A report of the Law Commission of England and Wales has recommended a change in law to enable parties entering into a marriage or civil partnership to have some control over their fate if their relationship ends.1 It is likely that Jersey and Guernsey will follow the lead of England and Wales.
There is an added incentive for the Channel Islands to follow England and Wales, since some wealthy individuals avoid taking up residence in jurisdictions whose courts disregard prenuptial agreements
Entering into a marriage or civil partnership is one of life’s greatest events, but it is also big business – tens of thousands of pounds are spent by couples on their big day. Yet, in spite of spending a small fortune on the ceremony, most enter into an ostensibly lifelong commitment with little or no regard for the financial consequences of their relationship breaking down.
For every ten marriages that take place in England and Wales, there are five divorces. In 2011, one in five Jersey residents were divorced or formally separated. In Guernsey, over recent years, there have been half as many decrees of divorce issued as there have been marriage ceremonies.
In days gone by, public policy deemed it wrong to agree, at the start of the marriage, financial provisions to cover its breakdown. Prenuptial agreements were rarely encountered in England and Wales unless they had been entered into overseas.
The recommendations
After a number of years of consultation, and after the media controversy stirred up by the Supreme Court’s decision in Radmacher v Granatino,2 the Commission has concluded that English and Welsh law should be changed to enable couples to decide how their assets will be shared if their relationship comes to an end, by preparing a ‘qualifying nuptial agreement’ (QNA). A properly drafted QNA will preclude a court interfering in arrangements made by spouses and civil partners unless:
- those arrangements do not meet a party’s financial needs; or
- the interests of a child of the family have not been taken into account.
The QNA may be void, in England and Wales, if there is evidence of, for example, duress or mistake. (Similar considerations are taken into account as regards prenuptial agreements in Jersey and Guernsey.) Interestingly, the Commission has recommended the law on undue influence be reformed so as to prevent a presumption of undue influence arising in relation to a QNA.
As Jersey and Guernsey broadly follow England and Wales when legislating for, and determining, disputes between married couples and civil partners (although Guernsey has yet to introduce laws permitting same-sex couples to enter into civil partnerships), it is likely Jersey and Guernsey will follow English and Welsh legislators. There is an added incentive for the Channel Islands to follow England and Wales, since there is speculation that some wealthy individuals currently avoid taking up residence in jurisdictions whose courts disregard prenuptial agreements; the English and Welsh courts’ previous failure to enforce prenuptial agreements has earned London the dubious title of ‘divorce capital of the world’.
There is no decided case law on the validity or otherwise of prenuptial agreements but Jersey and Guernsey courts are likely to treat QNAs as one of the determining factors in how a couple’s assets and income should be divided if their relationship breaks down.
The expected law providing for binding QNAs will also cover postnuptial agreements. There has been an increase in the number of couples reviewing and, if necessary, varying their prenuptial or postnuptial agreements as their financial circumstances change during the course of the marriage.
The prenuptial agreement is of particular use in second marriages where parties wish to ring-fence assets to secure them for their children from previous relationships. As the law surrounding the QNA is introduced and develops, the prenuptial agreement will, and should, become more widely used by those who, while celebrating the future, want to protect what they bring with them from their past.
Prenuptial agreements in the Isle of Man
The Isle of Man has, for some time, been the place for wealthy individuals to protect their wealth using a matrimonial agreement.
In England and Wales, divorce courts were forced to acknowledge that the yardstick of division of assets between divorcing spouses should be equality. Prenuptial agreements, however, were unenforceable, so England and Wales became the place for those married to the wealthy to divorce.
The Isle of Man has equivalent matrimonial legislation to that in England and Wales (especially in the Matrimonial Proceedings Act 2003, the Civil Partnership Act 2011 and the Inheritance (Provision for Family and Dependants) Act 1982). It also tends closely to follow UK social legislation and practice where practical.
It was in the Isle of Man that things changed, with the case of MacLeod v MacLeod [2008] UKPC 64, where the court upheld postnuptial, rather than prenuptial, agreements, since there was much less pressure on the wife to sign up than would be the case for a prenuptial agreement. While this distinction was later overridden by the UK Supreme Court in Radmacher v Granatino [2010] UKSC 42, it paved the way for matrimonial agreements in general to be upheld in appropriate circumstances.
While matrimonial agreements are still not binding on the court, they are more likely to be upheld where it would be fair and the needs of the parties and any children of the marriage or civil partnership do not demand otherwise. Manx courts are largely likely to uphold matrimonial agreements, provided adequate care is taken in the drafting (addressing issues of the needs of the parties and any children, for example) and formation of the agreement.
In the future, the Isle of Man seems likely to follow English and Welsh law in making matrimonial agreements binding, in line with the Law Commission’s recommendations. It may, indeed, update its legislation with any changes made in England and Wales. But that might not radically change the present situation, except to put it on a firmer footing.
Following recent moves against the offshore world, pressure to comply with international standards makes it doubtful that the Isle of Man would ever seek to depart radically from the English and Welsh position if it were seen only as a cheap attempt to attract wealthy residents to the Isle of Man.
John Rimmer TEP is an Advocate in the Isle of Man
- 1The Law Commission report, Matrimonial Property, Needs and Agreements, citing MA Eisenberg’s The Limits of Cognition and the Limits of Contract, states: ‘Individuals who intend to marry tend not to see divorce as a possibility: they “will overemphasize the concrete evidence of their currently thriving relationship… divorce is a risk that, like other risks, people systematically underestimate”.’
- 2[2010] UKSC 42