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Post-nups are valid and enforceable, but pre-nups are not—yet.Philip Perrins examines the impact of MacLeod
On 17 December 2008, Baroness Hale of Richmond delivered judgment in the Privy Council appeal of MacLeod v MacLeod [2008] UKPC 64. It was concerned with the effect of a post-nuptial agreement made between the MacLeods while they were still living together, but it reminds us of the issue, currently being considered by the Law Commission, about the status and effect of marital property agreements.
The parties were both Americans who had been living on the Isle of Man. They entered into a pre-nuptial agreement on 14 February 1994, their wedding day. This was varied in 1997. After 14 months of negotiation, in which they were separately advised, they entered into a further agreement in 2002. Full disclosure revealed that the husband then had assets of £13.8m, while the wife had assets of £184,000. It was the latter agreement which was considered by the Privy Council.
The 2002 agreement included provision for the wife during the continuance of the marriage. Most importantly, it set out that she would receive £1m on divorce or the husband’s death. Thirteen months after the agreement was signed, the husband issued divorce proceedings. The wife applied for ancillary relief and claimed financial provision amounting to 30% of the husband’s wealth at the time of the marriage and 50% of its increase in value since February 1994.
An Isle of Man judge upheld the validity of the agreement but varied it under statutory powers which mirror the Matrimonial Causes Act 1973 by awarding her a further lump sum of £1.25m for the housing needs of herself and the children. The husband, who felt that the £1.25m should be held on trust, ultimately appealed to the Privy Council. Baroness Hale (para 18) found that the husband would have no cause to complain about the Deputy Deemster’s exercise of his discretion were it not for the existence of the 2002 agreement: “The argument has therefore turned on the validity and effect of that agreement.”
The Privy Council approached the matter on the basis that the 2002 agreement was a valid and enforceable one, not only in respect to arrangements when the parties were together, but also with respect to arrangements made for them when they lived separately. Baroness Hale pointed out the difference between post- and pre-nuptial agreements: “The couple are now married. They have undertaken towards one another the obligations and responsibilities of the married state. A pre-nuptial agreement is no longer the price which one party may extract for his or her willingness to marry. There is nothing to stop a couple entering into contractual financial arrangements governing their life together, as this couple did as part of their 2002 agreement.”
What is made clear is that the same principles should be the starting point in both a variation application and an ancillary relief application, namely: “the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family. On top of that, of course, even if there is no change in the circumstances, it is contrary to public policy to cast onto the public purse an obligation which ought properly to be shouldered within the family.”
This represents a change of emphasis which may have an impact on the way in which post-nuptial agreements are treated in ancillary relief applications. For example, in the case of Smith v Smith [2000] 3 FCR 374 Thorpe LJ considered that “[t]he duty of the judge was to adjudicate upon the wife’s entitlement to financial provision under the statute and particularly to reach a determination that applied all the relevant s 25 criteria to the circumstances of the case.” He said, at 383, that “the agreement was within that range but it was no more than one ingredient within a complex equation.”
Perhaps, following MacLeod, an agreement will no longer be just one ingredient within the complex s 25 equation. Subject to an examination of the circumstances in which an agreement was reached and whether there exists any vitiating factor, the parties may now be more restricted to the s 35 approach and need to look at a change of circumstances or for a failure to make proper provision for any child of the family in order to justify a variation to the agreement, rather than relegating the agreement to just one of the factors in the case; albeit in the circumstances of some of the reported cases a magnetic one.
In MacLeod it was considered that there was not such a change in circumstances as to lead a court to vary the financial arrangements made for the wife. The separation was fully contemplated at the time and if anything the change in relation to the care of the children (shared care as opposed to the wife being their primary carer) rather favoured the husband. Accordingly, the Board found that the only principled basis for interferring with the 2002 agreement in the context of the wife’s ancillary relief application was in order to make proper provision for the children, which the trust proposed by the husband would do. There was no basis for interfering with the agreement in respect of provision for the wife even though it was much less than she could have expected to receive had there been no agreement. The husband’s appeal was allowed.
In relation to pre-nuptial agreements, Baroness Hale stated that the view of the Board was that “it is not open to them to reverse the long standing rule that pre-nuptial agreements are contrary to public policy” and “the difficult issue of the validity and effect of pre-nuptial agreements is more appropriate to legislative rather than judicial development”. This was in response to the suggestion on behalf of the husband that all agreements, whether pre- or post-nuptial, should be valid and binding or, rather, “presumptively dispositive” of claims for financial orders.” It certainly cannot be demonstrated that the lack of pre-nuptial agreements in this country is depressing the marriage rate here as compared with other countries where such agreements can be made.
It will be interesting to see whether different rules might apply to pre- and post-nuptial agreements which are currently treated as fundamentally distinct. As Baroness Hale put it: “[t]here is an enormous difference in principle and practice between an agreement providing for the present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future.” When considering the circumstances in which the courts might intervene to vary an agreement many years after it was made, it might be open to question whether there is much practical difference between an agreement entered into on the morning of a couple’s wedding or as soon as they return from honeymoon. What MacLeod does is provide some clarity as to the approach of the courts in intervening in cases concerning the latter.
Philip Perrins is a barrister at 1 Garden Court
The Law Commission is due to start its examination of the status and enforceability of marital property agreements (concerning the property and finances of spouses or those contemplating marriage) in late 2009. The report and draft Bill are expected in late 2012. It is said that the legal recognition of marital property agreements is of great social importance, particularly to those who wish to protect their assets from a future claim for ancillary relief. In MacLeod, Baroness Hale queries whether calls for the recognition of ante-nuptial agreements are motivated by a perception that equality is wrong in principle and if so whether the logical solution would be to examine the principles applicable to ascertaining a fair result rather than the pre-marital attempt to predict what the fair result will be long before the event. The Law Commission may, in part at least, consider modernisation of the 1973 Act if it were to recommend statutory recognition of pre-nuptial agreements. Baron J in NG v KR [2009] 1 FCR 35 made it clear that s 35 of the 1973 Act (which gives the court power to alter maintenance agreements during the parties’ lives) did not apply to pre-nuptial agreements and Baroness Hale observed that it would be clearly unfair to enforce them if, unlike post-nuptial agreements, they could not be varied.
On 17 December 2008, Baroness Hale of Richmond delivered judgment in the Privy Council appeal of MacLeod v MacLeod [2008] UKPC 64. It was concerned with the effect of a post-nuptial agreement made between the MacLeods while they were still living together, but it reminds us of the issue, currently being considered by the Law Commission, about the status and effect of marital property agreements.
The parties were both Americans who had been living on the Isle of Man. They entered into a pre-nuptial agreement on 14 February 1994, their wedding day. This was varied in 1997. After 14 months of negotiation, in which they were separately advised, they entered into a further agreement in 2002. Full disclosure revealed that the husband then had assets of £13.8m, while the wife had assets of £184,000. It was the latter agreement which was considered by the Privy Council.
The 2002 agreement included provision for the wife during the continuance of the marriage. Most importantly, it set out that she would receive £1m on divorce or the husband’s death. Thirteen months after the agreement was signed, the husband issued divorce proceedings. The wife applied for ancillary relief and claimed financial provision amounting to 30% of the husband’s wealth at the time of the marriage and 50% of its increase in value since February 1994.
An Isle of Man judge upheld the validity of the agreement but varied it under statutory powers which mirror the Matrimonial Causes Act 1973 by awarding her a further lump sum of £1.25m for the housing needs of herself and the children. The husband, who felt that the £1.25m should be held on trust, ultimately appealed to the Privy Council. Baroness Hale (para 18) found that the husband would have no cause to complain about the Deputy Deemster’s exercise of his discretion were it not for the existence of the 2002 agreement: “The argument has therefore turned on the validity and effect of that agreement.”
The Privy Council approached the matter on the basis that the 2002 agreement was a valid and enforceable one, not only in respect to arrangements when the parties were together, but also with respect to arrangements made for them when they lived separately. Baroness Hale pointed out the difference between post- and pre-nuptial agreements: “The couple are now married. They have undertaken towards one another the obligations and responsibilities of the married state. A pre-nuptial agreement is no longer the price which one party may extract for his or her willingness to marry. There is nothing to stop a couple entering into contractual financial arrangements governing their life together, as this couple did as part of their 2002 agreement.”
What is made clear is that the same principles should be the starting point in both a variation application and an ancillary relief application, namely: “the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family. On top of that, of course, even if there is no change in the circumstances, it is contrary to public policy to cast onto the public purse an obligation which ought properly to be shouldered within the family.”
This represents a change of emphasis which may have an impact on the way in which post-nuptial agreements are treated in ancillary relief applications. For example, in the case of Smith v Smith [2000] 3 FCR 374 Thorpe LJ considered that “[t]he duty of the judge was to adjudicate upon the wife’s entitlement to financial provision under the statute and particularly to reach a determination that applied all the relevant s 25 criteria to the circumstances of the case.” He said, at 383, that “the agreement was within that range but it was no more than one ingredient within a complex equation.”
Perhaps, following MacLeod, an agreement will no longer be just one ingredient within the complex s 25 equation. Subject to an examination of the circumstances in which an agreement was reached and whether there exists any vitiating factor, the parties may now be more restricted to the s 35 approach and need to look at a change of circumstances or for a failure to make proper provision for any child of the family in order to justify a variation to the agreement, rather than relegating the agreement to just one of the factors in the case; albeit in the circumstances of some of the reported cases a magnetic one.
In MacLeod it was considered that there was not such a change in circumstances as to lead a court to vary the financial arrangements made for the wife. The separation was fully contemplated at the time and if anything the change in relation to the care of the children (shared care as opposed to the wife being their primary carer) rather favoured the husband. Accordingly, the Board found that the only principled basis for interferring with the 2002 agreement in the context of the wife’s ancillary relief application was in order to make proper provision for the children, which the trust proposed by the husband would do. There was no basis for interfering with the agreement in respect of provision for the wife even though it was much less than she could have expected to receive had there been no agreement. The husband’s appeal was allowed.
In relation to pre-nuptial agreements, Baroness Hale stated that the view of the Board was that “it is not open to them to reverse the long standing rule that pre-nuptial agreements are contrary to public policy” and “the difficult issue of the validity and effect of pre-nuptial agreements is more appropriate to legislative rather than judicial development”. This was in response to the suggestion on behalf of the husband that all agreements, whether pre- or post-nuptial, should be valid and binding or, rather, “presumptively dispositive” of claims for financial orders.” It certainly cannot be demonstrated that the lack of pre-nuptial agreements in this country is depressing the marriage rate here as compared with other countries where such agreements can be made.
It will be interesting to see whether different rules might apply to pre- and post-nuptial agreements which are currently treated as fundamentally distinct. As Baroness Hale put it: “[t]here is an enormous difference in principle and practice between an agreement providing for the present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future.” When considering the circumstances in which the courts might intervene to vary an agreement many years after it was made, it might be open to question whether there is much practical difference between an agreement entered into on the morning of a couple’s wedding or as soon as they return from honeymoon. What MacLeod does is provide some clarity as to the approach of the courts in intervening in cases concerning the latter.
Philip Perrins is a barrister at 1 Garden Court
The Law Commission is due to start its examination of the status and enforceability of marital property agreements (concerning the property and finances of spouses or those contemplating marriage) in late 2009. The report and draft Bill are expected in late 2012. It is said that the legal recognition of marital property agreements is of great social importance, particularly to those who wish to protect their assets from a future claim for ancillary relief. In MacLeod, Baroness Hale queries whether calls for the recognition of ante-nuptial agreements are motivated by a perception that equality is wrong in principle and if so whether the logical solution would be to examine the principles applicable to ascertaining a fair result rather than the pre-marital attempt to predict what the fair result will be long before the event. The Law Commission may, in part at least, consider modernisation of the 1973 Act if it were to recommend statutory recognition of pre-nuptial agreements. Baron J in NG v KR [2009] 1 FCR 35 made it clear that s 35 of the 1973 Act (which gives the court power to alter maintenance agreements during the parties’ lives) did not apply to pre-nuptial agreements and Baroness Hale observed that it would be clearly unfair to enforce them if, unlike post-nuptial agreements, they could not be varied.
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