username

password

DNA LegalGarden Courtimage of 4 Paper Buildings logoCoram Chambers1 Garden CourtHarcourt ChambersHind Courtsite by Zehuti

Marital/Quasi-Marital Contracts

In the wake of Miller and McFarlane, several commentators have questioned whether the courts should begin to pay greater heed to parties' pre-marital agreements. In this timely article Eliza Hebditch explores the possibilities for couples.

Eliza Hebditch, Solicitor, Farrer & Co

Harold is a man of some considerable fortune, even though he is only 33. He is part of the new "super-banker" breed. He is likely to make even more money in the future.

He is engaged to be married to Winifred, who is training to become a chartered accountant.

When Harold met Winifred about a year ago, his wealth was approximately £25m (£20m of which he made himself and about £5m of which he inherited). His goal is to "keep going in the City" until he has made £50m, which he estimates will take him between 7 and 10 years.

Harold's colleague Howie has just been through a horrendous divorce, during which Howie says that his wife Wendy "fleeced him" for more than half of his fortune, which he says would not have happened if he'd taken precautions. Howie has been reading the headlines over the last few days and is convinced that if only Mr and Mrs Miller had signed a [sensible] pre-marital agreement (especially one that stated that she had made no contribution to the creation of New Star), she would not have received such a large award. Consequently Howie sends Harold to see a solicitor about a pre-marital agreement.

Harold is sceptical about this because he knows that, in England and Wales, "pre-nups" are not binding.

So what does the solicitor advise Harold?

1. He confirms that, yes, Harold is correct: he and Winnie cannot oust the jurisdiction of the Court to make an order in the future in the event that Winnie makes an application for ancillary relief in the context of divorce proceedings.

2. But, he tells Harold that, considering his great wealth (to which Winnie has not contributed – as Harold has pointed out forcefully), it would certainly be worth Harold's while to enter into a pre-marital agreement.

3. Why? Because, provided that the agreement is sensible and well drafted, it should be persuasive to a court when (if?) it comes to determine Winnie's claims upon divorce.

4. Harold's solicitor is careful to point out that, while one can reasonably conclude from recent case law that the judiciary are giving more weight than they have previously to pre-marital agreements (provided those agreements comply with all/most of the necessary safeguards), there is still a spectrum of judicial responses to them.

Those responses range from stating that they are of "very limited significance" and "no more than a material consideration for this court" in 1995[1] and 1997[2] respectively to saying that they can be "a significant factor", "one of the more relevant circumstances of this case" and both part of the circumstances of the case and conduct which it would be inequitable to disregard, in 2001[3] , 2002[4] and 2003[5] respectively.

5. Harold asks what the "safeguards" are to which his solicitor refers, and receives the following (fairly predictable) mantra.

(a) Harold and Winifred should both take independent legal advice before entering into the agreement (which is clear both from the "Supporting Families" Green Paper and also from K v K).

(b) That legal advice should be from a specialist in English matrimonial law (the case of Edgar [6] makes it clear that bad or inexperienced legal advice can seriously undermine the effectiveness of a marital/quasi-marital contract). Ideally that advice should be in writing [7] and advisors' certificates should be appended to the agreement (as in M v M).

(c) Both Harold and Winifred must give proper disclosure of their financial positions – the fuller the disclosure, the better [8]. Harold does himself no favours if he undervalues his interest in his company, because if, when he sells next year, his shares are sold for twice what he says they are worth now, won't Winifred be able to argue that she has contributed to the meteoric rise in the value of the company? Similarly, Harold would be wise not to be too coy about the large estate in Scotland, complete with grouse moor, that he is likely to inherit from his grandfather [9].

(d) Since Harold and Winifred hope to have children in the future, their agreement must make careful and ideally (bearing in mind Harold's great wealth) generous provision for the children to be housed, fed, educated and given a comfortable lifestyle [10]. Harold's solicitor advises him that, however he may feel about Winifred in the future, the court will not be persuaded by an agreement pursuant to which there would be too great a gulf between the lifestyle of father and mother. The court's view is that "it cannot be desirable for the children to have their respective parents living at such totally different standards of living" [11]. Accordingly, the children must have a home that reflects the fact that they have a very wealthy father, and a lifestyle that approaches their life when they are with Harold.

(e) Winnie must be under no undue influence or duress [12] to sign the agreement and so negotiations should take place in as un-pressurized an environment as possible, and the agreement should be signed by both parties well in advance of the marriage (Howard's solicitor adheres to the "Supporting Families" recommendation of at least three weeks before).

Post-nup?

Harold reflects on this advice and considers that the negotiation of the agreement may have a detrimental effect on his and Winifred's relationship in the run-up to the wedding. The last thing he wants to do is jeopardise the special day itself. He suggests to his solicitor that, instead of entering into the agreement before the wedding, the parties sign it once the dust has settled, during the few months following the wedding (i.e. have a "post-nup" or "mid-nup"). He tells his solicitor that he has no concerns that Winifred would fail to sign it, because they have already discussed the agreement and she has already promised to enter into one.

Apart from the obvious risk that Winifred would not in fact sign the agreement, is there any other reason for H's solicitor to sound a note of caution in relation to the execution of a mid-nup?

He might tell his cautionary tale that of the few cases where he has been instructed in relation to "mid-nups", in more than 50% of those cases, the mid-nup negotiations have actually turned into immediate divorce negotiations without the agreement ever being signed.

He might also point out that this would render a powerful argument unavailable to Harold – namely that Harold cannot now claim that he would not have got married without a pre-marital agreement.

Separation Agreement?

In the event, the parties, rather than entering into a mid-nup, remain married for a few years, but at about the 5 year anniversary, they are unsure quite where their marriage is heading.

Divorce is a possibility, but not a route that either party wishes to take now. They decide to separate, but wish at this stage to regulate their finances in a binding agreement. Harold assumes that his solicitor's advice will be exactly the same as when he consulted him about the mid-nup. Why, after all, should there be different amounts of weight given to an agreement depending on whether it is signed 25% of the way through the marriage, 50% or 90% of the way through?

He is surprised therefore when his solicitor advises him that, in fact, separation agreements have, historically, been given substantially more weight by the courts than pre-marital agreements.

Harold's solicitor advises him that if he and Winnie can replicate the facts of Edgar (including especially "the conduct of both parties leading up to the …agreement and …subsequent conduct in consequence of it"), then it would be very difficult indeed for Winnie to persuade a court to depart from the agreement reached. Harold's solicitor observes that Edgar is still a very important case, notwithstanding that it is 26 years old. It was cited with approval in the recent case of K v K and, on careful examination, almost all the "safeguards" set out in "Supporting Families" and in subsequent case law were anticipated by Ormrod LJ in the famous passage in his judgment about the importance of the circumstances surrounding the making of the agreement ("undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge [or disclosure], possibly bad legal advice, an important change of circumstances unforeseen or overlooked at the time of making the agreement [e.g. the arrival of children]").

Binding agreement in the context of proceedings?

Does the fact that the agreement has been negotiated in the context of divorce proceedings automatically render it even "stronger" or more "final" (or to put it another way, would such an agreement be higher up the marital contracts hierarchy)? Howard's solicitor tells him that immediately following the case of Xydhias (as decided at first instance), it would have been reasonable to assume that Minutes of Agreement negotiated in solicitors' correspondence were almost as binding as a court order itself – i.e. in this case it would be difficult for Winnie to "show cause" why the court should not essentially "rubber stamp" those Minutes.

However, fairly shortly afterwards followed the Xydhias [13] appeal in which it was held that "it is clear that the award to an applicant for ancillary relief is always fixed by the court. The payer's liability cannot be ultimately fixed by compromise as can be done in the settlement of claims in other divisions. Therefore the purpose of negotiation is not to finally determine the liability (that can only be done by the court) but to reduce the length and expense of the process by which the court carries out its function" (per Thorpe LJ).

In 2002, the case of X v X (Y and Z intervening) [14] seemed to go even further to protect the boundaries of the court's discretion from encroachment by parties who wish to regulate their own affairs in a binding agreement: "A contract which purports to deprive the court of a jurisdiction which it would otherwise have is contrary to public policy. Thus a spouse cannot validly agree, whether expressly or impliedly, not to apply to the Court for … ancillary relief" (per Munby J.

Harold's solicitor's best advice for Harold is therefore this: if he wants certainty, he should issue proceedings and obtain a court order (one that cannot be set aside!) as soon as it is clear that the marriage is over but if he can't face issuing a petition, then Edgar is his next best hope.

How would the solicitor's advice change if, rather than advising Harold on his forthcoming marriage, he was advising Harold's German cousin Helmut, who had already persuaded his future wife to enter into a German marriage contract?

Reluctantly, although he would mention the cases of C v C [15] and S v S [16] in which the existence of a foreign pre-marital agreement (French and American respectively) was a factor in the decision to stay the English proceedings (and so it follows that the existence of the agreement would have been taken into account had those cases been determined in the English court), he would also have to tell Helmut about N v N (see above) in which the Swedish pre-marital agreement was held to be "no more than a material consideration".

He would probably advise Helmut to enter into another, separate, English agreement, if he wanted the agreement to be substantially persuasive to an English judge. This is because, though pre-marital agreements are much more common in France, Germany, Spain and many other European countries, and the parties are generally held to the matrimonial regime that they have chosen, the contracts themselves would very rarely comply with the "safeguards" which English practitioners/courts have distilled.

In many European countries, couples can visit the same lawyer or notary to have their marriage contract drawn up (thereby falling foul of the "independent advice" requirement), and many countries do not require any financial disclosure.

How about Harold's good friend Hussain, who had entered into an Islamic pre-marital agreement governed by Islamic law?

The question both in Helmut's case and in Hussain's case is whether (and if so to what extent) the outcome they would enjoy under German/ Islamic law respectively (i.e. both their agreements would be upheld as a matter or course in the country/community from which they come – and both sets of parties knew this when they entered into the agreement) would be a relevant factor for the English Court in determining the final award.

The solicitor would have to give very cautious advice. He would state that Dart [17] is still good law, in which Thorpe LJ made the following unenthusiastic remarks about pre-nuptials and alternative jurisdictions, "the circumstances to which the judge may have regard under s 25 are so unbounded, that the scale of the award in a concurrent "jurisdiction in waiting" cannot entirely be excluded. In broad terms it might be equated to pre-nuptial contractual arrangements made by the parties in their country of origin".

But, he would also be able to offer a shred of hope (more to Hussain than to Helmut?) by telling him about the more recent cases of A v T [18] and N v N [19], in which the outcome under Jewish law (relating to the contract for the obtaining of a "get") and the outcome under Islamic law (relating to the contract negotiated for the "talak" or "marriage price") did significantly affect the decision reached by the English Court – albeit that in both cases the judges fell short of "upholding" the contracts.

Would Harold's solicitor's advice differ if his fiancé was Wilfred rather than Winifred?

It has been suggested that pre-civil partnership agreements are more likely to be upheld than pre-marital agreements.

Why should this be? It is a fact that there are probably more likely to be a higher proportion of childless civil partnerships than there are childless marriages, but that fact in itself surely could not make the pre-partnership agreement between Harold and Wilfred more likely to be upheld after a short childless 'marriage' than Harold and Winifred's pre-marital agreement when their marriage breaks down after exactly the same circumstances.

The other argument, which is potentially more interesting (and inflammatory) is the public policy argument. When Harold tries to hold Winifred to the terms of the agreement, she will point to the "sanctity of marriage" argument. She will recall her and Harold's vows in church ("till death do us part") and she will echo the words of Lord Hailsham in Hyman v Hyman [20] by stating that pre-marital agreements which contemplate divorce (as of course they all do) fundamentally undermine the institution of marriage – and furthermore, that the jurisdiction of the courts cannot be ousted.

Wilfred will not have these arguments available to him. Though he would like the registration to be in a church, that would not be a possibility for him and Harold. His vows are not "till death do us part", but the wording of the ceremony specifically provides for the end of the partnership at the point of entering into it ("until death or dissolution"). If the entire civil partnership legislation provides in detail for the parties' rights and obligations upon dissolution in the same breath as it provides for the creation of the partnership, then how can anyone talk with any credibility about undermining it by entering into a pre-partnership agreement?

Finally, how would the advice change if Harold and Winifred decided not to get married, but instead to enter into a cohabitation agreement regulating their financial affairs?

Harold's solicitor advises that not marrying would be the safest way of protecting his wealth from claims by Winifred – he tells him about the recent (unusual) case of Gawor [21] in which the court found that "there is nothing contrary to public policy in a cohabitation agreement governing the property relationship between adults who intend to cohabit", and from which Harold's solicitor concludes that such agreements will be upheld by courts so long as they are not found to be a contract for sexual services. (Harold is not troubled by this advice as he is more concerned about the mundane task of protecting his millions than he is in prescribing the dynamics of the "master-slave" relationship that the Gawor couple attempted to set in stone).

What he couldn't do, if he went down that route, is try to exclude the court's powers to make orders for the benefit of any children that he and Winnie have or adopt (either in terms of income under the Child Support Act/top-up orders or for lump sum settlement of property under the Children Act 1989), but he knows that would be the case whichever route he decides to take.

Conclusion?

Harold becomes a self-appointed expert (dinner-party bore) on the inconsistencies that exist in this area of English family law. Winnie nearly breaks off the engagement, so exasperated is she with the whole subject and they decide that they won't enter into an English agreement at all.

He and Winnie do get married (a lovely ceremony on Martha's Vineyard), and they emigrate to New York where the bankers' bonuses are even better and the post-nup was remarkably painless ("everyone has one, don't you know?"). Harold crosses his fingers that the spectre of a London jurisdiction for divorce never materialises (but he sends terribly supportive emails to Helmut and Hussain whose cases both approach a final hearing in the Principal Registry). Whenever he and Winnie have an argument, Harold idly wonders about whether you can insure against the danger of your wife securing a London jurisdiction where you have no English pre-marital agreement?

Notes

[1] F v F (Ancillary Relief: Substantial Assets) [1995] 2FLR 45
[2] N v N (Foreign Divorce: Financial Relief) [1997] 1FLR 100
[3] C v C (Divorce: Stay of English Proceedings) [2001] 1FLR 624
[4] M v M [2002] 1FLR 654
[5] K v K [2003] 1FLR 120
[6] Edgar v Edgar (1980) 1WLR1410
[7] Royal Bank of Scotland v Etridge (No 2) – not about pre-nups, but about independent legal advice.
[8] The importance of disclosure in pre-maritals is ubiquitous: "supporting families", K v K, M v M.
[9] This is relevant both to the disclosure point and also the "unforeseen circumstances" point first raised in Edgar, also raised in subsequent case law.
[10] Both "Supporting Families" and the High Court Judges' response to that paper ("the child of the family, whether or not yet born, is not a party to the nuptial agreement and his rights cannot therefore be eroded") sound a grave note of caution in applying pre-marital agreements where there are children – great care should be taken here.
[11] Camm v Camm (1983) 4LR 577
[12] Normal contractual principles, but also throughout the "marital contracts" case law (and consultation papers) since Edgar, including F v F, X v X (Y and Z intervening), K v K.
[13] Xydhias v Xydhias [1999] 1FCR 289
[14] X v X (Y and Z intervening) [2002] 1FLR 508
[15] C v C (Stay of English proceedings) [2001] 1FLR 624
[16] S v S [1997] 2 FLR 100
[17] Dart v Dart [1996] 2FLR 286
[18] A v T (Ancillary Relief: Cultural Factors) [2004] 1FLR 9777, Times 2 March
[19] N v N [1999] 2FLR 745
[20] Hyman v Hyman [1929] AC 601
[21] Sutton v Mishcon de Reya and Gawor & Co [2004] 3FCR 141

Please do not hesitate to contact Simon Bruce, Eliza Hebditch or any other member of the Farrer & Co family team on 020 7242 2022 to discuss pre-marital agreements or any other matter arising out of this article.