A PNA is a contractual agreement entered into bythe parties to a marriage or civil partnership, which seeks to regulate the couples’ financial affairs during their relationship and in the event of that relationship breaking down.
The agreement will usually cover assets acquired both before and during the relationship. Couples enter into PNAs for a variety of reasons including:
- To ensure, if possible, that their respective separate assets, which are usually what they bring into a marriage, remain theirs should the relationship fail, along with any assets that are given or left to them by their respective families during the course of the relationship.
- To avoid or limit any dispute over the distribution of the family assets in the event of the relationship breaking down.
Is a PNA enforceable?
As the law presently stands in England and Wales, it is not possible to exclude the ultimate jurisdiction of the court upon a divorce to make whatever order it deems appropriate for the benefit of either party, although the case of Radmacher vs Granatino, which was heard by the Supreme Court in 2010, gives general guidance as to the extent to which a PNA should be taken into account.
This case confirms that, while these agreements may not be “fully binding”, the weight to be given to them on divorce may now be substantial.
The wording of the court in this respect was that:
“The court should give effect to a [pre-] nuptial agreement that is fully entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold a party to their agreement.”
This means it can be argued that a PNA will be enforced unless there are substantial reasons for not enforcing it. At the very least, it may be given substantial weight when the court considers how to divide the assets on a divorce.
Key points
• A pre-nuptual agreement is a contract entered into by the parties in a marriage or civil partnership.
• The court is required to take into account numerous factors and issues on divorce, including income and earning capacity.
• Pre-nuptial agreement, if entered into by the stronger economic party, may do a great deal of good.
The court is required to take into account numerous factors and issues on divorce. These include the parties’ income, earning capacity, property or other financial resources, as well as their financial needs, obligations and responsibilities of the standard of living enjoyed by both, their ages, the duration of the marriage, and their respective contributions, financial and otherwise.
Crucially, the court must also consider whether it is appropriate for the family assets to be divided in equal shares, and over time it has become clear that the family assets are of different types; namely, matrimonial assets, which will usually be the assets that have been built up during the course of the marriage; and non-matrimonial assets, which either pre-date the marriage or come from a source outside the marriage, either by way of gift or inheritance.
So it is important, in a divorce, to try to clarify which assets are matrimonial and which assets are not, and therefore likely to be divided in equal shares. This is where a pre-nuptial agreement can be of crucial importance.
Law Commission Report
In 2014, the Law Commission proposed that new legislation should be introduced to make “qualifying” PNAs fully, legally binding. To ensure that a PNA “qualified”, the parties would have to comply with certain criteria, which were:
- There must be no fraud, undue influence or misrepresentation.
- The agreement must be signed no less than 28 days before the wedding and contain a statement that the couple understand the agreement is a qualifying nuptial agreement that will partially be at the court’s discretion to make financial orders.
- Both parties must have had legal advice.
- Both parties must have made full disclosure of their financial positions.
These criteria would apply to both pre- and post-nuptial agreements, and provided they are complied with, and the needs of the couple and any children have been taken into account, the Law Commission has recommended that these qualifying agreements should be fully legally binding.
The matter remains with the Ministry of Justice for consideration as to whether legislation should be drawn up on the basis of these proposals. But given the present political situation, it will likely be some time before further steps will be taken to make PNAs binding.
To advise or not to advise
It is clear that both legal and financial advisers should now be giving serious consideration, when advising on the general preservation of a family’s assets, to whether a PNA should be entered into.
In short, a pre-nuptial agreement, if entered into by the stronger economic party can do little harm and may do a great deal of good. The same cannot, unfortunately, be said for the weaker party, whose ability to seek a share of certain assets on a divorce may be seriously compromised.
It should also be noted that the parties to a marriage tend to be reluctant to agree and sign a pre-nuptial agreement, given that they hope divorce will not be a possibility. So the impetus for these agreements may well come from worried parents or trustees, or possibly even worried IFAs.
David Ruck is a partner at Gordon Dadds
