Jeremy D. Morley
I believe that the U.K. Law Commission’s
hot-off-the-press proposal about prenuptial agreements in England and Wales is somewhat
ill-considered.
The reason that parties who marry want prenuptial
agreements is to create security as to the financial terms of their future
relationship and to avoid the potential expense, intrusiveness and uncertainty
of litigation concerning the financial aspects of their potential divorce. That
is particularly so in England, whose divorce courts are renowned for applying
the loose term of “fairness” in unpredictable and expansive ways.
Unfortunately, while the Law Commission has proposed
that prenuptial agreements will be enforceable in England and Wales, it has
also proposed an exception insofar as such agreements do not satisfy the
“financial needs” of the parties. The exception might appear at first blush to
be innocuous and sensible. In fact, however, it would create a gaping chasm of
uncertainty that would undermine the basic goals of predictability, simplicity
and autonomy. The proposed exception is so broad and its terms are so vague
that no one will really know how it might be applied to the facts of any
particular case. The Law Commission proposes some kind of non-binding
“guidance” about “needs” to assist decision-makers in their task of interpreting
that term in specific cases, which serves to underscore the fact that there
will be substantial uncertainty under its proposal as to what the exception
will include and how it will be applied.
The result may well be as follows:
a. Prenuptial
agreements will be far more expensive than would otherwise be the case because
lawyers will need to analyze the parties’ current and prospective circumstances
in order to be able to provide any kind of useful advice, and will need to
draft contracts with loose terms and enormous disclaimers in order to handle
such uncertainty.
b. Prenuptial
agreements will be of limited value. Current English law provides that the
financial needs of the parties are the basis upon which the English courts
decide the financial side of divorce cases in England unless the parties have
more financial resources than is required to cover all of their “needs.” Since prenuptial agreements cannot be less
generous than the courts would apply in a needs case there may be little or no
point in going through the trouble and expense of entering into any such
contract.
c. Prenuptial
agreements will probably have to include provisions that are even more generous
than current “needs” might suggest. It is impossible to guess the financial
circumstances that parties will be in at the time of a potential divorce years
down the line. Therefore it will be impossible to come up with specific
financial terms that will satisfy a test which is based on future
circumstances. Alternatively, prenuptial agreements will require broadly
written exceptions that will be entirely unpredictable as to their potential
application.
d. The role of the
courts in the financial aspect of divorces will continue to be vast, intrusive
and expensive, since unhappy litigants will always claim that their needs have
not been met.
e. There will continue
to be a substantial incentive for forum shopping, since courts in most of the
rest of the world may well enforce prenuptial agreements far more liberally,
reliably and usefully than the courts in English and Wales.
The Law Commission’s fundamental mistake stems from
the fact that it does not trust the parties to make sensible agreements. It
believes that the judiciary should continue to act in a quasi-parental capacity
to oversee the decisions made by adults who purposefully, deliberately and
freely enter into contracts that will define the financial terms of their
relationship.
Quite appropriately the Commission’s proposal
contains substantial provisions to ensure that any prenuptial agreement must be
entered into with the parties’ eyes wide open. Thus, it proposes that there
should be a gap of 28 days between the execution of the agreement and the date
of the marriage; that disclosure of “material circumstances” should be required
(although this term is hardly defined in the proposal); and that the parties
should have legal advice (presumably independent advice) before signing the
contract. However, the Commission then proceeds to carve out the mammoth
exception of “financial needs” in order to make sure that consenting adults do
not sign silly agreements.
It is important to point out that the exception would
not be limited, as many other jurisdictions provide, to periodic spousal
support. It would also extend to the assets
of the parties, and unlike most other jurisdictions that will include
pre-marital as well as post-marital assets.
I am not usually a flag-waver for the jurisdiction
in which I practice but, in the case of prenuptial agreements, I think that New
York has got it about right. Our statute provides, in essence, that
properly-executed prenuptial agreements are binding absent “unconscionability,”
which requires proof of inequality that is “so strong and manifest as to shock
the conscience and confound the judgment of any [person] of common sense.” A
lower standard is reserved for terms that limit spousal maintenance, which will
be upheld if “fair and reasonable at the time of the making of the agreement
and … not unconscionable at the time of the [divorce].” While mere fairness is
required, it is measured at the time the contract is made so that the
circumstances then in existence can be sensibly evaluated at that time. In
addition, unlike England, spousal support is always periodic in New York and is
invariably time limited at the outset. There is a clear and very strong public
policy in New York favoring the right of parties to set their own terms when
they marry but there will be greater scrutiny if there has not been adequate
disclosure of financial matters before marriage or independent legal
representation or a reasonable gap between the presentation of a prenuptial
agreement, its execution and the parties’ marriage. The result is that New York
prenuptial agreements are relatively easy to draft, relatively inexpensive, and
extremely useful since they are invariably upheld if properly drafted. We are
able to advise clients sensibly and predictably.
In sharp contrast, the U.K. Law Commission proposes
to create a prenuptial regime that retains an excessively paternalistic role
for the English courts that is likely to lead to excessive litigation,
complicated agreements and unpredictable results.
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