Protecting your potential: A guide to pre-nuptial or post-nuptial agreements in England/Wales

Many of us have had to reconsider our plans for the future after the Covid-19 pandemic. Many couples have had to postpone their weddings due to restrictions on large gatherings and international travel. Although it is not ideal, the delay may give those at the edge of marriage time to think about a prenuptial agreement if they haven’t already.

We are experienced in advising and preparing pre-and post-nuptial agreements, especially for those with international interests.

Why should you have a pre-nuptial and/or post-nuptial agreement?

England and Wales are known for being generous in their treatment of ‘financially poorer’ spouses during divorce proceedings. A PNA can help protect assets such as family businesses, trust interests, and personal property that may be at risk during divorce proceedings.

Many people believe that PNAs can only be used by those who have inherited dynastic wealth or are very wealthy. Our clients range from serial entrepreneurs looking to protect their investment in new businesses to wine or art connoisseurs who want to secure their long-standing collection. As a way to protect potential wealth, PNAs could also be used. PNAs can also be used to protect potential wealth, such as future business ideas or the growth of a startup company. These agreements can be used as a guideline for marriage. They set out clear principles regarding a couple’s finances, and how they should be managed during the marriage. This reduces the chances of them getting into a fight in the unfortunate event that they divorce.

The legal status of PNAs In England

The law in England regarding PNAs has changed significantly over the past decade. The Supreme Court’s decision in Radmacher (R v G) in 2010 changed the way the court views such agreements in England. It held that the Court should grant effect to a nuptial arrangement that each party has entered into with full understanding of its implications unless the circumstances prevailing it would not be fair to hold them to their agreement.

Therefore, even though PNAs aren’t legally binding for English courts due to their absence from statute, they can still be highly influential and upheld if certain criteria have been met.

Fairness

Remember that in England divorce proceedings are handled by the family court. The family court has discretionary authority to determine if the terms of the PNA are fair. Even if a PNA is in place, the court has the power to decide whether or not the terms of the divorce agreement should be upheld. If so, it can also determine how assets should be divided, and, if necessary, what financial provisions should be made for each spouse and their children.

The legal requirements

The Supreme Court recognized that parties may want to sign a PNA to protect assets (eg inheritances or investments) that they anticipate receiving during their marriage.

If the terms of a PNA do not seem unfair and each party can meet their financial needs (or provisions are made to allow them to), the parties should expect to adhere to the PNA. If the terms of the PNA are considered unfair, especially about meeting the financial needs of the financially less fortunate party, they will be less likely to be accepted.

What is fair PNA? When determining the fairness of an agreement, the court will consider the following:

  • Whether both parties gave financial disclosures and received independent legal advice before the agreement was signed
  • Whether any vitiating factors such as fraud, duress, or misrepresentation were present
  • Whether the terms of the agreement would place either party or their children in financial distress.

The approach of the English court to a PNA

The case law shows that PNAs can be used to protect the interests of couples, provided they meet all legal requirements.

Let’s look at Christine and Omer. Christine is the beneficiary of a discretionary trust. The trust holds shares in a family business that she currently works for and plans to continue running in the future. Christine is already receiving regular, substantial distributions from the trust and plans to continue this trend. Omer, on the other hand, has very few assets as he invested all his savings in his technology start-up.

Christine and Omer enter into a prenuptial agreement. This is intended primarily to protect Christine’s family trust assets and the future growth of Omer’s business.
If Christine and Omer divorce, the family court will likely uphold the terms and conditions of the PNA, provided that the circumstances surrounding its execution are fair and the financial needs and wishes of any children are met.

In the absence of a PNA, the English court’s approach

In the absence of a PNA, Christine and Omer would ordinarily expect to share equally in all the wealth generated/accumulated by each of them during their relationship. Omer’s business would see a rise in value, and Christine could receive distributions from Christine’s trust if they were used for the benefit of the family (e.g. to purchase a home or other assets), as well as a possible value of the shares of the family business if she can prove that it was her efforts during the marriage.

In determining fair financial outcomes, the court can exercise a lot of discretion based on all the facts of the case. The court will consider all assets worldwide, including trust interests, business interests, assets acquired before the marriage, and inheritances, to determine the proper financial division and level to be made. It can also modify trusts and treat them as a resource for one or both spouses.

Without a PNA, Christine and Omer face uncertain and significant financial exposures.

Comparing the approach of English courts to other jurisdictions

PNAs are treated differently by the English court than in other jurisdictions. In her article (1), Judith Poller pointed out that PNAs can be binding in the many US States and can be used to override state laws regarding financial provisions for divorce. In many civil law countries of continental Europe, marriage contracts are commonplace. This allows couples to decide before they get married whether to retain their property or increase its value.

We have seen many international couples question the validity of PNAs they have executed overseas. This is due to the English Court’s broad discretion to not follow the terms of an “unfair” PNA. Recent case law suggests that international couples may be held responsible for PNAs they have signed overseas, even if the terms are fair. Many complex factors must be considered. However, international couples who move to England and are concerned about whether their prenuptial agreement will be honored in the event of a divorce in this country should consult specialist family law surrey bc in England to determine if a postnuptial arrangement would help to further the goal of their original PNA to protect their separate assets.