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Pre-nups to be binding following Law Commission report

In an effort to reshape the legal landscape of financial settlement on divorce/dissolution, The Law Commission today published its final report, concluding its project into Matrimonial Property, Needs and Agreements. Its primary recommendation is for Pre and Post-nuptial agreements to be binding in the courts of England and Wales.

The proposals will be of significant relevance to those either facing the breakdown of their marriage or civil partnership or those couples planning for their marriage in the foreseeable future.

Marital property agreements (Pre and Post-nuptial settlements)

A draft bill has been produced which will allow both Pre-nuptial and Post-nuptial agreements to be binding in the courts of England and Wales.

At present, such agreements are not automatically enforceable, although it is possible to ask the court to make an order to reflect the terms of the agreement. The terms can be upheld, if the court deems them to be fair, freely entered into and following full disclosure of the parties’ finances, but ultimately the court retains jurisdiction to make an order as it sees fit to ensure a fair settlement which meets the parties’ needs.

The report recommends that:

  •  The law is changed to introduce 'qualifying nuptial agreements', which would be a binding agreement, provided that procedural safeguards have been met.
  •  The safeguards will include the need for the parties to seek independent legal advice and to disclose in full material evidence as to their finances.
It is noted that the ‘qualifying nuptial agreements’ will not allow the parties to escape their obligations to meet the needs of each other and the children. The Report recommends further guidance from the Family Justice Council to clarify the meaning of "financial needs".

Introduction of formulas

The report hints that a more formulaic approach to dividing finances on divorce may in future become an integral part of the law in England and Wales.

Following the example of other jurisdictions across the world, the Law Commission recommends further research into whether more rigid guidelines should be laid out as to the amounts that one party might expect to pay to the other, as is currently the case in Canada. At present, the law surrounding maintenance payments varies from case to case, depending on the parties’ individual circumstances, the resources available and the parties’ needs.

To fill the void in the interim, the report suggests authoritative guidance is produced by the Family Justice Council to deal with how financial needs should be assessed. In summary, the prime consideration for the court should be the parties' transition to independence (i.e. a “clean break”).

The Law Commission's hope is that a formulaic approach would even out any regional inconsistencies or unpredictability currently faced on divorce or dissolution. This in turn should assist the growing number of litigants in person, who suffer as a result of the lack of clarity and the wide discretion available to the courts when making financial orders.

Although the recommendations are not the radical reforms some may have hoped for, they are at least a step in the right direction.

The reforms would give couples the power to decide their own financial arrangements and allow them to take responsibility for achieving financial independence, provided that they have taken the requisite legal advice when making such decisions. It is hoped that couples will be more able to communicate about such issues before making a formal commitment to each other at a time when there is no animosity but hopes of a long term future together.

It is hoped that this will in turn reduce the burden placed on the already-stretched court resources nationwide.

TLT regularly advise clients both nationally and internationally about Pre and Post-nuptial agreements. For further information, please contact Mark Sage an associate at TLT, who specialises in dealing with complex financial issues both in the UK and internationally.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2014. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

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