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Pre-Nuptial Agreements in 2007

Ashley Murray of Oriel Chambers reviews the latest thinking on. and the practicalities of, pre-nuptial agreements

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Ashley Murray, Oriel Chambers

Introduction
Prenuptial settlements were used, prior to the Married Women's Property Act 1882, to protect the property of women of wealthy families about to be married by transferring their property to trustees to hold on their behalf. This was necessary as the law, up to that point, had provided that the wife's property by marriage, either as introduced by her or gained in the marriage, became her husband's. [1]

Now in the 21st century, we should reflect that it has only been in the last 125 years that Parliament has been prepared to recognise the entitlement of a married woman to retain her own property. Many would recognise that the struggle for full recognition of the wife's rights in this area of the law continues unabated in what remains a male dominated Legislature and Judiciary. So recently, after the House of Lords decision in White v White [2000] UKHL 54, reference back to the pre-White case law already makes uncomfortable reading against the now familiar signposts of "fairness" and "the yardstick of equality".

Unfortunately, neither White nor the conjoined appeal decisions of Miller v Miller : McFarlane v McFarlane [2006] UKHL 24, have yet completed the task of full recognition of the wife's equal entitlement. Lip service to a non-discriminatory approach continues in certain respects and some may still detect in the recent High Court decisions of S v S (1996) Burton J, H v H EWHC 459 (Fam) Charles J and P v P [2006] EWHC 3409 (Fam) Coleridge J., a lingering intellectual reluctance against full acknowledgment of the wife's equal share.

Inherited land cases [2], family business contributions [3] and the exceptional wealth creative abilities of men [4] are still paraded as three of the more obvious bases for departure from equality. Others, such as "non matrimonial" and "value added" future earnings appear to be developing areas for further veiled discrimination. Given that the historical development of our society has within it an inbuilt discrimination against women attaining positions of landed wealth or commercial influence, the present approach still continues to perpetuate a discrimination of the woman's role within marriage generally. It remains the woman who is the less likely spouse to have developed a career by the start of the marriage and the more likely by its end to have given up her chance for the same level of earnings potential. Whether the President's development of the "yardstick of equality" into "the sharing principle" in Charman v Charman [2007] EWCA Civ 503 will be sufficient to finally position each spouse "shoulder to shoulder" at the beginning of the statutory exercise under section 25 of the 1973 Act and to encourage their equal gender treatment throughout by the courts has to be a real matter of conjecture, in the circumstances.

It is both ironical and yet hardly surprising against such a backdrop that the pre-nuptial contract, which was, initially, intended to shield the wife's property from the full rigour of the husband's rights in marriage, should now, almost invariably, be used to attempt to shield the husband's property rights against the wife's entitlement upon a divorce. As the use and undoubted march to greater recognition of such a device increases, we can expect that the ground gained by women will continue to be at risk of being progressively eroded.

Put bluntly, the use of the pre-nuptial contract is almost invariably an attempt by the male and /or his family to ensure that the wife's full rights against him upon a divorce are more restricted than the law would otherwise permit. The wife may be persuaded that there is something in it for her, whereas the truth is usually, that there will be far more in it for the husband.

If "fairness" is the approach to the present law, then the only justification for a pre-nuptial contract between two spouses is that it is an attempt by the parties to introduce certainty of distribution and provision and to reduce the risk of litigation and the costs attendant upon a divorce [5].

Within themselves, these are laudable objectives, but, in reality, such considerations are likely to be less influential in the creation of a pre-nuptial contract at the beginning of a married life together, than the concern of the husband to securing, in advance, a damage limitation consequence should "wedded bliss" descend into disharmony. In addition, of course, within the context of saving future litigation costs, the existence of a pre-nuptial agreement cannot, as yet, prevent the court process, whilst the imprimatur of the court is required to finalise any financial arrangement between the parties following a divorce [6].

When advising a female client, who is being pressed by her husband-to-be or his family to enter into a pre-nuptial agreement, the advice must almost, invariably, be first to suggest that she resists and says "no", and when advising a male client wishing to press for such an agreement the advice given must be that, if he wishes to give himself the best chance of securing the approval of the other lawyer, he should seek to ensure that the proposed agreement is as general and generous, as possible, without losing all relevance.

Is the effort worth it? Undoubtedly it is for any husband-to-be with significant prospects or substantial property worth, whether or not pre-nuptial agreements are to be recognised with legislation or not. For the wife-to-be, if the terms struck are sufficiently generous and she fears that a short marriage may be the reality, then all that can be said is that it may be.

Present Position
Despite the recommendation of the Government's 1998 Consultation Document, Supporting Families, to make pre-nuptial agreements relating to property binding, there has been no legislation introduced following the initial lukewarm response of the Judiciary ((1999) Family Law 159) and the profession; albeit, there followed gathering support for such a change, "unless significant injustice would be caused", in the report of the SFLA Law Reform Committee ((22 November 2004) A More Certain Future – Recognition of Prenuptial Contracts in England and Wales) and, again, in 2005 Resolution published a well argued report urging the government to give statutory force to nuptial contracts. The latter report was, subsequently, fully supported by the Money and Property Sub-Committee of the Family Justice Council and the President has added his weight to this recommendation very recently in the Court of Appeal decision in Charman (2007) [7]

Pre-nuptial agreements, therefore,, remain at present formally unenforceable, per se, in the courts of England and Wales on the basis that they "…undermine the concept of marriage as a life long union" [8].

However, it is clear from the reported authorities that the existence of such an agreement has been considered by the courts as being within "all the circumstances" of the case or as "conduct which it is inequitable to disregard" under the section 25 discretionary exercise.

The Case Law
The development of the law in this area is to be traced in the following cases:-

In Hyman [1929] [9], a wife by a deed of separation had covenanted not to take proceedings against her husband to provide her with maintenance beyond the provision made for her by the deed. When, subsequently, she obtained a decree of divorce on the grounds of her husband's adultery, it was held that she was not prevented by her covenant from applying for maintenance. The House of Lords decided that, on public policy grounds, parties could not by agreement preclude the divorce court from exercising its jurisdiction in financial matters.

However, in Edgar [1980], the Court of Appeal upheld the effect of a (separation) agreement (which did not seek to oust the court's jurisdiction) between two parties, who had received the benefit of independent legal advice and made it plain that, whilst the court retained its overriding discretion under the section 25 exercise of the Matrimonial Causes Act 1973, the terms reached would not be avoided, in such a case, unless justice demanded. In a well known extract from the judgment, Ormrod LJ stated:

"…formal agreements, properly and fairly arrived at with competent legal advice, should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement." (see fuller extract) [10].

Of course, these words were directed towards a settlement reached at court between spouses already separated and pursuing an outcome to a financial relief application already brought; but they served to highlight the advantages of seeking to reach terms of agreement either before or after marriage, as well as after an eventual separation [11]

In F v F (Ancillary Relief: Substantial Assets) (1995) [12], which involved pre-nuptial agreements governed by the laws of Germany and Austria, the husband had made his application for financial relief within this jurisdiction, following his petition for divorce in England. Thorpe J, as he was then, was, in the particular circumstances of the case, unwilling to attach much significance to the agreements reached, stating:

"In this jurisdiction [pre-nuptial agreements] 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." [13]

However, these comments, although not much more than a decade ago, have to be set against the facts of the case, where the provision made in the agreements for the wife was almost negligible, out of some £200m of assets held by the husband.

In S v S (Divorce: Staying Proceedings) [1997] [14], Wilson J, as he then was, said:

"I am aware of the growing belief that, in the dispatch of a claim for ancillary relief in this jurisdiction, no significant weight will be afforded to a pre-nuptial agreement, whatever the circumstances. I would like to sound a cautionary note, in that respect, … but there will come a case … where the circumstances surrounding the pre-nuptial agreement and the provision therein contained might, when viewed in the context of the other circumstances of the case, prove influential or even crucial. Where other jurisdictions, both in the US and in the European Community, have been persuaded that there are cases where justice can only be served by confining the parties to their rights under pre-nuptial agreements, we should be cautious about too categorically asserting the contrary. I can find nothing in [the Matrimonial Causes Act 1973] s 25 to compel a conclusion, so much at odds with personal freedoms to make arrangements for ourselves, that escape from solemn bargains, carefully struck by informed adults, is readily available here … The matter must be left open."

Wall J, as he then was, in N v N (divorce: ante-nuptial agreement) [1999] [15], accepted that, whilst pre-nuptial agreements were unenforceable, they could be upheld, where justice required it, in the section 25 exercise. He stated:

"'However, the fact that an ante nuptial agreement, or an agreement between spouses, that neither will make a claim for ancillary relief in future divorce proceedings is unenforceable does not mean that the court will not, in appropriate circumstances, hold the parties to that agreement, provided it is just to do so: see, for example, Edgar v Edgar [1981] 2 FLR 19. The existence of the agreement, and the weight to be given to it, are both factors to be taken into account in the overall balance when the court is deciding (on the facts of the individual case) whether or not to exercise its discretion under s 25 of the Matrimonial Causes Act 1973 to make orders for financial provision under ss 23 and 24.'

Of course, in Xydhias [1999] [16] Thorpe LJ., concluded that as, within the matrimonial jurisdiction and upon his interpretation, agreements are not specifically enforceable, ordinary contractual principles do not apply to such agreements. Instead, the court will carry out a discretionary review in order to determine whether the parties have reached an agreement or an accord to which they would be held, requiring the court to determine only those matters which remain outstanding.

In Smith [2000] [17], the parties' pre-nuptial agreement provided for a lump sum payment to the wife of £16k in full settlement. The judge, at first instance, in reliance, dismissed the wife's claim. The Court of Appeal stated that the judge had been wrong to dismiss her claim on this basis. The existence of a prior agreement between the parties for a lump sum payment in full and final settlement was only one of the considerations to which a judge had to give weight on an application for ancillary relief.

In M v M (Prenuptial Agreement) [2002] [18] Connell J stated,

'I do bear the agreement in mind as one of the more relevant circumstances of this case, but the court's over-riding duty remains to attempt to arrive at a solution that is fair in all the circumstances, applying s 25 of the Act.'.

In the event, his award then provided the wife with a lump sum payment of £875,000, compared with the provision in the agreement of just £275,000. It had been a short 5-year marriage and there was a 5-year-old child. Overall, the husband's was worth a net £6.5 million; the wife had an asset worth of £300,000. The court's award was more than the pre-nuptial agreement, but was much less than if there had been no agreement at all.

In K v K (Ancillary Relief: Prenuptial Agreement) [2003] [19] the parties had entered into a pre-nuptial agreement which the wife wanted to avoid. Rodger Hayward-Smith QC, sitting as a deputy High Court judge, determined that she should be held, substantially, to its terms. It was accepted that the husband had been pressurised to marry on the understanding that the wife's capital claims, in the event of an early breakdown, would be as provided for in the pre-nuptial agreement. In the event, the marriage lasted 14 months. The wife had trust assets of £1m and she was held to the agreement's capital provision of £120,000, although she had claimed £1.6m. The husband had at least £25m. The court's approach was that entry into the agreement should be considered as "conduct which it would be inequitable to disregard" under MCA 1973, s 25(2) (g). By the pre-nuptial agreement provision was made that, in the event of the separation of the parties for a period of 6 months or more, or the dissolution of the marriage within 5 calendar years of the date of the agreement, the husband would pay to the wife £100,000, to be increased by 10% compound interest pa. The provision made and the nature of the negotiations preceding the agreement made it apparent that the parties intended the agreement to have effect only in the event of a short marriage. However, as the agreement provided for reasonable financial provision for any children, but made no income provision for the wife, the court concluded that the agreement did not prevent an order for periodical payments for herself, and, in any event, such a prohibition would be unjust to the wife. Whilst the wife had signed the pre-nuptial agreement just three days before the marriage, she was, nevertheless, to be held to its terms having fully understood the agreement and having been properly advised as to its terms, at the time. Specifically, it was found that she had not been put under pressure to sign the agreement nor had she felt under any other pressure at the time she signed the same. She exercised her own free will and the husband had not exploited a dominant position. Again, whilst there had not been full disclosure, it had been the wife, as advised, who had decided not to pursue any valuation of the assets disclosed. She was, however, fully aware that the husband was very wealthy. Furthermore, the agreement had been entered into in the knowledge that there would be a child and there had that been no unforeseen circumstances which had arisen since the agreement to make it unjust to hold the wife to it.

Baron J in A v T (ancillary relief: cultural factors) [2004] [20], under "all the circumstances" of the case, decided that the English court should consider cultural factors, where the parties are from an ethnic backgound and, within this process, the court may have regard to the manner in which the case would be dealt with by courts of a foreign country. In consequence, it was relevant to consider a pre-nuptial agreement, which had been made under Sharia law.

In G v G (financial provision: separation agreement) [2004] [21], the Court of Appeal held that the Judge was right to give weight to both the pre-nuptial and separation agreement, since both parties had chosen to regulate their marital affairs by agreement in the light of their individual experiences of previous marital breakdowns.

In Ella v Ella [2007] [22], where the two spouses had dual nationality in this jurisdiction and in Israel, the Court of Appeal stayed the English proceedings commenced by the wife, who was then living in London, in favour of Israel on the basis of the then existing parallel Israeli proceedings brought by the husband and a pre-nuptial agreement which, clearly, provided for the law of Israel to apply.

(xii) Again, Baron J in A v A [2007] [23], considered a post-nuptial agreement where the parties, having separated, entered into the agreement, at the insistence of the husband, as a precondition of their reconciliation, following the wife's earlier adultery. The husband had during their marriage come into an inheritance and the agreement sought to limit her claims. The wife signed when the husband gave her the ultimatum that she was to leave the family home if she had not signed by a given date. The husband then discovered she had renewed the adulterous relationship and divorce proceedings followed. The wife claimed in the ancillary relief proceedings that she had been put under pressure to sign and the agreement should not be relied upon. The court acknowledged the greater use of pre-nuptial agreements than before and that the same were much more likely to be accepted by the courts in governing the parties' financial affairs on breakdown. Their effectiveness depended upon fairness and how the parties had come to enter into the agreement. To render the agreement ineffective, it would be necessary to show the husband had exercised undue pressure or influence, by which the wife's free will had been overborne. It was held that in the circumstances her will had been overborne and the post-nuptial agreement, therefore, would not be determinative and the section 25 exercise would be undertaken in the ordinary way.

The Practicalities
Remember – any agreement reached between the parties will be admissible, if relevant, before the court under the section 25 exercise – even one where the parties reached it between themselves over the kitchen table – although, in reality, if reached without appropriate independent legal advice, it is unlikely to have anything other than a historical relevance. Even if the fact of that agreement is relevant it remains, currently, just one of the factors within the statutory exercise and the issue is always – in the light of all the factors set out in section 25 - is it fair, in all the circumstances, to hold the parties to it!

Although in the case of K v K [2003], the court, finally, upheld the pre-nuptial agreement, albeit two out of three of the following were not present; principally, a court will look to 3 aspects, as indicators of fairness, namely, that there was:

Independent legal advice:
The process should start by each party taking such advice and, preferably, each should pay for the same from their own resources.

Full disclosure:
Whatever the form chosen, there should be full disclosure of assets, pension worth and incomes, again, preferably, in draft Forms E – some would say with all the required copy documents attached, albeit a detailed list of supporting documentation may well be sufficient, as long as the other party had full access to any inspection required – the Forms E or resources list should be annexed to the agreement.

Free will:
There will, invariably, be some form of pressure, even if it comes only from the fact that one of the parties holds the wealth and seeks to limit any future claim against such asset value in the event of a breakdown. The issue will be, on any breakdown, whether it has been such as to overbear the free will of the other. It is pivotal, therefore, to allow time before the marriage occurs for negotiation and discussion to take place as to the terms of the pre-nuptial proposals. It has been suggested that the minimum time to reach the pre-nuptial agreement should be 21 days before the marriage ceremony. This, however, as was demonstrated in K v K, can be seen as no more than best practice.

Fairness
At all times, fairness, of what is being proposed, is at the heart of the exercise. Without it, the other party will be advised against the "deal" and/or, eventually, the court will be unlikely to restrict itself to the terms struck. Therefore, the following may be helpful when acting for the party seeking to protect their position:-

The Future
In Charman [2007] EWCA Civ 503 at para 124, the President has said:-

"The difficulty of harmonising our law concerning the property consequences of marriage and divorce and the law of the Civilian Member States is exacerbated by the fact that our law has so far given little status to pre-nuptial contracts. 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?...."

Our lack of formal recognition is exceptional amongst our European partners and is an isolated position against the law applicable in many other parts of the world.
It is contradictory that a separation agreement based on the same wording as the pre-marital contract reached by the same parties will be upheld, unless justice requires otherwise, pursuant to Edgar [1980], whereas should the pre-marital contract have stood alone, its existence would be regarded, at present, as just one of "all the circumstances of the case". Indeed, had they not married at all, there would have been less reluctance to acknowledging the identical terms of such a cohabitation agreement.

For better or for worse, society has moved on from when in 1929 the House of Lords considered such agreements to be contrary to the sanctity of marriage and when divorce was exceptional and there was no power in a divorce court to transfer capital. Today, both parties in entering a marriage will be well aware of the fact and possibility of divorce and are seen as entering into a partnership. A persistent reluctance, therefore, to recognise their rights to determine for themselves their property ownership may yet be challenged as contrary to their human rights and will continue to add fuel to the incentive for some to forum shop to this jurisdiction.

However, in the circumstances, women should remain sceptical that the increasing pressure for legislative changes to give formal recognition to pre-nuptial agreements within ancillary relief proceedings is a movement, which is singularly motivated by a noble intention to complete the circle of changes, pioneered by the Married Womens Property Act 1884, to achieve their equal entitlement with men.

  1. See Montague Lush "The Law of Husband and Wife" (Stevens & Sons;1884 p 98).
  2. P v P (Inherited Property) (2005) 1 FLR 576, Munby J.
  3. McFarlane / Miller (2006) HL cf now Charman below
  4. Charman v Charman (2007) EWCA 503
  5. Even more recently, in the case of Moore v Moore [2007] EWCA Civ 361, approximately £1.6 million had been expended on the wife's endeavours to achieve a London award, rather than a Marbella award, despite the application of the Regulations of Brussels II;
  6. Xydhias v Xydhias (1999) 1 FLR 683 CA;
  7. see note 4 in previous section.
  8. per Wall J in N v N (Jurisdiction: Pre-Nuptial Agreement) (1999) 2 FLR p 745 at 752;
  9. [1929] AC 601, [1929] All ER Rep 245;
  10. [1980] 3 All ER 887 : 'To decide what weight should be given, in order to reach a just result, to a prior agreement not to claim a lump sum, regard must be had to the conduct of both parties leading up to the prior agreement, and to their subsequent conduct in consequence of it. It is not necessary in this connection to think in formal legal terms, such as misrepresentation or estoppel; all the circumstances as they affect each of two human beings must be considered in the complex relationship of marriage. So the circumstances surrounding the making of the agreement are relevant. Undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge, possibly bad legal advice, an important change of circumstances, unforeseen or overlooked at the time of making the agreement, are all relevant to the question of justice between the parties. Important, too, is the general proposition that, formal agreements, properly and fairly arrived at with competent legal advice, should not be displaced unless there are good and substantial grounds for concluding that an injustice will be done by holding the parties to the terms of their agreement. There may well be other considerations which affect the justice of this case; the above list is not intended to be an exclusive catalogue'—per Ormrod LJ at 893.
  11. see also Thorpe LJ in Smith (2000) ibid.
  12. [1995] 2 FLR 45.
  13. p 66 G (Thorpe J):
  14. [1997] 2 FLR 100,
  15. [1999] 2 FLR 745, FD
  16. [1999] 2 All ER 386, CA
  17. [2000] 3 FCR 374, CA
  18. [2002] 1 FLR 654
  19. [2003] 1 FLR 120
  20. [2004] 1 FLR 977.
  21. [2004] 1 FLR 1011, CA
  22. [2006] EWHC 2900 (Fam)
  23. [2007] EWCA Civ 99

Ashley Murray,
Oriel Chambers,
Liverpool.