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  1. Law
January 19, 2012

Why Prenups Should be Legally Binding

By Spear's

Divide and Conquer
Until pre-nups become binding, divorce settlements won’t get any simpler, says Caroline Garnham 
JASPER, 68, IS contemplating marriage. His bride to be, Jane, is 52. She’s a lawyer and is living with her daughter, 18, at their home in Clapham. Jasper would like her to give up her work to travel and live with him in Knightsbridge, but she’s concerned about her long-term financial security.

Jasper has had a successful career in the City and amassed a considerable fortune, which is in liquid investments. Jane has a reasonable income, but few assets apart from her house. Jasper has two children — Darren, 26, and Rachel, 24 — from a previous marriage. They get on well with Jane’s daughter. It took some time for Jasper to get over the death of his wife from breast cancer, but he would now like to build another relationship and travel before he gets too old.

Jane is concerned that if they were unmarried and split up, she would not able to get another job and would not be properly provided for. She has been following the recent case of Kernott v Jones through the courts with increasing dismay and alarm.

The case involved Leonard Kernott, who lived with Patricia Jones in Essex as cohabitees for eight years in a house which they bought together. Mr Kernott moved out in 1993, leaving Ms Jones to pay the mortgage, maintain the house and bring up the couple’s two children.

In 2008, the County Court judge in Southend ruled that Ms Jones should get 90 per cent of the house and Mr Kernott 10 per cent. The High Court upheld this decision. However, in the Appeal Court, it was decided that Mr Kernott was entitled to half the house, as would have been the case had they been married. In the Supreme Court in November, this decision was overturned and the County Court decision was reinstated with a 90:10 split in favour of Ms Jones.

Jane is, therefore, not prepared to give up her home in Clapham and her job as a lawyer to move into Jasper’s Knightsbridge apartment until she’s assured that she will be properly provided for in the future. Jasper, on the other hand, has different concerns. He wants to provide Jane with a comfortable future, but also wants to ensure that his children inherit the bulk of his assets.

Under the current rules, if a couple who were married were to split, there is a starting presumption of a 50:50 divide of their joint assets. An even division of assets is obviously a more likely outcome after a long marriage. Nevertheless, Heather Mills did very well from her short marriage to Sir Paul McCartney by being awarded a lump sum of £16.5 million, £7.8 million of assets and £35,000 a year for their daughter Beatrice — plus nanny and school fees.

Of course, Jasper could set up a trust for his children, thereby reducing the proportion of his estate over which Jane could seek a claim, but he’s not happy about this. Firstly, he would prefer not to have to pay 20 per cent inheritance tax on the value of the assets settled. Secondly, he’s concerned that if either of his children were to marry and divorce, their spouses may come to enjoy his money — a prospect he would not welcome during his lifetime. Thirdly, he’s aware that, if his setting up a trust was seen as a move to deny his wife her legitimate entitlement, then it could be unravelled by the court.

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Even if it was not seen in this way, in appropriate circumstances trusts may be varied by a court or orders imposed on the wealthier spouse which, in reality, require trustees to make a distribution to the paying spouse to allow them to discharge their financial responsibilities or to provide for their future after they’ve done so from their free assets.
WITH THIS IN mind, Jasper is eager to find out all he can about the Law Commission’s proposals on pre-nups introduced in early 2011. Before publishing their proposals in a consultation, the Commission awaited the outcome of the well-documented case of Radmacher v Granatino, in which a wealthy German heiress sought through the UK courts to uphold a pre-nuptial agreement against her less wealthy French husband. The Supreme Court ruled that the agreement was freely entered into by each party and should therefore be upheld.

The Commission proposes that only pre-acquired, gifted or inherited property should be included in a binding pre-nuptial agreement. Monies made during the marriage would remain available on divorce to meet the needs of the less wealthy spouse. This proposal is fine for Jasper, given that his earning days are over, so he may therefore be able to ringfence all his liquid investments for his children as well as his houses.

These agreements, it is proposed, would only be treated as binding if both parties have taken legal advice and there has been a full and frank disclosure of the financial situation of the wealthier spouse. Additionally, it is proposed that the court should be able to vary or set aside an agreement to the extent that it fails to make sufficient provision for any minor children of the family or would leave one or both parties dependent on state benefits. Jasper would not be keen to make a full and frank disclosure of all his assets to Jane on marriage, but he realises that this may be necessary to get protection.

Although the results of the consultation are still awaited, and it may be some time before binding pre-nups are introduced in this country, Jasper is aware that, even now, such agreements are given substantial weight by the courts, particularly following Radmacher v Granatino, and he may suggest one to Jane if they consider marriage in the future.

Jane is also keen to find out how she may be provided for if she survives Jasper while they’re still together. This is where the law in the UK is so unfair. Whereas on a divorce the wife is prima facie entitled to up to 50 per cent of the joint estate, if she stayed with him until his death, she could be entitled to receive next to nothing on his death. Jasper is permitted under English law to leave his estate to whomever he chooses. Furthermore, if he chooses to leave his estate to his children, he could write their inheritance in trust so that they cannot touch the capital or, indeed, all the income for several years.

Jane has no right to inherit anything on his death, although if she does not receive ‘reasonable financial provision’ she could make a claim under the Inheritance (Provisions for Family and Dependants) Act 1975 (the ‘Inheritance Act’). If she was living with Jasper but not married to him, her claim would only be for reasonable provision for her maintenance. As a widow, she would not be restricted to maintenance.

From her perspective, Jane’s situation is potentially precarious. If they don’t marry, she could be financially insecure. However, if they do marry and split, with a pre-nup protecting his assets acquired before marriage, she could again receive very little. If she and Jasper stay together and she survives him but he has failed to make a will, his estate would be subject to the intestacy rules. If they’re unmarried she’d be entitled to nothing under the existing rules, and if they are married, as the widow of a man who also leaves children, she would be entitled to £250,000 outright and a life interest in half the remainder of his estate. Alternatively, as discussed above, if he makes a will, he could choose to leave her with very little.

In either scenario, if she wanted to seek additional provision, Jane would need to make a claim under the Inheritance Act. In some ways, it seems to Jane that the only way she could ensure she’s properly provided for would be to marry without a pre-nup and then divorce — not a route which greatly attracts her.

In continental Europe, the situation is much clearer and certain since the assets are usually split according to the contract the couple enter into on their marriage and their entitlement is usually the same, whether they separate during life or on death. However, given that the laws vary from country to country, odd anomalies emerge when couples either move countries or have cross-border marriages, and, of course, depending on jurisdiction, unmarried couples may not be in any better a position than they would be in this country.

Like anyone else thinking of marriage or co-habitation, both Jane and Jasper should take good advice before doing anything either may regret.

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