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Pre-Nuptial Agreements after Crossley v Crossley

Alexander Chandler, of 1 King's Bench Walk, provides tips and guidance on the use of pre-nuptial agreements after Crossley

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Alexander Chandler, 1 King's Bench Walk

Once upon a time, in order to protect guileless fiancées from their future spouses and from themselves, the courts determined that pre-nuptial agreements would not be enforceable. In the words of Lord Atkin, "…the wife's right to future maintenance is a matter of public concern, which she cannot barter away…"; it being a matter of public concern to "…prevent the wife from being thrown upon the public for support": Hyman v Hyman [1929] AC 601 at 628-629.  Lord Denning gave an alternative formulation in Bennett v Bennett [1952] 1 KB 249 at 262: "…first, it is in the public interest that the wife and children of a divorced husband should not be left dependent on public assistance or on charity when he has the means to support them". Accordingly, any provision which purports to oust the jurisdiction of the court to hear an application for ancillary relief is void.

Nevertheless, a pre-nuptial agreement can be influential on the court's ultimate decision (see K v K (Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120), to the extent that in theory, "…there will come a case… where the circumstances surrounding the prenuptial agreement and the provisions therein contained might, when viewed in the context of other circumstances of the case prove influential or even crucial" S v S (Divorce: Staying Proceedings) [1997] 2 FLR 100 per Wilson J at 103.

In Crossley v Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467, it appeared that the day had finally come.

Crossley v Crossley
The parties met in June 2005, at a time when Stuart and Susan Crossley were each independently wealthy. Mr Crossley had a fortune of around £45 million and Mrs Crossley had acquired £18 million from the proceeds of her three previous divorces. They entered into a pre-nuptial contract on 16th November 2005 and married seven weeks later on 6th January 2006. The pre-nuptial agreement provided that each should walk away from the marriage with whatever they had brought into it and recorded that neither would apply to the court.

The marriage (which, in the words of Thorpe LJ seemed "…to have brought little or no happiness to either of the parties…") broke down after one year. On 11th September 2007, Mrs Crossley applied for ancillary relief, asserting that when the pre-nuptial agreement was entered into, her husband had failed to fully disclose his assets. Mr Crossley responded by issuing a summons on 20th September 2007 requiring his wife to show cause why her claims for ancillary relief should not be resolved in accordance with the agreement. At the First Directions Appointment, Mr Crossley's case was put as follows:

"…we are not suggesting for a moment that a judge would simply reach a conclusion, without regard to the other s. 25 factors, that this claim should be dismissed. Our contention will not be that there is an agreement and, there, that is the end of it. It will be, as we have made, I thought, very plain in our document, that there is an agreement and, in all the circumstances of the case, the wife should be held to it" (para. 9)

Bennett J decided that the exceptional facts of the case justified a departure from the provisions of FPR r 2.61B, whereby Forms E should be completed but without attachments and with the provision for the wife to raise only an informal questionnaire.  Applying the overriding objective in r 2.51D, the matter set down for a one day hearing in February 2008.

Mrs Crossley appealed the directions order to the Court of Appeal, and asserted that she had been denied the right to effectively present her case, on the grounds that the provisions of r 2.61B were mandatory, the application had impermissibly been set down for a preliminary issue and that she should not have been prevented from filing a formal questionnaire. The Court of Appeal unanimously rejected the appeal on the following grounds:

a) the application had not been set down for a preliminary issue: whilst the existence of the agreement cannot oust the court's obligation to apply the s 25 factors, the exceptional facts of this case give rise to a 'very strong case that a possible result of the s 25 exercise will be that the wife receives no further financial reward' (para. 14), 'If ever there is to be a paradigm case in which the court will look to the prenuptial agreement as… a factor of magnetic importance, it seems to me that this is just such a case' (para. 15)

b) The court's overriding objective to deal with cases justly trumped the requirements to file Form E with attachments and permit formal questionnaires (r.2.61(1)(c), r 2.61(3), r 2.61(7) etc.

c) Thorpe LJ remarked on the gaining view of the importance of pre-nuptial contracts:

"It does seem to me that the role of contractual dealing, the opportunity for the autonomy of the parties, is becoming increasingly important" (para. 17)

d) In the exceptional circumstances of this case, the wife would in effect be required to show cause why the agreement should not rule the outcome of the ancillary relief claim (para. 18)

Seemingly, this left the case poised on the verge of breaking new ground whereby Mrs Crossley would receive no more than she had bargained for in the pre-nuptial agreement. In the event, just before the hearing was due to take place, her application was withdrawn.

Tips for pre-nuptial agreements
Despite the profession missing the opportunity for a comprehensive judgment on the merits in Crossley, a number of points can be made in advising clients keen to avoid the uncertainty and expense of ancillary relief litigation in the event of divorce:

1. Until Parliament acts to change the law, a pre-nuptial agreement cannot be binding on the court or prevent an application for ancillary relief: Hyman [1929] AC 601. It can however be taken into account as 'one of the circumstances of the case' or 'conduct' (it does not appear to matter which: M v M [2002] 1 FLR 654);

2. A pre-nuptial agreement should not be directed to be heard as a 'preliminary issue', but in an exceptional case, the court's case management powers can displace the usual requirements for documents to be attached to Forms E and questionnaires, and a wife be required to show cause why the pre-nup should not rule the outcome: Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467;

3. In order to maximise the prospects of a pre-nuptial agreement being influential, the guidelines in the 1998 White Paper Supporting Families  should be followed, i.e.

"If this had been a pre-nuptial agreement, it would have stood the best chance of being enforced if there was: (i) full disclosure; (ii) a proper period for reflection being at least 28 days prior to the marriage; (iii) proper independent legal advice with proper negotiations; (iv) no children born after marriage" (see NA v MA [2007] 1 FLR 1760, per Baron J at para. 90)

4. Dealing with these guidelines in turn:

a) Full disclosure, e.g. by way of a schedule to the agreement, is highly recommended, even though lack of formal disclosure was not fatal to the significance of the agreement in K v K [2003] 1 FLR 120;

b) Time for reflection: a minimum period of 21 days was suggested in Supporting Families, para. 4.23;

c) Proper independent legal advice, preferably from a firm with a specialist matrimonial department. Taking advice from a non-specialist firm might open the door to a spouse to argue bad (as opposed to negligent) advice: see Edgar v Edgar [1980] 1 WLR 1410, Camm v Camm (1983) 4 FLR 577;

d) Special care must be taken with respect to children (see J v V [2004] 1 FLR 1042). A pre-nuptial agreement stands little chance of being followed if it appears makes less than generous provision in the event that children are involved.

e) It is good practice to attach a certificate signed by each solicitor to confirm each party received independent legal advice and understood consequences of entering into agreement (see M v M [2002] 1 FLR 654)

5. The purpose of a pre-nuptial agreement will in some cases be to distinguish marital property from non marital property, '…akin to a marital property regime which parties enter in civil law jurisdictions', Crossley [2008] 1 FLR 1467, para. 17. In other words, only those assets acquired by either spouse individually or together during the marriage should fall to be divided on divorce. It may also be sensible to include a jurisdiction clause.

6. The prospects of a pre-nuptial agreement being followed may be improved by the provision for periodic reviews (e.g. on fifth anniversary…), whereby the level of provision increases with the duration of the marriage;

7. Despite the lack of progress since Supporting Families in 1998, the pressure for a change in the law to provide for recognition of pre-nuptial agreements, has grown steadily:

a) Senior members of judiciary have added their support to a change in the law:
"…should not the parties to the marriage, or the projected marriage, have at the least the opportunity to order their own affairs otherwise by a nuptial contract?" Charman v Charman (No 4) [2007] 1 FLR 1246, para. 124

"It does seem to me that the role of contractual dealing, the opportunity for the autonomy of the parties, is becoming increasingly important", Thorpe LJ, Crossley, para. 17;

b) A change in the law has also been recommended by Resolution , by way of an amendment to MCA s 25(2) to include the following factor:

"any agreement entered into between the parties to the marriage, in contemplation of or after the marriage for the purpose of regulating their affairs on the breakdown of their marriage, which shall be considered binding upon them unless to do so will cause significant injustice to either party or to any minor child of the family."

c) The Law Commission will look into 'Marital Property Agreements' from 2009  and is due to report in 2012;

d) Whilst the harmonisation of matrimonial finance law across Europe faces significant obstacles, it is firmly on the European agenda: see Charman No 4, para. 124, Crossley, para. 19, and the 2006 green paper "On Conflict of Laws in Matters Concerning Matrimonial Property Regimes, Including the Question of Jurisdiction and Mutual Recognition" .

© Alexander Chandler
1 Garden Court
Temple, London

Case

Brief Facts

Impact of Pre-nup

Judicial remarks

Brockwell v Brockwell [1975] Fam Law 46

 

Could be considered as 'conduct'

"When people make an agreement like this it is a very important factor in considering what is the just outcome in the proceedings" Ormrod, LJ

___________

 

 

 

F v F (Frick) (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45

The parties, who were German, entered into two PNA's which regulated their affairs in accordance with (i) German and Swiss law and (ii) US law. H then owned property in Switzerland, London and US. H asserted millionaire's defence (Thyssen), wealth c. £200m. 7 yr marriage, 3 children.

None

If literally applied, the PNA would have "the ridiculous result of confining the wife to the pension of a German judge, whatever that may be""In this jurisdiction, ante-nuptial contracts must be of very limited significance. The rights and responsibilities of those whose financial affairs are regulated by statute cannot be much influenced by contractual terms which were devised for the control and limitation of standards that are intended to be of universal application throughout our society": Thorpe J, p 66 (NB This view has not been influential)

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N v N (Foreign Divorce: Ancillary Relief) [1997] 1 FLR 900

Parties were Swedish nationals, met in NYC, signed PNA in Stockholm in 1967. Marriage of 26 years, W received substantial inheritance in 1990. H sought leave to commence proceedings in London.

N/A PNA could have been no more than 'a material consideration' in this country

H had to show substantial ground to commence proceedings under s 13 MFPA 1984. Connection with England and Wales post-dated separation. PNA would be binding in Sweden but no more than a 'material consideration in this court under s 25 of the MCA 1973' – H could thereby have obtained an advantage in UK. 

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S v S (Divorce: Staying Proceedings) [1997] 2 FLR 100

PNA was governed by laws of New York State. W petitioned in London. H cross-petitioned in New York, applied for stay.

Can be influential even crucial

Considering balance of fairness and convenience, the PNA with its substantial financial provision and provision as to forum was significant. Stay granted. "I am aware of a growing belief that, in the dispatch of a claim for ancillary relief in this jurisdiction, no significant weight will be afforded to a prenuptial agreement, whatever the circumstances. I would like to sound a cautionary note in that respect… there will come a case… where the circumstances surrounding the prenuptial agreement and the provision therein contained might, when viewed in the context of the other circumstances of the case, prove influential or even crucial" Wilson J, p 103

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N v N (Jurisdiction: Pre-nuptial Agreement) [1999] 2 FLR 745

H and W were Orthodox Jews, entered into PNA which inter alia required parties to comply with Beth Din in event of dispute. W sought to specifically perform PNA and to receive get. H applied to strike out.

Struck out.

"…one cannot, in my judgment avoid the fundamental proposition that each is part of an agreement entered into before marriage to regulate the parties' affairs in the event of divorce. The public policy argument, therefore, continues to apply." Wall J, p 754

___________

 

 

 

M v M (Prenuptial Agreement) [2002] 1 FLR 654

The parties, Canadians, entered into a PNA in Vancouver: H sought to restrict W to contractual entitlement, i.e. £275k. W sought £1,3m.

One of relevant circumstances of the case

W sought legal advice: the first two refused to represent her, as disclosure required from H. The third, an experienced QC in Canada, advised her not to sign as it was fundamentally unfair. W insisted in spite of this advice on signing. Doesn't matter if PNA taken into account as one of circumstances of case or conduct. (Connell J, para 21)
Unjust to H to ignore PNA as to hold W strictly to terms

___________

 

 

 

K v K (Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120

14 month marriage, 1 child. W (W's mother) pressured H into marriage – W assets of £1m, H had £25m. PNA £100k plus 10% pa for first five years. W sought £1,6m and £57k pa; H offered £120k, £600k on trust, clean break.

Yes – on capital – but with additional capital £1.2m to re-house on trust during minority of child. No – spousal PPs of £15k

Distillation of authorities (Edgar, F v F, S v S, M v M, Wyatt-Jones [reported as G v G [2000] 2 FLR 18) produces sixteen factors. The PNA constituted conduct under s 25(2)(g) which it would be inequitable to disregard. NB There was not full disclosure – as W decided not to press and it was known that he was very wealthy. PNA interpreted not to exclude claim for maintenance, alternatively it would be unjust to uphold intention of clean break

___________

 

 

 

G v G (Financial Provision: Separation Agreement) [2004] 1 FLR 1011

Parties entered into a PNA drawn by H's solicitors. H worth £4m, W modest. No independent advice or full disclosure. PNA limited W to maintenance and sufficient capital to purchase at standard of previous home etc. Marriage broke up in circumstances of 'greatest drama and trauma'. W awarded £240k in place of pps.

Taken into account despite lack of independ. Advice etc.

Highly unusual case with particular facts, including: both parties had been married before, elected to regulate their future affairs contractually (three PNA in total) – which balanced the normal concerns about an agreement being reached at a time of emotional pressure and judgment likely to be clouded. "In those circumstances, in my opinion, it was entirely a matter for the judge to set this factor into its proper perspective. I cannot see that the weight that he elected to give to this agreement… is open to criticism" (Thorpe LJ, para 28)"the highly unusual circumstances of the case is that the ambit of the judge's discretion is, in a sense, correspondingly enlarged" (Thorpe LJ, para 38)

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J v V (Disclosure: Offshore Corporations) [2004] 1 FLR 1042

15 day hearing involving Liberian bearer share companies as 2nd R and 3rd R, Gibraltarian company owned by a Liberian company as 4th, 5th R.

None

"I should also, as a preliminary point, deal with the prenuptial agreement. I mention it only to put it to one side in this case. Nowadays, occasionally, their existence can be of some significance but not 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." (Coleridge J, para. 42)

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Charman v Charman (No 4) [2007] 1 FLR 1246

 

N/A

"If, unlike the rest of Europe, the property consequences of divorce are to be regulated by the principles of needs, compensation and sharing, should not the parties to the marriage, or the projected marriage, have at the least the opportunity to order their own affairs otherwise by a nuptial contract?" (President, para. 124)

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Ella v Ella [2007] 2FLR 35

Parties entered into PNA provided that the law of Israel should apply to any questions affecting property on separation. W petitioned in London, H reacted by issuing in Tel Aviv and sought stay in London (DMPA 1973), which was granted. W appealed.

Yes, on point of forum.

PNA drawn up immediately before marriage by H's lawyer at a time of consideration emotional turmoil (W pregnant)No independent advice for WHeld, taking account of the factors connecting the case to Israel such as the family's profound connection to the State, it was right to conclude the PNA was a major factor: and the effect was to make Israel the most appropriate forum

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Crossley v Crossley [2008] 1FLR 1467

W, 48, obtained £18m through three marriages. Pre-nup provided neither party should apply for AR. H resisted filing Form E. W alleged non-disc. Bennett J ordered Forms E w/o documents, list 1 day.

N/A (although it was not looking good for W)

CA rejected appeal against setting matter down for a one-day preliminary hearing. This was a 'quite exceptional case on its facts, but if ever there is to be a paradigm case in which the court will look to the prenuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic importance, it seems to me that this is just such a case" (Thorpe LJ, para. 15)Bennett J's case management 'an admirable illustration of judicial initiative and good sense' [Opportunity for judgment on substantive application lost when Susan Crossley withdrew application at the eleventh hour.]