Investments  

Why prenups are taken more seriously

  • Describe the significance of the Radmacher case on prenups
  • Explain the significance of prenups
  • Describe why more people are using them
CPD
Approx.30min

As a rule of thumb, divorce courts still typically prescribe a 50/50 split of assets generated during a marriage and can penetrate family trusts and inherited wealth too.

Now it is possible to ringfence, for example, a family business or a certain property or investment, even a prized pension pot, should both parties agree to that in advance and providing the tests in Radmacher are met. 

Radmacher says that the parties should be held to their bargain “unless in the circumstances prevailing it would not be fair to hold the parties to the agreement”. 

Such circumstances are likely to arise if the effect of the prenup is to leave one party in a “predicament of real need”.  This is on the basis that the parties cannot have intended that would be the outcome when the agreement was signed.

So what exactly is a “predicament of real need”?  Unsurprisingly, it is not defined because each case will differ and is unique in terms of the asset and income levels. 

The golden rule when negotiating any prenup is that it must not try to contract out of any obligation to provide financially for the children. 

So the spouse who wants to keep everything including any income separate – both pre and post the marriage –  will need careful advice to ensure that provision is made for the children, for example, by way of  support for general maintenance, the provision of school fees, child care costs, even if unquantified at the time the prenup is signed.   

The focus then moves to meeting the need for housing and income for the financially weaker spouse.  It can be pitched very low, in some instances just above the level of state benefits but the risk is that the court will feel that the spouse is dangerously close to falling into a “predicament of real need”, opening the way for more generous provision to be substituted. 

It is much better to protect the wealthier party against the risk that the court will “interfere” subsequently by adding in a more generous margin at the time the prenup is signed. 

The key to drafting a good prenuptial agreement is to find out what the parties want at the outset. Where is the momentum coming from to have one in the first place? Does it come from a parent/family trustees – as was the case in Radmacher – to protect family money, making it clear that without a signed prenup before the marriage the child/family member will not receive any further part of the family wealth? 

Or is it to protect a particular asset, such as a business built up by previous generations of the family?  Or has one or both of the parties been married before and does there remain an obligation to be fulfilled, such as the cost of paying for private and/or tertiary education for any children of a previous marriage/relationship?