Simon Thomas
Posted on 7 Jan 2014

Prenuptial Agreements - Frequently Asked Questions

Increasing numbers of couples are choosing to prepare a prenuptial agreement before they get married. A prenuptial agreement is a formal agreement specifying how you will divide your assets if you decide to divorce in the future. As the average age of first time marriages continues to rise, it is more usual for couples to enter the marriage with acquired assets and individual wealth.

Are prenuptial agreements legally binding?

No. On divorce, financial applications can still be made to the court and the court’s power to resolve how assets should be distributed cannot be removed by a prenuptial agreement. However, the weight a court is now required to give to a prenuptial agreement is much more significant than it used to be.

When a financial application is made to the court on divorce, the law requires that the Judge must consider “all the circumstances of the case”, and a prenuptial agreement is a “relevant factor”.

When will the court uphold a prenuptial agreement?

To be upheld and therefore to be enforceable, the three stage test, established in the highly publicised case of Radmacher v Granatino [2010] must be met;

  • A prenuptial agreement must have been “freely entered into by each party” with no pressure from the other party. Both parties must be in a position to freely negotiate the terms. The potential vulnerability of each party must be considered carefully and the prenuptial agreement may not be enforceable if there is evidence of mistake, misrepresentation, duress or undue influence.
  • Both parties must have a “full appreciation” of the implications of entering into the prenuptial agreement. This means that both parties must have given comprehensive financial disclosure, have taken independent legal advice and have intended for the agreement to be enforceable.
  • Finally, it must be “fair” for the parties to be held to the agreement in the circumstances as they are at the time of divorce. The more that circumstances have changed since the agreement was entered into, the more likely it will be that upholding it will have unfair consequences. For example, whether the requirements of any children of the family have been met will be taken into account in deciding if it is fair to uphold a prenuptial agreement. Also relevant is whether either party will be left with insufficient funds for their needs to be met, as this could be unfair. However, the court will show respect for the autonomy of adults to enter into prenuptial agreements. The age and maturity of the parties at the point they entered into the agreement will be considered, as well as their prior experience of long-term relationships.

Is there any point in having a prenuptial agreement if it is not legally binding?

Yes. A contractually sound agreement based on full disclosure and legal advice being taken by both parties will be given significant weight as a “relevant factor” of the case. If you are entering into a prenuptial agreement you should always assume that it will pass the three-stage test and therefore expect to be held to its terms.

Does having a prenuptial agreement set a bad precedent for our marriage?

Some people may think that opting for a prenuptial agreement is equivalent to saying, from the outset, that the marriage is going to fail. However, research shows that disagreements about money are one of the most common causes of marriage breakdown. There is therefore a powerful argument for stating that couples who communicate effectively about financial issues at the outset of their relationship will have a stronger and healthier marriage going forward.

Can a prenuptial agreement ensure that my ex-partner gets nothing if we divorce?

No. The process surrounding the making of the agreement and the outcome it produces must always be fair and reasonable. It is very unlikely that an agreement will be upheld if it would leave one party destitute and the other in a strong financial position.

An agreement forfeiting a party’s right to make a financial application on divorce is also unlikely to be upheld.

If, however, both parties are starting the marriage from a position of reasonable financial independence, an agreement which seeks to give protection to each of them should be appropriate - bar any unforeseen events during the marriage that significantly change their circumstances.

Can a prenuptial agreement ensure that my ex-partner cannot get anything I have inherited during the marriage?

This will depend on whether the prenuptial agreement makes suitable and fair provision for your former partner’s needs. If it does, there is a good chance that a prohibition on any further sharing of assets could be upheld. Generally, however, it is unlikely that a prenuptial agreement that waives all inheritance rights will be seen by the court as fair, as it has the potential to leave parties in a precarious financial position.

When should we discuss the terms of our prenuptial agreement?

The inherent stress involved in planning a wedding means that you should try and negotiate the terms of any prenuptial agreement as far in advance as is practicable. There is no specific time limit and the time required will vary from couple to couple, depending on their circumstances. That said, the nearer to the wedding day the prenuptial agreement is completed, the greater the chance there will be for one party to seek to frustrate it on the grounds of duress or undue influence.

There needs to be sufficient time for full financial information to be shared, as this gives the context in which to negotiate terms effectively. The more comprehensive the information, the more likely the court will find that both parties were fully aware of the implications of the prenuptial agreement. There needs to be time for both parties to consider all of the information, agree terms and take independent legal advice. The more time spent on constructing and negotiating the agreement, the more likely it is that a court will decide that there was no pressure on either party and that the agreement was entered into freely, and therefore it is more likely to be upheld.

What is the benefit of also having a postnuptial agreement?

Entering into a postnuptial agreement once you are married is a way to effectively ‘update’ a prenuptial agreement. It is always sensible to review an agreement at regular intervals to provide for any subsequent change in circumstances.

The legal position of a postnuptial agreement is exactly the same as it is for a prenuptial agreement. Provided there is full financial information and independent legal advice is taken by the parties, there is a strong chance that the agreement will be upheld by the Court.

Please contact Simon Thomas for further information on prenuptial agreements. simon.thomas@michelmores.com or 01392 687630