News : PRE-NUPTIAL AGREEMENTS
Pre-nuptial agreements are often associated with the glitz and glamour of Hollywood. But what role do they play in the business world? Chris Gates, Partner at Wright and Lord Solicitors, dispels some of the myths.
Statistics released by the National Statistics Office show that over 148,000 divorces were granted in the UK in 2006. But how many of these couples had the foresight to draw up a pre-nuptial agreement before tying the knot?
More than you might think. According to a survey of law firms carried out by Grant Thornton and reported in the Daily Telegraph earlier this year, 67% reported taking on more pre-nuptial work over the past 12 months. Two-thirds of those who registered an increase saw it as a response to high-profile cases both in the worlds of entertainment and business.
So what are the motivations behind a businessperson putting in place a pre-nuptial agreement? Agreements are often put in place to protect a family business or inherited family wealth. Similarly if a business owner has developed a company independently or with other shareholders.
Often such agreements relate to second marriages where the parties already have children and wish to ensure their assets are preserved for them. Having planned to exit the business by passing it on to their offspring they don’t want to see this change.
At this point it’s worth explaining a little bit more about the pre-nuptial agreement. It is intended to set out how the parties will treat their assets once married and record what will happen to these assets if the marriage ends.
Pre-nuptial agreements are common place in other countries, including the USA and many European states. However, whilst they are becoming more common here, they are not binding upon the Courts and a judge in the UK always retains their discretion to distribute the parties’ assets to achieve what the law sees as a fair settlement regardless of what the parties had earlier agreed. This is because our law prohibits a husband or wife from removing or over-riding the Court’s jurisdiction.
Any agreement that aims to prevent the other seeking relief from the Court is unenforceable. The danger therefore is that the parties believe they have entered into a legally binding agreement only for one party upon divorce to apply to the Court for financial provision and the Court disregards the agreement and makes an award contrary to the agreement.
That said, whilst pre-nuptial agreements are not automatically binding upon the Court, provided the agreement is sensible and properly drafted and there are safeguards in place, it should be at least persuasive to the Court when it is asked to determine a future claim. There has been an increasing number of cases where the Courts have made orders having regards to what the parties had earlier agreed and in some cases upheld the agreements. Whilst the Court will always retain its jurisdiction, and this will continue until there is a monumental change in the law (which is not currently on the cards), a carefully thought out agreement may have its place.
If there is any chance of the agreement having any relevance then the following safeguards must be observed:-
1. Both parties must provide the other with full and frank disclosure of their financial position
2. Both parties must take independent legal advice from solicitors who are specialists in family law
3. The agreement must be signed 21 days or more in advance of the wedding
4. If the parties plan to have children the agreement must make careful and sensible provision for them
5. There should be provision made for periodic reviews of the terms of the agreement
Pre-nuptials will probably have more relevance in short, childless marriages. If children are born within the marriage or the union is a long one then the agreements relevance will be reduced.
So is it worth the effort and expense? There can be no guarantee the agreement will have any influence over a future divorce Court. But there is clear evidence that the Courts, whilst retaining their power to override an agreement, are giving more weight to them than they have ever previously done.
Also many respected legal commentators believe it is only a matter of time before we catch up with the rest of Europe and statute is created to recognise pre-nuptial agreements. More and more of our legislation is made in line with our European counterparts and it is only a matter of time before matrimonial and family law follows suit.
Before considering a pre-nuptial agreement it is important to receive informed advice from a solicitor who is experienced and specialises in family law. They can assess whether an agreement is appropriate and, if so, ensure that it is correctly drawn up to give it the best possibly chance of being relied upon or at the least be influential if it is required at a later date.
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