The importance of Pre-Nuptial Agreements
An increasing number of couples are now opting to enter into Pre-Nuptial Agreements ('PNA's or 'prenups') in order to try and control how their assets are divided up in the the event of divorce. Although PNAs cannot prevent a spouse from applying to the court for financial provisions from the other spouse upon divorce, the significance of a PNA is a relevant circumstance of the case to be given weight by the judge when considering what financial order to make. In many cases, when considering ‘all the circumstances of the case..’ pursuant to section 25 of the Matrimonial Causes Act 1973 ('the Act'), the existence of a PNA will have a substantial impact on the decision of the judge as to the division of assets.
The Supreme Court in Radmacher v Granatino  UKSC 42 held that the courts should give effect to a PNA 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 their agreement”.
A PNA is more likely to be considered ‘fair’ if the following can be demonstrated:-
- At the outset, both parties to the agreement were in receipt of independent legal advice;
- Both parties give full and frank financial disclosure in relation to their assets before the agreement;
- The agreement was entered into of the parties’ own free will, without evidence of undue influence, mistake, duress, misrepresentation or unconscionable conduct;
- There has been no significant change that would make the agreement inappropriate;
- The division of assets is not weighted too heavily in favour of one party, thus it is likely to be viewed objectively as fair and realistic; and
- The PNA is reviewed and amended periodically throughout the duration of the marriage, to take into account any significant change of circumstances, such as the birth of any children.
As long as the parties are able to demonstrate that the fairness criteria is met (as explained above) and the relevant factors have been considered, the court then has the discretion to apply weight to the agreement hold the parties to its terms.
Distinguishing between marital and non-marital assets
A common issue which will need to be determined, and which is of particular importance in high-net worth divorce, is which assets constitute marital assets and which assets may be excluded from the settlement, as non-matrimonial property.
The longer the length of the marriage, the harder it becomes to distinguish between marital and non-marital assets and thus, it is more likely that property will be deemed to be a matrimonial asset and if the PNA is not given effect, subject to any order of the court.
Special considerations in high-net worth divorces
A common concern in for spouses of high-net worth individuals is the possibility of the concealment of matrimonial assets. In such circumstances, it is possible for experts (e.g. forensic accountants) to be instructed to review the assets disclosed by the parties to ensure the disclosure is accurate.
Furthermore, the court may give particular regard to the contributions of each party throughout the duration of the marriage. Section 25 of the Act, which sets out statutory factors which the court is to have regard when making financial Orders, refers to contributions in broad terms, including ‘..any contribution by looking after the home or caring for the family’. However, inevitably in high-net worth divorces, much of the of the focus will be on financial contributions made, which, are most likely to come from one individual.
As above, the existence of a PNA does not prevent one party from applying to the Court for a financial Order upon the breakdown of the marriage. Therefore, the decision as to the division of assets between divorcing couples does not solely rest in the hands of the parties. However, importantly, whilst divorce is of course a sad event in people’s lives, entering into a PNA gives individuals the possibility of agreeing how their assets will be divided upon the breakdown of the marriage, ensuring the parties have greater control over the outcome.
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Articles are intended as an introduction to the topic and do not constitute legal advice.