Nuptial Agreements – what are they?

Nuptial Agreements set out which party in a relationship owns or will own certain assets on the future breakdown of that relationship.

The agreement usually defines “matrimonial property” and “non-matrimonial property” or “joint property” and “separate property”.

Matrimonial property usually includes assets acquired during the marriage and assets held in joint names, such as the matrimonial home or joint bank accounts.

Non-matrimonial or separate property usually includes assets owned before the marriage, inherited assets or gifts received by one party during the marriage.

Nuptial agreements also deal with income, such as treatment of earnings and interests under Trusts.

What is the difference between Pre and Post-Nuptial agreements?

A Pre-Nuptial Agreement is a legal agreement made between two individuals before their marriage has taken place.  Its purpose is to regulate how a couple wish their assets to be divided if they later separate or divorce. A Pre-Nuptial Agreement can also detail how the couple arrange their finances during the marriage.

A Post-Nuptial Agreement is a legal agreement made between individuals who are already married.  The agreement sets out how the couple wish their assets to be divided between them if they later separate or divorce.  Post-Nuptial Agreements can also detail how the couple arrange their finances during the marriage.

There is no difference in the legal status of pre-nuptial and post-nuptial agreements.

What are Nuptial Agreements for?

The purpose of Nuptial Agreements is:

• To provide clarification on how the parties will conduct their financial affairs during their marriage.  They also provide transparency at the start of the marriage which may allow the financially weaker party to feel more secure within the marriage;
• To provide certainty about how the parties wish their assets to be divided if they separate or divorce;
• To provide protection for inherited wealth or pre-marital property from a later financial claim.
• To limit scope for uncertainty and emotionally damaging and costly court proceedings in the event of a breakdown of the relationship.

Are Nuptial Agreements binding?

Nuptial Agreements are not binding.  The parties to a Nuptial Agreement cannot override a court’s overall discretion to redistribute their assets and income on an application to the court for financial remedy.

However, when considering such an application, the court must give appropriate weight to a Nuptial Agreement as a relevant circumstance of the case. The court may decide that a Nuptial Agreement should be given decisive weight.

The case of Radmacher v Granatino

In this 2010 case, the Supreme Court considered the weight that should be given to a Nuptial Agreement by a court in the exercise of its discretion under Section 25 of the Matrimonial Causes Act 1973.  The court found:

“The court should give effect to a Nuptial Agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement.”

What then is “fair”?

The Supreme Court emphasised that the following three principles have been established by the court:

• Need.  Fairness requires that provision is made for both parties’ housing and other financial needs.  When assessing such need the court must consider a wide range of factors, such as the parties’ ages and earning capacities as well as their standard of living during the marriage;
• Compensation.  Where these needs are met, the court should then consider whether one party’s financial situation is stronger as a result of how the parties divided their responsibilities during the marriage.  For example, one party may have given up their employment to care for children or to look after the household, leaving the other party free to pursue their career.  In such a case, the court could award an element of compensation to the weaker financial party.
• Sharing.  Each of the parties to a marriage should be entitled to an equal share of the assets of the marriage, unless there is some good reason why this should not be the case.  One of those reasons may be inherited or assets brought into the marriage by one of the parties.

The test of fairness:

The case of Radmacher v Granatino set out a three stage test for fairness:

1. The agreement must have been freely entered into by the parties.
2. The parties must have appreciated the implications of the agreement.
3. It must be fair to the other party to the agreement, in the circumstances prevailing.

Agreement must be freely entered into:
Each of the parties must enter into the agreement of their own free will and without pressure or undue influence from the other party.  The court is unlikely to uphold an agreement if there is evidence of fraud, duress, misrepresentation or unconscionable conduct, such as the exploitation of a dominant position to secure unfair advantage.

A party’s emotional state at the time of the making of the agreement is a relevant consideration, along with other factors such as the maturity and age of the parties and their previous experience of long term relationships.  In the case of a Pre-Nuptial Agreement, the court can also consider whether the marriage would have gone ahead without a Pre-Nuptial Agreement being put into place.

Parties must have a full appreciation of the implications of the Agreement
At the time the parties sign the Agreement, they must be in possession of information material to their decision to enter into the Agreement.  It is therefore desirable for there to be a mutual exchange of the parties’ financial positions.

The parties should each have independent legal advice, which is strong evidence of the parties understanding of the implications of the Agreement, and the parties should both intend that the Agreement is determinative of the financial consequences of their marriage ending.

It must be fair to hold the parties to their agreement in the circumstances prevailing
The Supreme Court guidance is as follows:

• The autonomy of adults should be respected.
• There is nothing inherently unfair about an agreement which ring-fences non-matrimonial property, such as inherited assets or assets owned by a party prior to the marriage.
• In general terms, the longer the marriage lasts, the less likely the court will consider it to be fair.  This is more likely to be an issue where a couple start their marriage with few assets but less so where, for example, the parties are bringing significant assets to a second marriage.
• It is not fair to allow a Pre-Nuptial Agreement to prejudice the reasonable requirements of a child of the family.
• It is not fair if the agreement would leave one party in a position of real need whilst the other party is comfortably off.
• If a party has an argument for compensation, for example by giving up a career to care for children, and the agreement does not adequately provide for this, the court is likely to find it to be unfair.
• If needs and compensation are adequately met, the agreement may effectively prohibit further sharing of the assets.

For more information on the issues raised in this article please contact Andrea Dyer.