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Case law: Court clarifies effect of pre-nuptial agreement on financial settlement in divorce

Spouses signing a pre-nuptial agreement should ensure they understand how the circumstances at the time it was made, and at the time of the divorce, could affect the extent to which it is upheld if they divorce. However, the longer the marriage, the harder it will be to predict the latter.

September 2018

This update was published in Legal Alert - September 2018

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A couple lived together from 2004, but the husband had been involved in a previous divorce and it was four years before he would commit to marriage. Even then, he insisted on a pre-nuptial agreement which was signed three weeks before the marriage.

At the time of the marriage, the husband was worth around £34m. His assets included a 20-acre estate in Berkshire that he had owned for many years. The wife was worth around £216,000 – and they had agreed she should give up her £40,000 a year job that year when their child was born.

Under the pre-nuptial agreement, if they divorced, the wife would get a lump sum of £600,000 and annual maintenance of £24,000 (both index-linked). Both parties took independent legal advice on its terms. Her solicitors advised her that she would be entitled to more on divorce and also expressed concern that she might be under pressure to sign, but she signed anyway.

The couple had an enviable lifestyle, living on the Berkshire estate and, by 2016, when they divorced, spending around £1m per year, including £250,000 on holidays.

On their divorce the husband offered the wife around £1.6m, comprising £750,000 to buy a house, maintenance of £27,000 per year (capitalised to a lump sum payment of some £540,000) and £300,000 to pay her legal fees.

The wife asked for £2.3m to buy a house and maintenance of £150,000 per year, capitalised to a lump sum of £3.22m (plus £30,000 per year for their child). She agreed she could get a job paying £20,000 a year, and said her claim took that into account.

Importantly, she argued that the pre-nuptial agreement should be ignored as it did not meet her 'reasonable needs', as measured against her lifestyle during the marriage.

The court refused to ignore the pre-nuptial agreement. It said that, if she had not signed it, £2.3m to buy a house might have been reasonable but, given that she had signed it, it would not be fair to make an award for that sum. It awarded her £1.35m for housing instead.

The Court also took the agreement into account in relation to maintenance. It awarded her £100,000 per year (reducing to £75,000 when the child reached 21), capitalised into a lump sum payment of £1.6m, rather than the £3.22m she had asked for.

Despite the wife's solicitor's concerns at the time, the court decided that the husband's refusal to marry without a pre-nuptial agreement did not amount to a threat, duress or exploitation of a dominant position.

The court decision clearly confirms that pre-nuptial agreements are persuasive, but not binding, usually acting only as a 'depressing factor' when the court decides how much to award a claiming spouse.

Operative date

  • Now

Recommendation

  • Spouses signing a pre-nuptial agreement should ensure they understand how the circumstances at the time it was made, and at the time of the divorce, could affect the extent to which it is upheld if they divorce – although the longer the marriage, the harder it will be to predict the latter.

Case ref: KA v MA [2018] EWHC 499

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