Pre-Nuptial Agreement – Is It The Right Fit?

A pre-nuptial agreement (PNA) is a legal agreement made between a couple prior to their marriage or before entering a civil partnership.

Usually, a PNA sets out how the assets should be divided if the couple were to divorce, or dissolve their civil partnership, for the purposes of this article, we will use terminology relating to marriage. The agreement will define ‘matrimonial property’ and ‘non-matrimonial property’ – matrimonial property tends to include assets acquired during the marriage or held in joint names (e.g. a joint bank account or the family home). Non-matrimonial property tends to include inherited assets and other assets owned separately before the marriage (e.g. investment accounts, separate bank accounts). Importantly, the agreement can also deal with income and future earnings.

If there are significant changes in the marriage after the PNA has been entered into, such as the birth of a child or the joint purchase of a new home, it is best practice to review the terms of the agreement, and a PNA will often include a review clause. It is important to note that PNA’s do not usually include non-financial arrangements relating to the couple’s children – if these are included, they will not be valid.

Many clients often ask the same question – are pre-nuptial agreements legally binding in the UK?

The short answer is no, they are not.

This is because the terms of the agreement cannot override the court’s power in deciding how assets or income should be distributed. Essentially, the court has overall power.

However, crucially, the court does have to give the PNA appropriate weight when considering the application for financial remedy on divorce. This means that a PNA could become a decisive factor in the court’s judgment, and it all depends on the circumstances of the case (as well as the drafting of the agreement).

In Radmacher v Granatino [2010] UKSC 42, the Supreme Court considered the weight that should be given to a pre-nuptial agreement when exercising its judgment. The Supreme Court held:

“The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement.” (At paragraph 75.)

The key here is to determine ‘what is fair?’

Fairness can be assessed by applying the following three-stage test, as set out in Radmacher:

• The agreement must be entered into freely by both parties.
• The parties must have a full appreciation of the implications of the agreement (this includes the requirement for both parties to have legal representation).
• It must be fair to hold the parties to their agreement in the circumstances prevailing (this is a factual consideration at the time of divorce, and this is why the Court retains authority despite the existence of a PNA).

Circumstances whereby the fairness test is not met are likely to arise if the terms of the agreement leave one party in a “predicament of real need” (Radmacher, paragraph 81) on the assumption that the parties cannot have intended to leave one party in need when the agreement was signed.

The recent case of AH v BH [2024] EWFC 125 serves as an example of when the court might depart from the terms of a pre-nuptial agreement on the basis that needs would not be met, even if the agreement complies with the fairness conditions set out in Radmacher.

In AH v BH, the parties entered a pre-nuptial agreement which ringfenced the husband’s assets under his name, including his business interests. The wife had her own mortgage-free flat and employment income at the time; both parties entered the agreement with legal advice, and the wife understood that the PNA significantly limited her financial remedies if they were to divorce. The parties’ cohabitation and marriage lasted around 5 ½ years, during this time they had two children, and the wife assumed the role of their primary carer. Upon their divorce, it was the husband’s case that the precise terms of the PNA should be upheld. The wife argued that the PNA did not meet her or her children’s needs, as she was to continue in her capacity as primary carer and no longer had her employment income.

The assets totalled around £50 million, £291,000 of which formed part of the wife’s assets. Significantly, the pre-nuptial agreement included a review clause, whereby the agreement would be reviewed on the birth of children, however, the review never occurred. The judge noted that there was a “powerful counterweight” to the husband’s case, being the wife’s role as primary carer of the children until they reached 18 years of age, and her lack of independent wealth in contrast to the husband’s. On this basis, the judge departed from the agreement and awarded the wife 8% of the assets, totalling over £4 million. It was noted that, had the wife not entered the PNA, she may have been entitled to as much as £7.5 million or more, as well as a longer term of maintenance.

The judge’s decision here emphasises the importance of ensuring that a PNA provides for big life changes, such as the birth of a child or a big change in income, and that needs will be met when these changes occur. Therefore, including a review clause and consciously reviewing the pre-nuptial agreement will ensure that it is more likely to be upheld by the court on divorce.

If you are interested in entering into a prenuptial or postnuptial agreement, please contact Louise Barretto, head of our Family Department, on louise.barretto@russells.co.uk to discuss further.