Pre and post-nuptial agreements in sharp focus

As with any litigation, there is much risk and uncertainty in having a divorce financial settlement determined in court. The judge has to take into account a number of factors set out in law and then apply discretion to come up with a settlement which is “fair” to both parties which means that the outcome can differ depending on which judge hears the case.

Despite the subjective element of judicial discretion in divorce financial settlement cases, there has been a gradual move towards courts differentiating between marital assets (those assets built up during the marriage) and non-marital assets (those assets which are derived from outside the marriage) either because they were owned by one spouse before the marriage or because one party has received them through inheritance or gift.

The starting point for the division of marital assets is 50/50. However, the judge can and will depart from this in favour of one party, principally when the needs of that party or children demand this. Traditionally, the starting point for non-marital assets has been that they should remain with the person who received them unless it is necessary for them to be brought into the settlement and divided, for instance in order to meet needs. In most cases non-marital assets do have to be divided to a lesser or greater degree.

However, any settled wisdom on asset division has recently been thrown into confusion by Sharp v Sharp [2017] EWCA Civ 408 in which the Court of Appeal stated that there are cases where the principle of equal sharing of marital assets should not necessarily be applied. It indicated that the court could depart from an equal sharing starting point particularly in cases of short, childless marriages where both spouses are working and where a significant proportion of the assets arising during the marriage were accrued by one spouse. In these circumstances, it may be reasonable for the spouse who contributed most to the assets to keep the majority.

Sharp v Sharp is an acute reminder of the uncertainty and thus risk of having a divorce financial settlement determined in court. For farming families, this is a real concern and parents are becoming increasingly reluctant to pass on the farm to their children for fear of losing the farm. The courts have little regard for the fact that a farm has been in the family for generations, so a divorce can have a devastating effect leading to farms being split up or the farming business being crippled by debt to fund a settlement. With the significant rise in farming divorces, we have seen a corresponding increase in enquiries from the older farming generation asking how they can mitigate against such a risk.

One effective option that is available to couples is the pre or post-nuptial agreement which is essentially a contract setting out the terms of the financial settlement that will apply if a couple separate and thereby giving protection in the event of divorce. In October 2010, the Supreme Court ruled in favour of wealthy Katrin Radmacher, who sought to limit the financial provision for her spouse through a pre-nuptial agreement. Her success fuelled a significant increase in demand for such agreements and farming families are no exception. Settlements under pre and post-nuptial agreements can provide for a spouse’s needs on a more limited basis as opposed to a court settlement which could result in that spouse receiving a far higher proportion of the assets regardless of who brought them into the marriage.

Of course, arranging a pre-nuptial agreement can be a delicate task. It is a difficult subject to broach and will be considered by many as clinically business-like and therefore unromantic but it is far better to have one in place just in case things do not work out quite as planned. If the parties are already married, a post-nuptial agreement can be just as effective.