One day in early January is always dubbed D-day – the day when feuding couples are most likely to start divorce proceedings. In light of this, the Privy Council of England’s December 2008 ruling that the terms of pre-nuptial agreements are neither binding nor enforceable is not only timely, but could have ramifications for many family offices.
However, the Privy Council also ruled that agreements entered into after a marriage can be binding and the fact that a post-nuptial agreement does not reflect what a court would have done on divorce is not enough for it to be set aside. The decision has wide-ranging significance for all married couples, those planning to marry and anyone who contemplating getting divorced in England and Wales.
Any couple that had entered into an agreement prior to their marriage should consider converting it into a post-nuptial agreement. Indeed, all married couples should now consider entering into post-nuptial agreements.
Because the American divorcees who litigated the issue lived on the Isle of Man, their final court of appeal was to the Privy Council, the highest appeal court for UK overseas territories and its decision is therefore binding on courts in England and Wales.
Baroness Hale, who delivered the Law Lords’ speech, said it was not for the Privy Council to reverse the long-standing rule that pre-nuptial agreements are contrary to public policy and “the difficult issue of the validity and effect of ante-nuptial agreements is more appropriate to legislative rather than judicial development”.
The Privy Council had in mind last June’s Law Commission announcement that it would consult on the status and enforceability of agreements made before or during the course of a marriage or civil partnership, and has left this issue for parliament.
Baroness Hale implied that the issue is too political for the courts to resolve given that the Law Commission had stated that the legal recognition of marital property agreements was of such great social importance that a thorough exploration of the arguments for and against reform was warranted.
Indeed, according to the Commission, the fact that pre-nuptial agreements were not at the time binding may in some cases have deterred people from marrying or entering into civil partnerships and this was itself undermining the institution of
So, English courts are still not obliged to uphold pre-nuptial agreements. However, the existence of a pre-nuptial agreement is still one of the factors to which judges may have regard and in some cases the courts will be guided by the terms of a pre-nuptial agreement when deciding on the division of the couple’s assets on divorce.
Until the issue is resolved by legislation, it remains the case that couples who have entered into a pre-nuptial agreement as to what should happen to their assets if they later divorce are left in limbo unsure whether or not the will be held to their agreement.
But this has not stopped the Privy Council from finding positively that agreements entered into following a marriage should be upheld.
Baroness Hale recognised that there is a big difference between an agreement reached during a marriage and one reached before. As a result, there is nothing to prevent a married couple from entering into contractual financial arrangements which govern their life together and whether or not their agreement is considered fair, it will be upheld provided there was no unfair exploitation of the weaker party.
So, whilst this was a missed opportunity for the Law Lords to recognise the right of couples to determine their own future pre-marriage and to provide guidance on the prerequisites necessary for pre-nuptial agreements to be binding, this judgment is far from bad news.
Although it may take some years before parliament considers pre-nuptial agreements, in the meantime at least couples who are already married can negotiate during the best of times what they consider would be fair in the event of a future divorce and avoid the cost and upset of litigation at the worst of times.