Nuptial agreements are not defined or
recognised in legislation. Their status has been determined by case law, most
significantly by the 2010 landmark case of Radmacher v Granatino, which
ruled that appropriate weight should be given to the terms of a nuptial
agreement, so long as it was freely entered into by both parties and upholding
the agreement would still be fair in the circumstances as they prevail at the
time of separation or divorce.
As the law currently stands in England and
Wales, nuptial agreements, whether entered into before or after marriage, are
not binding. However, the Law Commission’s comprehensive report, Matrimonial property, needs and agreements: the future of financial orders on divorce and dissolution, published in March last year, recommends that the
government consider making nuptial agreements (referred to by the Law
Commission as Qualifying Nuptial Arrangements or QNAs) legally binding. By
doing so, the Commission hopes to make the law clearer and more certain and
thus more accessible to all.
Meeting and defining ‘financial needs’
The Law Commission report is quick to point
out, however, that a Qualifying Nuptial Agreement has a number of prerequisites
and must meet the financial needs of both parties and of any children of the
The draft legislation contained within the
Nuptial Agreements Bill is very clear that an agreement which attempts to
contract out of providing for a party’s needs on the breakdown of the marriage
will fail as a Qualifying Nuptial Agreement and will be remitted to Court.
Most couples do not have enough capital to
make a nuptial agreement legally viable, as the assets within the ‘matrimonial
pot’ cannot meet the needs of both parties and of any children of the marriage.
As it currently stands, there is no statutory
definition of financial needs. The principle of needs has been developed
through case law, and its meaning is interpreted widely. Evidence suggests that
judicial discretion is exercised inconsistently across the country, with judges
in some areas interpreting needs at a more generous level than judges in
Financial needs may include, for example, the
Provision of a home - with the parent who primarily cares for the
children being securely housed in priority to the other parent
Income or living expenses
Costs of childcare
Costs of working and retraining
The Law Commission notes that in most
financial remedy cases, the limited resources available mean that for either
party to be maintained for the rest of their life by the other to the standard
of living which prevailed during the marriage is an unattainable aspiration.
Currently most nuptial agreements are entered
into by wealthy couples, representing approximately 2%–3% of all divorcing
The Law Commission
concludes that the underlying law relating to responsibilities to meet each
other’s ‘financial needs’ upon divorce or dissolution is not in need of
statutory reform. However, it does recommend that the meaning of ‘financial
needs’ is clarified in guidance to be published by the Family Justice Council.
Nuptial agreements are usually, but not
always, a way for a wealthier party to minimise the financial damage which they
may otherwise suffer in the event of a divorce. Nuptial agreements are popular
in the following situations:
Where money is passed down from parents to children. Often, parents
will insist on a nuptial agreement being in place prior to any money being
transferred, as was the case with Ms Radmacher’s family.
Where there are family trusts which may fall into the matrimonial pot
on the basis that they are nuptial settlements. A nuptial agreement can form an
integral part of any wealth-protection strategy and is a way of ring-fencing
the family trust and protecting it in the event of divorce.
Where parties are entering into second marriages. Nuptial agreements
are the obvious way of ensuring that property and other assets are preserved
for children from a previous marriage or relationship.
To protect gifts and inheritance bequeathed to one party.
A common thread which runs through all of the
above is the wish to ring-fence certain specified assets. Some nuptial
agreements address only those assets, failing fully to consider future financial
positions, which can result in a degree of uncertainty.
In analysing situations where nuptial
agreements have been popular, it could be argued that the great majority of
divorcing couples are being ignored in the proposed Bill. Their access to a
legally enforceable contract (that circumvents expensive, protracted and
acrimonious court proceedings) is being restricted because most individuals can
rarely afford to set up and support two comfortable households following a
In many parts of the world, a nuptial
agreement is an accepted part of the culture, with the obvious advantage of
removing the uncertainty, expense and delay associated with court litigation.
The main assets likely to be protected by a nuptial agreement are
non-matrimonial property such as inherited wealth, assets acquired prior to the
marriage and gifts.
In reality, a nuptial agreement is only
likely to be enforced if the parties’ joint income and assets well exceed their
respective financial needs. The view of
the Law Commission is that this situation arises in only 2-5% of all divorces.
In 2013, there were 115,122 Decrees Absolute
pronounced. Between January and June of 2014, there were 56,923 Decrees
Absolute. The figures for the second half of 2014 are not yet confirmed. It is
likely that the total, on the basis of an estimate of 56,923 x 2, will be very
similar to the 2013 figure.
Between 2% and 5% of the 2013 figure
translates into 2,302 to 5,756 cases. We are therefore talking of nuptial
agreements being of relevance to no more than 6,000 couples a year, compared
with the 110,000 or so couples per year who divorce. So are the remaining
100,000 plus divorcing couples being denied access to the full range of legal
contracts and remedies?
For the vast majority of couples seeking a
divorce or dissolution, a Qualifying Nuptial Agreement will have no relevance.
Most couples are unable to meet the financial needs of both parties and of any
children of the marriage (and of course one cannot contract out of this
responsibility). In these circumstances a Qualifying Nuptial Agreement will
never bite. For the majority of clients seeking a divorce or dissolution, the
uncertainty surrounding potential court intervention will therefore remain.
Should the Bill have made nuptial agreements
available to all, regardless of wealth?
At first sight, this argument appears
attractive, as currently the Bill’s terms mean that only the very wealthy will
achieve a reasonable level of financial certainty upon divorce. However, it
seems nonsensical and, to use the Radmacher terminology ‘unfair’, to bind a
couple in a situation where there are insufficient assets comfortably to
support two separate households. Furthermore, financial and personal
circumstances can change beyond recognition during a marriage. Mr Granatino
began his married life as a wealthy banker and ended it as a research student.
Within a perhaps typical scenario of a 15
year marriage, two dependent children, husband working full time with a
sizeable salary, wife working part time, possibly having made some career
sacrifices to care for the family, comfortable family home with modest
mortgage, reasonable pension provision for both and savings/investments of
£50,000 – there would be insufficient wealth easily to enable both the husband
and the wife to support two separate houses. Would it really be fair for the
husband to ring-fence, via a Qualifying Nuptial Agreement, £20,000 that he
received by inheritance some 20 years previously?
Access to justice is not in fact being
restricted in this scenario.
Negotiation, mediation, arbitration and, if necessary, litigation remain
available to this divorcing couple to address and resolve the financial
dispute. Every asset goes into the ‘matrimonial pot’ and the s 25 MCA factors
can be applied with first consideration being given to the welfare of any
child. Justice prevails.
It remains to be seen
whether the government (and it will be the next government) does accept the Law
Commission's draft Bill but, for the time being, the recommendations are important.
Many practitioners are already taking into account the requirements of a
Qualifying Nuptial Agreement. Adhering to these requirements and to the
Radmacherv Granatino guidance, even at this stage, is therefore important to
maximise the chances of a nuptial agreement being upheld by the court.