In recent weeks the legal world has been talking about the Law Commission’s report Matrimonial Property, Needs and Agreement, which includes a draft bill that would make prenuptial agreements binding. What would be the implications for the legal market and practitioners of these proposals were they to become law?
London has a reputation as the ‘divorce capital of the world’ in view of generous financial settlements made by courts upon divorce. Many jurisdictions already recognise prenuptial agreements, and if England and Wales follows suit this would reflect an interesting shift in attitudes.
The present law does not recognise prenuptial agreements as binding. In the landmark Supreme Court decision in Radmacher v Granatino, the legal weight of such agreements was strengthened significantly, as they were likely to be upheld if not unfair. Nonetheless, their application still falls subject to judicial scrutiny, as fairness of terms must be considered on a case-by-case basis. Hence this remains a difficult area for practitioners to advise upon, as they are unable to guarantee couples that the terms of their agreement will be mirrored in court orders.
Historically, prenuptial agreements were deemed ‘unromantic’ and a phenomenon reserved to celebrities and the super-wealthy, but agreements are now increasingly used by couples seeking financial autonomy. In many cases it is simply a way for the financially dominant party to limit any damage they would otherwise suffer on divorce. The recent recommendations have introduced the concept of ‘qualifying prenuptial agreements’, enabling couples to enter into enforceable agreements subject to preconditions being met.
The legislative seal on prenuptial agreements is widely welcomed by the industry, as it will pave the way for greater financial control and certainty for couples given the unpredictability of judicial discretion. Binding agreements would also restrict excessive costs and avoid exposing couples and their families to the acrimony of burdensome litigation.
Some 42% of married couples in England and Wales see their relationship end in divorce; therefore the changes could be sweeping, resulting in a surge in instructions firms receive to draft prenuptial agreements. In the current economic climate, couples will be particularly mindful to safeguard wealth, ringfence future inheritances and existing assets, and make provision for children. Moreover, the newfound significance of such agreements may persuade couples previously dissuaded by the financial exposure of marriage to tie the knot.
If prenuptial agreements become binding, there will be increased pressure to ensure that the agreement is absolutely right for the client. Practitioners must ensure they take sufficient detail from clients and consider all angles. They must be extremely specific and ensure that the agreements are carefully tailored to clients’ individual circumstances. It is a challenge to cater for all possible future scenarios, such as illness, housing needs, changing asset values, income loss and future children.
Further, ensuring clients are adequately protected involves negotiation and careful consideration of the fairness of the agreement and the implications arising from the clauses contained therein. Often it is not until parties start discussing the detail through their solicitors that differences between them become clear.
What may appear fair at the point of entering an agreement may transpire to be unfair in the light of a change in circumstances that could not necessarily be predicted. Drawing up these agreements is often fraught, as the discussions can easily undermine the personal relationship that the parties are hoping to seal.
In a further challenge for family law practitioners, the proposed bill advocates that prenuptial agreements should be signed no more than 28 days before the marriage or civil partnership. Practitioners would have to deal with clients who start to seek legal advice only a few months before their wedding, particularly if the parties do not have a clear idea of terms, if a disclosure exercise is required and the agreement needed is particularly complex. Time must be allowed before completion to allow clients to be fully and comprehensively advised, and for negotiations regarding the terms of the agreement to be completed.
Understandably, many clients will want to have a clear idea of the cost implications before proceeding with a prenuptial agreement. Although agreements are often considered to be an area where a fixed fee can be offered, cases and clients vary to the extent that a fixed fee is not always appropriate.
Nevertheless, with other pressures caused by legal aid cuts to family work and the new alternative business models coming into the market, we are likely to see more firms offering clients fixed-fee prices. The challenge to law firms is to fix such prices at a competitive level, yet ensure they are still able to turn a profit on what can often be very labour-intensive work. The fixed fee cannot be set so low that practitioners are unable to ensure the agreements produced are drafted with thought and care, and that the client is fully advised on its repercussions. Advice and drafting may well be scrutinised by fresh legal eyes on any future divorce.
It is important therefore that practitioners follow correct procedures, such as producing detailed written advice; spend time thoroughly advising on the implications of getting married with or without a prenuptial agreement; and ensure that they have sought to advise on all foreseeable issues.
Future financial circumstances are hard to predict and parties must fully understand that in signing the prenuptial agreement they will be bound by its terms, and that such terms, while likely to be considered fair enough for the agreement to be upheld, may be very far indeed from what they would have been awarded in the absence of the agreement.
Significantly, if the proposed bill becomes law, practitioners will need to respond to scenarios where judicial discretion has been ousted and the financial fate of clients lies in their hands.
Emel Djevdet is a solicitor and Sehaj Lamba a trainee solicitor in the family department at Hanne & Co