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Asking the right questions: The Law Commission’s Consultation Paper “Marital Property Agreements”

By Judith Fitton, solicitor in the FamilyTeam at Mundays LLP

The Law Commission published the keenly awaited Consultation Paper “Marital Property Agreements” in January.2010 It seeks views on a range of options for reforming the law relating to pre-nuptial, post-nuptial and separation agreements.

It starts by quoting the Government’s Code of Practice on Consultation: “Formal consultation should take place at a stage when there is scope to influence the policy outcome.”

Is there still scope, or has the decision of the Supreme Court in the case of Radmacher v Granatino [2010] UKSC 42 effectively moved the debate on past the position where legislation is not now needed? And should we even be considering making such agreements legally binding when they sit so uneasily with our current family law?

This is ground that has been covered before. In Jack Straw’s 1998 Green Paper “Supporting Families”, it was proposed that couples should be allowed to make written agreements dealing with their financial affairs which would be legally binding on divorce. The Paper proposed to protect the interests of children and the economically weaker party to the marriage by introducing six safeguards. If one of the following circumstances were found to apply, then the agreement would be ruled invalid:-

 

  1. Where there is a child of the family
  2. Where the agreement is unenforceable under the general law of contract
  3. Where one or both of the couple did not receive independent legal advice before entering into the agreement
  4. Where the agreement would cause significant injustice
  5. Where one or both of the couple have failed to give full disclosure of assets and property
  6. Where the agreement is made fewer than 21 days prior to the marriage.

 

Views on the Green Paper were fairly evenly divided, even amongst the judiciary and there was little appetite for legislation at that time. Things went rather quiet until the Law Commission announced this latest project in 2008.

However, in the meantime, a number of high profile cases concerning both pre and post nuptial agreements have been coming before the courts.

The court in K v K (Ancillary Relief: Prenuptial agreement) [2003] 1 FLR 120 set out a useful checklist for the court to consider as to whether an agreement should be upheld. Four years later in 2007 the Court of Appeal ruled in an interim hearing in Crossley v Crossley [2008] 1 FLR 1467 that the agreement signed before the marriage was a “factor of magnetic importance”. The case settled before trial, but interestingly, one of the factors raised by the wife in her attempt to have the pre-nuptial agreement overruled, was that the husband had failed to make full disclosure of his finances at the time of the agreement.

A year later in 2008, the Privy Council ruled in favour of a post-nuptial agreement in MacLeod v MacLeod [2010] 1 AC 298. It distinguished these from pre-nuptial agreements (relying on the statutory jurisdiction to vary such agreements in sections 34 and 35 of the Matrimonial Causes Act 1973), and held that post-nuptial agreements were no longer void for reasons of public policy.

This evolution of the judiciary’s changing attitudes culminated in the October 2010 decision of the Supreme Court in Radmacher v Granatino. Here, the parties had signed a pre-nuptial agreement that neither of them would make any financial claims against the other in the event of a divorce. The husband sought to renege on this, claiming that he did not understand the agreement, (it was written in German, a language that he did not speak), he did not receive independent legal advice and the parties did not exchange financial disclosure.

The Supreme Court ordered, by a majority of eight to one, that despite these flaws, the agreement was binding. The starting point should be that: “The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to the agreement.” Undoubtedly, the factual matrix of this case had a significant bearing on the outcome.

The Law Commission were due to publish their Consultation Paper in mid 2010, but delayed it to await the judgment in Radmacher. Was this misguided deference? If the law is to be changed, isn’t the correct process for the Law Commission to make recommendations and Parliament then to act upon them, rather than for the Supreme Court to take the initiative? Ironically, there is an argument for saying that as the Supreme Court now tells us agreements should be upheld if it is fair to do so, a change in the law may not be needed at all.

But the Law Commission points out that for many people, the decision in Radmacher does not go far enough. “The fact that the terms of a marital property agreement are always subject to the court’s review means that it is never possible to be certain, in advance, that an agreement will determine the outcome of the ancillary relief process.” In order to take matters further forward, a change in the law would be essential in order to make agreements binding and exclude the discretionary jurisdiction of the court.

This Consultation Paper was two years in the drafting and it shows. The work has resulted in an immensely detailed paper, comprehensive coverage of arguments for and against such agreements and a practical appraisal of the potential use of such agreements in our legal system.

The Commission suggests that agreements can be seen as being supportive of marriage and the advantage of being able to have autonomy over their affairs, may encourage couples into marriage. It looks in detail at the law in other countries and notes that it would be problematic to supplant the law of marital agreements from civil law jurisdictions into our common law system, where we do not have a “community of property” principle.

If there is to be reform (and the Law Commission does not assume that there should be), what should the formalities be for agreements and in what circumstances should the court be able to intervene?

Not all of the original formalities proposed by the Green Paper reappear here. Why is this? It would appear that the Law Commission do not want to put people off: “What is needed is a level of formality that provides a proportional level of protection, without making qualifying nuptial agreements unacceptable to those who may use them. There is no point in imposing burdens that appear to outweigh the benefits that such agreements might confer.”

The requirement that the agreement be a valid contract remains, as does the proposal that the parties should have legal advice. One cannot but help but note that legislation along these lines would have worked in Mr Granatino’s favour. Opinion is sought, though, as to whether it could ever be possible for the parties to seek advice from the same lawyer.

The 21 day time limit from the Green Paper is dropped by the Law Commission who rightly query whether any time limit could solve the problem of pressure being placed upon a vulnerable party.

The Commission proposes that agreements are not ruled invalid by the appearance of children in the marriage, which is, after all, a common and foreseeable event. This makes sense. The Paper also favours parties having material full and frank disclosure of the other’s financial situation but controversially, asks for opinion as to whether parties should have the right to waive this disclosure.

In what circumstances should the court be able to intervene? The Law Commission suggests that as a bare minimum, there should be two overriding public policy safeguards, namely prejudice to children and the public purse. It proposes that the court should have the power to vary or set aside agreements if they fail to make sufficient provision for the children of the family and/or would have the effect of leaving a party dependant on state benefits in circumstances where this could have been avoided.

If there is no appetite for such “cast-iron” agreements, the Paper puts forward the notion of less controversial agreements that could be set aside by the courts on the happening of specified events or if the agreement failed to meet the needs of the parties or if it caused significant injustice.

What should couples be able to include within these agreements? The Law Commission lean in favour of allowing couples to protect “special property”, perhaps a family business or a farm handed down through the generations. The Paper offers two choices; broad agreements which would be unlimited in the scope of their financial terms or narrow agreements which could only cover property acquired before marriage and/or property either inherited or given to either party at any time, whether before or during the marriage.

To return to the question posed at the start of this article, should we even be considering making marital property agreements legally binding when they sit so uneasily with our legal, discretionary based, system which protects the vulnerable and those in financial need? For many, the objective of a marital property agreement is to skew the division of the matrimonial finances in their favour and prevent the weaker party (normally the wife) seeking the assistance of the court in righting the balance and achieving a fair outcome. If such agreements are to become legally binding, then ultimately, unfairness will triumph and the courts will be unable to assist. Is this right?

Whilst this is certainly a factor in steering one away from the “cast-iron” model of agreements, the Paper does not believe that reform necessarily has to have such a damaging social effect. In crafting the carefully thought out options for consultation listed above, the Commission arguably adequately addresses this dilemma.

Neither does the Commission shy away from the thorny question as to whether its original brief was wide enough. If marital property agreements are designed to achieve certainty and certainty is something the courts are not delivering because of the uncertain state of the law of ancillary relief, then it can be argued that the real way to tackle this is to change the underlying law. The Paper asks whether consultees agree that reforms should be postponed to await a wider review of the law of ancillary relief – a review outside the scope of this project.

The Law Commission has invited responses to the Consultation Paper by 11 April this year. The full Report and recommendations to the Government is then expected to be published within the next 12 months. Given the evolution in public opinion, as led by the judiciary, one would expect the vote to be cast in favour of agreements gaining legal recognition, albeit probably subject to some stringent safeguards.

What happens then? Will the Government act? It has been said that “there are no votes in family law” and it may be that after all this effort, we will be left where we are now, with the guidance of the Supreme Court in Radmacher. We know that agreements should now be upheld unless they are manifestly unfair and providing essential safeguards have been met, such as independent legal advice, the exchange of disclosure and the absence of duress. Perhaps that is all we need.

Judith Fitton is a solicitor in the FamilyTeam at Mundays Solicitors, a leading regional practice which provides quality advice to corporate and private clients.

Contacts:

Judith Fitton, Mundays Solicitors LLP: (0)1932 590557 judith.fitton@mundays.co.uk http://www.mundays.co.uk

Tim Maltin, Maltin PR: 07590 057 232 tim@maltinpr.com www.maltinpr.com

A photograph of Judith is available at http://www.maltinpr.com/judith-fitton

Mundays is a leading regional practice which provides quality advice to corporate and private clients. Established in 1960, Mundays has a diverse client base that includes major international and national companies as well as smaller businesses, individuals and families. Mundays specialises in Banking, Construction, Corporate & Commercial, Dispute Resolution, Employment, Family, Insolvency, Private Wealth, Property, and a wide variety of industry sectors.

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