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The Law Commission’s Proposals Herald a Golden Age for Prenuptial Agreements and DIY Divorce. Or Do They?

The last few days have seen a surge in interest in the possibility of pre-nuptial agreements becoming binding and the effect that that might have on the use of divorce lawyers versus DIY divorce solutions.

The Law Commission’s Proposals

First came the Law Commission’s recommendation on 27 February that ‘qualifying nuptial agreements’ (covering pre and post-nuptial agreements) should become binding.    In addition, the Law Commission proposed that investigations should be made as to the practicality of producing a (non-binding) formula capable of allowing couples to divide their finances on divorce by themselves.

This prompted a rash of articles heralding a golden age for the DIY divorce with it being suggested that couples would soon be able to calculate their own divorce settlements and sail off into the sunset (separately) without the need to cross paths with a lawyer.  Unfortunately, many of the articles didn’t let the facts get in the way of a striking headline.

First, the distinction needs to be drawn between the divorce itself (for which there are already many DIY Divorce solutions) and separating the family finances, which can be complicated and expensive and usually needs legal input.

Making pre and post-nuptial agreements binding could, undoubtedly, make separating finances on divorce more straightforward.  However, there is no prospect of that happening anytime soon.  While, the Law Commission has indeed recommended that ‘qualifying nuptial agreements’ should be made binding, there is one significant caveat.  That is that those agreements should not allow either party to contract out of meeting the other’s ‘financial needs’ or their responsibilities to any children.

The difficulty is that there is currently no definition for ‘financial needs’ and it depends on the circumstances of each case.  Until such a definition can be found, there can be no automatic implementation of nuptial agreements. The Law Commission recognises this and has proposed that the meaning of ‘financial needs’ should be clarified.  Until that happens it will be necessary to deal with the law as it currently stands.

Luckwell v Limata

Given the focus on pre and post-nuptial agreements, the Judgment in the Luckwell v Limata case on 28 February (involving one pre nuptial and two post-nuptial agreements) provided a timely reminder of the Courts’ current approach to such agreements.

This judgment reiterated that, following the 2010 case of Radmacher v Granatino in the Supreme Court, a validly entered nuptial agreement should be given weight, but cannot oust the discretion of the Court.  The extent of the weight the Court chooses to place on the agreement will relate to the circumstances of the case.  However, the Court will not uphold an agreement that is patently unfair and it is unlikely to be fair for one party to be left in a state of financial need.  In addition, the first consideration is to the welfare of any minor children.

In the case of Mr Limata the Judge did not consider it would be fair on him or the children for him to be held to the agreements into which he had entered.  The effect of them would have been that he would have had several hundred thousand pounds of debt (and therefore been unable to house himself or the children when they visited) and his wife would have retained a property worth £6.7 million.  It has long been accepted that it is not appropriate for children to live in luxury with one parent and relative penury with the other.

Where does this leave us?

The vision set out in some newspapers of couples typing their financial details into a calculator and receiving an appropriate settlement remains a distant hope.  Legal Aid is now only available in very limited circumstances in Family Law cases, meaning that many couples can’t afford to obtain proper legal advice, let alone battle their way through the Courts.  As it is, the Courts are struggling to cope with the level of work generated by those who can afford to use them.

Meanwhile, the weight placed upon pre-nuptial agreements remains dependent upon the discretion of Judges.  Despite this, it is still worth entering into such an agreement in order to protect wealth upon divorce.  The Judge made a point of stating that Mr Limata’s award would have been much greater had he not entered into the agreements.

Until ‘financial needs’ are defined, separating finances on divorce will continue to involve considerable uncertainty.  As every lawyer knows, where there is uncertainty there is litigation and where there is litigation there are legal fees.  In the case of Mr Limata and Ms Luckwell those legal fees (for the financial remedy proceedings) were reported as being “£550,000 and rising”.

The Future

The Law Commission has recognised that something needs to be done, not just to ease the burden on the Courts, but also to clarify the legal position for those wanting to sort their finances out by themselves.  At the same time it is, understandably, reluctant to lose the discretion which allows Judges to provide bespoke solutions to the many different family circumstances with which they are faced on a daily basis.  There is no clear answer to this dilemma.

In the short term, the Law Commission’s proposals have only served to emphasise the tension between the Courts’ discretion and the ideal of providing certainty to separating couples.  Until ‘financial needs’ are clearly defined and some sort of formula is devised for separating finances on divorce, it behoves separating couples to educate themselves, whether that it by seeing a solicitor or reading a self-help guide.

Chris McIntosh

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