The current law for determining divorce financial settlements depends on the discretion of individual judges to apply certain factors and principles which are set down in statute and case law. This means that it is not possible to be absolutely certain as to the outcome in a particular case if it is decided in court by a judge. However, it can be said with certainty that outcomes are generally advantageous to the spouse who did not create or inherit the wealth in the relationship. Therefore, where parents pass assets to a son or daughter there is a considerable risk, if that child later divorces, that at least part of those assets will pass to the child’s ex-spouse under the divorce financial settlement. In the context of a family farm fears about future divorce can often have serious consequences. For instance, the older generation may delay passing assets to the younger because of these fears only to find later, when it is too late, that the chance to plan to avoid substantial Inheritance Tax liabilities has been lost.
One possible way around this problem is to use a Pre Nuptial or Post Nuptial Agreement. This is an agreement between a husband and a wife which sets out how any future divorce financial settlement will be dealt with. These agreements have been commonplace in other jurisdictions for many years but until recently courts in England and Wales have been reluctant to give weight to them. However, there was a very substantial shift in the law in favour of these agreements in 2010 with the Supreme Court decision in the case of Radmacher v Grantatino [2010 UKSC 42]. In this case it was held that courts “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.” The court when defining what is fair felt that:
- Any agreement must not prejudice the reasonable requirements of any child
- The court should respect people’s right to self-regulate their financial affairs to do otherwise would be “paternalistic and patronising”.
- A nuptial agreement was a good and fair way to protect property not accumulated during the marriage; including an inheritance
- Any nuptial agreement was more vulnerable if it did not provide for the other party’s basic reasonable financial needs.
- The Court made it clear that in each case it still had to consider whether the agreement was fair, but the presumption is now very much that the starting point is the agreement stands unless the court is persuaded otherwise.
- A post-nuptial agreement can be equally effective as a pre-nuptial agreement.
A nuptial agreement is therefore now a good way to give protection when planning the passing of assets down the generations against them being lost from a family due to a future divorce settlement.
To ensure that an agreement has the best chance of being upheld as fair:
- Both parties should make full financial disclosure to each other, take independent legal advice from separate lawyers and there should be a suitable period of at least 28 days to reflect before the agreement is signed
- The agreement must provide for the reasonable requirements of any children
- It should also provide for meeting the basic reasonable financial needs of the financially weaker spouse.