In the second in a series of articles looking at family offices and marital law, Pauline Fowler examines pre- and postnup arrangements.

In the second of a series of three articles, international divorce law specialists Hughes Fowler Carruthers look at issues and how they can be addressed from a family offices perspective. The author is director Pauline Fowler.

There has been a series of high profile cases in England widely hailed as giving prenups and postnups English legal recognition, but what do these landmark judgments mean for international families with significant connections with England, who wish to protect their business assets?

The complex international laws that govern in which country a divorce takes place are the subject of another article due in this series, but anyone advising international families who have a connection with England would do well to ensure they receive expert advice on prenups and postnups and that they follow this through. 

The basic position under English law is that the court is the final arbiter of the financial arrangements of divorcing spouses. Any contract or agreement is only one of the matters the court takes into consideration.  That makes it look as if there is no point in signing a prenup or postnup, but the recent developments of Radmacher v Granatino (prenup) and MacLeod, which gave postnups judicial approval, suggest otherwise.  Additionally, the Law Commission is considering recommendations for legislation in this area, although whether its final report will recommend a change in legislation and – even more difficult – whether Parliament will enact such a change has yet to be seen.

Honouring the terms

Essentially, following the Radmacher and MacLeod judgments, it is clear that an English court will honour the terms of a prenup or a postnup that fulfils certain criteria, is kept up to date to reflect changing circumstances that follow from, say, the arrival of children, and which is intrinsically fair in the court’s eyes. It is very much in the interests of married couples who are likely to live in England for at least part of their married life to ensure that any such contract is one that would not trouble an English court.

If a prenup is under discussion, it is essential it is finalised and signed a reasonable period of time before the wedding – weeks beforehand, rather than days – to avoid any suggestion that either party signed up to it under pressure. Equally essential is that each party (whether for a prenup or a postnup) has his or her own lawyer, and that negotiations take place in the light of financial disclosure. 

In the Radmacher case, the Supreme Court said that detailed disclosure is not necessary if one party is “fully aware” of the implications of what he/she is signing and does not seek detailed disclosure, but as there was no clarification of what constitutes the necessary full awareness, it is safer for disclosure to err on the detailed side. Under English law also, it is safest to include at least reference to the need to make proper financial provision for the children. 

Last but not least, is the need to ensure the prenup or postnup is “fair” – in other words that the reasonable needs of the economically weaker party are more than adequately met. This last point is crucial, and wealthy families should bear in mind that the definition of “reasonable needs” would be generously interpreted. If there are not sufficient funds outside the family business to provide for needs outright, a settlement that ensures reasonable needs are properly met during that person’s lifetime or until his/her remarriage would be well worth considering.

European rule

A new EU Maintenance Regulation allows parties to agree the choice of jurisdiction at the time the pre or postnup is signed.  That choice is limited to countries with which the parties have a certain connection, but the list of countries extends beyond the member states of the EU and notably includes Switzerland. Note, however, that the Regulation refers to “maintenance” and so although that covers capital that is settled to meet the needs of the former spouse, it does not include matrimonial property rights – a technical distinction that can be quite tricky in practice.

Finally, if a wealthy international couple settles in England with a foreign prenup, it is worth their while to check if its terms fall foul of the “fairness” test.  If so, one way to address the problem is for them to negotiate a postnup with more generous terms for the economically weaker spouse.  In short, prenups and postnups should be kept under review so that they are up to date and reflect changing circumstances.