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Legally enforceable pre-nuptial agreements could "diminish London's allure" for wealthy foreign divorcing couples, says expert

Out-Law News | 28 Feb 2014 | 10:03 am | 2 min. read

The introduction of legally enforceable pre- and post-nuptial agreements for divorcing couples could reduce the number of wealthy foreign couples bringing divorce proceedings in England and Wales, an expert has said.

Kate Francis of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Law Commission published its recommendations for reform of the law governing the division of property when married couples or civil partners separate. The legal advisers' final report proposes the introduction of 'qualifying nuptial agreements', allowing couples to decide how their assets should be shared if they separate, among a number of recommendations designed to make dividing property easier.

"In recent years, London has increasingly been viewed as the international 'sweet spot' for divorces, given the courts' perceived sympathy towards the poorer spouse and judges' wide discretion and powers," said Francis, an expert in legal issues affecting high net worth individuals (HNWIs). "With the certainty that qualifying nuptial agreements can bring, enabling couples to decide for themselves how they want to divide assets should they later divorce, these proposals could diminish some of London's allure to foreign divorcing couples as our laws become more in keeping with other countries. This could ease some of the strain on our courts at present."

Currently, courts in England and Wales have a wide discretion to make financial orders when married couples or civil partners separate, including capital payments and ongoing maintenance. However, the Law Commission said that there was evidence of "regional inconsistencies" in how the courts approached these matters while it was not always clear to the general public what the law in this area was.

The idea behind one of these financial orders is to ensure that the financial needs of both partners are met, with a view to each eventually becoming financially independent. According to the Law Commission, this is already the outcome in the majority of cases but it has recommended that this be enshrined in formal guidance. It has also proposed that the government commission a study into the possible introduction of a non-statutory formula to give couples a clearer idea of the amounts that might need to be paid to meet needs, such as that currently used in Canada.

The Law Commission's report consists of three main strands: the introduction of authoritative guidance on 'financial needs'; more predictable settlements; and the introduction of legally-enforceable qualifying nuptial agreements. The current law already allows couples to make pre- and post-nuptial agreements, but they are not binding and courts can choose whether or not to follow these arrangements.

"Pre- and post-nuptial agreements are becoming more commonplace but the courts will not always follow them and lawyers are therefore not able to give clear advice about their effect," said Professor Elizabeth Cooke, one of the Law Commissioners. "Qualifying nuptial agreements would give couples autonomy and control, and make the financial outcome of separation more predictable. We have built in safeguards to ensure that they cannot be used to impose hardship on either party, nor to escape responsibility for children or to burden the state."

The agreements envisaged by the Law Commission would be enforceable contracts, not subject to the scrutiny of the courts, which would enable couples to make binding arrangements about the financial consequences of divorce or dissolution. In order for one of these agreements to be 'qualifying', certain procedural safeguards including legal advice and disclosure requirements would have to be met. In addition, parties would not be able to use one of these agreements to contract out of meeting the 'financial needs' of the other or of any children.

"We believe that married couples and civil partners should have the power to decide their own financial arrangements, but should not be able to contract out of their responsibilities for each other's financial needs, or for their children," said Cooke. "The measures we are recommending would help couples understand and meet their financial responsibilities and, where appropriate, achieve financial independence."

The report includes draft legislation which would allow for the introduction of qualifying nuptial agreements should the government decide to take the recommendation forward.