HIGH-PROFILE divorce cases such as that of millionaire fund manager Alan Miller and his ex-wife, Melissa, have led to a surge in American-style prenuptial agreements as couples try to protect themselves from a showdown in court.
Two out of five first marriages and seven in ten second marriages now end in divorce — and payouts awarded to those leaving wealthy spouses have soared in recent years.
John Nicholson, a partner at Hughes Fowler Carruthers, a London law firm, said: “There is no doubt that people are now more inclined to enter into pre-nuptial agreements, especially when larger amounts of money are involved.”
There is a good chance that a “pre-nup” could in fact have helped Miller hang on to more of his £17m-plus fortune after his marriage broke down. Now he may have to shell out £5m to end the union, which lasted less than three years.
Golfer Colin Montgomerie may also wish he had used one after his divorce from his wife, Eimear, cost him at least £8m.
The law on division of financial assets used to ensure only that the “reasonable needs” of the financially weaker party — usually the wife — were met as a result of the settlement. But the situation changed in 2000, when Pamela White, a former farmer’s wife who had worked in the family business and felt she was entitled to half the farm as a result, took her case to the House of Lords.
It decided the Court of Appeal had been misinterpreting the law for 25 years and ruled that where there were assets in excess of both parties’ needs, it was wrong to limit a wife leaving a long marriage to provision for her “reasonable needs”.
Judges in England and Wales therefore have more choice than those in most other countries, including Scotland, about how a couple’s wealth should be split on divorce.
Nicholson said: “The replacement of the reasonable-needs measure by the woollier concept of ‘fairness’ has worked in many wives’ favour.”
Although few divorcing spouses have millions of pounds to divide, soaring property prices have pushed many middle-class couples’ combined assets above £1m. And splitting even a relatively small amount can prove difficult, as the shared pot must now cover two lifestyles as well as the cost of the divorce. Legal bills for the average split soon run into thousands of pounds.
Here are some tips on how to avoid a costly and protracted court wrangle:
Pre-nuptial agreements
These are not legally binding in Britain and are likely to be ignored by the courts in cases where unmentioned children are involved because their interests are always put first. However, pre-nups can often be taken into account when childless marriages come to an end, especially if both parties received independent legal advice and signed the document at least 21 days before their wedding day.
Nicholson said: “In some cases men were trying to force their fiancées to sign an agreement the day before their wedding, which is why the courts like agreements to have been made well in advance.”
If Melissa Miller had agreed in a pre-nup to a certain division of assets, the current wrangle might have been avoided. Even so, the division of assets must be considered reasonably fair.
To have the best chance of being taken into account, agreements should also include full disclosure by both parties of all their assets, including those held offshore, and arrangements if the marriage produces children.
Nicholson said: “Some people build in pre-nup reviews, which could come every five years, or perhaps be triggered by the birth of a child. These are likely to go down well with the courts, but they also negate the element of certainty that many rich people want.”
Post-nuptial agreements
Though rarer than pre-nups, post-nups are also becoming more common. Again, they have to appear reasonably fair to have a chance of being taken into account by a court of law.
Nicholson said: “Post-nuptial agreements are not as popular because there are fewer circumstances in which both parties will agree to draw one up. But if, say, the wife’s father said he would buy them a £2m house, provided she kept the property in the case of divorce, both parties might feel it in their interests to sign a post-nup.”
Wills
Seven out of ten British adults have no will, according to the Society of Will Writers, even though making one is the only way to ensure your wishes are carried out after your death.
Marriage invalidates any previous will, so you will die intestate unless you draw up a new one. A divorce also negates any arrangements made since the wedding, so it is important to make a new will after the breakdown of your marriage.
If not, you would die intestate and your assets would be divided between your children and other relatives.
Pensions
Don’t forget about pension entitlements. Retirement savings are often the second-biggest asset after the home, but many people fail to realise they can make a claim on their former spouse’s pension.
Only 4% of divorced women over 50 have received a share of their former husband’s pensions, research by Norwich Union shows. The government introduced rules on pension-sharing in 2000 as a result.
Mediation
In less acrimonious divorces couples can split their assets and sort out arrangements for the care of any children through mediation with an impartial go-between. If this process works, they can then consult solicitors and have the agreement formalised.
If not, both parties can use the financial information divulged in any court proceedings, although the court does not have to respect any deals made in mediation if negotiations break down before an agreement has been drawn up.
Cohabiting
About 2m couples in Britain live together without being married. The laws regarding them are being reviewed by the Law Commission at the moment. However, family lawyers point out that it is even more important for cohabiting couples to take action because they have little automatic legal protection.
Mary Webber of Advicenow, a legal-rights website, said: “Unless cohabiting couples make arrangements to protect their rights, and the rights of their partner, their worst nightmares could come true.”
More and more unmarried couples are therefore signing so-called cohabitation contracts — which work in a similar way to pre-nups — when they move in together.
As with pre-nups, there is no guarantee that these contracts will be accepted by the courts.
Nonetheless setting out who owns what, as well as what contributions you plan to make towards the rent or mortgage repayments, should help you to divide your possessions if your relationship does founder.
You can also increase the chances of a contract being accepted by a court by seeking independent advice beforehand and ensuring that the documents state that they are intended to be legally binding.
And it is a good idea to own any properties as tenants in common, rather than as joint tenants, if you want to leave your share to someone other than your spouse.
Other sensible steps include writing a will if you own a home together, making sure both your names are on tenancy agreements if you move into a rented property, and nominating your cohabitee as your pension beneficiary if you want him or her to receive the payout after your death.
TIPS FOR CREATING A PRE-NUP
Make provision for any children who pre-date the marriage and write in procedures that will be followed if you have any more. This could be in the form of an automatic review every time a child is born. However, you may also want to write in regular reviews regardless of whether the marriage produces any children.
