Pre-nuptial agreements

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Advising your clients about pre-nups is essential.

Forget the McCartneys. The most important recent ancillary relief decision is Crossley v Crossley[2007] EWCA Civ 1491, [2007] All ER(D) 396 (Dec), not so much for showing how courts will deal with cases on similar facts, but for implicitly flagging up the potential for negligence claims, where clients are not advised about pre-nuptial agreements (pre-nups).

Why a pre-nup? Reasons include:

Ensuring, if at all possible, that the parties’ assets remain theirs, if the marriage fails;
Providing that their assets, or at least a large portion of them, go to their children, in the event of their death; and
Arranging matters which may become problems after the marriage.

Pre-nups can, for example, cover the division of all property, determine its ownership, arrange for a person to occupy a home and on what basis, deal with the responsibility for debts and the payment of outgoings. They are likely to be suitable for, in particular, the client who has already been divorced and for widows and widowers.

The Matrimonial Causes Act 1973 (MCA), while prescribing a wide discretion for the courts, specifically mentions in section 25 every conceivably relevant factor, except pre-nups. Legislators then clearly had no contemplation, or indeed knowledge of pre-nups, at least on this side of the Atlantic.

Yet agreements between spouses soon began to be enforced and encouraged by the courts. In Edgar v Edgar [1980] 3 All ER 887, Lord Justice Ormrod, upholding a separation agreement, said: ‘To decide what weight should be given in order to reach a just result, to a prior agreement not to claim a lump sum, regard must be had to the conduct of both parties, leading up to the prior agreement, and to their subsequent conduct, in consequence of it. Important too is the general proposition that, formal agreements, properly and fairly arrived at with competent legal advice, should not be displaced unless there are good and substantial grounds for concluding that any injustice will be done by holding the parties to the terms of their agreement.’

In NA v MA [2006] EWHC 2900 (Fam), [2007] All ER(D) 41 (Jan), Mrs Justice Baron said: ‘It is an accepted fact that an agreement entered into between husband and wife does not oust the jurisdiction of this court. For many years, agreements between spouses were considered void for public policy reasons but this is no longer the case. In fact, over the years, pre nuptial "contracts" have become increasingly commonplace and are, I accept, much more likely to be accepted by these courts as governing what should occur between the parties when the prospective marriage comes to an end.’

Here, a post-nuptial agreement was not upheld because of the husband’s undue influence.

Courts have been looking more and more favourably at pre-nups. Their authority to do so is found in section 25 MCA, which requires the court, in exercising its discretion, to consider all the circumstances of the case and/or the conduct of each of the parties under section 25 (2)(g) (see Edgar).

In 1999, the government’s Green Paper ‘Supporting Families’ promoted pre-nups and suggested legislation which could make them binding. While no such legislation has been forthcoming, the paper set out circumstances in which a pre-nup would not be legally binding:

Where there is a child of the family, whether or not that child was alive at the time the agreement was made;
Where under the general law of contract the agreement is unenforceable;
Where one or both of the couple did not receive independent legal advice before entering into the agreement;
Where the court considers that the enforcement of the agreement would cause significant injustice;
Where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made; or
Where the agreement is made fewer than 21 days before the marriage.
Susan Crossley, having received £18m from her first three husbands on divorce, at the moderate age of 50, sought a share of her 62-year-old fourth husband’s £45m.

Both Crossleys had brought substantial wealth into the marriage. They had signed a pre-nup before marrying in January 2006. They separated in March 2007. Mrs Crossley petitioned for divorce in August 2007, issuing a Form A in September.

In the pre-nup, she had agreed that she would not make an AR claim, if the marriage broke down. Mr Crossley challenged the application on the grounds of the pre-nup, but Mrs Crossley claimed that her husband had not fully disclosed assets before the pre-nup. Mr Crossley argued that there was no need for a full Form E; Mrs Crossley submitted that there was, on the basis of the non-disclosure. Mr Justice Bennett directed that the wife’s solicitors should merely write a letter setting out her case on non-disclosure, to be answered by the husband in his Form E.

The Court of Appeal dismissed Mrs Crossley’s appeal. Delivering the leading judgment, Lord Justice Thorpe held that a judge had a discretionary power in ancillary relief proceedings to require a party to show good causes why a pre-nup should not govern the division of assets, on the dissolution of the marriage. Has the Court of Appeal, in effect, added pre-nups to the list of factors in Section 25(2)?

Of course, much will depend on the individual facts of each case. There may have been a significant change in circumstances since the signing of the pre-nup, which may militate against enforcing it.

Lord Justice Thorpe described the facts of the case as exceptional, saying ‘if ever there is to be a paradigm case in which the court will look to the prenuptial agreement as not simply one of the peripheral factors in the case but as a factor of magnetic importance, it seems to me that this is just such a case’.

Mr Justice Bennett was under a duty to apply the overriding objective, as set out in rule 2.51D of the Family Proceedings Rules, to his case management decisions. It is no surprise that in doing so, against the background of the ‘knock out’ pre-nup and the facts of this case, he did not order full disclosure. It would have been disproportionate to have ordered it. Shortly after losing her appeal, Susan Crossley abandoned her AR claim.

Are you giving your clients advice about pre-nups? Not to do so could be negligence…

District Judge Duncan Adam sits at Swindon County Court