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A step forwards or backwards for Pre-Nups?

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On 25 November 2011, my trainee Jenny Leithgoe wrote about the decision of Z v Z (2) and explained that this case showed a positive step towards the acceptance of Pre-nuptial Agreements (pre-nups).  The recent decision in Kremen v Agrest (11) could be interpreted by some as a backwards step in relation to agreements (whether entered into before or after the marriage).  I will analyse the impact of this case below.

In Kremen v Agrest (11), Mr Justice Mostyn acknowledged that there were various factors/circumstances to be taken into account when considering what a financial settlement should be in the event of divorce.  He observed that one of these was the treatment needed to be given to a Post-nuptial Agreement (post-nup) the parties had signed, after their marriage but before their relationship broke down.  Mr Justice Mostyn explained that the post-nup in this case was signed in Israel on 15 May 2011, and subsequently approved by the Israeli Courts on two separate occasions. 

To summarise the legal position that exists in England and Wales under the Matrimonial Causes Act 1973 (“MCA”) - the Court’s ultimate aim is to make a fair financial award when considering all the circumstances of the case, referred to in section 25 of the MCA.  These are: needs, sharing, and the welfare of the children.  There is currently no legislation in place to dictate that the parties should be held to the terms of a pre-nup or post-nup in the event of divorce. 

However, the case law position sets out the treatment that the courts will give to agreements between the parties, through cases such as Radmacher v Granatino and Z v Z (2). The case law position is that the court should consider pre-nups or post-nups as one of the relevant factors.  In fact, the case law goes further than this and states that a pre-nup should be upheld in the event that its terms are fair, and it was entered into freely.

The agreement reached between the husband and the wife in Kremen v Agrest (11) provided for the following: 

  1. The husband will pay the children’s education costs in full up to the age of 25 years.
  2. The wife will retain all real estate in her name outside England.
  3. The wife will transfer all real estate within England from her name to the husband’s name.
  4. The wife will receive $1 million.
  5. Any sums in excess of $1 million in accounts will go to the husband.
  6. The parties will not make any claims or legal action of any kind in relation to their marriage in contravention of the terms of this contract.

What is important to note in relation to this purported agreement is the fact that the wife did not receive proper legal advice as to the content of the agreement, nor in relation to the rights that she would be giving up under any jurisdiction.  There was no financial disclosure and the wife stated in Court that the agreement was instigated by the husband, and Mr Justice Mostyn accepted that evidence.  There were tens of millions of assets available to divide, and this agreement made minimal provision for the wife, who would be caring for the children.

Considering both the needs and sharing principles, Mr Justice Mostyn found that the agreement was highly disadvantageous to the wife and was unfair. 

It seems therefore that this case does in fact follow the decision in Radmacher, despite the agreement itself being disregarded by the court. 

In Radmacher, the protective qualification of fairness was retained – the parties would not be held to an agreement if, in the circumstances prevailing, it would not be fair to do so.  In the Radmacher case it was suggested that there is not an absolute requirement for full disclosure or independent legal advice but the question should be considered in each case in relation to the specific facts.  In Kremen v Agrest (11), it was clear that there had been a material lack of disclosure and advice for the wife.  Following Radmacher therefore, this agreement was not upheld. 

However, in Z v Z (2), the Court seemed to relax the principle of fairness established in Radmacher but this case of Kremen v Agrest (11) certainly seems to be a step back towards the requirement for both disclosure and legal advice.  Is this therefore a backwards step?

Whilst this agreement was not upheld, I do not think this decision is a backward step for pre-nups or post-nups.  This is because the current case concerned material non-disclosure, and the husband involved was seeking to avoid making any payments to the wife.  This case has limited implications for individuals who have entered a pre-nup or post-nup following full disclosure and independent legal advice, where the parties are fully aware of the situation and the agreement they are entering into. 

Further, formalising a pre-nup by reiterating its contents in a post-nup can only strengthen the fact that the parties have already decided how their assets should be divided on divorce.  If considering entering into a pre-nup or a post-nup, it is therefore worth ensuring that any negotiations are fair and any disclosure is full and frank.  Whilst a pre-nup is still not necessarily an automatically binding contract between the parties, it can still be considered in the judicial assessment of what is fair to consider in all the circumstances, under section 25 MCA.  In Kremen v Agrest (11), Mr Justice Mostyn decided to give the agreement no weight whatsoever, due to the material flaws in its creation and content.  Mr Justice Mostyn therefore applied the principles of need and sharing.

If you would like advice regarding a pre-nup or post-nup you have entered into, or would like assistance in drafting a pre-nup or post-nup, please contact our Family department by emailing justine.osmotherley@clarionsolicitors.com or telephone 0113 336 3323

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