Law Commission Report Review

The headlines have been that prenups will become binding with Law Commissions (LC) qualifying nuptial agreement (QNA) however the reality behind the headlines is not so clear cut.

It has taken the LC 5 years to release the full report on marital property agreements. Expectation was high that this report would say the pre and post nups should be put into statute, and that ‘needs’  (maintenance) and the status of non-marital property would be clarified.

 

These criteria must be met in order to create a QNA;

 

·        Will be able to make arrangements for property but not financial needs.

·        Must be a deed and a valid contract.

·        Parties must understand that it will partially remove courts discretion.

·        Must not have been made within 28 days of marriage/civil.

·        Full disclosure of financial situation

·        Legal advice by a qualified lawyer

 

Working out financial needs is a big problem for the courts and one which makes the current acceptance of prenups difficult as the court must have discretion to make sure that if there are children then they will be provided for. The LC has managed to not clarify the area of financial needs at all. The final report says that they think there should be guidance, especially with a lack legal aid for divorcing couples as there will be a rise in those representing themselves. However, how this guidance would be written or what it would consist of has not been made clear by the LC. The LC merely thinks guidance would be helpful, describing a number of different formats that could be used and different jurisdictions that have different types of guidance. They say that they want to leave the framework as it is but surely this is an area the LC should have come up with some clear answers. Instead the draft bill gives courts discretion to not take into account the details of the QNA in relation to needs. This lack of clarity is very disappointing, it is understandable that it is a difficult area to tackle but surely 5 years of re3seaRCH should have lead to a better conclusion than this.

Non marital property is also an area where the LC has decided to not make any recommendations. The reason being that they would have liked to have had certain provisions put into statute but they believe parties should be free to make contractual arrangements between themselves. This fine but what happens if there is not enough money in the pot to meet the needs of the parties. The courts are surely not going to leave one party with a large amount of wealth while the other has to go on to benefits regardless of a qualifying prenuptial agreement. The answer to that is no they won’t, because the LC draft bill says that the court cannot exercise powers in a way that is inconsistent with the QNA unless it is to; meet the needs of either partner or in the interests of a child of the family. This essentially means that yes QNA does allow parties to keep certain things separate but the court still has the same discretion to ignore the QNA for financial needs. This is no different to the current situation.  Would a court use non marital property that has been specifically written into a QNA to not go to one party as a means to provide for the needs of a child of the family or the weaker party? The discretion is there for the court to do so if it wishes which makes the QNA a bit pointless.

 

There are many unanswered questions that the draft bill and the LCs report has created.

What happens if your partner won’t marry you unless you sign a prenup? Is this duress or is this just acceptable pressure. Well the LC report says that the agreement must be able to withstand challenge on the basis of undue influence or misrepresentation. Unfortunately this does not answer the question, as it is only likely to arise when the couples break up. Equally what if that pressure comes from parents of one of the prospective partners who won’t let the marriage go ahead unless certain property is not included. Could this be undue influence, particularly if the weaker party has limited legal advice provided by the stronger party?

Just requiring that both parties seek adequate legal advice is not really good enough when two people are getting married. The reason they would sign a QNA is likely to be because one party is stronger and one party weaker financially. Can the agreement still be binding if the stronger party pays for the legal advice of the weaker party before signing a QNA but, will only pay a certain amount thus limiting the advice available? Initially the QNA would be correct as far as the draft bill goes, but if those parties divorce would there be litigation? I’m quite sure there will be queues of lawyers lining up in years to come trying to use problems like this as a basis to have the QNA made null and void.

No qualified lawyer?  Then no QNA. Why are only qualified lawyers, meaning a barrister solicitor or legal executive, allowed to give legal advice on the QNAs? This is one factor which will almost certainly exclude the average person from getting a QNA as the cost will prohibitive. Law firms charge from around £350 +VAT for a prenup currently but if this legislation comes in then they will be able to put the prices up as they will have exclusive rights to advise parties. The average person can just get a nuptial agreement anyway but it would not be qualifying and therefore could not exclude the court’s jurisdiction in any way.

A none qualifying nuptial agreement may not be as pointless as it sounds though. If it is all done adhering to the rules of a QNA with advice coming from somebody experienced in the field but not a qualified lawyer, it is likely that a court would take notice of it. The reality is that a QNA only partially excludes the courts anyway and as even that partial exclusion can be removed why not save your money and get it done away from the lawyers. 

In fact the whole process of the QNA seems to be a winner for lawyers. With exclusive rights to advise and the likely increase in litigation they will have a whole new market made for them and in this day and age where everything seems to be getting deregulated it seems a little strange.

How long can a QNA legitimately be valid for? If the parties comply with all the rules and have a QNA then after 20 years of marriage they split up should the QNA still stand and more to the point will there be lots of litigation saying that it should not. Perhaps the LCs inclusion of a variation clause in the draft bill is the way round this problem as it could be argued that any changes over the years could be written into the QNA when required. Would people really want to keep changing their QNA every so often in case they break up, it is unlikely. A simpler solution would have been to set an expiry date so the parties have to review and renew if necessary.

 

Will law firms be able to provide prenups if there insurance cannot cover the full risk. If not will it stop law firms completing prenups as they do in California? This a very difficult question to answer but in the USA some firms have to take a separate insurance on each prenup they complete because how can a firm charge £20,000 for a prenup for £100,000,000. I fit all goes wrong and the firm is held liable then they need something to cover them.

 

As far as I can see the LC report has created more questions than answers. The litigation that will stem from QNA if the proposed bill is enacted will take years to surface, but surface it will. This is not water tight in any way and is a disappointing conclusion to a five year study, especially when lots of these problems have been highlighted time and time again by practitioners and the LCs own consultation and studies. The very fact that the courts can have discretion in order to meet the needs means that the draft bill will barely change anything. Without a proper formula for the ‘needs’ then no one can work out what they can put into a QNA and successfully keep if they so wish. The only benefit will be for those parties who are both well off and do not have children when they divorce, as they will be able to have a QNA that keeps assets separate.

Will be able to make arrangements for property but not financial needs.

Must be a deed and a valid contract.

Parties must understand that it will partially remove courts discretion.

Must not have been made within 28 days of marriage/civil.

Full disclosure of financial situation

Legal advice by a qualified lawyer

Prenup to Risky for Lawyers?

 

Will law firms be able to provide prenups if there insurance cannot cover the full risk. If not will it stop law firms completing prenups as they do in California? This a very difficult question to answer but in the USA some firms have to take a separate insurance on each prenup they complete, because how can a firm charge £20,000 for a prenup for £100,000,000. If it all goes wrong and the firm is held liable then they need something to cover them.

No qualified lawyer?  Then no prenup.

 

Why are only qualified lawyers, meaning a barrister solicitor or legal executive, allowed to give legal advice on the Law Commissions recommended qualified nuptial agreements? This is one factor which will almost certainly exclude the average person from getting a QNA as the cost will prohibitive. Law firms charge from around £350 +VAT upto £20k plus for a prenup currently, but if this legislation comes in then they will be able to put the prices up as they will have exclusive rights to advise parties. The average person can just get a nuptial agreement anyway but it would not be qualifying and therefore could not exclude the court’s jurisdiction in any way.

What happens if your partner won’t marry you unless you sign a prenup,

Is this duress or is this just acceptable pressure?

With the Law Commission proposing that marital property agreements (MPAs), covering pre and post-nuptial agreements, should be legally binding only last month, it is a fitting time to publish the results of a survey I have been undertaking which analysed the work of legal professionals involved with MPAs. This project is part of a major study led by Dr Laure Sauvé from the University of Essex, School of Law. Her project will analyse the latest report by the Law Commission using a comparative approach. She is currently exploring the differences between English and French laws.

The online survey has shown that the popularity of MPAs is on the rise with an increase of 73% in their use over a 20 year period. In the last year 79% of respondents completed between one and five MPAs per month.

It also revealed that very few MPAs are applied in full once they get to court: just 5% of respondents said courts applied the details of the MPA in full; 76% said courts applied the details of MPAs in part; and 19% said courts had not applied any details of MPAs. In terms of how many cases actually end up in court 40% of participants said they did not represent any MPA cases in court per annum, and 40% said they represent between 1 and 5 per annum. The level of litigation is therefore quite low against how many MPAs are being completed.

Those completing MPAs are mostly very wealthy. Looking at levels of capital and starting with women, the majority, 37% had between £25,001 and £100k, 23% had between £100k and £250k and 10% had over £250k.  Men completing MPAs had a substantially more capital, 30% had between £100k and £250k and the majority, 53%, had over £250k. 

 

This means that 33% of women had over £100k in capital but 83% of men had over £100k. It is no surprise that most cases that go to court are big money cases as the majority of those who want MPAs are very wealthy.

 

The Law Commission is recommending qualifying MPAs be put into statute and the participants of this survey mostly agreed. 69% thought that MPAs should be binging on the courts so long as there were adequate safeguards. Only 7% thought they should not be binding and 24% were undecided. However an interesting anomaly is that 55% of participants thought there would be more litigation on the basis of misrepresentation or undue influence if MPAs were binding, so for law firms it is a win win situation, especially as the price of a MPA ranges between £350 and £20,000.

 

Not unsurprisingly 72% said they now advertise MPAs as they have become more popular. The use of MPA will no doubt continue to rise and whether or not there is a rise in litigation will surface in due course. Either way the extra revenue will be a welcome relief for family lawyers with the recent legal aid cuts.

 

The full results are available at: http://internschooloflaw.wix.com/mpasurvey#

Only 5% of prenups applied in court

In prenup cases that did go to court the participants were asked how the court applied the details of the MPA.

 

76% said the courts applied the details of the MPA in part, 5% said they applied the MPA in full and 19% said they did not apply the details of the MPA at all.

Prenups more popular than ever

 

It seems that that prenups are more popular than they once were with more firms advertising and taking more enquiries than ever before. 73% of participants said that they received between 1 and 5 enquiries per month with 10% saying they relieved no enquiries and 10% between 6 and 10. Surprisingly there were participants that receive over 11 enquiries per month albeit a small 7%, but still that shows there is a healthy interest in prenups

Prenuptial Income

 

There is a clear divide in the amount of money men and women who enter MPA have. In terms of income it is usually the man that has the higher income. 64% of men entering in to MPA earn over £50,000 per annum, for women only 37% are in the same wage bracket. Women most commonly earn between £26,000 and £50,000 with results showing 40% but nearly a quarter (23%) earned between £0 and £26,000.

For men £26,000 to £50,000 was the second most common earnings bracket at 36% and interestingly 0% for men in the £0 to £26,000. This earnings difference can probably be put down to the fact that men often marry for a second time

Prenup and the man on the Clapham omnibus

 

A likely candidate for the average person to want a prenup is that of second marriages. Those who already have children from a previous relationship may want to ring fence some of their assets, even if they do not amount to much, from their new spouse in order to make sure the new spouse doesn’t get all their previous assets. With more and more people having children with various spouses this is likely to be more common as time goes on. However if the financial needs outweigh the assets then surely a prenup would make no difference because the court will still have discretion over needs.

Prenup:

33% of women had over £100k in capital but 83%

of men had over £100k

Marital Property Survey

full reults PDF available at http://internschooloflaw.wix.com/mpasurvey

Marital Property Agreements (MPA)

Survey

Key Points

 

v  87% said the most common type of MPA is a prenuptial

v  73% of participants said that they received between 1 and 5 MPA enquiries per month

v  79% of participants said that they completed between 1 and 5 MPA per month

 

v  In 2004 70% completed no MPA per month

 

v  In 1994 83% completed no MPA per month

 

v  In twenty years there has therefore been a 73% rise in the use of MPA

 

v  100% of MPA completed were for separation of property

v  90% of couples completing MPA were in the 31 to 50 bracket

v  64% of men entering in to MPA earn over £50,000 per annum (most common)

 

v  37% of women entering in to MPA earn over £50,000 per annum

 

v  40% of women earn between £26,000 and £50,000 (most common)

v  37% of women had between £25,001 and £100k in capital (most common)

 

v  53% Men completing MPA had over £250k in capital (most common)

 

v  10% of women had over £250k in capital

 

v  40% of participants said they did not represent any MPA cases in court per annum,

 

v  40% said they represented between 1 and 5 MPA cases in court per annum

 

v  76% said the courts applied the details of the MPA in part

 

v  5% said they applied the details of the MPA in full

 

v  19% said they did not apply the details of the MPA at all.

 

v  55% received between 1 and 5 enquiries about cohabiting agreements per month

 

v  66% complete between 1 and 5 Cohabiting agreements per month

 

v  69% of participants thought that MPA should be binging on the courts so long as there were adequate safeguards.

 

v  55% of participants said that they thought there would be litigation on the basis of misrepresentation or undue influence if MPAs were binding

v  38% of participants were in favour of including making a will at the same time as completing a MPA as a way of reducing the stigma of an MPA

 

v  34%  of participants were against a will at the same time as completing a MPA as a way of reducing the stigma of an MPA

v  72% of participants said they now advertise MPA as they have become more popular

 

v  £350 the lowest charged for a prenuptial agreement

 

v  £20,000 the highest charged for a prenuptial agreement