Friday Aug 8

Alexander Chandler, of Garden Court Chambers, provides tips and guidance on the use of pre-nuptial agreements after Crossley

Pre-Nuptial Agreements after Crossley v Crossley

Alexander Chandler, of Garden Court Chambers, provides tips and guidance on the use of pre-nuptial agreements after Crossley

Alexander Chandler, 1 Garden Court

Once upon a time, in order to protect guileless fiancées from their future spouses and from themselves, the courts determined that pre-nuptial agreements would not be enforceable. In the words of Lord Atkin, "...the wife's right to future maintenance is a matter of public concern, which she cannot barter away..."; it being a matter of public concern to "...prevent the wife from being thrown upon the public for support": Hyman v Hyman [1929] AC 601 at 628-629. Lord Denning gave an alternative formulation in Bennett v Bennett [1952] 1 KB 249 at 262: "...first, it is in the public interest that the wife and children of a divorced husband should not be left dependent on public assistance or on charity when he has the means to support them". Accordingly, any provision which purports to oust the jurisdiction of the court to hear an application for ancillary relief is void.

Nevertheless, a pre-nuptial agreement can be influential on the court's ultimate decision (see K v K (Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120), to the extent that in theory, "...there will come a case... where the circumstances surrounding the prenuptial agreement and the provisions therein contained might, when viewed in the context of other circumstances of the case prove influential or even crucial" S v S (Divorce: Staying Proceedings) [1997] 2 FLR 100 per Wilson J at 103.

In Crossley v Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467, it appeared that the day had finally come.

Crossley v Crossley
The parties met in June 2005, at a time when Stuart and Susan Crossley were each independently wealthy. Mr Crossley had a fortune of around £45 million and Mrs Crossley had acquired £18 million from the proceeds of her three previous divorces. They entered into a pre-nuptial contract on 16th November 2005 and married seven weeks later on 6th January 2006. The pre-nuptial agreement provided that each should walk away from the marriage with whatever they had brought into it and recorded that neither would apply to the court.

The marriage (which, in the words of Thorpe LJ seemed "...to have brought little or no happiness to either of the parties...") broke down after one year. On 11th September 2007, Mrs Crossley applied for ancillary relief, asserting that when the pre-nuptial agreement was entered into, her husband had failed to fully disclose his assets. Mr Crossley responded by issuing a summons on 20th September 2007 requiring his wife to show cause why her claims for ancillary relief should not be resolved in accordance with the agreement. At the First Directions Appointment, Mr Crossley's case was put as follows:

"...we are not suggesting for a moment that a judge would simply reach a conclusion, without regard to the other s. 25 factors, that this claim should be dismissed. Our contention will not be that there is an agreement and, there, that is the end of it. It will be, as we have made, I thought, very plain in our document, that there is an agreement and, in all the circumstances of the case, the wife should be held to it" (para. 9)

Bennett J decided that the exceptional facts of the case justified a departure from the provisions of FPR r 2.61B, whereby Forms E should be completed but without attachments and with the provision for the wife to raise only an informal questionnaire. Applying the overriding objective in r 2.51D, the matter set down for a one day hearing in February 2008.

Mrs Crossley appealed the directions order to the Court of Appeal, and asserted that she had been denied the right to effectively present her case, on the grounds that the provisions of r 2.61B were mandatory, the application had impermissibly been set down for a preliminary issue and that she should not have been prevented from filing a formal questionnaire. The Court of Appeal unanimously rejected the appeal on the following grounds:

a) the application had not been set down for a preliminary issue: whilst the existence of the agreement cannot oust the court's obligation to apply the s 25 factors, the exceptional facts of this case give rise to a ‘very strong case that a possible result of the s 25 exercise will be that the wife receives no further financial reward' (para. 14), ‘If ever there is to be a paradigm case in which the court will look to the prenuptial agreement as... a factor of magnetic importance, it seems to me that this is just such a case' (para. 15)

b) The court's overriding objective to deal with cases justly trumped the requirements to file Form E with attachments and permit formal questionnaires (r.2.61(1)(c), r 2.61(3), r 2.61(7) etc.

c) Thorpe LJ remarked on the gaining view of the importance of pre-nuptial contracts:

"It does seem to me that the role of contractual dealing, the opportunity for the autonomy of the parties, is becoming increasingly important" (para. 17)

d) In the exceptional circumstances of this case, the wife would in effect be required to show cause why the agreement should not rule the outcome of the ancillary relief claim (para. 18)

Seemingly, this left the case poised on the verge of breaking new ground whereby Mrs Crossley would receive no more than she had bargained for in the pre-nuptial agreement. In the event, just before the hearing was due to take place, her application was withdrawn.

Tips for pre-nuptial agreements
Despite the profession missing the opportunity for a comprehensive judgment on the merits in Crossley, a number of points can be made in advising clients keen to avoid the uncertainty and expense of ancillary relief litigation in the event of divorce:

1. Until Parliament acts to change the law, a pre-nuptial agreement cannot be binding on the court or prevent an application for ancillary relief: Hyman [1929] AC 601. It can however be taken into account as ‘one of the circumstances of the case' or ‘conduct' (it does not appear to matter which: M v M [2002] 1 FLR 654);

2. A pre-nuptial agreement should not be directed to be heard as a ‘preliminary issue', but in an exceptional case, the court's case management powers can displace the usual requirements for documents to be attached to Forms E and questionnaires, and a wife be required to show cause why the pre-nup should not rule the outcome: Crossley [2007] EWCA Civ 1491; [2008] 1 FLR 1467;

3. In order to maximise the prospects of a pre-nuptial agreement being influential, the guidelines in the 1998 White Paper Supporting Families should be followed, i.e.

"If this had been a pre-nuptial agreement, it would have stood the best chance of being enforced if there was: (i) full disclosure; (ii) a proper period for reflection being at least 28 days prior to the marriage; (iii) proper independent legal advice with proper negotiations; (iv) no children born after marriage" NA v MA [2007] 1 FLR 1760, per Baron J at para. 90

4. Dealing with these guidelines in turn:

a) Full disclosure, e.g. by way of a schedule to the agreement, is highly recommended, even though lack of formal disclosure was not fatal to the significance of the agreement in K v K [2003] 1 FLR 120;

b) Time for reflection: a minimum period of 21 days was suggested in Supporting Families, para. 4.23;

c) Proper independent legal advice, preferably from a firm with a specialist matrimonial department. Taking advice from a non-specialist firm might open the door to a spouse to argue bad (as opposed to negligent) advice: see Edgar v Edgar [1980] 1 WLR 1410, Camm v Camm (1983) 4 FLR 577;

d) Special care must be taken with respect to children (see J v V [2004] 1 FLR 1042). A pre-nuptial agreement stands little change of being followed if it appears makes less than generous provision in the event that children.

e) It is good practice to attach a certificate signed by each solicitor to confirm each party received independent legal advice and understood consequences of entering into agreement (see M v M [2002] 1 FLR 654)

5. The purpose of a pre-nuptial agreement will in some cases be to distinguish marital property from non matrimonial property, ‘...akin to a marital property regime which parties enter in civil law jurisdictions', Crossley [2008] 1 FLR 1467, para. 17. In other words, only those assets acquired by either spouse individually or together during the marriage should fall to be divided on divorce. It may also be sensible to include a jurisdiction clause.

6. The prospects of a pre-nuptial agreement being followed may be improved by the provision for periodic reviews (e.g. on fifth anniversary...), whereby the level of provision increases with the duration of the marriage;

7. Despite the lack of progress since Supporting Families in 1998, the pressure for a change in the law to provide for recognition of pre-nuptial agreements, has grown steadily:

a) Senior members of judiciary have added their support to a change in the law:
"...should not the parties to the marriage, or the projected marriage, have at the least the opportunity to order their own affairs otherwise by a nuptial contract?" Charman v Charman (No 4) [2007] 1 FLR 1246, para. 124

"It does seem to me that the role of contractual dealing, the opportunity for the autonomy of the parties, is becoming increasingly important", Thorpe LJ, Crossley, para. 17;

b) A change in the law has also been recommended by Resolution , by way of an amendment to MCA s 25(2) to include the following factor:

"any agreement entered into between the parties to the marriage, in contemplation of or after the marriage for the purpose of regulating their affairs on the breakdown of their marriage, which shall be considered binding upon them unless to do so will cause significant injustice to either party or to any minor child of the family."

c) The Law Commission will look into ‘Marital Property Agreements' from 2009 and is due to report in 2012;

d) Whilst the harmonisation of matrimonial finance law across Europe faces significant obstacles, it is firmly on the European agenda: see Charman No 4, para. 124, Crossley, para. 19, and the 2006 green paper "On Conflict of Laws in Matters Concerning Matrimonial Property Regimes, Including the Question of Jurisdiction and Mutual Recognition" .