Sandra Davis, head of family, Mishcon de Reya
Opinion: Prenups will always play second fiddle to court rulings
24 January 2011
17 January 2011
13 July 2009
6 July 2009
23 May 2011
Publication of the Law Commission’s consultation on prenuptial agreements this month raises once again the role these contracts ought to play in English matrimonial finance law.
Last October in Radmacher v Granatino the Supreme Court went about as far as it could to recognise, in appropriate cases, the decisive effect a prenup could have in the redistribution of assets on divorce. Without legislative change, however, the justices accepted that whether or not a prenup was binding on a couple ultimately remained a decision for the court.
The Law Commission waited for the Supreme Court’s decision before publishing its consultation. While it is not making any recommendations of its own at this stage, the executive summary gives a pretty clear steer as to the way the debate will pan out. According to the commission, “cast iron” agreements that unalterably settle the division of assets on divorce are not “appropriate in English law” and “almost certainly unacceptable as a matter of public policy”.
This debate has arisen because of the development of matrimonial finance law in the past decade, which saw the introduction of ’fairness’ as the overriding consideration for the courts when redistributing assets on divorce. Until 2000 the courts had constrained (usually) the wife’s claims by reference to her ’reasonable requirements’. No matter how much wealth had been accumulated in the marriage, she was only entitled to a sum that met her needs, with any remainder retained by her husband.
The decision of the House of Lords in White v White (2000) removed the constraint of reasonable requirements and paved the way for development of the principle of equal sharing of matrimonial assets by the Law Lords in their later decision in Miller v Miller (2006). This case made London the divorce capital of the world for wives and, as awards became larger, calls for the recognition and enforcement of prenups became louder.
With the default position being a fair division of assets, the question the Law Commission now has to grapple with is whether the existence of a prenup is capable of making fair an agreement that the court would otherwise consider unfair.
Arguments about the validity of prenups are binary in nature. The ’yes’ camp contends that decisions reached by a couple about what ought to happen in the event of a later divorce should be respected. The opposing view is that the future is unknowable: what may, years before the event, appear to be fair may, as a consequence of life’s exigencies, no longer be so.
In squaring the circle the Law Commission appears inclined towards a third way - a kind of ’prenup lite’, whereby preacquired, inherited and gifted assets can be excluded from division on divorce, with only assets acquired during the marriage regarded as marital property.
On this model the court would still be the final arbiter, maintaining its statutory obligation to decide whether the exclusion of assets would lead to a fair outcome on divorce and, if not, whether it should ignore the terms of the prenup in part or in whole. This is not so far removed from the current position in law and, in many respects, sidesteps the argument.
Most couples who marry or enter into civil partnerships do so in the hope that their union will last a lifetime. Sadly, the statistics are not good. Forty three per cent of first marriages end in divorce, on average after 11 years. The divorce rate following remarriage is even higher.
For many couples the debate on the legal status of prenups is a sterile one. Their assets and income will be divided purely on the basis of their and their children’s competing needs for housing and to make ends meet. It remains to be seen whether the rest will appreciate a recommendation that respects their agreement, but only to the extent that it accords with what a judge later considers to be fair.