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How prenuptial agreements are viewed varies across the globe. In many countries, they are a common step taken ahead of marriage, in others they are almost unheard of. Some EU countries enable a couple to elect a specific “matrimonial property” regime, which governs how their assets will be divided on divorce.
For international couples who have connections to England, prenuptial and postnuptial agreements can be beneficial for a number of reasons.
Why have a nuptial agreement?
It is usual for wealthy individuals to carry out careful estate planning to ensure that their assets are handled in the most tax-efficient way, and to preserve wealth for future generations. Divorce can have a huge impact on a family financially and can be damaging to carefully structured wealth planning.
A nuptial agreement can protect against some of the risks that may be posed by a divorce, in terms of the way that a court can order wealth to be split, significant legal fees, and the risk of involvement of trusts within court proceedings.
A nuptial agreement can help to avoid lengthy court proceedings and provide both parties with certainty, enabling them to move forward in a commercial and cost-effective way.
Are they legally enforceable?
Although not automatically enforced, over recent years, the court in England and Wales has given much greater weight to nuptial agreements, and case law suggests that provided certain conditions are met, such agreements should be upheld (unless in the circumstances it would be unfair to do so).
The Supreme Court case of Radmacher v Granatino [2010] UKSC 42 provides that the following conditions must be met:
- A prenuptial agreement must have been “freely entered into by each party” with no pressure from the other party.
- Both parties must have a “full appreciation” of the implications of entering into the prenuptial agreement.
This means that parties must have exchanged comprehensive financial disclosure, taken independent legal advice and have a clear mutual intention that the agreement should be enforceable.
The result is that the courts will now look to uphold an agreement unless it is manifestly unfair to one of the parties and does not meet their reasonable needs. This principle was echoed last year in the case of MN v AN [2023] EWHC 613 (Fam).
International considerations
Where families have connections to more than one country, careful consideration needs to be given as to where the parties live and their domicile, as well as the structure and geographical location of their wealth.
The financial settlement that may be ordered by a court on divorce is different in every country across the world. International couples will often find that there are two or more countries where they would be able to get divorced, and this can lead to great uncertainty of outcome, and great risk in terms of the impact upon their wealth.
A properly drafted nuptial agreement can specify which country can deal with any future divorce, or which country’s laws should apply in relation to financial settlement, whichever state is handling the divorce.
Impact of Brexit
In the past it was not possible for couples (where one or both parties was an EU national or resident in the EU) to agree which country should deal with a divorce. This was because any such agreement would be overridden by EU law. However, this changed on 1 January 2021 when EU law stopped applying in the UK.
This presents an opportunity for couples with connections to more than one EU country to agree within a nuptial agreement where a divorce should be heard. It is likely that the wealthier party will try to include a ‘choice of court’ clause in favour of a country other than England and Wales (which is known worldwide for being particularly generous towards the financially weaker party).
These clauses are likely to become especially popular given the mechanism that previously determined which country’s court should hear the divorce in the event of a conflict (‘lis pendens’), ceased to apply in England and Wales on 1 January 2021.
Under lis pendens (otherwise known as the ‘first past the post’ rule), quite simply, the court of the country in which a divorce application was filed first would hear the divorce. Now that this rule no longer applies, if the couple has connections with more than one EU Member State, a dispute may arise to determine which country is better placed to decide the divorce. Any advance agreement between the parties will be taken into account when the courts of competing jurisdictions are deciding where the couple has more connections, and should help to resolve such disputes.
Additional comments
If a nuptial agreement cannot be agreed, then consideration could be given to the use of trust or company structures to protect assets as part of any wider wealth structuring and planning exercise.
Next steps
If you, a client or contact with international connections are thinking about the benefit of nuptial agreements as part of wealth structuring and planning, it is sensible to have an early conversation with a family lawyer with international expertise.
At Michelmores, we specialise in advising HNW and UHNW individuals with international connections. We get to know our clients and provide tailored, practical and commercial advice bespoke to their circumstances.
For more information please contact Daniel Eames or Sarah Green.
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