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(Privy Council; Lord Scott of Foscote, Lord Walker of Gestingthorpe, Baroness Hale of Richmond, Sir Henry Brooke, Sir Jonathan Parker; 17 December 2008)
An American couple entered into a pre-nuptial agreement on the day of their marriage; each was separately advised by lawyers and each disclosed their resources. The husband was then worth about £7 million as a result of business and property development. The agreement provided for each spouse to retain the property each had brought into the marriage, and to share any jointly owned property; in addition the husband would pay the wife a lump sum dependent on the number of years the marriage had lasted. A year later the couple moved to the Isle of Man, where they made a home and raised their five children. When the couple had been married for about 8 years a further, post-nuptial, agreement confirmed the pre-nuptial agreement, but made some substantial variations. The husband and wife were represented separately during the negotiations, which lasted some 14 months. Under the agreement the wife received a lump sum to invest, and a monthly allowance for herself and her grandmother, the costs of the wife obtaining another degree, and the husband's half-share in a property; the agreement specified that on divorce the wife was to receive £1 million, adjusted for inflation. The financial needs of the children were to be dealt with separately. On divorce, the wife sought financial relief, and argued that the court should disregard both the pre and post-nuptial agreements. The judge concluded that the agreement should be taken into account, but that it did not provide enough money to enable the wife to buy the children a house of a comparable size, and awarded the wife £1.25 million, rejecting the husband's argument that any such housing provision should be by way of trust until the children no longer needed to be accommodated. The husband eventually appealed to the Privy Council on the basis that any capital funding for children should be provided by way of trust, although he now conceded that the trust should last until the youngest child was 23, to avoid placing any pressure on the children to remain in education.
Under a long-standing rule, pre-nuptial agreements were not valid or binding in the contractual sense; this difficult issue was more appropriate to legislative reform rather than judicial development. However, post-nuptial agreements were very different; there was an enormous difference between an agreement providing for a present state of affairs that had developed between a married couple and an agreement made before the parties had committed to the rights and responsibilities of the married state, purporting to govern what might happen in an uncertain and unhoped for future. Post nuptial settlements could be varied by the court, whereas pre-nuptial settlements might not be covered by the variation power in Matrimonial Causes Act 1973, s 35. There was nothing to prevent a married couple from entering into a separation agreement, which would be governed by ss 34 to 36 of the 1973 Act, and a separation agreement could be made at any time; it did not have to be made after or on the point of separation. It was no longer the case that agreements providing for future separation were contrary to public policy. The couple's post-nuptial agreement had therefore been a valid and enforceable agreement, although subject to the court's right to vary. When considering what weight to give such an agreement in an ancillary relief context, the court was looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change that would make those arrangements manifestly unjust, or a failure to make proper provision for the children of the family. Even if there were no change of circumstance, it would be contrary to public policy to place upon the state an obligation that ought properly to be shouldered within the family. In ancillary relief the circumstances in which the agreement had been made might also be relevant; family relationships were not like straightforward commercial relationships, and inequality of bargaining power was possible in a number of different contexts. In this case, there had been no change of circumstance to justify a variation of the financial arrangements for the wife under the agreement. As the agreement had not purported to contain financial arrangements for the children the judge had been right to make provision for them, however, the housing provision for the children should have been on the basis of a trust, not as a simple lump sum to the wife. The appeal would be allowed, and an appropriate trust deed should be drafted.
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