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March 10, 2014updated 11 Jan 2016 2:22pm

Why post-nups are a more attractive alternative to pre-nups

By Spear's

In light of the Law Commission’s recommendations that marital contracts should become law, experts predict a surge in interest in prenuptial, postnuptial and separation agreements. If approved by Parliament, these contracts will bring couples greater clarity and certainty as to how their assets will be divided in the event of a break-up.

There has always been a greater emphasis on the more obvious, star-studded ‘pre-nup’ and less interest in the relevance of post-nuptial agreements, but these more discreet cousins are just as important and are becoming increasingly common.

Pre-nuptial agreements are negotiated before the couple marries while they are hopefully still calm and each party can see what the other person’s goals are for the relationship. However at this stage, the bargaining strength of the parties is often considered to be unequal as the willingness to negotiate, make concessions and/or stand firm can be dictated by emotions, fears for the future of the relationship and the anxiety to avoid conflict where possible. These factors can have an impact on how the pre-nup process is managed.

If an agreement cannot be reached, the wedding can always be called off. However, at this stage for most couples, this is an unattractive option and scarcely ever a realistic one, especially if there are children involved.

In contrast, post-nuptial agreements are signed after the marriage takes place, while the couple is still living together and dealing with their financial arrangements. The reasons behind the agreement will often be more rational than during the pre-nup process, and in most, but not all, cases the question of pressure, duress or emotional insecurity, is less likely to be an issue. Once the couple is married, their negotiating positions are more evenly balanced.

The main factors that push couples towards pre-nups and post-nups are common to both, such as the worrying unpredictability of court decisions on finance, the complicated disclosure and investigation process involved, as well as the alarming costs and delays.
There are many situations where a post-nuptial agreement can be helpful – some straightforward, some less so, for example when parents want to help their married adult child to get a foot on the property ladder by contributing a hefty sum to the deposit on the jointly purchased first home while protecting their gift in the event of future divorce proceedings.

Or take when the wealthy partner discovers his spouse’s infidelity but does not wish to give up on the marriage provided the spouse relinquishes or limits their claims against the wealthier one’s assets. Or a spouse may be nervous and distrusting, who will only consider staying in the relationship if they are given some certainty about their future financial security.

And of course, there are also situations where infidelity isn’t an issue, but, for example, where a happily married spouse suddenly inherits a large sum that they wish to ring fence for their own extended family and exclude from the joint family finances, or where there is a need to ratify, reinterpret or vary a foreign pre-nuptial agreement following the parties’ move to England.

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The key case of McLeod v McLeod in the Privy Council, involving an American couple getting divorced on the Isle of Man in 2008, went a long way to confirming the validity and effect of post-nuptial agreements.

There were significant differences in wealth and age between the couple, and during their nine year marriage the McLeods entered into three marital agreements, including a pre-nup. The final one, a post-nup, which was the subject of the proceedings, was drafted and agreed in 2002 after fourteen months of negotiations. The marriage broke down shortly after.

Baroness Hale in her judgment found that the 2002 post-nuptial agreement between the McLeods was ‘valid and enforceable’. She added that in her view post-nups were fairer than pre-nups because one party cannot refuse to marry the other if they don’t get exactly what they want, which can frequently happen in the drafting of the latter.

While this view on the possible lack of validity of pre-nuptial agreements was overturned by the Supreme Court in the well-known Radmacher case, her view on post-nuptial agreements remains good law; arguably they are still more likely to be treated as binding than pre-nups.

So, it seems that the rise of the post-nup is set to continue as marital agreements become more established, accepted and sought after. The use of a post-nup, rather than the Hollywood-style pre-nup, will become increasingly valuable where there is a major change in financial circumstances or financial insecurity, to provide reassurance and some degree of future certainty.

Michael Drake is a partner in the family law team at Collyer Bristow LLP

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