Friday, 4 August 2017

Nuptial Agreements

By Adam Manning LL.B., LL.M., Senior Solicitor

Many of us have some familiarity with the idea of pre-nuptial agreements from American films and TV shows but for some years these have been becoming more important in our jurisdiction as well.

These are agreements that the two parties to a civil partnership or marriage enter into either before or after their wedding or the celebration of the civil partnership takes place. While we often hear of pre-nuptial agreements, agreements entered into after the wedding, called post-nuptial agreements, are becoming more common as well and may have some advantages over pre-nuptials.

Nuptial agreements centre on the property and assets that the parties own and what is to happen to these if regrettably the marriage or civil partnership comes to an end. The purpose of these agreements is normally where one of the parties has assets that are more substantial than the other and wants to protect them if there is a dissolution or divorce.

During a divorce or the dissolution of a civil partnership, the financial aspects of the situation are often resolved and the assets divided between the parties. A nuptial agreement will seek to restrict the ability of one or both of the parties to make claims on the assets of the other if such proceedings take place.  For example, let us say one of the parties has a substantial shareholding in a profitable business.  Prior to getting married, they could enter into a pre-nuptial agreement which would state that their partner agrees not to make any claim on that asset if their relationship should come to an end.

Another example would be where the agreement lists the assets of each of the parties in Schedules and states that if the relationship breaks down, both parties agree not to make any claim on the others’ assets as set out in the Schedules. Any additional property or assets the couple gain during the civil partnership or marriage could, in this example, be considered to be their joint assets and if the relationship comes to an end, the parties would be entitled to make claims with regard to them in the normal way.

Previously, the Courts were reluctant to give nuptial agreements recognition when considering the division of marital assets during a divorce.  Life has moved on though and in recent years they have become a more important factor in considering how the financial aspects of a divorce or dissolution are dealt with. Yet they are still some way from being comprehensively binding on the parties in all circumstances, as the Courts are likely to take account of other factors as well.

At present, an agreement like this will be taken seriously by a Court when considering how the assets of a civil partnership or marriage should be resolved, but they will not be the sole criteria at play.  Perhaps one of the most significant points that would lead to a Court not strictly following a nuptial agreement is the needs of the parties.  If one of the spouses or partners finds themselves in very difficult financial circumstances at the time of the breakdown of the relationship, the Court may move away from following the strict wording of a nuptial agreement to ensure they receive more of the marital assets.

A recent case reiterated this point and made it especially clear in cases where the family included young children. The Court stated that the terms of a nuptial agreement cannot be allowed to prejudice the reasonable requirements of the children of a family.

If a lot of time has passed since the agreement was entered into, the Court may conclude that the parties’ situation is now very different from the date of the agreement and so, while the agreement is of interest, other factors may be taken into account as well.

A Court may also look into the circumstances surrounding how the agreement was drawn up and executed by the partners or spouses. In particular if there is any suspicion that one of the parties was pressured into entering into the agreement, the Court may put the agreement to one side or lessen its influence on how the marital assets should be divided.

An inference of this sort of pressure can arise if the agreement was entered into shortly before the celebration of the civil partnership or wedding took place.  This is the reason why post-nuptial agreements may become more popular. In the build up to a wedding or the celebration of a civil partnership, the pre-nuptial agreement can become overlooked or rushed. Often the parties have more time to consider their situation once the big day has been and gone.  Post-nuptial agreements are not as likely to be drawn up in a hurry as pre-nuptial ones and so might be less likely to be challenged.

For a nuptial agreement to be as binding as possible, both parties must have independent legal advice before entering into it.  Clearly a solicitor ought not to advise both parties on the same agreement as there will be a conflict of interest.  Solicitors are often expected to complete a section at the end of the nuptial agreement to provide evidence that the parties had the benefit of legal advice before executing the document.

Nuptial agreements are increasingly important and people are becoming more familiar with the concept.  At present, if the parties have an agreement of this sort it is likely to play an important role in considering how the marital assets are divided but it may not be the only one and solicitors have to advise their clients of the uncertainty that persists as a result.
The Law Commission has recommended reforms that, if enacted, would help nuptial agreements become a more effective means for the parties to take control of their situation.  If a nuptial agreement fulfils certain criteria it can be considered to be binding on the parties. These are that

there was no undue influence on either party,
each party received independent legal advice,
full disclosure of all assets took place beforehand and
the agreement came into effect at least 28 days prior to the wedding or celebration of the civil partnership.

If the agreement satisfies all this, then according to the recommendations it should be binding on the parties. It remains to be seen if these proposals come into force; reforming divorce laws is often a controversial issue. Even so, greater certainty must be a welcome development for those who are considering entering into this type of agreement.

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