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CLIENT ADVISORIES

Feb 7

NUPTIAL AGREEMENTS: QUESTIONS, ANSWERS AND COMMON MISCONCEPTIONS

The often-sensationalized media reporting around the use of nuptial agreements (more commonly known as pre- and post-nups) has led to a common public misconception that they are worthless, unromantic, and reserved for the rich and famous. However, in a time where some countries have a divorce rate of 50%, they should be regarded as the equivalent of an insurance policy. Although you hope you never have to rely on it, you buy it ‘just in case’.

This short piece is intended to highlight and address some of the common questions and misconceptions about nuptial agreements, whether pre or post.

Are they worth it and will the Cayman courts recognise them?

Many jurisdictions accord contractual status to nuptial agreements and hold the parties to the agreements subject to specified exceptions. Under Cayman law, divorcing parties cannot, by agreement, oust the jurisdiction of the family court and consequently nuptial agreements are not automatically binding here. However, nuptial agreements are likely to be upheld by the Cayman courts if they are drawn up properly and meet the required safeguards.

Over a decade ago, the Supreme Court of England and Wales in a seminal judgment (often simply referred to as Radmacher) ruled for the first time that a nuptial agreement will be upheld unless one person can show why it should not be. Lord Phillips, the President of the Supreme Court, held:

“The court should give effect to a nuptial agreement that is 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 the agreement”.

This reasoning has been adopted and applied in the Grand Court and affirmed by the Cayman Islands Court of Appeal. An agreement can never be used to try to contract out of fairness and meeting the “financial needs” of each other and of any children.

Couples entering into a nuptial agreement should therefore expect to be held to its terms if they meet four key requirements:

  1. Its terms must be fair (viewed against the circumstances at the time of divorce) and should not leave one party in a predicament of real need.
  2. It must have been entered into without duress.
  3. Both parties must have fully understood the terms. Ideally this will involve having obtained independent legal advice or at least the opportunity to do so.
  4. Full financial disclosure must have been provided.

The Cayman Islands has a large ex-pat population and there may be instances where a married couple move to the Cayman Islands having already entered into a pre-nuptial agreement in a foreign jurisdiction. There may also be occasions where a couple intend to enter into a nuptial agreement in their home country but one or both own assets in the Cayman Islands and have links here. In these cases, it is imperative that the parties obtain specialist legal advice as to how the Cayman court would treat such an agreement on divorce. If it is not likely to hold any weight, they will need to consider entering into a fresh agreement here, which adheres to the Radmacher principles.

Are they only for the very rich?

In a changing social demography, nuptial agreements are increasingly a good idea and a useful tool for dealing with a wide range of situations which commonly arise between couples, such as:

  • One of the parties to a marriage or proposed marriage expects to inherit money or property from their parents and the couple agrees that the inheritance should not be shared.
  • Second marriage scenarios where the parties want to pool some of their assets to buy a home together, but otherwise keep their pre-acquired assets separate.
  • Keeping assets separate so that the assets can be left to children from a previous relationship or marriage.
  • If the couple is taking a loan from a family member for a deposit on a first home, a nuptial agreement can provide for the repayment of that loan. If the money is gifted, the agreement may state that the money stays with the spouse whose family provided the cash.
  • A family may wish to protect wealth that has been built up over many generations.
  • A couple might want to deal with the question of who receives specific items on divorce. At one end of the spectrum this could be houses. At the other, it may be items of personal or sentimental value such as family heirlooms.
  • A couple might want to agree the arrangements for their pets.
  • Even a young couple without children who have different incomes or earning capacities may wish to segregate the money that each earns and saves.

Before entering into a nuptial agreement, parties must understand that the courts will never permit the agreement to be used to prejudice the reasonable requirements of any children. It is a truism in family law that needs trump everything. If the consequences of an agreement would be that one party will be left with a surplus over needs and the other’s needs are not met, a Court is likely to override the terms of the agreement and invade the segregated property of the party who has a surplus.

Are nuptial agreements a method for one party to try and keep all the assets?

Not at all. Generally, a court would not allow that to happen. One of the principal reasons for entering into a nuptial agreement is to avoid the acrimony and often significant costs which can occur in protracted divorce litigation. A sensible discussion prior to or even during the marriage about divorce can help to avoid the nuclear winter of contested financial proceedings further down the line. Many couples find it helpful and sensible to start married life, having discussed their expectations and ensuring they are both on the same page about what should happen if the marriage breaks down.

Although the expectation is that the lawyers will go into battle when discussing the terms of a nuptial agreement, most couples find the reality of negotiating the terms is far removed from that. Although you may both instruct a lawyer, you control the process, not the lawyers. Most lawyers will suggest face to face meetings and try and engage in a collaborative and conciliatory process. You should try and agree the headline terms, before instructing lawyers to work from those agreed principles.

When should agreements be drafted and signed?

We suggest that clients start discussing the terms of a prenuptial agreement several months before the wedding date. Parties need time to discuss and iron out any financial issues which might arise. The agreement may go through a series of drafts, changes and amendments as the discussions continue. On a practical level, most couples will be preoccupied with wedding preparations in the weeks immediately before the marriage so the earlier they can put the pre-nup to bed, the better. This also prevents it from overshadowing the build-up to the big day.

Can you only sign a nuptial agreement before you get married?

Most people have only heard of a “pre-nup”. But increasingly, couples are entering into post-nuptial agreements. Some possible reasons for having a post-nup rather than a pre-nup might be:

  • There was just not enough time before the marriage to conclude the agreement. It was left too late.
  • Where there has been a considerable change in circumstances since a pre-nup was entered into which may make its terms unfair.
  • The couple did not think to enter into a pre-nup but something unexpected has happened and one party may wish to, for example, protect an unanticipated inheritance or gift.
  • The parties experience difficulties and although they have not decided to divorce, the parties wish to provide for what the finances will look like if they were to divorce.
  • For some other reasons, by way of example, tax or children related, a couple want to remain married, but set out the terms of their finances on divorce in the future.
  • Where there has been a pre-nup entered into in another country and the couple relocates to the Cayman Islands, the couple may affirm or possibly revisit the terms of an agreement that was previously entered into.

How do I tell my partner I want a pre-nup?

It is not uncommon for couples to wish to avoid raising what they imagine will be a difficult and awkward conversation, particularly when you are about to embark on what you both hope will be a life-long commitment to each other.  However, an agreement should help a couple to avoid the emotional and financial cost which can so often characterize acrimonious divorce litigation.

It is often preferable to open the discussions sooner rather than later so your partner does not feel ‘ambushed’.

You may wish to explain the benefit for both of you, while a financially stronger party may wish to protect certain assets, a financially weaker party may wish to have some certainty about what their own financial future will look like in the event the marriage breaks down.

It may also be worthwhile to explain that the process does not need to be adversarial and stressful and it can help you both set out your expectations, goals, and obligations prior to marrying.

If you require assistance and advice in connection with any aspect of a pre or post nuptial agreement, contact the experienced family law team at McGrath Tonner through Helen Lakeman on hlakeman@mcgrathtonner.com

Our family team

  • David McGrath
  • Sara Ismail
  • Jonathan Casey
  • Gregory Burke
  • Angelique McLoughlin