By Rachael Sutcliffe, solicitor
A recent case of IC v AD shows how unclear drafting of a pre-nuptial agreement can have costly consequences.
In this case, the Husband and Wife entered into a pre-nuptial agreement which severely restricted the Wife’s claims in the event of a divorce.
The Husband was a high earner, with an income exceeding £2.7 million. The Wife was not in employment and had a projected earning capacity of around £27,000 when she completed her studies in summer 2028.
In addition to the husband’s income, there was around £26.63million of assets.
The parties entered into the pre-nuptial agreement in January 2012, around 7 weeks before their marriage.
Upon separation, the Wife stated that her interpretation of the wording of the pre-nuptial agreement was that it only protected the two properties owned in the Husband’s sole name at the time of the marriage. The Husband’s interpretation was that it protected not just these assets, but also subsequent assets held in his sole name. He says that his intention was always to protect his private equity interests and investments from any sharing claim.
The Parties conduct
It was noted that the Husband had failed to include one of his partnership asses in the disclosure appendix. The court was satisfied, however, that the Wife was broadly aware of it at the time of the agreement. There was no finding that the Husband had intentionally misled the Wife.
The court did make a finding that the Wife had removed the original signed copy of the pre-nuptial agreement from the Husband’s study, hoping that he would not be able to establish that such a copy existed. The judge drew an inference that this was because she understood that the agreement would be disadvantageous to her position.
The Judge’s Decision
The pre-nuptial agreement was upheld, as it was found to be valid and binding. Both parties had the benefit of legal advice at the time of entering into the agreement, and they had engaged in financial disclosure at the time. The Judge found that the Wife was not under duress to enter into the agreement.
Drafting nuptial agreements
The Judge was somewhat critical of the drafting of the agreement. Although it was ultimately upheld, it was described by the Judge as a “piece of sub-optimal drafting”. The fact that the wording was not clear, resulted in substantial litigation. It is reported that the legal fees were in the region of £1million.
Uneven Distribution
The Judge found that there was no reason to depart from the pre-nuptial agreement other thanthe Wife’s needs. Under the terms of the agreement, the Wife’s entitlement was calculated at £2.83 million, and the Husband’s at £23.79 million. Although this was a significant imbalance, it was noted that an unequal distribution of assets is often the very purpose of a pre-nuptial agreement and therefore, this is not a reason to depart from it.
Despite upholding the prenuptial agreement in respect of the assets held in the Husband’s sole name, the court still exercised their duty under the Matrimonial Clauses Act 1973 and assessed the Wife’s income needs at £13,000 per month, with an additional £1,000 per month per child plus school fees.
Her spousal maintenance was capitalised at £1milllion, taking into account her future earning capacity and availability of other capital.
Important Notes
The point to take away from this case is that drafting of agreements with clarity is key. They should clearly identify which assets are to be excluded from sharing, and how future assets (in both sole and joint names) are to be treated. Whilst we do not have the ability to see ahead in respect of future incomes and any generated wealth, the aim is to be as clear and precise as possible in the circumstances.
In addition, it is important to ensure that you enter into agreements with legal advice, full disclosure and without duress. These safeguards will be given significant weight, even after a long marriage. Furthermore, the court always retains their obligation to assess the parties’ respective needs and will ensure that their reasonable needs are met.
Finally, as evidenced by the Wife’s actions in this matter, it is important that the original signed document is held securely, with both parties retaining certified copies.