Practical pre-nups

"They are not worth the paper they are written on", has been the general approach taken by family lawyers advising on pre-nuptial agreements. However, there has been a perceptible shift in this position. Recent case law underpins this shift and there is value in entering into a pre-nuptial agreement, but certain matters need to be addressed in order to give any such agreement the greatest possible prospect of being enforced by the courts.

Traditional position

The historic starting point has always been the House of Lords decision in Hyman v Hyman [1929] AC 601, where Lord Hailsham LC said at p 607 that:

'Before 1857, it was not competent for any court to dissolve a marriage validly contracted; in order to effect such a dissolution it was necessary to have recourse to an Act of Parliament. In 1857, the legislature for the first time gave to the courts the power to dissolve the marriage tie by a decree of divorce'¦ the court may compel the husband to make adequate provision for the support of the wife.... the parties cannot validly make an agreement either: (1) not to invoke the jurisdiction of the court; or (2) to control the powers of the court when its jurisdiction is invoked.'

In S v S (Matrimonial Proceedings: Appropriate Forum) [1997] 2 FLR 100, Wilson J (as he then was) said:

"There will come a case... where the circumstances surrounding the pre-nuptial agreement and the provision therein contained might, when viewed in the other circumstances of the case prove influential or even crucial."

In K v K [2003] 1 FLR 120, the parties had entered into a pre-nuptial agreement from which the wife sought to resile. Rodger Hayward-Smith QC, sitting as a deputy High Court judge, held the wife substantially to its terms.

At the other end of the spectrum, in December 2003, was J v V [2004] 1 FLR 1042. The parties had entered into a pre-nuptial agreement under which the wife was prevented from claiming against the husband's assets. The marriage broke down after ten years. There were three children aged 13, 11 and ten. Coleridge J had no difficulty in dealing with the pre-nuptial agreement as a preliminary point. He said, at para 41:

'I mention it only to put it to one side in this case. This contract was signed on the very eve of the marriage, without full legal advice, without proper disclosure and it made no allowance for the arrival of children. It must, in my judgment, therefore, in this jurisdiction fall at every fence, quite apart from the fact that the terms were obviously unfair, preventing the wife from claiming against the husband's assets.'

How should practitioners advise today?

So the practitioner is consulted, often by a betrothed couple, one or both of whom are existing clients. They seek advice on the effectiveness of a pre-nuptial agreement to regulate their affairs in the event that their union does not last until 'death do them part'. One or both of them may have assets they wish to ringfence from how they believe the court will divide them, having regard to the yardstick of equality as per White v White [2000] 3 WLR 1571 as the subsequent interpretation in Miller v Miller; Macfarlane v Macfarlane [2006] UKHL 24. To what matters should the practitioner address himself or herself to achieve a K v K as opposed to a J v V outcome?

In K v K, the judge considered the effect of the pre-nuptial agreement. He distilled from the authorities, to which he had been referred, 16 questions which he asked himself, and then answered, in determining the issue whether as against the wife the agreement was binding or influential in any of the decisions he had to make. The issues these questions raise are the best starting point for any practitioner.

Each of the prospective parties must be separately and independently advised. They should both consult solicitors, and meet their respective costs.

Full disclosure

The parties will need to start by making full disclosure. Often, one of the factors that may initiate the wish of the parties to enter into a pre-nuptial agreement is a significant imbalance in their assets. One party, more often than not the prospective husband, will wish to limit the extent to which his assets can be allocated to the other.

The optimum approach to full disclosure is for both parties to complete Form Es, and for them to be appended to the executed agreement. The prospect of completing Form E, is disconcerting to a party involved in a substantive application due to the number of questions and the nature of the details sought. How much more so is this where a pre-nuptial agreement is proposed. The alternative, undoubtedly second-best, would be a statement of information in
Form M1.

In K v K, there was not full disclosure, but it was the wife who chose not to press for values; it was known that the husband was very wealthy and figures of up to £150m were mentioned.

The parties must avoid pressure. In the event that the agreement is challenged, to succeed in enforcement, absence of pressure must be proved. The earlier prior to any ceremony that an agreement is executed, the greater the prospect of enforcement, other matters being equal. One of the reasons the agreement in J v V was not enforced was that it was signed 'on the very eve of the marriage'.

Children

The eighth question the judge asked was whether the agreement was entered into in the knowledge that there would be a child. This factor may permit a distinction between a marriage where children may be expected and a marriage or a civil partnership where, because the parties are older and/or do not intend to adopt, children are not expected.

Prior to White, assets were divided having regard to need, without the necessity to measure any prospective division against the yardstick of equality. It could have been argued that if the pre-nuptially agreed division of assets adequately met the parties' needs, there was a fair chance of it being enforced. If there were children, then any agreement needed to make allowance for their arrival.

Other considerations

What has not been tested, since White (although both Kv K and J v V were decided after White), is whether a pre-nuptial agreement does not effect a division that accords with the yardstick of equality will be fatal to the prospect of enforcement.

Unforeseen circumstances arising after the agreement may make it unjust to hold the parties to it. The draftsman must do his best to take into account all circumstances that may occur. An obvious example is a prospective inheritance of one of the parties.

Any agreement must be as clear as possible as regards asset division in as many specified circumstances as possible.

Very careful consideration will need to be given to whether or not the agreement should bar any claim by a wife for periodical payments. If the agreement does so, it should be drawn in such a way that that provision is severable and, should the court find it unfair and unenforceable, it will not render the entire agreement unenforceable. It is prudent to stipulate that each clause is separately enforceable in case one or more clauses are held to be unenforceable.

In K v K, the judge concluded that the agreement did not preclude an order for periodical payments, but if he was wrong, and it did, it would be unjust to hold the wife to that aspect of the agreement. This was principally because of the 'enormous contribution' the wife was going to make over the ensuing 18 years in caring for the child.

There are two further aspects that merit consideration. The first is the right of either party under the Inheritance (Provision for Family and Dependants) Act 1975. Parties may wish to record that the pre-nuptial provision is reasonable under the 1975 Act. While this is not binding as an expression of wishes, it is relevant and it may be taken into account.

The second is the desirability of the parties making mutual wills that provide asset distribution that corresponds with the
agreement.

The end of the matter?

The essential tension at the heart of the pre-nuptial agreement debate is that one party will usually propose such an agreement as a way of protecting his assets from being shared on a relationship breakdown. To give an agreement the best prospect of being enforced, the above guidelines should be followed. The asset distribution must be fair having regard to the yardstick of equality. That is in effect what the wealthier party may be seeking to avoid.

While that objective may not prove attainable, the court may take into account the agreed asset distribution without following it to the letter. Clients should be advised of the potential risks and shortcomings of the process.