03 February 2016

Pre and postnuptial agreements - signing on the dotted line

Jennifer Dickson
Senior associate | UK

Prenuptial and postnuptial agreements strive to provide certainty, predictability and clarity: they are an attempt by (usually) the wealthier spouse to limit the other's potential financial claims in the future and to avoid a messy and expensive scrap over money on the breakdown of a marriage. In some cases the objective is achieved, but in others, it can result in costly and bitterly fought litigation about whether or not the agreement should be upheld.

2015 saw Nicholas Cusworth QC (sitting as a Deputy High Court Judge) hear two cases involving nuptial agreements: Hopkins v Hopkins [2015] EWHC 812 (Fam) and WW v HW [2015] EWHC 1844 (Fam). In both cases, attempts to subvert the agreements failed.

The facts

In Hopkins, the parties signed a postnuptial agreement in 2011 shortly before the eventual breakdown of their marriage and just months after the Supreme Court's landmark decision about nuptial agreements: Radmacher v Granatino [2010] UKSC 42 (_'R v G_'). Both parties' solicitors had advised their respective clients not to enter into the agreement (and required them to sign a disclaimer when they did). When the marriage ended, Mrs Hopkins started financial proceedings, claiming the agreement should not be upheld because, she asserted, it was vitiated by duress or (alternatively) her husband's conduct had been unconscionable (for example, she said he had exerted undue pressure). The judge did not accept her evidence.

The case of WW v HW featured a prenuptial agreement signed in 2002, a number of years before R v G was decided. Mr Cusworth QC's judgment began by observing that although under the terms of that agreement each of them agreed not to make a claim against the other, they had nevertheless managed to run up combined legal costs in court proceedings of c£1.77m. He pronounced 'if ever there were a paradigm example of a case which demonstrates the need for more certainty in the law of financial remedies and nuptial agreements, this is surely it.' The husband in this case was the financially weaker party, and his attempts to wriggle out of the terms of the agreement were dismissed emphatically by the judge, who was critical of his lack of candour and found him to be an unreliable witness.

Ignorance is no defence

As Mr Granatino learned at his expense in 2011, having the opportunity to obtain legal advice is enough. In both Hopkins and WW v HW, the individual trying to undermine the agreement (ie Mrs Hopkins and Mr HW) argued that she/he did not have a proper understanding of the implications of their respective agreements.

Mrs Hopkins claimed not to have read more than 'a few' pages of a 21 page letter of advice her solicitor sent to her. She was taken to see Counsel specifically about the terms of the draft agreement, but claimed not to have taken on board his advice. The judge did not believe her. Similarly, Mr HW told the judge that he 'switched off' after being told by his solicitor that prenuptial agreements were not binding in England and did not listen any further. That, the judge found, is no excuse. He held that both Mr HW and Mrs WW 'understood the agreement, had the opportunity for full advice about its contents, entered into it freely and intended it should be binding upon them at the point when it was executed'.

Catch 22?

People who feel bullied or pressured into signing a nuptial agreement should make that known to their solicitors. And their solicitors' advice will probably be not to enter into it in those circumstances. But if that advice is ignored, and the agreement is signed, an allegation of duress later down the line is likely to fail.

The more Mrs Hopkins insisted she wanted to sign the postnuptial agreement, the more vociferously her lawyers advised her not to, and she was warned of the 'watertight nature' of the agreement if, against that backdrop, she did sign.

It is up to the party alleging duress to prove it. Like Mrs Hopkins, he or she should expect to waive privilege and reveal copies of all communications (including letters, e-mails, advice and notes of calls and meetings) between client and lawyer during the negotiation of the agreement. If there is no evidence of duress, a question mark will surely hang over the veracity of the allegation. And if there is such evidence, then it is likely the solicitors will have advised against signing (and probably, like both parties' solicitors in Hopkins, require the client to sign a disclaimer). The judgments in Hopkins and HW v WW suggest that with the benefit of legal advice, proving duress (or the lesser charge of undue influence) will be a difficult hurdle to overcome.

Confidentiality agreement?

Mr Hopkins instructed his solicitors to issue a divorce petition in London even before he was ready to face the end of the marriage in order to avoid his financial affairs being in the local courts, where he feared his wife would start proceedings. Yet ultimately, he was faced not only with a reported judgment for public consumption, but he had to endure the intrusion of his intimate letters and e-mails to his wife being poured over by teams of lawyers in court.

A high profile third party who was mentioned in the HW v WW judgment (anonymised as 'CC') and separately, details of Mr HW's tax situation, could have featured in any financial remedy case – but it has to be remembered that at least one of the parties had relied upon there being no court case and no judgment. Many nuptial agreements will contain a confidentiality clause preventing the parties from disclosing the terms (and sometimes even the existence) of an agreement to anyone other than legal advisors, but such confidentiality becomes academic if the agreement is challenged and there is a reported judgment or even a public hearing (which is possible). One way to avoid unwelcome publicity, would be to have the dispute resolved through an arbitration process (see separate article).

Predicament of real need

Pre- and postnuptial agreements are not binding in England and Wales, because the court retains discretion and must be satisfied in each case that the terms agreed between the parties are 'fair'. This does not mean the court should be paternalistic – the Supreme Court in R v G warned judges not to override agreements 'simply on the basis that the court knows best', and there is more emphasis than ever now on individuals' autonomy. In Hopkins, the judge observed that the outcome could be 'some distance from the order the court might have made had there been no agreement'.

In a similar sentiment, in the judgment of Kremen v Agrest (No 11) [2012] EWHC 45 (Fam) (also referred to in his more recent judgment of SA v PA [2014] EWHC 392 (Fam)), Mostyn J qualified what 'need' can mean: 'It is likely to be unfair to hold the parties to an agreement which leaves one spouse in a predicament of real need, while the other enjoys a sufficiency or more. However, need may be interpreted as being that minimum amount required to keep a spouse from destitution.'

The Supreme Court made sure that Mr Granatino was not left in a 'predicament of real need' and that he had suitable accommodation to house his children when they visited him. That appears to remain the bottom line when it comes to the court's cross-check of 'fairness'. The agreement Mrs Hopkins signed was, the judge found, 'not one which pays no regard to her needs'.

While the family home is generally treated as 'matrimonial' property regardless of which party funded it (the Supreme Court was clear about that in Miller and McFarlane [2006] UKHL 24), the judge reminded us that this does not necessarily mean it should be shared equally. Where contributions are significantly disparate, an unequal division of the net equity can be justified, as occurred in HW v WW.

Winning and losing

Most financial remedy cases are not binary – there is a range of possible outcomes because the court has such a wide discretion. But when there is an (alleged) agreement in dispute, there will be a winner and a loser. For those content to stick to what they agreed, a lot of heartache and expense could be spared, but for those who consider the terms to which they signed up to be unfair, the stakes can be high.

Jennifer Dickson Senior associate | London

Category: Article