In October 2009, the Law Commission formally commenced its project on marital property agreements, to include consideration of pre-nuptial agreements.
The responses to its consultation paper, published in January 2011, indicated support for the introduction of a “qualifying nuptial agreement”. It is now grappling with the manner in which such agreements should enjoy recognition and enforceability by the courts.
The introduction of legally enforceable marital agreements is likely to be received with open arms by many. At the moment, and notwithstanding the decision in Radmacher (formerly Granatino) v Granatino [2010] 2 FLR 1900, there is no guarantee that any such agreement will be upheld by a divorce court. In fact, arguably, the court may only uphold such an agreement if it would anyway have made orders broadly in those terms. Given that one of the reasons for entering into such an agreement is to provide certainty in the event of relationship breakdown, the fact that it may end up being trampled on by a judge can come as an unwelcome, and sometimes very expensive, surprise.
The other side of the coin is that, by giving force to an agreement which may have been entered into many years previously, when circumstances were very different, and perhaps for different reasons, may end up giving rise to the most extreme sort of unfairness. Thus, so far, the courts have retained their wide and flexible jurisdiction to make financial provision which is tailor-made to the facts of each case. As part of that process, a pre-nup has been a “circumstance” or “conduct which it would be inequitable to disregard” – both statutory considerations to which a judge may give greater or lesser weight, depending on the circumstances of that particular case. They have also journeyed over the years from being completely beyond the pale as being contrary to public policy, to the point at which their statutory recognition is a very real possibility – and, to some – a social necessity.
So, what sort of issues is the Law Commission considering?
• What safeguards should be in place if the court’s jurisdiction is to be ousted by marital property agreements?
• Should it be possible to contract out of having to provide for the other partner’s needs?
• What are the modern public policy considerations of such a contract?
• If it is to be possible to contract out of provision for needs, what is the definition of “needs”?
• Should marital property agreements be restricted to the treatment of non-matrimonial property?
• If so, then what should be the definition of non-matrimonial property?
A paradigm case for a pre-nup is the classic – and somewhat clichéd – case of an older, very successful businessman marrying a younger, relatively impecunious wife. Naturally, the husband might want to consider how he might protect the business which he built up over the many years of hard work before he ever laid eyes on the wife. They might have a couple of children, before the marriage ends say seven or eight years later. Under the current law, the husband’s business is up for grabs. It must be valued, and its value taken into account in the overall settlement. If the non-business assets are not enough to meet the wife’s needs (and those of the children), then the business itself may be in jeopardy. He may be forced to borrow heavily against the business, reduce its cash reserves, restructure it, dilute his own interest in it, or even to sell it. Would a pre-nup have helped? Arguably not, if it left the wife and children financially vulnerable, or even if it catered for her needs but left a glaring imbalance between the husband and the wife. At the very least, there is a very real risk that the judge will override the pre-nup, and he would have every right to do so.
If the Law Commission recommends in favour of statutory reform, then enforceable pre-nups will be come a very real possibility, regardless of whether they are fair.
Usually, the Law Commission would expect to report within an approximate 3-year timescale, which in this instance would mean that we could expect a report this year, but its terms of reference, and therefore its timescale, have recently been increased to incorporate consideration of two further issues, namely the extent to which one partner should be expected to meet the needs of the other on divorce (or dissolution of civil partnership), to include consideration of the definition of “needs”; and the definition of non-matrimonial property and the manner in which it should be treated on divorce/dissolution (to include consideration of whether it should be possible to contract such property out of the equation).
As such, the time for the Law Commission’s report has likewise been extended – to autumn 2013 – and we must therefore wait until at least then to find out whether or not pre-nups are likely to complete their journey at last, from being unlawful to enforceable.
