Are Nuptial Agreements Legally Binding?
What is a prenuptial agreement?
A prenuptial agreement, or “prenup”, is a document that a couple enter into before they get married or enter into a civil partnership. It sets out their intentions for how they would like their assets to be divided in the event that they divorce or end their civil partnership.
A postnuptial agreement acts in a very similar way to a prenup, except that the parties enter into the agreement after getting married or entering into a civil partnership. Legally, they are treated in the same way as prenups, and as such the below discussion can be applied equally to postnuptial agreements.
History to nuptial agreements
Much of the discussion surrounding the enforcement of prenups has developed through case law. During the 19th and early 20th centuries the courts established that prenups should not be made binding because they could encourage divorce. Although this may seem strange now, it was deemed appropriate for a time when divorce was uncommon.
When the Matrimonial Causes Act 1973 was introduced, it gave the courts discretion to make orders for financial provision following divorce, nullity or judicial separation. Section 25 of the MCA 1973 sets out factors that the court must take into account when deciding whether to exercise its discretion. As per s 25(1), the court must have consideration for ‘all the circumstances of the case’, for example, the financial position of the parties and the length of the marriage.
The MCA 1973 is supplemented by case law, which sets out that fairness should be the central consideration of the court when it exercises its discretion. Fairness is based on a three-strand test of needs, compensation and sharing. This means that the court must consider what is fair, taking into account that neither party should be left in a situation of need, that each party should be compensated if they have been placed in a financially weaker position as a result of their domestic arrangements, and that, in marriage, both parties should be able to share in the other’s assets. However, the question remained of whether prenuptial agreements would be taken into consideration.
Radmacher v Granatino [2010] UKSC 42
The leading case on prenups is Radmacher v Granatino, which concerned a French husband and a German wife who, at the insistence of the wife’s father, signed a prenuptial agreement in Germany before marrying in London in 1998. The couple made their home in London and had their children there. After a few years, the husband gave up his banking job to undertake a PhD at Oxford University. Their divorce was finalised in 2007. The husband sought financial remedy and at the first instance, Mrs Justice Baron took the prenup into account but held that it was not decisive because Mr Granatino had not had the benefit of legal advice at the time of signing and the circumstances had changed since the prenup was entered into, namely the parties had now had children.
The case ended up in the Supreme Court, where it was determined that the prenup should be adhered to, citing the autonomy of the parties as the driving factor behind the decision.
In a complete overhauling of the court’s approach to prenuptial agreements, the court decided that prenups:
- Did not, in fact, encourage divorce;
- Should be upheld if they were “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”; and
- Should be given decisive weight by the court out of respect for the autonomy of the contracting parties.
In other words, the court recognised that parties should be allowed to determine their own financial remedies with a prenuptial agreement and that, if the prenup meets the above criteria and is considered fair in line with the case law, it should be a key factor in the court’s decision of how to split the assets.
On the contrary, a prenup will not be upheld if, for example, it leaves one party in a “predicament of real need”. This is because the court considered that the contracting parties would never have intended for the effect of the prenup to be that one party is left in need while the other has a surplus of funds. Similarly, the court outlined that if one party is the ‘homemaker’ and the other the ‘breadwinner’, a prenup that allows the breadwinner to take everything they have earned and leave nothing to the homemaker would not be upheld.
As such, while prenuptial agreements are not automatically legally binding in England and Wales, a well-drafted prenup that meets the conditions of fairness is likely to be upheld by the court. It is therefore important that the parties seek legal advice ahead of entering into a prenuptial agreement to ensure that it can be relied on if required.
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