Latest case law development on prenuptial agreements

Latest case law development on prenuptial agreements

WW v HW [2015] EWHC 1844 (Fam), the High Court gives significant weight to a prenuptial agreement even though it did not provide for the husband’s needs. The court took into account the husband’s financial conduct.

The approach of the Family Court to prenuptial agreements has changed significantly since the first reported case involving a prenuptial agreement of F v F (Ancillary Relief: Substantial Assets) [1995] 2 F.L.R. 45 in which Thorpe J. gave no weight to the parties’ agreement, stating that “in this jurisdiction they must be of very limited significance.”

In the years that followed the decision in F v F there was inconsistency and confusion over the courts’ approach to prenuptial agreements which alternated between support for greater recognition of properly concluded nuptial agreements and judicial anxiety about the public policy implications of relying too heavily on nuptial agreements.

In 2010, that position changed with the Supreme Court decision in Radmacher v Granatino [2010] UKSC 42 is now the “landmark” case providing guidance on how much weight is given to a nuptial agreement.

It remains the case that nuptial agreements are not binding on the court. Parties cannot, by agreement, oust the jurisdiction of the court to decide on the appropriate division of their finances but the Supreme Court held that:

The court should give effect to a nuptial agreement 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.

The Supreme Court stated that it can be inferred as a starting point that a party who enters into an agreement intends to give effect to it. The factors however that might detract from the weight to be given to an agreement are a material lack of disclosure; the presence of one of the standard vitiating factors, fraud, duress or misrepresentation; unconscionable conduct, such as undue pressure which falls short of duress; unworthy conduct, such as exploitation of a dominant position and the emotional state of the parties and unfair terms of the agreement.

In the later case of BN v MA [2013] EWHC 4250 (Fam) Mostyn J said that there is nothing inherently unfair about an agreement that seeks to ring fence non-matrimonial property, including assets owned before the marriage (pre-marital assets) and assets a party anticipates receiving from a third party during the marriage, through lifetime gift or inheritance.

In determining whether the pre-nuptial agreement is fair, where an agreement leaves one party in real need, it is likely to be considered unfair. What constitutes real need appears to have been set at a very low level, per Mostyn J. “need may be interpreted as being that minimum amount required to keep a spouse free from destitution.” It is not however fair to allow an agreement to prejudice the reasonable requirements of any child of the family.

In the recent decision of WW v HW [2015] EWHC 1844 (Fam), the court gave significant weight to a pre-nuptial agreement protecting the wife’s inherited wealth of some £27 million, where the husband had been fully legally advised and his disclosure in respect of the agreement contained grossly exaggerated income and assets.

 

Facts: The husband (H) claimed for financial provision against his wife (W) after the failure of their marriage, despite having signed a pre-nuptial agreement not to claim against her.

H, aged 57, and W, aged 46, separated after a marriage of about 11 years’ duration, having had two children together. W had inherited wealth of approximately £27 million before the marriage. The parties had entered into a prenuptial agreement after taking legal advice. The agreement provided that, if they divorced, neither would claim against the other (excluding any claim for a child). Any jointly owned real property would be held as tenants in common according to their respective contributions. H had grossly exaggerated his income and assets and wrongly claimed he was financially independent when the agreement was signed, probably to reassure W. H’s approach to an outstanding tax liability amounted to clear financial conduct.

The agreement was given significant weight. H was aware the agreement was a condition of W marrying him and individual autonomy was important. Any needs based award to H would not impact on the quality of life for W or the children, but would come from the non-matrimonial assets protected by the agreement, so would not be generously assessed. In assessing H’s income needs, H should not be over protected, as the risks to his future security arose from uncertainties created by his conduct.

The former matrimonial home was worth some £4.365 million. The parties’ contributions suggested that the respective proportions should be 86% to W and 14% to H.

The court held that the former matrimonial property was held in the above proportions, which meant that the value of the parties’ respective interests was £3,753,900 for W and £611,100 for H. A housing fund of £1.7 million was to be provided for H’s life. A step down when the younger child was aged 23 and H was aged 69 would return 45% of the fund to W. H was likely to have around £300,000 of his own and had a potential to earn £20,000 per year until retirement. The court found that his reasonable annual net income should be £50,000 per year with a step down to £35,000 at age 65 and W was consequently ordered to pay him a lump sum of £215,000 to meet his income needs.