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Law Commission recommends that ‘qualifying nuptial agreements’ should be enforceable

Report calls for Govt study into non-statutory formula for assessing needs-based outcomes

The Law Commission has published its much anticipated report Matrimonial Property Needs and Agreements. It is here. An article by Spencer Clarke, lawyer at the Law Commission and member of the Family and Trust Law Team, reviewing the report is here.

The report, which includes a draft Bill, recommends a set of measures to make it easier for couples to manage their financial affairs on divorce or at the end of a civil partnership. These are:

The Law Commission believes that the objective of orders made in financial remedy cases on divorce should be to enable both partners eventually to achieve financial independence. That, the Law Commission says, is already the outcome of the majority of cases, and there is no need for a change in the law.

However, the Law Commission believes that there is evidence of regional inconsistencies in how the courts approach orders for financial needs, which can make the outcome unpredictable. Furthermore, while the law is largely well-understood by family lawyers, it is not clear to the general public who are increasingly dealing with the financial consequences of separation without legal assistance.

Agreeing financial needs
The Law Commission is recommending that the Family Justice Council produce authoritative guidance on financial needs. The guidance would explain the outcome a judge would aim for in determining a settlement, including achieving eventual financial independence. This would enable couples to reach an agreement that recognises their financial responsibilities to each other. The guidance would also help to bring more consistency to how the law is applied in the courts.

Making settlements more predictable
Guidance from the Family Justice Council would provide an explanation of the sort of outcome that should be aimed for but it would not provide figures. The Law Commission is also recommending that the Government commission a long-term study to assess whether a workable, non-statutory formula could be produced that would give couples a clearer idea of the amounts that might need to be paid to meet needs. Formulae are already used successfully in other jurisdictions such as Canada, where they produce a guideline range of outcomes within which couples can negotiate.

Qualifying nuptial agreements
The Law Commission is recommending the introduction of "qualifying nuptial agreements".

Qualifying nuptial agreements would enable married couples and civil partners to make a binding agreement about how their property or finances should be shared if their relationship breaks down. The agreements would be enforceable as contracts but would apply only after both partners' financial needs, and any financial responsibilities towards children, have been met. And they would be binding only if, at the time of signing, both parties had disclosed material information about their financial situation and both received legal advice.
Under the current law, couples can make pre- and post-nuptial agreements. The courts may follow these agreements but they are not binding and the parties cannot be certain they will be upheld.

Professor Elizabeth Cooke, Law Commissioner for property, family and trust law, said:

"We believe that married couples and civil partners should have the power to decide their own financial arrangements, but should not be able to contract out of their responsibilities for each other's financial needs, or for their children. The measures we are recommending would help couples understand and meet their financial responsibilities and, where appropriate, achieve financial independence.

"Pre- and post-nuptial agreements are becoming more commonplace but the courts will not always follow them and lawyers are therefore not able to give clear advice about their effect. Qualifying nuptial agreements would give couples autonomy and control, and make the financial outcome of separation more predictable. We have built in safeguards to ensure that they cannot be used to impose hardship on either party, nor to escape responsibility for children or to burden the state."

The Law Commission's report, Matrimonial Property Needs and Agreements, includes a draft Bill that, if implemented, would bring qualifying nuptial agreements into effect.

Resolution reaction
Resolution welcomed the report.

Resolution vice-chair (and chair-elect) Jo Edwards commented on the recommendations concerning pre-nuptial agreements:

"This latest development ... should give people confidence that marital agreements will be upheld. This should also help reduce the burden on the courts.

"We don't expect this measure to lead to every engaged couple in the country seeking a pre-nup, but for those couples who want to have one in place, it will make their legal situation much clearer and reduce uncertainty upon separation.

"It's also important to note that the court will still have the ability to review agreements in so far as they deal with people's financial needs.
"Individuals' financial needs – in particular those of any children – are still the overriding consideration, and couples will not be able to make binding agreements which allow them to avoid future consideration of financial needs.

"There is, therefore, a risk that we could end up with a two-tier arrangement, where one type of agreement is legally binding, and others still open to challenge – couples need to be aware of this, and that's why the recommendation that people are required to seek legal advice is so important.

"We would prefer to see change which would open up binding pre-nups to a wider group of people, with appropriate safeguards. Nevertheless, we welcome the fact that this will allow some couples to create certainty about their financial settlements should their marriage sadly come to an end."

On the need for further guidance on needs, she said:

"Guidance on needs should encourage consistency, dispel myths and manage expectations. This will help anyone going through separation, even if they don't have access to legal advice and support, or are trying to reach agreements on their own, during a very traumatic time."

However, she hoped for further reform of divorce law and financial provision on divorce:

"The last major reform to divorce law was in 1973, and we believe more changes are needed to make the law relevant to modern day. For example, Resolution wants to see the removal of the need to assign blame if a marriage breaks down, which can often ramp up the conflict and cause unnecessary emotional distress.

"We would also like to see more wholesale reform of the law about financial provision on divorce, to provide clearer guidance about likely outcomes. It's important that anyone going through a divorce has some degree of certainty about how long it will be before they achieve financial independence and have some degree of closure.

"Resolution is currently undertaking a major consultation exercise with its members in order to establish a series of policy proposals which will help support separating couples in England and Wales, and we will be publishing these later in the year."

Practitioners' responses
Alison Hawes, a specialist family and divorce lawyer at Irwin Mitchell which has offices across the country, commented:

"This report provides clarity after years of uncertainty and, if implemented, will turn case law (Radmacher v Granatino in 2010) into law, as well as changing the emphasis so that the court has no power to interfere if the agreement "qualifies".

"Qualifying pre-nuptial agreements will give couples greater autonomy to determine the financial outcome in the event of a future separation. The outcome of a future separation will be more predictable and less expensive. The proviso that it needs to meet the parties and children's needs will avoid unfair agreements. This approach to pre-nuptial agreements is more in line with how they are treated in the rest of Europe."

Tony Roe, principal of Tony Roe Solicitors, who was a member of the Advisory Group to the Law Commission on this project, said:

"The Law Commission report comes after some five years of detailed work and merits a detailed read by practitioners."

The report is wide ranging, highly practical and realistic. The Commission's recommendations on qualifying nuptial agreements are entirely logical, featuring key safeguards. The agreements would be enforceable as contracts but would apply only after needs have been met. They would be binding only if the parties had given financial disclosure and had received independent legal advice.

"Interestingly, the Commission recognises advantages of family law arbitration over the court process, to include privacy & the fact that parties can control proceedings more.

"Given the huge current pressures on the family justice scheme, it would be a brave Government which ignored such key proposals".

The report is accessible here. An article by Spencer Clarke, lawyer at the Law Commission and a member of the project team, reviewing the report is here.

27/2/14