The rise of the post-nuptial agreement?

Shortly before Christmas, five Law Lords gave a seminal decision on the validity of marriage agreements in English law. The ruling clarifies the legal position regarding pre and post-marital agreements and therefore has wide ranging significance for all married couples, those planning to marry, and anyone contemplating divorce in England and Wales.

As a result of the decision, an agreement made during a marriage now has the force of law which allows married couples to regulate their financial affairs for the first time, and offers them certainty of outcome if the marriage later breaks down.

The case had concerned various agreements that had been signed prior to and following the marriage of an American couple living in the Isle of Man, and the Judges had to decide whether the terms of any of the agreements should be binding on the couple.

Hopefully, the ruling will see a decrease in the number of cases reaching the Courts in the future, as married couples will opt for their own financial arrangements rather than have an outcome imposed on them by family Judges if they later divorce.

Pre-nuptial agreements

A pre-nuptial agreement is entered into prior to a marriage and sets out the division of the family's finances on separation and divorce.

Because these agreements can often be used as leverage prior to a marriage in order to agree favourable terms on divorce, the Law Lords ruled that it is up to Parliament to legislate on the requirements necessary to make pre-nuptials fully binding and therefore enforceable by the Courts.
Despite this, the Judges recognised that the existence of a pre-nuptial agreement can still be a relevant factor guiding the Courts when deciding the appropriate division of a couple's assets on divorce. 

Indeed, in some cases, the terms of a pre-nuptial agreement will be upheld, although it will still be necessary for the Court to first have adjudicated on its terms.

Post-nuptial agreements

Post-nuptial agreements also set out the terms by which the family's assets and income are to be divided if the marriage fails. 

Crucially, they are very different from pre-nuptial agreements in that they are entered into after the couple has married and their terms are therefore no longer the price which one party can extract from the other for his or her willingness to marry.

On the basis of this important difference the Judges ruled that, subject to certain criteria, spousal agreements entered into at any time after the date of the marriage will be binding even if they do not reflect what a Court would have done on divorce. 

What is required

For these agreements to be binding, the Law Lords indicated that there had to have been mutual full and frank disclosure by each spouse to the other of their financial circumstances, and the terms of the agreement should have been negotiated via independent legal advisors.

Provided these criteria are met, a couple will be held to the agreement they have reached.

Obviously, as the family's circumstances change whether because of the birth of children, inheriting wealth or for any other reason, it would be sensible for the agreement to be updated.

Why enter a nuptial agreement?

All litigation is expensive and the outcome inherently uncertain.  Matrimonial litigation also comes with an added emotional cost. 

An agreement that provides certainty avoids these financial and emotional costs, and allows a couple to decide in advance what would be a fair division of their assets if, for any reason, their marriage were to fail.

During their marriage, couples are now able to agree what they think is fair if they should split up rather than have the courts impose its version of fairness upon them. An agreement made during a marriage will now have the force of law, allowing married couples to regulate their financial affairs for the first time.

Any couple that has already entered into an agreement prior to their marriage should consider converting it into a post-nuptial agreement. Indeed, all married couples should now consider entering into post-nuptial agreements to provide them with greater certainty if they should later divorce.

It may still take some years before parliament considers making all pre-nuptial agreements binding. In the meantime, couples who are already married can negotiate during the best of times what they consider would be fair in the event of a future divorce, and avoid the cost and upset of litigation at the worst of times.

Sandra Davis, David Lister, Barbara Reeves and Melissa Lesson are all partners in Mishcon de Reya's Family Law department. For more info visit www.mishcon.co.uk