Prenups – the myths, the reality, and how to have that conversation

Prenuptial agreements have a long history, and are uncontroversial in many areas – in particular, continental Europe, the United States, and South Africa. They are depicted widely in popular culture – both historic (Jan Josef Horemans the Younger’s 1768 painting “The Marriage Contract”, pictured above) and contemporary (the artist formerly known as Kanye West’s 2005 hit, Gold Digger – “Holla we want prenup! We want prenup!).

Despite this cultural familiarity and wide usage overseas, one of the great (many) myths of English family law is that prenuptial agreements are not worth entering into because they are not enforceable in England.

In fact, following the landmark case of Radmacher –v- Granatino in 2010, nuptial agreements (i.e. both prenuptial agreements and postnuptial agreements) have regularly been upheld in English Courts. Postnuptial agreements lie outside the scope of this article, but the law is broadly speaking very similar.

In Radmacher –v- Granatino, the Supreme Court held as follows:

“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.”

This critical paragraph can be broken down into a three-step test:

1. Was the agreement freely entered into?
2. Did the parties have a full appreciation of the implications of the agreement?
3. Is it fair to hold the parties to their agreement, in the circumstances prevailing?

If a prenuptial agreement passes all of the three steps, then the English Court is likely to upheld it upon divorce. However, failure of any of the steps is unlikely to be completely fatal – instead, the prenuptial agreement is likely to have a “depressing effect” on the financially weaker spouse’s ultimate award upon divorce. If we consider this three stage test further:

Step 1: was the agreement freely entered into?

This first step ensures that any prenuptial agreements involving fraud, misrepresentation, or duress are unlikely to be upheld. The questions of fraud, misrepresentation and duress are often factual issues, and the court will need to assess the particular characteristics of the couple at the time the prenuptial agreement was being negotiated and signed. For example, the court is likely to consider factors such as an individual’s age, maturity, familiarity / sophistication with financial and legal agreements, and other individual circumstances or personal characteristics.

The timing and nature of the negotiations are also important. As a general rule, the earlier that negotiations can begin, the better, as then there is no particular time pressure on the negotiations. The court is unlikely to uphold in its entirety a prenuptial agreement placed for the first time before the expectant bride or groom on the morning of their wedding. To ensure that timing is not an issue, best practice is that prenuptial agreements should be signed by the parties no later than 28 days before their wedding. This usually means that negotiations should begin at least three or four months prior to the wedding date.

Step 2: Did the parties have a full appreciation of the implications of the agreement?

This second step is focused on two factors: (1) did the spouses have access to independent specialist advice, and (2) was there the opportunity for both parties to review the other’s financial disclosure?

Plainly, in order to have a full appreciation of the implications of a prenuptial agreement, you need to have that agreement explained to you by a specialist English family lawyer. A certificate signed by each party’s lawyer is generally attached to the final agreement, to confirm this requirement.

The question of financial disclosure is less clear-cut. The Supreme Court held in Radmacher –v- Granatino that “what is important is that each party should have all the information that is material to his or her decision”. However, in the 2011 case of Z v Z, the court upheld a nuptial agreement entered into without any formal disclosure on the basis that the spouses both knew the financial position of the other. This decision sits somewhat uneasily with the 2012 case of Kremen v Agrest, in which the court held that a party would not usually be taken to have freely entered into a marital agreement with full appreciation of its implications, where there had been no independent legal advice and no full disclosure. Subsequent case law highlights the importance of providing proper financial disclosure – for example, the 2017 case of Briers v Briers in which the court held that the wife could not have obtained proper legal advice on the agreement without “the full disclosure that was missing”.

In practical terms, the financial disclosure required will depend on the particular assets and income that are held (or anticipated) at the time of the prenuptial agreement. Factors that complicate matters, such as assets situated outside of the jurisdiction, interests in trusts, interests in unlisted companies, a significant but unquantified anticipated inheritance, or complex remuneration structures, are likely to lead to a higher level of disclosure. More straightforward assets – UK property, UK bank accounts, shareholdings in listed companies etc – will take less explaining. A balance will need to be struck that provides sufficient disclosure for the agreement to be upheld by the Court, but does not unduly delay negotiations or antagonise the parties (who, after all, are supposed to be enjoying somewhat of a post-engagement honeymoon period).

Step 3: Is it fair to hold the parties to their agreement, in the circumstances prevailing?

This step is often the key area of debate, as the court’s decision goes right to the heart of the substance of the agreement. Ultimately, the court asks, is the prenuptial agreement fair?

Fairness is a long-established concept in English family law, best set out in the landmark case of White v White [2000] and reiterated in the twin cases of Miller v Miller and McFarlane v McFarlane [2006]. In relation to prenuptial agreements, there are a number of important pieces of guidance contained in Radmacher, which are summarised below:

1. The court should accord respect to the decision of a married couple as to the manner in which their financial affairs should be regulated. It would be paternalistic and patronising to override their agreement simply on the basis that the court knows best (paragraph 78);
2. A nuptial agreement will be held to be unfair if it prejudices the reasonable requirements of any children of the family (paragraph 77);
3. There is nothing inherently unfair in ring-fencing so called “non-matrimonial property” – broadly speaking, these are assets acquired prior to the marriage, or inherited by one spouse during the marriage (paragraph 79); and
4. The longer the marriage, the more likely that unknown and unforeseen circumstances make it unfair to hold the parties to their agreement – on the basis that “over the potential many decades of a marriage it is impossible to cater for the myriad different circumstances which may await its parties” (paragraph 80).

Accordingly, prenuptial agreements must be negotiated and drafted in a way that ensures that the reasonable requirements of any children and the financial needs of both spouses are met. If one spouse gives up their career to become the primary carer of children, then a prenuptial agreement should reflect a degree of compensation to make up for a lost earning capacity. There should be reviews of the terms of the prenuptial agreement, to ensure that it continues to reflect the prevailing circumstances (for instance, reviews upon the birth of a child, the diagnosis of a serious health issue, the crystallisation of an inheritance, the sale of a business, and / or at five or ten year intervals). Ultimately, there is a sliding scale of generosity and the “meaner” the prenuptial agreement, the less likely the court will uphold it as fair.

However, a crucial point to remember is that even where the court does not uphold a prenuptial agreement in its entirety (because, for instance, the disclosure was inadequate, or where the terms were held to be unfair), the mere existence of a prenuptial agreement is likely to have a depressing effect on the award given to the financially weaker party.

How to have “that” conversation

Anyone who has ever planned a wedding knows that there is a great deal of organisation involved. In that process, even the most optimistic family lawyer must acknowledge that conversations with wine merchants, caterers, DJs, magicians, bakers etc are likely to be (immeasurably) more enjoyable than a meeting in a solicitor’s office. Surely, one of the reasons for the enduring power of the myth of the unenforceable English prenuptial agreement is that it allows couples to get married without dealing with the issue.

However, the process of negotiating a prenuptial agreement compels couples to engage in three extremely important exercises:

1. Being transparent with your assets, liabilities, and income – and receiving transparency as to your fiancé’s;
2. Communicating financial expectations and plans: is there a common intention to remain in the UK? Where would any children be educated? What are the expectations for housing and income needs? Will each party remain employed or will one party become a primary carer?; and
3. Educating the spouses on the (weighty) legal consequences of marriage and divorce.

Where there is a reluctance to raise the issue of prenuptial agreement, the following tips can usually help to ease the conversation:

• Explain that there are a number of benefits that are baked into the prenuptial process – transparency on finances, communication around significant life decisions, and gaining an understanding of English family law;
• Frame the request for a prenuptial agreement as a mandatory requirement from a family trust or patriarch / matriarch. Signing the agreement will signify to family members that this is a marriage for love, not money; and
• Compare the prenuptial agreement to an insurance policy – you fully expect the prenuptial agreement to sit in a lawyer’s office and gather dust, but it is there to help should the worst happen.

Ultimately, the vast majority of prenuptial agreements are drafted, negotiated, and signed in a professional and amicable manner because both signatories are committed to each other and believe that the agreement will never be needed.

In years to come, for some of those couples, the dust will in fact need to be blown off the agreement. In that eventuality, divorcing spouses are often glad that, amidst the sadness and practical complexities of divorce, their future financial arrangements have already been agreed between themselves – at a time when they loved one another.

Please contact Luke Scarratt for advice and representation in relation to English family law (finances and children).