either party has been married before.

Whilst, since Radmacher^,, individual autonomy is now considered to be of elevated importance, nuptial agreements are often prepared many years in advance of the time upon which they come to be relied. Review clauses are not always adhered to and circumstances can – and often do – change. If the court did not retain its final authority, there is a risk that one party could be left in a predicament of real need. A tempered individual autonomy is therefore likely to continue.

Whilst it may be unlikely that anyone entering a marriage intends to rely upon the terms of a pre-nuptial agreement, its existence does not mean that divorce is inevitable. What it does mean is that, in the unfortunate event of a breakdown of the marriage or civil partnership, the parties’ recorded intentions may be used as a basis for drafting a consent order. Generally, parties entering an agreement have the ultimate aim of limiting post-separation litigation which can otherwise often result in great financial and emotional cost and uncertainty.

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