By Xinlei Zhang
January may be behind us, but despite its status as the most popular month for divorce, that certainly doesn’t stop us bringing you the latest developments in divorce law throughout the rest of the year.
This article is no exception. Today, we take a look at a common aspect of marriage, prenuptial agreements – commonly known as prenups. This is a topic we have looked at in some detail before. However, this time, we will focus specifically on whether prenuptial agreements can determine the outcome of financial provisions of divorce.
Prenuptial agreements have become more and more popular in recent times. But as you might know, the agreement made between the couple cannot supersede the jurisdiction of the Court to make financial orders under the Matrimonial Causes Act 1973.
So, if you sign a prenuptial agreement, does it prevent the Court from making financial orders which are inconsistent with the terms in your agreement? A recent family remedy case, HD v WB [2023] EWFC 2 considered this very question.
Keep reading to learn more.
Background
In this case, the Wife (W) and Husband (H) started their relationship in 1996 and started living together at around the same time. The relationship broke down in 1999. In 2001, H and W resumed living together and got engaged in 2003. In 2008, they moved to a property in England purchased by W, the purchase was funded by a £4m loan from W’s family trust. Besides this, there was substantial financial support from W’s parents during the relationship, which was derived from W’s family business.
On 26 July 2014, H and W got married and signed a pre-nuptial agreement on their wedding day. During the marriage, all assets were held in separate names, but almost all of the assets were held entirely under W’s sole name. This included the family home which was purchased with the sale proceeds of the property mentioned above, some investment properties the W bought and liquid cash and investments in the W’s sole name. The matrimonial pot in total exceeded £43m. The Wife was the main contributor financially, and most family expenses were paid by her. The parties separated in December 2020.
One of the issues, in this case, is about the Pre-Nuptial Agreement entered into by the parties on their wedding day and its relevance when it comes to the appropriate financial provisions. The main agreed terms are 1) W and H wanted to retain their separate property; 2) The parties’ pre-marital assets under their sole name and assets held in their respective ownership acquired during the marriage by way of gift or inheritance would remain in their beneficial ownership; 3) H had no beneficial interest in the matrimonial home, or any new property which was subsequently purchased with the proceeds thereof; but H shall receive a certain share of the net profit in the family home index linked in accordance with the Retail Prices Index. 4) H is entitled to a sum based on a sliding scale depending on the number of years of marriage.
Is the Pre-Nuptial Agreement valid?
H’s position is that the Pre-Nuptial Agreement should be disregarded as it was entered into in undue haste, with no legal advice and insufficient disclosure, and it was not able to reasonably meet his needs. W disagreed and maintained that a) H did know about the purpose of the Pre-Nuptial Agreement as he made amendments to W’s draft, and b) H was told he should consult legal advice and had the opportunity to obtain such advice.
The Court did not agree with H. The Court commented that ‘H signed up to provisions which he understood but did not think would ever bite. H, now appreciating the consequences and regretting having signed it, seeks to cast doubt on the Pre-Nuptial Agreement, and in so doing has misrepresented what took place.’ The Court was satisfied that H was fully engaged in the process, he knew what the purpose of the Pre-Nuptial Agreement was and he also knew that W’s assets came mostly from her family. The Court also decided that H did, in fact, have the opportunity to obtain legal advice but failed to do so. The Court concluded that the Pre-Nuptial Agreement was freely entered into by each party, with a full appreciation of its meaning and consequences.
Should the Pre-Nuptial Agreement determine the outcome?
During the financial proceedings, W offered H a sum of £362,500 which she believed represented what H was entitled to under the Pre-Nuptial Agreement, and she also offered a further £2m for a housing fund for H but on a trust basis (the housing monies will revert back to W eventually). However, H wanted £8m so that his housing and income needs could be met.
The Court decided that the Pre-Nuptial Agreement should not be fully upheld and that the outcome should not be determined solely by such an agreement. It is the Court’s view that the amount under the Pre-Nuptial Agreement would not reasonably meet his housing and income needs, especially when considering maintaining a similar lifestyle he enjoyed during the relationship for around 20 years. Therefore, the Court concluded that it is reasonable to depart from the Pre-Nuptial Agreement. In the end, the Court ordered a sum of around £1.9m (4% of the liquid wealth), plus a housing fund of no more than £2.5m which will eventually revert back to W on H’s death.
The Court commented that had the parties married without signing a Pre-Nuptial Agreement in the first place, H’s award would have been significantly higher.
Our thoughts
It is advisable to enter into a pre-nuptial agreement as it can be an effective way to protect assets that you may have had prior to the marriage, or to protect certain family assets. It can also give more certainty to financial arrangements in the event of divorce. However, it is important to know that pre-nuptial agreements cannot override the Court’s ability to decide how your finances should be divided in a divorce.
As we can see in this case, the needs of the parties can justify a departure from the agreed prenuptial agreement. The Court normally considers, at the time of divorce, whether the prenuptial agreement signed is still fair and can provide for both parties’ financial needs. Financial needs are unpredictable in advance, circumstances might change, what may have been fair at the time of the agreement might not be considered fair at the time of divorce if your or your spouse’s circumstances have changed significantly, i.e. reduced earning capacity.
When it comes to the appropriate award in financial proceedings, it is the Court’s obligation to look at all the circumstances of the case and make a decision that not only reflects a proper recognition of the consequences of the Pre-Nuptial Agreement but is also balanced against all the other s25 criteria, in this case, it included looking at the scale of wealth, the parties’ earning capacity and resources, the duration of the relationship and contribution to the welfare of the family, but especially the parties’ needs.
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