Enforceable
Pre-nuptial Agreements:
the World View
Jeremy D
Morley
Attorney-at-Law, International Family Law Office, New York,
USA
The failure of English courts to enforce
pre‑nuptial agreements has long been an anachronistic peculiarity of
English law and an unfortunate example of a stubborn refusal to
adapt the law to new conditions. The recent judgments of the House
of Lords in Miller v Miller; McFarlane v McFarlane [2006]
UKHL 24, [2006] 1 FLR 1186 (Miller/McFarlane) point to the
urgent need for the courts to set aside the preposterous contention
that it is 'substantially uncontestable’that substantial harm to
the public would arise if pre‑nuptial agreements were enforceable.
The challenge raised by Miller/McFarlane is that the
judgments fail to provide any degree of predictability as to the
financial resolution of any divorce case involving parties with
significant assets. Indeed, they have exacerbated the level of
uncertainty in several key areas, particularly in failing to resolve
the key issue of whether and to what extent a spouse’s premarital
assets may be redistributed upon divorce. Although the enormous
publicity that resulted from the judgments and the coinciding news
that a Beatle was divorcing raised the public’s interest in the law
concerning the financial aspects of divorce, public frustration with
the lack of clear rules about divorce has increased and the
knee-jerk response that 'you're bonkers to get married if you have
any money' has been bolstered.
Around the world parties have long relied on premarital contracts to
increase their level of comfort when getting married. Courts and
legislatures outside the UK have responded by enforcing such
agreements as long as certain conditions are fulfilled. The UK is
now almost alone in resisting this trend. The fundamental question
is whether it is sensible for the courts to cling to the position
that all pre‑nuptial agreements are in plain contravention of
‘substantially incontestable public policy’. The very fact that the
question must be raised shows the extent to which the law on this
issue is utterly out of touch with the social changes of the past
half-century, with public opinion, with legislative changes allowing
civil partnerships, with the governmental recommendation for
cohabitation agreements and with the almost universal international
acceptance of binding pre‑nuptial agreements.
Pre‑nuptial agreements in historical perspective
Pre‑nuptial agreements can be traced much further back than the
common law. The Jewish marriage contract known as the ketubah
dates back at least 2,000 years. In France, the customary
pre‑nuptial derives from the dowry, first recorded in the ninth
century. For most of the history of the common law, premarital
agreements regulating the financial rights and obligations of
spouses during their marriage were fully enforceable. By the
mid-seventeenth century they were sufficiently important as to be
included in the Statute of Frauds, 29 Car II, c 3 (1677).
Traditionally known as marriage contracts or marriage settlements,
they were customary among wealthy families, especially before the
Married Women’s Property Acts 1872 and 1882 removed restrictions on
a married woman’s right to own property. Since divorce was not
permitted in England until 1857 except by special Act of Parliament,
marriage contracts were primarily designed to deal with the
eventuality of death, not divorce. After 1857 the powers of the
courts as to financial matters remained extremely limited. There was
no power to order a spouse to transfer a capital sum or property to
the other upon divorce.
The current law concerning pre‑nuptial agreements results from a
decision as to the status of marriage more than 75 years ago. It was
in 1929 that Hyman v Hyman [1929] AC 601 (Hyman)
settled the principle that public policy should preclude enforcement
of pre‑nuptial agreements that provided for the eventuality of a
divorce. The House of Lords declared that such agreements violated
public policy in that (a) it would weaken the emotional sanctity of
marriage if people entered into it with a view to what should happen
if the marriage were to fail and (b) the parties should not be
permitted to oust the jurisdiction conferred exclusively upon the
courts to dissolve or alter their marital status. In recent years
there has been a judicial trend in England towards allowing
pre‑nuptial agreements to be afforded greater significance. For
example:
-
S v S (Divorce:
Staying Proceedings)
[1997] 2 FLR 100 in which Wilson J (as he then was)
said: ‘Where other jurisdictions, both in the
United States and in the European Community, have
been persuaded that there are cases where justice
can only be served by confining the parties to their
rights under pre‑nuptial agreements, we should be
cautious about too categorically asserting the
contrary. I can find nothing in s 25 to compel a
conclusion, so much at odds with personal freedoms
to make arrangements for ourselves, that escape from
solemn bargains, carefully struck by informed
adults, is readily available here. It all depends.
The matter must be left open’.
-
N v N
(Jurisdiction: Pre-Nuptial Agreement)
[1999] 2 FLR 745 in which Wall J (as he then was)
confirmed that, as a matter of public policy,
pre‑nuptial agreements are not specifically
enforceable in English law, but may have evidential
weight when the court is exercising its s 25
discretion.
-
G v G
(Financial Provision: Separation Agreement)
[2000] 2 FLR 18 in which the court held that the
parties’ actions in varying the terms of a
pre‑nuptial agreement and then entering into a
separation deed, including the actions of the
husband in honouring the pre‑nuptial agreement, led
to the conclusion it should be strongly persuasive
of the resolution of the case.
-
M v M
(Pre‑nuptial Agreement)
[2002] 1 FLR 654, at 664 in which Connell J said:
‘In my view it would be as unjust to the husband to
ignore the existence of the [pre‑nuptial] agreement
and its terms as it would be to the wife to hold her
strictly to those terms. I do bear the agreement in
mind as one of the more relevant circumstances of
this case, but the court’s over-riding duty remains
to attempt to arrive at a solution which is fair in
all the circumstances, applying s 25 of the Act’.
-
K v K
(Ancillary Relief: Pre‑nuptial Agreement)
[2003] 1 FLR 120 in which Rodger Hayward-Smith QC,
sitting as a deputy High Court judge, considered the
parties’ pre-nuptial agreement both as part of ‘all
the circumstances of the case’ and as ‘conduct which
it would be inequitable to disregard’. He held the
wife to the capital provision of the pre‑nuptial
agreement, holding that it met certain requirements,
such as that the wife had understood the agreement,
that she had been properly advised, that she had
been under no pressure to sign and that there had
been no unforeseen change of circumstance that would
make it unfair to hold her to the agreement. He also
held that the agreement should not be permitted to
preclude a maintenance order, which he awarded to
the wife, except that it should be effective to
preclude her from capitalisation under s 25A of the
Matrimonial Causes Act 1973.
Nonetheless, there has not yet been a clear judicial endorsement of
the binding nature of pre‑nuptial agreements.
Public policy
The ruling in Hyman against binding pre‑nuptial agreements
was based exclusively upon a judicial view of the state of public
policy in 1929. Society has obviously changed dramatically since
that time such that if a court were to consider the matter afresh it
would now have no choice but to conclude that (a) the old view that
binding pre‑nuptial agreements contravene public policy is unfounded
and unacceptable and (b) public policy now requires that pre‑nuptial
agreements be enforced as long as they fulfil certain conditions.
When
public policy may be employed
It
is firmly established that public policy will not preclude
enforcement of a contract except in limited and extraordinary
situations. Just a few years after Hyman the House of Lords
insisted in Fender v St John-Mildmay [1938] AC 1 that public
policy must be restricted to those exceptional situations where the
harm to the public is genuinely incontrovertible. The Lords stressed
that public policy should never be based upon the personal
‘idiosyncratic views’ of a few judges. In a much-quoted statement,
Lord Atkin insisted that ‘the doctrine [whereby contracts are
declared contrary to public policy] should only be invoked in clear
cases in which the harm to the public is substantially uncontestable,
and does not depend upon the idiosyncratic inference of a few
judicial minds’ (at p 12). Likewise, Lord Thankerton said at p 42:
‘In the first place, there can be little question as to the proper
function of the Courts in questions of public policy. Their duty is
to expound and not to expand, such policy’.
In Fender the House of Lords decided that a married
person’s promise to marry someone else, made after he had obtained a
decree nisi but before issuance of a divorce absolute, did not
violate public policy and was enforceable. However, Lord Thankerton
also insisted that it was clear that: ‘The law will not enforce an
immoral promise such as a promise between a man and a woman to live
together without being married, or to pay a sum of money or give
some other consideration in return for immoral consideration’. While
it was ‘substantially uncontestable’ in 1938 that clear ‘harm to the
public’ would result from permitting couples who live together
without being married to regulate their relationship by contract,
that position today is entirely obsolete and completely discredited.
The same goes for the now-antiquated view that binding pre‑nuptial
agreements run counter to incontrovertibly supported public policy.
That opinion is a relic of a bygone age.
Public policy changes
with the times
It
has been the policy of the courts since time immemorial that the
courts must reconsider the appropriateness of their public policy
determinations on an ongoing basis. When that principle is not
followed the law becomes out of touch and in disrepute. Precedents
that invalidate contracts on public policy grounds should be
continuously reviewed in light of changing conditions, attitudes and
opinions. In 1874 Sir James W Colvile insisted in Evanturel v
Evanturel (1874) LR 6 PC 1, at 29 that ‘the determination of
what is contrary to the so called “policy of the law” necessarily
varies from time to time. Many transactions are upheld now by our
own courts which a former generation would have avoided as contrary
to the supposed policy of the law’.
The Law Commission supports the view that the courts should not
rigidly apply old views about public policy to current issues, even
when expressed in the form of precedents that would otherwise need
to be followed. The Law Commission has specifically recommended that
‘a legislative provision should make it clear that the courts are to
judge whether a contract is contrary to public policy in the light
of policy matters of the present day and that contracts which were
previously considered to be contrary to public policy may no longer
be so and vice versa’ (Law Commission, Consultation Paper No 154,
Illegal Transactions: The Effect of Illegality on Contracts and
Trusts (1999) at p 98). The Law Commission has cited several
cases in which the courts made appropriate updates to public policy
notwithstanding older authority to the contrary. They include:
-
Bowman
and Others v Secular Society Ltd
[1917] AC 406, in which, since
public opinion about atheism had changed, the court
overruled an old precedent that a contract to hire a
meeting hall for the purpose of promoting atheism
was contrary to public policy.
-
Stephens v
Avery [1988] 1 Ch 449,
in which the court refused to apply the holding in
Glyn v Weston Feature Film Co [1916] 1 Ch 261
that copyright would not be enforced for a film that
was deemed sexually immoral because the
determination of sexual immorality was outdated. Sir
Nicolas Browne-Wilkinson VC stated that ‘In 1915
there was a code of sexual morals accepted by the
overwhelming majority of society. A judge could
therefore stigmatise certain sexual conduct as
offending that moral code. But at the present day no
such general code exists … Only in a case where
there is still a generally accepted moral code can
the court refuse to enforce rights in such a way as
to offend that generally accepted code’.
-
Armhouse Lee
Ltd v Chappell and Another
(1996) The Times, August
7, in which the Court of Appeal held that an
agreement to advertise telephone sex lines was
enforceable notwithstanding alleged immorality. The
court criticised the defendant’s ‘brazen cynicism’
in pleading his own immorality in an attempt to
avoid paying for work which provided him with
enormous profits.
-
Bevan Ashford v
Geoff Yeandle (Contractors) Ltd
[1998] 3 WLR 172, at 181, in
which Sir Richard Scott VC stated that:
‘notions of public policy change with the passage of
time and an arrangement or agreement held in the
past to be champertous and consequently unlawful and
void need not necessarily be so held today’.
Accordingly, the duty of the courts to review public policy issues
anew in light of current opinion and social attitudes applies just
as much to the bar against binding pre‑nuptial agreements as to any
other issue. Otherwise judges will be in the ludicrous position of
declaring that public policy authorises telephone sex contracts,
copyright protection for pornographic films and state support for
contracts between same‑sex couples, but bars the enforcement of
reasonable agreements between married couples freely entered into
after independent legal advice and full disclosure of assets.
Changes in the nature of marriage
The world has of course changed dramatically since 1929,
particularly in matters concerning personal relationships, religion,
status and women’s rights. That the status of marriage 76 years ago
was utterly different than it is today is amply corroborated by some
basic statistics taken from the website of the Office for National
Statistics:
-
In 1929 there
were only 3,396 divorces throughout all of England
and Wales. By 2003 that figure had jumped by more
than 4,500% to 153,490.
-
The number of
men in England and Wales who married again after
their previous marriage ended in divorce increased
by more than 3,000% from just 2,408 in 1929 to
74,397 in 2003.
Obviously, the ban on enforceability of pre‑nuptial agreements did
not prevent the changes from being even more extreme. Those EU
countries that permit pre‑nuptial agreements have lower rates of
divorce and lower rates of extra-marital births, than the UK. The
courts have themselves recognised that the institution of marriage
is entirely different today than a generation or two ago. It is
precisely because of such changes that the courts have dramatically
modified the law as to the financial consequences of a divorce. In
Miller/McFarlane Lord Nicholls of Birkenhead based his
decision on ‘the basic concept of equality permeating a marriage as
understood today’. Baroness Hale of Richmond commenced her speech
with an analysis of the ways in which in contemporary marriage ‘in
real life most couples’ finances become ever-more intertwined and
interdependent’.
When Hyman was decided people had little expectation of
getting divorced; divorce was generally regarded as sinful. People
with assets did not require contractual protection should a divorce
occur because the law did not provide for capital transfer upon
divorce, and it would have been inappropriate and unnecessary to
raise the topic. The status of marriage itself provided all of the
necessary terms of the relationship between spouses. The law and the
society’s obligations and expectations were clear. The roles that
the husband and wife would follow were set. It was a
‘one-size-fits-all’ concept and there was no need to allow the
parties to alter it to suit their own requirements.
None of that is true any longer. It would be foolish today for
people contemplating marriage to deny that divorce is quite
possible. Gender roles are much less important. Couples must choose
for themselves the kind of marriage they want to have. Societal
pressures are far less important. Increasing numbers of marriages
are second or even third marriages. More and more people already
have children when they marry, whether from a relationship with
their new spouse, a former spouse or a relationship that did not
include marriage. The age range of people upon marriage is far wider
today than was the case in the 1920s when girls typically got
married in their early twenties and boys when they were just a year
or two older. Likewise, the assets that people have upon marriage
vary much more nowadays than was the case when most newlyweds were
first embarking on their careers. The responsibilities that people
have upon marriage also vary much more today. Previously newlyweds’
responsibilities were almost exclusively to each other, to be
followed by the family that they might build. But today when people
marry they often carry with them the responsibility to care for
their own existing children and even the burden of responsibility
for an ex-spouse.
Furthermore, while the law concerning the financial consequences
of a divorce was clear and simple in 1929 that is certainly not the
case today. The legislature’s creation of an extremely ambiguous
statutory framework has been rendered much more indefinite by
extensive judicial law-making in the past several years, which has
produced enormous uncertainty. Accordingly, it is certainly not
surprising that people want to secure their future with a
pre‑nuptial agreement. The revolutionary changes in the concept,
role, status and fundamental nature of marriage and the
appropriateness of allowing people to plan their own futures help to
explain the fact that public opinion surveys show that close to half
the population want enforceable pre‑nuptial agreements. The internet
bank Smile’s surveys of more than 6,000 people conducted in 2004
show that 46% of the UK population wants pre‑nuptial agreements to
become legally binding (www.prnewswire.co.uk/cgi/news/release?id=121959).
In light of all this, it is surprising that the judiciary has dug in
its heels to prevent pre‑nuptial agreements from working effectively
in the UK, and that it has based its reaction on an appeal to
considerations of public policy that fly in the face of reality. It
is not ‘substantially uncontestable’ that public policy requires
that pre‑nuptial agreements not be enforced in order to preserve the
sanctity of marriage.
Ousting the jurisdiction of the courts
Hyman was also
based on the theory that pre‑nuptial agreements cannot be binding
because the courts have the exclusive jurisdiction to dissolve
marriages and statute (now the Matrimonial Causes Act 1973) provides
the exclusive basis upon which that must be accomplished. In
Hyman this argument was presented as a public policy argument.
In other cases it is described as a matter of statutory
interpretation. Both claims are now erroneous and for the same
fundamental reason. The Matrimonial Causes Act 1973 requires the
courts ‘to have regard to all the circumstances of the case
including the following [eight factors]’. There is ample room within
the broad scope of the listed factors to include a consideration of
pre‑nuptial agreements (as has been done in many cases). There is
also nothing in the statutory language that prevents the courts from
considering factors that are not listed, from giving priority to
certain factors when present in certain cases or from announcing in
advance that that they will apply certain rules to their
consideration of the circumstances of the case with necessary
safeguards.
The claim that because the courts are supposed to have
unfettered control public policy prevents them from enforcing
pre‑nuptial agreements is a complete non sequitur. Section 25 is
sufficiently broad as to allow the courts an almost unfettered
discretion while also declaring whatever rules they deem fit. The
fundamental principles already laid down by the House of Lords – for
example that equality shall generally prevail, that adultery shall
not have financial consequences and that the respective
contributions of a party to the marriage shall generally not affect
the financial outcome – do not result from statutory interpretation
and are fully able to coexist with the eight factors. Likewise there
is no statutory reason preventing the courts from holding that
pre‑nuptial agreements will be enforced if they are not
significantly unreasonable in light of the eight factors in s 25 of
the Matrimonial Causes Act 1973.
None of the many common law jurisdictions that have permitted
enforceable pre‑nuptial agreements have given the parties the
freedom to create unconscionable or seriously unjust agreements.
Whether created by judges or by statute in every case the courts
have retained the full power to scrutinise pre‑nuptial agreements to
prevent injustice. They always have the final word. Fundamentally,
the issue is one of paternalism versus individual responsibility. In
1929 it was appropriate to insist that the parties must not vary the
terms of their marriage. In 2006 it is no longer appropriate to do
so. The legislature is now encouraging same-sex partners to make
their own contracts and the government is recommending that
opposite-sex partners be encouraged to do so also. Married couples
should likewise be permitted, if not encouraged, to enter into their
own binding agreements.
Pre‑nuptial agreements around the world
While civil law countries have traditionally permitted and
encouraged pre‑nuptial agreements, the common law world previously
followed the English lead in holding that binding pre‑nuptial
agreements violate public policy. However, one by one other common
law countries have reviewed that position in light of changes in
society and have determined that the old rule should not be applied
to modern conditions.
Australia
Pre‑nuptial agreements, known as ‘binding financial agreements’,
became enforceable in Australia in 2000 with the enactment of the
Family Law Amendment Act 2000. The pressure to allow binding
pre‑nuptial agreements resulted from the major societal changes that
had occurred in Australia, as in England, during the prior 30 years,
such as changing views about marriage, higher rates of marriage
breakdown, falling marriage rates, increasing cohabitation in
marriage-like relationships and higher rates of second and
subsequent marriages (see I Kennedy, ‘For Richer, For Poorer:
Pre-nuptial Agreements in Australia’ [2004] IFL 166). Those
pressures had intensified as cohabiting couples in Australia were
permitted greater freedom of contract than married couples: ‘This
created the extraordinary anomaly that the rights of married couples
with respect to self-regulation of their financial affairs were
significantly less than those of cohabiting couples’. When he
introduced the legislation the Attorney General of Australia stated:
‘The changes in this Bill will attempt to bring the Act into line
with prevailing community attitudes and needs’.
Part VIIIA of the Family Law Act 1986 requires that the parties
secure independent legal advice and permits courts to refuse to
enforce agreements on the grounds of fraud, duress, mistake, undue
influence or unconscionability, as well as if it is impracticable
for all or part of the agreement to be carried out, or if there has
been a material change in the care of a child leading to hardship.
The conditions are similar to those enunciated by the court in K
v K (Ancillary Relief: Pre‑nuptial Agreement) [2003] 1 FLR 120.
In 2004 the Family Law Council, an Australian governmental agency,
reported that the rules are working well, allow people greater
control and choice over their own affairs in the event of marital
breakdown and contain appropriate checks and balances; see
www.ag.gov.au/agd/WWW/ flcHome.nsf/Page/Letters_of_Advice_Letters_Review_of_binding_financial_agreements.
Canada
Pre‑nuptial agreements known as ‘marriage contracts’ are enforceable
in every Canadian province. Following Hyman, courts in
Ontario and other common law provinces had considered them to
contravene public policy but the Family Law Reform Act 1978
(subsequently continued in the Family Law Act) specifically
authorised binding marriage contracts. The Canadian provinces then
enacted legislation implementing the law. In a landmark ruling in
2004, the Supreme Court of Canada held in Hartshorne v Hartshorne
[2004] 1 SCR 550 that British Columbia’s statute which subjected
marriage contracts to a standard of fairness should be interpreted
in favour of enforceability. The Supreme Court held that courts
should respect private arrangements between spouses for the division
of their property on the breakdown of their relationship,
particularly where the agreement in question was negotiated with
independent legal advice. It held that individuals may choose to
structure their affairs in a number of different ways and that the
courts should be reluctant to second-guess the arrangement on which
they reasonably expected to rely.
New Zealand
Pre‑nuptial agreements have been permitted in New Zealand since
enactment of the Matrimonial Property Act 1976. The Property
Relationships Amendment Act 2001 renamed the Matrimonial Property
Act 1976 as the Property (Relationships) Act 1976 and extended the
property division regime to the division of the relationship
property upon separation or death of married couples, partners in de
facto relationships and partners in same-sex relationships. Section
21 of the Act expressly authorises married and de facto couples to
enter into opt-out agreements with respect to the status, ownership
and division of their property, including future property. The
agreements must conform to certain formalities. Previously, if such
an agreement caused ‘injustice’ it could be set aside. From 2001
such agreements cannot be set aside unless it is established that
they cause ‘serious injustice’. The purpose of the reform was to
provide greater certainty as to the enforceability of
contracting-out agreements.
USA
Courts in the USA previously followed the English view that
pre‑nuptial agreements that contemplated divorce were contrary to
public policy. In the landmark case of Posner v Posner
233 So2d 381 (Fla 1970) the Supreme Court
of Florida reviewed the public policy argument, concluded that the
precedents that had held that enforceable pre‑nuptial agreements
violated public policy were out of touch with changes in society and
held that such contracts were not invalid per se. A follow-up case
held that such agreements would be enforced if their terms were fair
and reasonable: Posner v Posner 257 So2d 530 (Fla 1972).
Every American state has now followed suit. Many have enacted a
version of the ‘Model Prenuptial Uniform Premarital Agreement Act’
which sets forth formality requirements, restricts the
enforceability of provisions waiving the right to spousal support,
precludes enforcement of provisions concerning child support and
permits a challenge for unfairness if the agreement was
unconscionable when made and if the party also did not have adequate
notice of the other party’s financial circumstances.
Other jurisdictions
The vast majority of other jurisdictions – far too many to discuss
in this article – allow pre‑nuptial agreements. It is most
significant that there are no serious proposals in any of the common
law jurisdictions that have chosen to allow enforceable pre‑nuptial
agreements to turn the clock back to the old law. Binding
pre‑nuptial agreements work well globally. The UK is on track to
being the final hold-out against them.
The
need for enforceable pre‑nuptial agreements
As
a matter of law the bar on binding pre‑nuptial agreements should be
lifted upon a court’s determination that it is not substantially
uncontestable that they would harm the public. Nonetheless it is
appropriate to present the affirmative benefits of allowing
pre‑nuptial agreements to be enforced.
Predictability
Predictability is an essential element of the rule of law. Lord
Diplock stated in Black-Clawson International Ltd v Papierwerke
Waldhof‑Aschaffenberg AG [1975] AC 591, at 638 that ‘[t]he
acceptance of the rule of law as a constitutional principle requires
that a citizen, before committing himself to any course of action,
should be able to know in advance what are the legal consequences
that will flow from it’. In Fothergill v Monarch Airlines Ltd
[1981] AC 251, at 279 Lord Diplock made the same point in different
words:
‘Elementary justice or, to use the
concept often cited by the European court, the need for
legal certainty demands that the rules by which the citizen
is to be bound should be ascertainable by him (or more
realistically by a competent lawyer advising him) by
reference to identifiable sources that are publicly
accessible.’
Lord Bingham of Cornhill cited both such quotations with approval in
R v Rimmington; R v Goldstein [2005] UKHL 63, [2005] 3 WLR
982. Judges and commentators agree that the current law as to
matrimonial financial resolutions provides little or no
predictability. The governing standard of fairness is purposefully
vague, almost indefinable and completely subjective.
In White v White [2000] 2 FLR 981 Lord Nicholls of
Birkenhead conceded that ‘fairness, like beauty, lies in the eye of
the beholder’. He stated that ‘everyone’s life is different.
Features which are important when assessing fairness differ in each
case. And, sometimes, different minds can reach different
conclusions on what fairness requires’. In Miller/McFarlane
Lord Nicholls of Birkenhead stated that:
‘Fairness is an elusive concept. It is an
instinctive response to a given set of facts. Ultimately it
is grounded in social and moral values. These values, or
attitudes, can be stated. But they cannot be justified, or
refuted, by any objective process of logical reasoning.
Moreover, they change from one generation to the next. It is
not surprising therefore that in the present context there
can be different views on the requirements of fairness in
any particular case.’
In Cowan v Cowan (2001) EWCA Civ 679, [2001] 2 FLR 192,
Thorpe LJ quoted with approval that portion of a report published in
April 2000 by the Joseph Rowntree Foundation, How Parents Cope
Financially on Marriage Breakdown which asserted that:
‘The law on the division of property on divorce is highly
discretionary and where a case goes to court, the court has wide
powers, for example, to re-allocate property between the spouses or
to order that property to be sold. The system has been criticised
for its uncertainty and lack of predictability, and it is these
traits of the system that prompted many of our interviewees to call
for clearer guidelines as to what might happen to property on
divorce.’
In
Lambert v Lambert [2002] EWCA Civ 1685, [2003] 1 FLR 139
Thorpe LJ pursued the same theme, stating that:
‘I am conscious that
this conclusion does little to increase clarity or
predictability of outcomes. However
any expectation of such was surely unrealistic. Specialists
in the field, whether judges,
practitioners or academics, have yet to suggest a principle
or mechanism that might produce greater certainty or
predictability within the very wide
discretionary field for which parliament opted in 1984. Such
new approaches as have been advocated or debated all require
legislation for their introduction. Accordingly it must be
recognised that a largely unfettered judicial discretion
comes at a price.’
A
major problem with the case-law from White v White [2000] 2
FLR 981 to Miller/McFarlane is that, since courts are not
legislatures, they have been unable to draft the detailed rules that
are required to provide specific guidance to practitioners and
clients in real cases. If the development of such details is to be
left for the common law process to unfold on a case-by-case basis,
we must expect to wait a very long time for general guidelines to
develop into a useful body of law that will provide real predictive
capacity. Furthermore in a fast-moving society the needs of the
public are changing continuously so that the law is never given the
opportunity to ripen into clarity. Miller/McFarlane has done
little or nothing to improve predictability in cases that involve
significant assets. We know that the standard is ‘fairness’ and that
‘needs’, ‘compensation’ and ‘sharing’ are the three ‘strands’ to be
considered in applying the concept, but it is unclear how those
strands will work together in any particular case.
Miller/McFarlane has resolved certain issues such as the
relevance of conduct and special contribution but it has raised and
left unclear and unresolved several critical issues such as whether
equality of division should apply to all matrimonial property or
only to ‘family assets’ as opposed to ‘business and investment
assets’, and how assets generated by dual career marriages should be
resolved.
The extensive publicity generated by Miller/McFarlane may
have the beneficial effect of making people think more carefully
before deciding to get married. Those who should pay the most
attention are people who already own substantial assets. They are
the ones who will require the most guidance from their solicitors.
It is here that the process breaks down, for if the judiciary cannot
agree about basic issues, and if the standards are in any event
‘vague, almost indefinable and completely subjective’, no
practitioner can provide much in the way of useful guidance
concerning what for many people is the most important financial
transaction of their life. Indeed, the most useful advice might be
to not get married. At present, entering a court of law for the
resolution of the financial consequences of a divorce is not unlike
entering a casino, except that some games of chance in a casino have
a more predictable result. Moreover the percentage that the house
takes in a casino is actually fairly modest when compared to the
enormous legal fees that are guaranteed to be charged for a high
stakes, big assets divorce case. In these circumstances, it makes
absolutely no sense to prevent the parties themselves from creating
predictability by entering into pre‑nuptial contracts that are well
drafted and reasonable. The public interest is not served by
preventing binding contracts that resolve these issues in advance.
Unfairness in current law
The Matrimonial Causes Act 1973 makes it all too easy to charge the
courts with unfairness. The courts have an almost unfettered
discretion so that whenever they apply it to any specific case they
can be accused of prejudice or worse. The House of Lords has sought
to limit the discretion by setting out some specific principles but
to many these principles will seem unfair. One example is that many
people strongly disagree with the principle that upon divorce the
partners must divide the separate property that they each owned
before the marriage or property that a party acquires by
inheritance. While the state of the law on these issues is unclear,
it is certain that the House of Lords has held that premarital and
inherited assets must in some circumstances be divided. The clean
break principle, a peculiarity of English law, also gives rise to an
easy charge of unfairness. A periodic payment that is payable from
future earnings on a ‘pay-as-you-go’ basis and that can be modified
in the event of significantly changed circumstances is far different
from capitalising that periodic payment and compelling the higher
earner to pay the entire sum upfront.
Another concept somewhat peculiar to English law, which leads to
the charge of unfairness, is that the courts treat pre-marital
cohabitation time as equivalent to time after marriage when
determining the length of a marriage, which is itself a highly
significant factor in the court’s application of the fairness
standard. Reasonable people have very different opinions on such
issues, as borne out by the radically contradictory views expressed
by judges in their decisions and by Parliament’s failure to resolve
them by legislation. In such an environment is it not sensible to
permit the parties themselves to handle these issues at the time
they decide to marry?
Personal responsibility
Pre‑nuptial agreements allow people to take more responsibility for
ordering their own lives, helping them to build a solid foundation
for their marriage by encouraging them to look at the financial
issues they may face as husband and wife and reach agreement before
they get married. The courts now insist that marriage is a
partnership. That view is entirely different from the view of
marriage in 1929 when a wife was still expected ‘to love, cherish,
and to obey, till death us do part’. But if marriage is truly a
partnership why should the courts prevent the partners from deciding
on the terms of their partnership? Of course marriage is different
but the differences are appropriately accommodated by ensuring that
pre‑nuptial agreements are entered into with care, thought, full
disclosure and independent advice, that they do not impact the
responsibility of parents to their children and that they do not
contain unconscionable or unjust terms.
Other jurisdictions have succeeded in ensuring that parties in
stronger negotiating postures are not able to enforce pre‑nuptial
agreements that are unjust or that fail to provide sufficient
protection for children. Indeed K v K (Ancillary Relief:
Prenuptial Agreement) [2003] 1 FLR 120 shows that the necessary
restrictions can be enunciated simply and effectively. While judges
may feel comfortable acting paternalistically, it is no longer
appropriate to prevent independent adults from choosing for
themselves how they will live their lives and, within reasonable
limits, the financial terms upon which their relationships will end.
There is no reason why judges should feel that it is essential as a
matter of substantially uncontestable public policy that they should
have the monopoly on deciding what is fair rather than the parties
themselves.
Discouraging marriage
The current divorce law concerning the financial aspects of divorce
serves to discourage marriage. For many, the financial risks of
marriage which result from extreme uncertainty as to the law that
will apply in the event of a divorce are far weightier than the
benefits. Today people can enjoy most if not all of the benefits of
family life without the need to enter into ‘the bonds of matrimony’.
Pre‑nuptial agreements allow people to structure fair and reasonable
terms that are appropriate for their own situation in life instead
of submitting themselves to the whims of the divorce courts.
Enforceable pre‑nuptial agreements encourage marriage. A public
policy that refuses enforcement discourages marriage.
Reducing costs
Litigation costs in big money divorce cases are enormous. English
family lawyers appear to be the current world champions in that
arena. Part of the reason is the extreme uncertainty in any such
case. Pre‑nuptial agreements reduce litigation costs dramatically
since there is far less need to litigate property division when the
terms have already been agreed.
International impact
Pre‑nuptial agreements are valid and enforceable throughout most of
the world. Globally, the trend is for more people to enter into
pre‑nuptial agreements. At the same time more people are travelling
internationally and for people with assets it is increasingly common
to have multiple residences. Parties who have long conducted their
marital relationship outside the UK in conformity with a carefully
drafted and reasonable pre‑nuptial agreement that fully complied
with the laws of the country of their residence, nationality and
domicile after careful advice by separate lawyers representing each
of them, are entitled to expect that the agreement will be afforded
due recognition even if they should move to another jurisdiction.
The UK courts’ refusal to enforce pre‑nuptial agreements coupled
with their refusal to apply foreign law to a pre‑nuptial agreement
entered into overseas creates confusion and unfairness. A spouse
with a valid, binding and enforceable pre‑nuptial agreement who
moves to England from Sydney, Auckland, Cape Town, Paris, Tokyo,
Toronto or New York may suddenly discover to his or her great shock
that the agreement upon which the marital relationship has been
built may perhaps not be enforced. The UK approach also encourages
forum shopping. A practitioner whose client is overseas, has
substantial assets, is facing divorce and is party to a pre‑nuptial
agreement that is binding in the law of a current overseas
matrimonial domicile will recommend that the client keep well away
from Britain and institute a suit for divorce overseas with all
possible speed. By contrast, the practitioner representing the other
spouse will advise the client to do whatever is necessary to bring
the case in England.
Similarly, under the law as it now stands there is enormous
incentive for a spouse with assets and a favourable pre‑nuptial
agreement to do his or her utmost to leave the shores of England and
create the circumstances necessary to ensure that a divorce case is
tried in any almost any jurisdiction other than England. By contrast
a spouse who entered into such an agreement in England and promised
to comply with its terms will seek at all costs to stay here so that
he or she can ask the English court to endorse her renunciation of
the terms of the agreement. As UK courts handle more and more
international divorce cases the UK’s anomalous view of pre‑nuptial
agreements will increasingly and inappropriately create problems for
international litigants.
Public and professional demand
As
noted earlier, almost half of the British population wants binding
pre‑nuptial agreements. People prefer to make their own decisions
instead of leaving their future in the hands of unknown judges. For
the reasons discussed in this article the legal profession is
certainly in favour of enforceable pre‑nuptial agreements.
Resolution, ‘Britain’s biggest group of family lawyers’, issued a
report in 2004, A More Certain Future – Recognition of
Pre-Marital Agreements in England and Wales, recommending that
pre‑nuptial agreements should be enforceable, except where upholding
an agreement would cause significant injustice. Resolution asserted
that:
‘It is an anomalous position that
husbands and wives (and in the future registered same sex
partners) are unable to bind themselves with a contractual
pre-marital/partnership agreement, whereas cohabitants can.
Instead, divorcing couples and separating registered
partners face financial outcomes which represent a judicial
lottery based on the exercise of statutory discretion. It is
felt that the increased demand for pre-marital agreements
reflects the higher number of second and subsequent
marriages; the wider multicultural and multinational
community in which we live and the general public being more
attuned to the idea of self‑ordering. With the media
following high profile marriages and divorces, there is a
greater desire towards self-ordering and the concept of
preventative medicine to mitigate the cost of litigation.’
The head of the Family Law Bar Association has called for legal
enforceability for pre‑nuptial agreements, with appropriate
protections, and has insisted that as long as they remain
unenforceable, there is a ‘disincentive’ to marrying, because
couples lack certainty and security about what they are getting
into; see www.politics.co.uk/issueoftheday/
family-law-bar-association-pre‑nuptials-welcome-if-safeguarded-$7130602.htm.
Relate, ‘the UK’s largest provider of relationship counselling’, has
endorsed pre‑nuptial agreements because the existence of such a
contract ‘eliminates potential problems’ should a couple split up;
see www.politics.co.uk/ issueoftheday/relate-prenuptial-agreements-eliminate-potential-problems-$7129167.htm.The
public is also voting with their feet. Solicitors are busier than
ever drafting pre‑nuptial agreements. Increasingly they need to
explain the extremely strange and unpredictable nature of divorce
law at the current time. In large part they are telling clients that
divorce is a judicial lottery; that no one knows how the courts will
treat pre‑nuptial agreements; that the courts will probably declare
them binding at some point in the future; and that a possibly
enforceable agreement is far better than no agreement at all.
Conclusion
The courts have taken it upon themselves to recognise that changes
in society require changes in the law concerning financial
settlements upon divorce. While several judges have paved the way
for the courts to enforce pre‑nuptial agreements, the old precedents
that held that binding pre‑nuptial agreements are contrary to public
policy have still not been buried. Now is the time to do so. Public
policy demands it. |
examines the
English law concerning prenuptial agreements and compares it the law
that applies in Australia, Canada, New Zealand, the USA and other
jurisdictions.
