When a marriage breaks down, the divorce court has a very broad discretion and wide-ranging powers to redistribute the couple’s income and assets, so as to achieve a fair financial outcome between the couple. The court’s discretionary powers extend to all types of assets including property, savings and investments, equities, shares and other business assets and pensions.
In deciding whether to exercise its discretionary powers and if so how, the court must consider all the circumstances of the case, giving first consideration to the welfare (i.e. financial needs) of any children of the family. The court is then required to consider a checklist of specific factors set out in the relevant statute (Section 25 of the Matrimonial Causes Act 1973,) which include the couple’s financial resources, which are then balanced against their respective financial needs (for adequate financial support and housing, primarily.) The court also has to take account of the standard of living enjoyed by the couple during the marriage, any physical or mental disability of either spouse, the spouses’ ages, the length of the marriage and their respective contributions to the welfare of the family. It is only in very unusual situations that the court takes conduct (either exceptionally bad behaviour, or “stellar” contributions) by either spouse into account.
The wide-ranging nature of the divorce court’s discretion makes it difficult to predict the outcome of the financial aspects of divorce proceedings in any individual case. However, at least in the case of longer marriages in the bigger money cases, so long as both parties’ income and housing needs are taken care of, it is usual to divide the couple’s assets equally, even when no direct financial contribution has been made by one of the spouses. This is because the law does not allow any discrimination between the different roles of the spouses as the respective contributions of the bread winning and the homemaking/caring spouse are regarded as of equal importance to the welfare of the family.
How prenuptial agreements can be used to avoid sharing claims and to create more certain outcomes on divorce:
Prenuptial (“prenups”) and postnuptial (“postnups”) agreements are not yet legally binding in England and Wales but will now be taken into account by the court as one of “the circumstances” of the case. They may now carry decisive weight in limiting a spouse’s claim to share the assets and resources of the other spouse. However, they cannot be used to prevent a needs-type claim, or possibly also to prevent the economically weaker spouse being compensated for financial disadvantage generated by the way in which the couple organised their marriage.
They are particularly appropriate in situations such as:
- where one or both spouses have substantial pre-acquired assets;
- where one or both of the spouses wish to “ring fence” inheritances that they received prior to the marriage, or expect to receive during the marriage;
- where there are substantial trust assets, especially those derived from family gifts or inheritances;
- in the case of second marriages, between couples who want to preserve their pre-acquired wealth to benefit their children by their former marriage/s.
Over the last 15 years or so, culminating in the very important decision of the Supreme Court in Radmacher v. Granatino, in 2010, the English courts have moved from a position of distrust if not overt hostility towards prenuptial agreements to one of support for the parties’ autonomy and wish to make their own agreements, in order to avoid the emotional distress, uncertainty and substantial legal costs associated with financial disputes within divorce proceedings.
The main point of principle, established by the Supreme Court decision in Radmacher, is that:
“the court should give effect to a nuptial agreement that is freely entered into by each party with full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.”
In other words, there is now effectively a rebuttable presumption that a prenup or a postnup (they operate in exactly same way) freely entered into by both parties, understanding the effect of what they were agreeing to, will be upheld unless it would be unfair to hold them to it, at the time of any breakdown of their marriage.
This landmark decision takes the current law as far as it can go in favour of upholding prenups in England and Wales (in the absence of legislation which has been recommended by the Law Commission and may come in the future), so long as they are fair.
Why have a prenuptial agreement?
No one gets married thinking that their marriage will break down but due to the high incidence of divorce in our society most people (particularly those who have been married before) sensibly recognise that divorce is a possibility. Sadly, about 40% of marriages end in divorce and the incidence of divorce is even higher for second or third marriages.
A properly drawn up prenuptial agreement will not be a cheap option and the additional expense, on top of all the wedding costs, may be very unwelcome. However, the legal costs of a prenuptial agreement are likely to be much less than the costs that would be incurred by having an acrimonious divorce, involving a protracted dispute about financial matters.
In essence, the purpose of having a prenuptial agreement, rather like an insurance policy, is to spend a not insignificant amount of money upfront before the wedding to avoid having to pay out a lot more in the event of a divorce.
Maeve O’Higgins family law partner, Burlingtons LLP, solicitors in London, Contact telephone number (020) 7529 5420. For more information, visit Burlingtons website on prenups, postnups and “no”nups: www.theprenups.co.uk