Freedom of choice

If prenuptial agreements exist so that we can decide which assets we don't want to bring into a marriage, why doesn't the law always reflect that, asks Philip Rutter

For many years pre and post nuptial agreements were regarded as contrary to public policy and therefore unenforceable. In the late 1990s, a very gradual judicial movement started attaching weight to nuptial agreements, culminating in 2010, with the case of Radmacher v Granatino where the Supreme Court held:

"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."

While the Supreme Court ruling means that a well-drafted and fair agreement should be upheld, the Family Court will not always do so and may find ways around its terms if it thinks the agreement produces an unfair outcome. For example, by awarding maintenance if an agreement does not explicitly exclude a maintenance claim.

The Family Court has also been unwilling to follow a contractually agreed foreign marital property regime on an English divorce.

Law Commission report

The Law Commission looked at 'Matrimonial property, needs and agreements', reporting in early 2014. It recommend that 'qualifying nuptial agreements' be enforceable as contracts, but with the significant caveat that agreements that deal irrevocably with future needs for housing, child care, income or any other aspects of 'financial needs' should not be contractually enforceable.

Deech's Bill

Baroness Deech shortly afterwards introduced a far simpler private member's bill which is currently being steered through the House of Lords. Her Bill proposes that nuptial agreements be treated as binding, with the only requirements being that both parties receive independent legal advice, the agreement is made not less than 21 days before the marriage and there is full disclosure of assets.

Baroness Deech has been widely quoted as saying that current divorce law sends a bad message to young women, suggesting that the route to wealth is not hard work, but simply marrying a footballer. We can only guess at the number of 'gold diggers' looking to get rich by marrying (and divorcing) a wealthy man or woman, but London's title as the divorce capital of the world is not without a ring of truth.

There are very good reasons for entering into a nuptial agreement:

• The average age of marriage is 37 for men and 34 for women, so many people getting married will have wealth that they want to ring fence.

• Those embarking on second or third marriages will want to protect their assets for the children of a previous marriage.

• Nearly all agreements ring fence assets gifted and inherited during a marriage, providing certainty not just for a couple, but also for parents who want to make gifts to their children, providing assurance that their son or daughter-in-law would not benefit from the gift in the event of a divorce.

• Agreements lessen the scope for dispute on divorce and provide certainty of outcome.

• No agreement can ever exclude a claim on behalf of a child, so children will always be protected.

The argument against agreements is that they fetter judicial discretion, may produce unfair outcomes and it is impossible to know what a family’s situation may be, with a divorce happening possibly decades after an agreement has been signed.

Despite the wide discretion given to the Family Court to redistribute assets on divorce, the probability is that in cases where a family is financially comfortable, there will be an equal split of the assets built up during a marriage, regardless of how the wealth was generated. For the less wealthy, ‘needs’ may well trump the 50/50 approach.) Baroness Deech’s Bill also proposes a legislative continuation of that approach.

If we are to have a principle of community of property on divorce (with an equal division of all wealth generated during a marriage), then in line with other countries that have communal property regimes, as independent adults, we must have the right to contract out of that regime.

Philip is a partner at Gordon Dadds