The topic of prenups is often a divided one – are they necessary? Are they legal? Should they be legally binding? It wasn’t too long ago that the Law Commission began their recommendation for prenuptial agreements to be legally binding in divorce settlements. The term adopted by the Commission, Qualifying Nuptial Agreements (QNA)*, covers various forms of marital agreements, the most familiar being the prenuptial agreement.
The current position is that courts in England and Wales already recognise prenuptial agreements as ‘enforceable’ provided that important safeguards are met (full disclosure, independent legal advice, overall fairness of the agreement). The Commission recommends that prenups should become ‘legally binding’ provided that both partners’ financial needs and responsibilities towards children have been met. The difference may seem small but in practical terms this means that, provided both parties’ needs can be met, the court will not have any discretion to deal with assets other than in the terms set out in the prenup.
In order for the prenup to become a QNA, the Commission recommended the following:
- The agreement must be contractually valid and enforceable;
- The agreement must be made by deed;
- The parties must state that they understand that the QNA will restrict the court’s discretion to make financial orders;
- The agreement must not be made during the 28 days preceding the marriage or civil partnership;
- At the time of the agreement, the parties must have received material disclosure of the other party’s finances and also independent legal advice.
The Commission recognised that couples should be provided with a better understanding of the rather nebulous concept of ‘needs’. In practice, it can be frustrating for separating couples to discover that there is no formula for working out a reasonable outcome, only the very broad guidelines provided by the court’s application of the criteria set out in section 25 of the Matrimonial Causes Act 1973. The Commission considers that guidance should be published to make it plain that the court’s objective on divorce is to enable the parties to make a transition to independence, taking account of the choices made within the marriage, its length, the parties’ ongoing shared responsibilities, the need for a home, and the standard of living during the relationship. This is what is meant by ‘needs’.
Benefits of a Prenup
The hope is that the benefits of a prenup will come through, providing greater predictability to ultimately encourage couples to settle their own disputes without having to go to court. The purpose of a prenup is to decide in advance how various assets of the marriage will be dealt with in the event of divorce. Agreements will vary with other couple’s circumstances; ranging from a complex document covering every aspect of the couple’s finances, to a relatively straightforward document designed to protect a specific asset.
The important thing to remember is that couples will still be able to apply to the court for financial orders, and the court will retain jurisdiction to make such orders. Because of the court’s emphasis on needs, it is advisable to include review provisions in order to amend the terms of the prenup to suit the couple’s changing circumstances.
Who Should Get a Prenup?
Often, prenuptial advice and the pressure for a prenup can come from other family members who see prenups as a way to protect wealth that has been in the family for generations.
It goes without saying that you have to have something to protect but prenups aren’t just for the very wealthy. The benefits of a prenup are extensive, and they can help you to:
- Protect your business and ensure that you retain control in the event of divorce
- Protect assets from a previous marriage and ensure that the asset can be preserved for its intended use, e.g. capital received in lieu of pension provision
- Protect the financial interests of children from a previous relationship
- Protect capital acquired through the efforts of one party during the marriage, e.g. property investment
- Preserve inheritance received by one party during the marriage
The Law Commission’s recommendations on QNAs are undeniably part of a wider movement to provide greater predictability for separating couples so that couples are better equipped to avoid the court system altogether. The Commission also recommends the introduction of standard formulas to help resolve disputes over financial settlements. Perhaps the most interesting part of the report is the contention that the time is right to see whether calculations for spousal support can be developed, in the same way that calculations for child support have been developed. Whilst this may assist those that cannot afford legal representation or advice, the inflexibility if a ‘one size fits all’ approach may create unfairness for individual families.
One thing is clear, in every respect couples are encouraged to make their own arrangements for relationship breakdown. Perhaps prenups will become a routine part of the process.
*Please note this link requires access to Thomson Reuters Practical Law.