As expensive divorce cases go through the courts in the UK, there is increasing focus not just on pre-nuptial agreements in case marriages go wrong, but in post-nup arrangements.

The question of the enforceability of pre- and post-nuptial agreements on divorce in England has come to the fore once again, as a result of an appeal from the Isle of Man Courts to the Privy Council this month.

Over the past ten years, the courts in England and Wales have grappled with the status of pre-and post-nuptial agreements.  A pre-nuptial agreement is a contract by which a husband and wife to be, prior to their marriage, seek to regulate their financial obligations toward the other in the event of the marriage breaking down.  A post-nuptial agreement is, as its name suggests, one entered into by husband and wife after the marriage and it may be made before or after a breakdown in the marriage.

Post-nuptial agreements are not as prevalent because there is little incentive for the financially weaker spouse to agree (once the ring is on the finger) to restrict his or her claims on divorce.

Post-nups are, however, increasingly popular in the US and often used when a spouse feels there is instability in the relationship - perhaps as a result of infidelity - or when economic circumstances have changed.  If, for example, a spouse has an increasingly valuable stake in a business, a shareholder or partnership agreement may require a pre- or post-nuptial agreement to be in place to limit exposure and disruption to the business in the event of divorce.

The law in England and Wales applicable to post-nuptial agreements is the same as that applicable to pre-nuptial agreements.  Historically, the enforcement of any agreement between husband and wife which sought to oust the jurisdiction of the court or limit the court's power was held to be void as being contrary to public policy.

This was made clear by the House of Lords in the 1929 case of Hyman where it was held, in connection with a post-nuptial deed of separation, that “the wife’s right to future maintenance is a matter of public concern, which she cannot barter away”.

The law has moved on from then, particularly where a post-nuptial agreement is entered into at the time of separation.  For example, in the case of Edgar [1980] the court of appeal decided that it was appropriate to hold the wife to the terms of the post‑nuptial separation agreement because it had been properly and fairly arrived at with competent legal advice after lengthy negotiations.

However, it is clear from the Edgar case and subsequent cases that a separation agreement will not be upheld if there has been undue pressure by one side, exploitation of a dominant position to secure an unreasonable advantage, inadequate knowledge, bad legal advice, or an important change of circumstances which had been unforeseen or overlooked at the time of the making of the agreement. 

The Court has a broad discretion in divorce cases to decide what weight should be applied to pre- and post-nuptial agreements (including separation agreements) in deciding whether any injustice would be done by holding the parties to the terms of their agreement.

Over the last decade, judges in the family courts have given increasing weight to pre-nuptial agreements.  In some cases for example M v M [2002] and NG v KR [2008] the existence of a pre-nuptial agreement has steered the Court to a lower level of settlement than would have been awarded if there had been no such agreement.  In another case, Crossley [2007], (where Withers acted for the successful husband), the Court of Appeal decided that the pre-nuptial agreement was a factor of magnetic importance in rejecting the wife’s claims to depart from its terms.  That was a very short marriage of only 14 months, where the wife already had assets of around £18 million.  It is generally accepted that the shorter the marriage the more weight a pre‑nuptial agreement is likely to carry. 

The case of NG v KR demonstrates that even though the pre-nuptial agreement would have been valid and enforceable in the country of origin of the spouses (in that case Germany for the wife and France for the husband) that fact was not determinative.  The English Court decided that the terms of the agreement were manifestly unfair (as it provided the husband with no financial provision where the wife was worth between £50 million to £100 million) and awarded him around £5.5 million. 

Similarly, in the case of NA v MA [2006], the Court did not hold the wife to the terms of a post-nuptial settlement which had only been entered into shortly before divorce proceedings commenced, in circumstances where the husband was prepared to try to reconcile the marriage after discovering that his wife had committed adultery with his best friend, but only on the basis that she signed a post-nuptial agreement setting out the financial terms in the event of a divorce.

In the case of Macleod which went before the Privy Council on 12 November 2008, the parties had entered into a pre-nuptial agreement and a post-nuptial deed of variation governing the finances between them during the marriage and setting out the financial provision for the wife in the event of a divorce.  The deed of variation was negotiated with the benefit of legal advice on each side over a long period of time (to include an interlude in negotiations around the birth of the couple’s 5th child).  The husband and wife were from Florida where they married and where pre and post-nuptial agreements are generally binding.

During the course of the divorce proceedings issues arose over the children, and the welfare officer reported that the wife’s property (as provided for her in the deed of variation) may not be adequate for her and the children.  The husband was prepared to provide an additional housing fund of £750,000 in trust for the wife to revert to him once the youngest child had reached 23, by which time he would be 80.  The Isle of Man Court decided that the housing fund could be increased to £1.25 million and advanced to the wife outright (rather than in trust).  This was upheld by the Isle of Man Court of Appeal.

Only a few family law cases come before the privy Council.  It is the final Court of Appeal for UK territories, crown dependencies and for those commonwealth countries that have retained the right to appeal to the Queen.

The Privy Council is predominately made up of serving of Law Lords, and its rulings are generally treated as binding or at least highly persuasive by Courts throughout the UK.  This is the first time since 1929 that the most senior judges in the country have had an opportunity to address the question of nuptial agreements since they were held to be contrary to public policy in Hyman in 1929.

It remains to be seen whether the Privy Council will take the opportunity to comment on the enforceability of nuptial agreements and add to the growing body of professional opinion in favour of reform.

For example, in the pre-nuptial case of Crossley 2007 Lord Justice Thorpe observed that "the role of contractual dealing and the opportunity for the autonomy of the parties is becoming increasingly important."  He added that there was a strong argument for legislative consideration to give the opportunity within the English justice system for parties to contract in advance of marriage and make provision for the possibility of dissolution; and that would narrow the divide with civil law jurisdictions (for example in Europe and the US where such agreements are binding and enforceable).

Even if the Privy Council refrains from making a definite ruling, the Law Commission is set to begin a detailed review of the issue of nuptial agreements in late 2009 with the prospect of a draft provisional bill by 2012.

In the meantime, where there is disparity of wealth going into the marriage or expectation of disparity (for example from inheritance) arising during the marriage, it is usually advisable for the financially stronger party to have a pre-nuptial agreement.  As developments in case law have shown over recent years, although not binding, they are becoming more effective, particularly in the short-term.