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Home > Articles > 2014 archive

Prenuptial Agreements Latest Caselaw: Pandora’s Box Stays Closed… at least for now

Sarah Foreman, a solicitor at Vardags, considers a recent case in which the wife failed in her challenge of a pre-nup entered into with her wealthy husband in respect of MPS and costs allowance.

 










Sarah Foreman solicitor, Vardags

In the recent case of BN v. MA [2013] EWHC 4250 (Fam)  Mostyn J has rejected a wife's challenge, at this stage simply in respect of her application for maintenance pending suit, of a pre-nuptial agreement she entered into with her husband the month before they married, stating that, "one has to ask on what possible basis the wife considered it appropriate to issue an application for the full range of financial remedies, she having signed the prenuptial agreement… but 15 months earlier."

This case concerned a husband and wife who had been in a volatile, "on and off and up and down" relationship since 2002 and married since June 2012. Following intense negotiations, the parties entered into a pre-nuptial agreement in May 2012.

Despite the fact that both parties received legal advice and the front of the document contained a large, capitalised, warning that they should not sign it unless they intended to be bound by its terms, the wife applied for the full range of financial remedies available on divorce when the parties' marriage ran into difficulties just 15 months later. At this stage the couple had one child and the wife was pregnant with their second.

The hearing before Mostyn J dealt with the wife's application for maintenance pending suit (under s.22 of the Matrimonial Causes Act 1973 (the "MCA")), interim periodical payments for the parties' child (under s.23(1)(d) MCA) and a legal services order to cover the wife's legal costs (under s.22ZA MCA), with the hearings in respect of her other financial claims to come later.

The husband's net property assets, according to the pre-nuptial agreement, were worth £13.08 million. In addition, the husband had a share in the family business, the value of which was unknown. His business income was £350,000 net per annum and his rental income from a country house and a flat abroad was €40,000 per annum. The wife was the financially weaker party, with two flats in London, worth £250,000 each, with 100% mortgages.

Mostyn J provided a helpful overview of the current law regarding pre-nuptial agreements, citing the landmark case of Radmacher v. Granatino [2011] 1 AC 534. Mostyn J noted that the test now, as a result of Radmacher, is that, "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." He considered that in determining whether it would be fair to hold the parties to the agreement, one must have regard to the following::

1) no agreement can be allowed to prejudice the reasonable requirements of a child;

2) respect should be accorded to the decision of a married couple as to the manner in which their financial affairs should be regulated, i.e. there should be respect for autonomy; and

3) no agreement can overreach basic need.

Mostyn J continued that, in determining whether there was a full appreciation of the implications of an agreement, there need not be full disclosure or full legal advice, rather there must not be a material lack of disclosure of assets or a material lack of legal advice. What is necessary is that each party should have the information that is material to his or her decision.

In this case, the wife only provided her rationale for challenging the pre-nuptial agreement at the hearing itself, stating that the husband was guilty of material non-disclosure and that there were circumstances around the signature of the agreement which should lead the court to conclude that it would be unfair to apply it. Mostyn J was not convinced by the former argument, especially in this situation where the marriage had lasted for less than two years and all the assets in question could be characterised as non-matrimonial. Furthermore, he could find no evidence for the latter claim.

Mostyn J saw no reason, therefore, to venture from the terms of the pre-nuptial agreement, stating that "when adjudicating a question of interim maintenance, where there has been a prenuptial agreement, the court should seek to apply the terms of the prenuptial agreement as closely and as practically as it can, unless the evidence of the wife in support of her application demonstrates, to a convincing standard, that she has a likely prospect of satisfying the court that this agreement should not be upheld."

In applying that principle, Mostyn J held the parties to the terms of the pre-nuptial agreement and, accordingly, ordered the following:

1) Maintenance pending suit of £96,000 p.a. index linked from the date of the agreement, as stipulated in the agreement.

2) Child maintenance of £24,000 p.a.(taken into account as part of the wife's maintenance pending suit, not a periodical payments order for the child under s.23(1)(d) MCA) and another £24,000 per annum on the birth of the second child, again as provided for in the agreement.

3) A credit to the husband of £2,300 per month, against the wife's maintenance, as the wife was staying in a £4 million property and the pre-nuptial agreement only envisaged this being worth £3 million. The cost of the additional £1 million mortgage was this £2,300 per month credit back to the husband.

4) A credit to the husband of £675 a month which is half of the bills and service charges of the £4 million property, referable to the fact that the property is jointly owned.

5) A credit to the husband of £2,750 per month if the wife chose to occupy another of the husband's properties, as this was the rental cost and service charge.

In respect of the wife's claim for £400,000 for her legal costs, Mostyn J noted that, under s.22ZA MCA, in his view codifying the principles emanating from Currey v. Currey [2006] EWCA Civ 1338 he could only make a costs allowance if he was satisfied that without it, the wife could not reasonably obtain appropriate legal services. This includes being satisfied that she could not reasonably secure a loan. Mostyn J noted that the subject matter of the proceedings also had to be considered. Mostyn J considered the wife's application to be "extremely speculative" and noted that she could get a loan, although with high interest. As a result, she was not awarded a legal services order. The husband accepted that, if the wife's claim for financial remedy was found to have merit, then he would have to discharge the interest on a loan she took out. The husband, however, was awarded 75% of his costs (this was not 100% because, although the husband was successful, he only made his position clear comparatively late in the day).

In conclusion, as Mostyn J stated, it can be seen that "the law adopts a strict policy of requiring the demonstration of something unfair before it will open the Pandora's Box of litigation where there has been an agreement of this nature." Pre-nuptial agreements are, quite clearly, now a valuable method of both preserving a couple's autonomy and protecting assets in the event that the unexpected happens and, despite promises made in happier days, one party decides to mount a legal challenge against the other.

The Law Commission is due to publish its Matrimonial Property, Needs and Agreements report on the 27th February. With the rumour mill working overtime and some newspapers already suggesting that the report will contain recommendations that pre-nuptial agreements should be enshrined in law, family lawyers (and their clients) will all be watching this space…