Associate solicitor Gemma Kemp, in our leading Family team, explains marital agreements.
A ‘marital agreement’ is a written agreement entered in to by two people, which seeks to regulate their financial position in the event of a future breakdown of their relationship. If the agreement is entered in to before marriage/civil partnership, the document is a ‘pre-nuptial’ agreement. If entered in to after the parties are wed/have registered their civil partnership, the agreement is a ‘post-nuptial’ agreement.
The Family Courts in England and Wales have a wide discretion when it comes to dividing assets and considering maintenance payments on divorce. The Judge has to satisfy him/herself that the financial settlement is ‘fair’, and there are numerous tests that are applied to determine whether this is so. However, the parties may have a very different idea about what would be ‘fair’, and may therefore want to regulate what the financial outcome should be in the event of divorce. To do so, they would need to enter in to a marital agreement.
It is often thought that marital agreements (particularly pre-nuptial agreements) are only for the rich and/or the famous who seek to protect their millions, as these are the cases we often read about in the press. However, there are other circumstances when pre-nuptial agreements should be considered.
The enquiries we often receive relating to pre-nuptial and post-nuptial agreements (collectively known as ‘marital agreements’) are often for one or more of the following reasons:
- Protection of business assets;
- Where one or both parties have children from a previous relationship;
- Protection of an inheritance;
- Protection of valuable family assets, such as heirlooms.
This is not an exhaustive list, and there may be a number of other reasons why a marital agreement
should be considered.
When? Where? How?
Marital agreements are legally binding in many jurisdictions across the world. However, as the law currently stands, marital agreements are not legally binding in the jurisdiction of England and Wales. That said, Judges have taken them in to consideration in many cases, and upheld them fully in some circumstances. This was so in the case of Radmacher v Granatino, a case which was heard in 2010, when the Judge stated:
“The 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.”
A marital agreement is usually more likely to be given weight by the court where the parties have exchanged financial disclosure, have both received independent legal advice, where there has been no undue pressure or duress and, in the case of pre-nuptial agreements, where the agreement is signed well in advance of the wedding/civil partnership.
Therefore, the current position is that a marital agreement is more likely to be upheld if it is valid and fair.
In 2018, another pre-nuptial case came before the court – Brack v Brack. In this case, the husband and wife were Swedish nationals and entered in to three pre-nuptial agreements (in three different legal jurisdictions) 6 months before the wedding. In summary, the agreements provided that in the event of divorce, each party would retain their own property that they had acquired independently before or during the marriage, and that there should be no maintenance.
The parties separated after 4 years of marriage, and the marital agreements came before the court in England and Wales, after divorce proceedings were initiated. The first Judge found that the three pre-nuptial agreements were valid but unfair, on the basis that the wife’s and the children’s needs would not be met if the agreements were upheld in their entirety. The Judge commented (based on previous case law) that as the agreements were valid, he was limited to considering only the children’s and the wife’s needs when considering what award to make.
The wife appealed this decision, and argued that the Judge should not have restricted his discretion in such a way. The wife’s case was that the court should have complete discretion in respect of the outcome, given that the agreements were found to be unfair. She argued that the court should have consideration to all of the factors set out in section 25 of the Matrimonial Causes Act when deciding what a fair outcome would be, including:
- The income, earning capacity, property and other financial resources which each party has, or is likely to have in the foreseeable future;
- The financial needs and obligations of the parties;
- The standard of living enjoyed during the marriage;
These are some of the considerations that the court has to have regard to when there is no marital agreement in place, and the wife in the case of Brack was therefore asking the court to completely ignore the provisions of the three pre-nuptial agreements.
The Court of Appeal considered the matter, and agreed with the wife. The Judges in the Court of Appeal found that the pre-nuptial agreements in this case were neither valid nor fair, and therefore the case was to be decided with full consideration being given to all the section 25 factors, and not just ‘needs’.
The Court of Appeal confirmed that a Judge was not, as a matter of law, limited to only providing an award to meet needs where there was a valid marital agreement, but that they must seek to arrive at a fair outcome in any case. However, the Court of Appeal judges went on to say…
“a court is likely to regard fairness as demanding that…a settlement…is limited to that which provides for [her] needs.”
Therefore, although the court is not limited to only meeting needs in such circumstances, if the marital agreement is found to meet the parties’ and the children’s needs, it is likely to be regarded as ‘fair’.
The case of Brack v Brack is due to be re-heard, so it remains to be seen whether the decision will actually change the award for Mrs Brack, and only time will tell the extent to which the case changes the court’s general approach to marital agreements, if at all.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.