Settlement Agreements and Pre-Nuptials

Many of us will have read in the newspapers about celebrities, usually from the United States, entering into pre-nuptial agreements governing the distribution of their assets on divorce ahead of their “Hello” covered weddings, but these agreements are not currently enforceable in the UK courts. This lack of enforceability has been partly grounded on what many would regard as the outmoded view of nineteenth century courts that such agreements should be void on public policy grounds on the basis that they might encourage separation or divorce.

In recent years the courts have been tending towards a more accepting view of what are commonly called “pre-nups”. This culminated in a 2010 case where it was stated that pre-nups should be given “decisive weight” in ancillary relief proceedings, unless the agreement was unfair.

This trend has now been taken a significant stage further by the publication at the end of February of a Law Commission report recommending that, subject to certain safeguards, pre-nups should become legally binding, and putting forward draft legislation to achieve this.

The Law Commission recommendations


The Law Commission recommends a new form of agreement which it calls a “Qualifying Nuptial Agreement” as it believes that this will provide certainty of outcome and a degree of autonomy for couples entering into marriage or a civil partnership. The new agreements will, if introduced, be subject to certain restrictions which the Law Commission sees as “offering the most workable balance between autonomy, certainty and protection.”

These restrictions are that an agreement governing how assets are to split on the breakdown of a relationship:

 

  • cannot contract out of responsibility to maintain children of the relationship; and

  • must provide for the each partner’s financial needs such that neither partner becomes dependent on the State.

If an agreement meets these criteria, and a number of other procedural requirements are complied with, then the court will be unable to make any financial order inconsistent with the agreement.

Procedural requirements


Amongst the procedural requirements are stipulations that the agreement:

 

  • must be in writing and signed by the parties in front of witnesses; and

  • must be made at least 28 days before the wedding or civil partnership.

In addition:

 

  • each party must disclose all material information about his or her financial situation; and

  • both parties must receive separate legal advice at the time the agreement is formed.

Possible uses of qualifying nuptial agreements


The requirement to ensure that each partner’s needs are catered for on the breakdown of the relationship will mean that these potential new agreements will be irrelevant where there are only sufficient assets to cater for the needs of the couple and their children, and indeed the Law Commission makes it clear that it does not expect the agreements to be used as a matter of routine.

There are a number of situations, however, where the agreement could be a very useful tool. For example, a wealthy couple may well have sufficient assets going into the marriage to cater for their and their future children’s needs and wish to ensure that there is certainty over what happens to surplus assets.

Another couple may wish to put in place an agreement to protect a specific asset, such as an expected inheritance or a family company shareholding, and the agreements might be of particular use to older couples, with independent incomes and children from previous relationships, who wish to ensure that property acquired before the marriage is preserved for their own children in the event of a relationship breakdown.

What happens next?


The Government’s response to the Law Commission’s recommendations is now awaited. We will keep you updated on developments but in the interim it is still possible to make a pre-nup knowing that, although it will not be binding on the court, case law has established that its provisions should be given “decisive weight”.

For more information on pre-nuptial agreements or the proposed qualifying nuptial agreements please contact us.

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