Law Commission announces prenup plans
February 27, 2014 11 comments
The Law Commission has recommended the introduction of legally binding ‘qualifying nuptial agreements’ in place of full prenuptial agreements.
Qualifying nuptial agreements would allow both married couples and civil partners to make a mutual agreement on how their finances or property should be divided if they split, but they would only apply after the financial needs of both partners and their responsibilities towards any children had been met. In addition, such agreements would only be legally binding if both partners had disclosed all relevant information about their financial situation and had received legal advice.
Under current legislation, couples can enter ‘prenups’ – agreements on the division of assets in the event of separation – but they are not legally binding and whether the divorce courts give them any weight depends on the circumstances of each case. The same applies to postnuptial agreements, made after marriage.
The Commission’s new report, Matrimonial Property Needs and Agreements, includes a draft bill which would introduce prenuptial agreements into law.
The Law Commission, which reviews existing legislation, has also recommended that the Family Justice Council produce authoritative guidance on financial needs in divorce, explaining financial outcomes including financial independence. They have also suggested that the government investigate the introduction of a formula which could be used to calculate financial needs. Existing legislation in Canada provides guidelines which couples can negotiate from.
The Commission said:
“…there is evidence of regional inconsistencies in how the courts approach orders for financial needs, which can make the outcome unpredictable. And, while the law is largely well-understood by family lawyers, it is not clear to the general public who are increasingly dealing with the financial consequences of separation without legal assistance.”
Professor Elizabeth Cooke, the Law Commissioner for property, family and trust law, said:
“We believe that married couples and civil partners should have the power to decide their own financial arrangements, but should not be able to contract out of their responsibilities for each other’s financial needs, or for their children. The measures we are recommending would help couples understand and meet their financial responsibilities and, where appropriate, achieve financial independence.
“Pre- and post-nuptial agreements are becoming more commonplace but the courts will not always follow them and lawyers are therefore not able to give clear advice about their effect. Qualifying nuptial agreements would give couples autonomy and control, and make the financial outcome of separation more predictable. We have built in safeguards to ensure that they cannot be used to impose hardship on either party, nor to escape responsibility for children or to burden the state.”
These measures are perfect. They are tempered. While the Law Commission does not recommend radical change, it has recognised what family lawyers already know. Because of the economic situation and the Government’s demolition of family law legal aid, fewer people are able to access professional legal advice. As a result, confusion abounds and it is now necessary to provide additional information and “simplify” the current system.
Most people are not wealthy so, in the majority of cases when couples divorce, there is little to go around after reasonable financial needs have been met. At the same time the current guidance on what it means to “meet reasonable needs,” and how those needs should be met is inadequate.
Although the Law Commission is recommending that nuptial agreements should become binding in law, it also proposes rigid criteria, so an unscrupulous spouse would be unable to “contract out” of providing for their children.
Importantly, the Law Commission specifies “financial needs” but not “reasonable needs,” which can be more generous. In other words, if no financial hardship was going to occur then the agreement could be upheld. This would provide scope to depart from current law, provided full and frank disclosure had taken place and proper legal advice had been obtained.
As for making settlements more predictable with the introduction of formulae, but with built-in flexibility: this could only help couples. Right now, the outcome of a case can be something of a postcode lottery. ‘Clean break’ capital payments for stay-at-home mothers, for example, are practically unheard of in central London but are more likely in certain other regions. It makes spousal maintenance even more of a prickly subject than it needs to be: the ‘meal ticket for life’ is generally regarded as a bad thing, not least by a second wife who may feel she is having to work to maintain her predecessor. Then again, should a mother who has given up work to raise children be left high and dry because her marriage has broken down and a clean break is not possible at the time of the divorce? Formulae with a range of possible outcomes may help.