By Lindsey Alexander, Partner in the family team.
A pre-marriage or pre-partnership agreement, often known as a Pre-Nup, is a positive step to take at the start of a relationship, particularly in circumstances where financial resources are imbalanced or whether it is necessary to consider the needs of children from a previous relationship. It is worth thinking about these agreements in the same way as life or critical illness insurance. It is something that you hope you will never need but it is there to protect you or your family if the worst happens.
In February 2014 the Law Commission published its report on pre-nuptial agreements.
The Law Commission is the organisation that makes recommendations to the government about how the law should be changed.
The report actually covered two aspects of family law:-
1. The way that we deal with marital agreements – Pre-Nuptial Agreements (agreements entered into by a couple before they are marriage, setting out how they would like to divide their finances if they divorced) and Post-Nuptial Agreements (agreements made after marriage covering the same issues) and;
2. The way that finances are divided on divorce.
The Law Commission has recommended that we have “qualifying nuptial agreements”. This does not mean that Pre-Nuptial and Post-Nuptial Agreements are binding in law yet but the government may choose to adopt the recommendations and make Pre-Nuptial Agreements binding in future. Whilst any changes are only likely to apply to agreements entered into after the relevant statute comes into effect, in the meantime, it makes sense to ensure that any Pre-Nuptial or Post-Nuptial Agreement follows the guidance set out in the Law Commission report. As the courts have been giving increasingly greater weight to Pre-Nuptial Agreements over the last few years, we have already been following a similar approach. The important recommendations of the report are:-
1. The agreement should ensure that the financial needs of each of the couple and of any children are met.
2. The couple should provide each other with full information, supported by relevant documents, with regard to their finances.
3. The couple should each have independent advice.
When looking at how finances are divided on divorce, the court highlighted the fact that there are some difficulties with the current discretionary system. There can be a significant variation in the way that individual judges or judges in different areas deal with particular issues. The Law Commission made it clear that there should be greater certainty for divorcing couples, particularly with regard to the reference to the couple’s financial needs. They also recommended that there be a further detailed investigation into whether there should be a formula to decide how finances are divided on separation, similar to the system used currently in Canada. The advantage of a formula is that it would give couples greater certainty and consistency. The disadvantage is that it may be impossible to find a formula that considers every individual couples’ unique set of circumstances.
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