Should we get a pre-nup?

On December 17, 2008, the Privy Council handed down its decision in the case of MacLeod v MacLeod by which the “old rule” that post-nuptial agreements were void and unenforceable because they were deemed to be contrary to public policy was disapproved.

On October 20, 2010, the Supreme Court of England handed down its long-awaited judgment in the case of Radmacher v Granatino, in which it approved and agreed with the approach taken by the Privy Council in the Mac-Leod decision and thereby abolished the “old rule”.

Bermuda courts are bound by Privy Council decisions and decisions of the Supreme Court of England are highly persuasive in Bermuda courts.

These decisions have significantly altered the landscape in Bermuda matrimonial practice when it comes to entering into pre-nuptial agreements and the effect of doing so on the dissolution of a marriage.

What is a pre-nuptial agreement?

Commonly referred to as a “pre-nup”, it is a private agreement between parties before their marriage.

It is a contract in which a couple sets out how their financial resources are to be divided should their marriage break down.

This is opposed to a regime of division of assets being imposed upon them by the existing statuary framework and determination of the court.

How have pre-nups been treated historically by the courts?

They have been considered under the court’s general mandate to take into account all of the circumstances of the case.

But a strong line of past cases have held that pre-nups, insofar as they seek to make provision for the future division of assets consequent upon divorce, are contrary to public policy, so are void and incapable of enforcement.

This view reflected the societal norms of the time that to plan for the division of property upon the eventual breakdown of a marriage would encourage divorce, thus corroding the institution of marriage.

Given this approach, pre-nups have historically carried little, if any, weight and essentially were not worth the paper they were written on insofar as the English matrimonial causes regime was concerned.

In Bermuda, because we adopted the English matrimonial causes regime, pre-nups have been treated in the same dismissive way.

How has the historical position changed?

Over the last 10 years, the English courts have been pushing the boundaries when it comes to the extent to which they would uphold provisions in pre-nups.

This includes the weight given to pre-nups when considering the application of one spouse for financial provision contrary to the terms of a pre-nup which limited such claims.

The development of the law has been made in baby steps but with each succeeding case the road towards inevitable consideration of the status of pre-nups by the Supreme Court and the Privy Council was being paved.

The MacLeod and Radmacher decisions opened the door for parties to enter into pre-nups and set out their own wishes in the case of divorce.

What are the necessary ingredients for a pre-nup to be given the greatest amount of weight?

Negotiating parties must make a full disclosure of all of their financial resources — current and those they are likely to have in the foreseeable future.

The term ‘financial resources’ is very broadly defined and includes not only what is owned legally but also those assets over which a party has a beneficial interest, such as assets held in a trust, or which are owned jointly with others.

Both parties must obtain independent legal advice in relation to the proposed terms of the pre-nup.

There must be no undue pressure exerted on a party to sign the pre-nup, nor must one party take advantage of his or her superior power to coerce the other to enter into the pre-nup.

There must be a reasonable time prior to the wedding for the parties to reflect on the terms being proposed in a calm and unpressurized environment.

These safeguards are crucial to the subsequent consideration by the court of the weight to be given the pre-nup because the terms may, and will usually, make provision that is less than a court would award.

If any of these basic safeguards is not adhered to, the pre-nup will be tainted and this will affect the court’s consideration of it.

What weight will be given to a pre-nup by the courts now?

Each case will depend on its own specific facts and a pre-nup does not prevent a party from applying for financial relief following the breakdown of the marriage even if there is a valid pre-nup in place.

However, the decisions of MacLeod and Radmacher mean that when the court is called upon to consider such an application, it will consider the terms of the pre-nup, how much weight it should place on it and to what extent the terms of the pre-nup should be given determinative weight.

If the old rule was that pre-nups were contrary to public policy and unenforceable, the new rule is that the court will respect the autonomy of parties who enter into properly negotiated pre-nups and that the court should give effect to the pre-nup unless it would be unfair to do so.

It is particularly relevant if both parties have assets they do not wish to become joint matrimonial assets; if one party is in a stronger financial position; or where it is likely that during the marriage one party will inherit or be gifted finances from sources outside the marriage, such as a trust.

Negotiating a pre-nup involves considerable difficulties and must be undertaken with care, sensitivity and an appreciation of the disturbance it may cause to the relationship.