How can vulnerable individuals be protected financially when getting married and is a pre-nuptial agreement the answer?

25 February 2020

In this blog we consider whether a pre-nuptial agreement is a good option to help protect the estates of vulnerable individuals in the event that their marriage should come to an end.

 

Many of our deputyship clients have substantial estates generated during their lifetime or from clinical negligence/personal injury awards. We often work alongside our clients throughout their lives and see them achieve different milestones such as getting married. Whilst pre-nuptial agreements are not legally binding, it is important to consider them, especially in the case of people with larger estates, to offer them a level of protection in case they divorce their spouse or partner.

What is a pre-nuptial agreement?

A pre-nuptial agreement is a legal agreement entered into before marriage, setting out how a couple intends financial matters between them to be resolved in the event that the marriage ends in divorce. The current English legal position is that these agreements do not oust the courts’ powers to make financial orders deciding on the appropriate division of assets or income provision on divorce, but that the existence of the agreement is a relevant circumstance of the case on divorce, the importance of which will be weighed by the judge.

In the landmark case of Radmacher v Granatino (2010), the Supreme Court  held that the court should give effect to a pre-nuptial agreement that was:

freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing, it would not be fair to hold the parties to their agreement.”

Since this case, judges are more likely to uphold or attribute significant weight to a pre-nuptial agreement, so long as that test is met. The burden will be on the person seeking to depart from the agreement to demonstrate why it should not be upheld by the court, such as by proving that they entered into the agreement under duress, or without a proper understanding of what they are signing, or that upholding the agreement would leave one of the parties in a predicament of real need, while the other is comfortably provided for. As a result, many pre-nuptial agreements are now upheld by the English courts, despite judges technically having the power to depart from them.

Do you need to have capacity to enter into a pre-nuptial agreement?

Capacity is considered on a case by case basis: it is decision specific[1] and capacity to marry has a low threshold[2] in comparison to having testamentary capacity. It is of course possible for a person who lacks capacity to manage their affairs, to have capacity to marry and to also enter into a pre-nuptial agreement.

Capacity to sign a pre-nuptial agreement is linked to whether the person in question has or can have access to their financial information and is aware of the full extent of their assets. A recent case[3] confirmed that a person could still enter into a pre-nuptial agreement even if they were not fully aware of their estate – however, it is difficult to see how this could happen without the person having some knowledge of their assets. It is not usually a sufficient reason for a deputy/attorney to withhold financial information because they think that the person in question will become more vulnerable with this knowledge.

Specific considerations for vulnerable individuals entering into a pre-nuptial agreement

Where an individual lacks capacity to manage their financial affairs, particular consideration will need to be given when entering into the pre-nuptial agreement to certain factors, such as the existence of duress and their understanding of what it is that they are giving up by entering into the agreement. If that individual is the financially stronger party, the motivation for the agreement may well be self-evidently to preserve funds set aside to meet their additional financial needs, but where they are the financially weaker party, additional steps will need to be taken to explore the circumstances surrounding the proposed pre-nuptial agreement, and whether its proposed terms will meet their particular current and future needs.

Conclusion

Whilst pre-nuptial agreements will not always be upheld by judges upon divorce, they will be upheld in appropriate circumstances and do therefore provide an important mechanism to protect wealth in the event of a divorce and this should be a serious consideration for those looking after the financial affairs of someone who lacks capacity.

It should also be noted that, if a pre-nuptial agreement has not been entered into, in appropriate circumstances legal recognition will still be given upon divorce to an individual’s particular financial needs and the source of any funds they own by way of settlement award. Equally, couples who have not yet taken the decision to divorce do have the option of entering into a post-nuptial agreement instead, something which may prove particularly useful where capacity issues develop post-marriage. It therefore remains important to seek early legal advice as to how to approach these issues. Approaching a law firm with both private client and family law experience ensures that advice encompasses both fields and is tailored to the particular needs of the individual with capacity issues.

Further information

If you are affected by any of the issues covered in this blog or if you have any questions, please contact a member of our court of protection & deputyship and family & divorce teams, who have longstanding experience in advising clients in cases involving capacity, wealth protection and matrimonial proceedings.

 

About the authors

Sameena Munir is a solicitor in our private client team. She has a Court of Protection focus and works closely with clients who lack capacity.  She prepares statutory will and gift applications to the Court, and creates personal injury trusts.  She also advises on lasting powers of attorney and probate matters.

Cate Maguire is an associate in the Family Team. She advises clients on matters including divorce and civil partnership dissolution, associated financial issues and issues surrounding children. She has particular expertise in complex jurisdictional issues and financial matters. She has a clear understanding of the particular issues facing international families. She also has a wealth of experience in dealing with complex trust and corporate structures and issues of company values, both in relation to domestic and cross-jurisdictional entities.

 


[1] The Mental Capacity Act 2005 sets out the test: can the person understand, retain, use and weigh information relevant to the specific decision? If they cannot, is this because of an impairment of or a disturbance in the functioning of the mind or brain?

[2] Does the person understand the broad nature of a marriage contract, the duties and responsibilities that come with a marriage including financial duties, the essence of marriage is for two people to live together and to love each other, and they must not lack capacity to enter into sexual relations.

[3] PBM v TGT & X Local Authority [2019] EWCOP 6

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