Managing Partner Katie McCann explores the legal intricacies of pre-nuptial agreements in England and Wales in FTAdviser.
Katie’s article was published in FTAdviser, 18 January 2023, and can be read here.
Recently in the news was the story about the billionaire owner of the Chrysler Building, Michael Fuchs and his wife who have been embroiled in proceedings in the High Court in London following their separation. The couple had signed a pre-nuptial agreement in 2012 that was subsequently modified, but the case was still being bitterly fought in court over the interpretation of its terms.
How could this be if there was a pre-nuptial agreement in place?
Well, that is because pre-nuptial agreements in England and Wales are not technically legally binding, and are still only considered as one of the factors of the overall case. This is an unbelievable statement to be making in 2022. How can it still be the case that on the face of it the law does not openly allow two sensible consenting adults to arrange their own affairs after divorce?
However, the only saving grace we currently have is that if they are entered into properly, then they “should” carry significant weight.
Intended spouses from wealthy families often have pre-nuptial agreements. Often it is because there is the prospect of a significant inheritance, or a family company is considering restructuring due to inheritance tax advice and planning that older members of that company have received. Frequently it is because an intended spouse is an entrepreneur and wants to protect the growth and ultimate sale of their company that they have worked extremely hard to conceive and grow.
So, how does a high net worth couple obtain an agreement that gives them as much protection as possible? They get experienced lawyers!
The main guidance was established in a case called Radmacher and Granatino back in 2010. In all fairness the law has not really progressed much since then.
So what practical points can a couple consider when thinking about a pre nup?
The agreement must have been entered into freely. Put plainly, there can’t have been any undue pressure. The most common example of this is the case of the family with significant wealth “pushing” the agreement on the other, financially less well off half of the couple. Comments like “this wedding will not go ahead without this” are well advised to be kept under wraps.
The agreement should be signed off and consigned to a drawer, at least 28 days before the date of the wedding. The closer it gets to the date of the wedding, and the more difficult it is to pull out of the arrangements, the less weight will be added to an agreement if it is subsequently challenged. Imagine the embarrassment of having to cancel hundreds of guests and service providers at the last minute.
The couple must each understand what they are entering into. That is why it is always wise for both halves of the couple to have the same level of advice. It is very unfair for the richer half of the couple to have a very experienced city lawyer, whilst the other has a lawyer who rarely deals in these types of agreements. Therefore, it is sensible advice indeed for the more financially stable half of the couple to pay for the same level of advice for each party.
There should be full disclosure of each other’s assets. If a party is being asked to sign away their claim to a certain portion of their spouse’s wealth or future inheritance, then they absolutely should have the details of what that is. Many agreements fall at this hurdle as many find it difficult and uncomfortable to disclose everything at this stage. But disclose they must, if they want the agreement to stand the best chance of being upheld upon any divorce.
Lastly the agreement should be “fair”…and this is the major question. What does “fair” mean. It can mean different things to different people and certainly can mean something completely different in ten years time to what it does at the time of the wedding, due to the changing needs and circumstances of the family at the time of any divorce. The bare minimum any agreement should consider is the housing need of the financially less well off party and their income needs moving forward. The needs of any children are paramount and provision for them can’t be capped in one of these agreements.
Wealthy couples may also have international considerations to think about. They may have property and business assets in different jurisdictions. Thought needs to be given to whether “mirror” agreements may be needed in the differing countries. Advice should always be taken from lawyers in the additional countries. It is regularly the case that for international business clients that there may be a US and a UK lawyer working together.
Will these agreements ever actually become binding?
The Law Commission in 2014 Law Commission: Matrimonial Property, Needs and Agreements (Law Com No 343) (27 Feb 2014), proposed some changes, and that they should become binding if they met certain criteria, which echoed the above considerations from the Radmacher case for the most part.
However these recommendations have basically got nowhere. And yes we have had Brexit and the consequences of that, a pandemic, a number of different prime ministers and now the war in Ukraine; but the question of whether such agreements should be given statutory confirmation still unfortunately evades us and keeps family lawyers well and truly gazing into their crystal balls when trying to advise a wealthy couple.
Katie McCann is the founder and Managing Partner of Lowry Legal, a specialist family law firm. She has acted for a range of high-net-worth clients including public figures, celebrities and business owners.