Changes in the approach by the courts to what is a ‘fair’ financial outcome on divorce have led to calls for pre-nups to be binding. However, no action has been taken by the Government yet to change the law to make pre-nups binding in
Crossley — the beginning of a new era?
The husband, a property developer, met the wife in June 2005 and they became engaged in September 2005: they married in January 2006. The wife was 49 and the husband was 61. The wife had been married three times previously and the husband had been married once before and had had a long-term previous relationship. Their marriage was childless, and lasted only 14 months. At the time of the marriage, both parties had substantial independent fortunes — the wife had £18m and the husband £45m — and therefore both their financial needs were met. No assets were built up during the marriage.
Prior to the marriage, the parties entered into a pre-nup, which provided that they would both walk away from their marriage with what they brought in.
However, when the marriage broke down, the wife divorced the husband and made a financial claim against him. The husband challenged this, in an innovative procedure in the context of pre-nups, which required the wife to ‘show cause’ — in other words,
to show why she should not be held to the terms of the pre-nup.
At a hearing before Mr Justice Bennett in the High Court in October 2007, the wife argued that the husband had not given full financial disclosure at the time of the pre-nup and that she should be allowed to proceed in the normal way; that would have involved potentially 18 months of litigation, at great cost to the parties, before the Court would be required to decide what weight, if any, should be given to the pre-nup.
It was successfully argued on behalf of the husband that instead, a shortened procedure should be used. A one-day hearing was fixed in February 2008 for the wife to justify why the pre-nup was not a knock-out blow to her case.
The Court of Appeal decision
In December 2007, the Court of Appeal held that Mr Justice Bennett had not erred in law. The key point was that the husband accepted that even though the parties had entered into a pre-nup, the judge still had to exercise his discretion as to do otherwise would oust the jurisdiction of the English Courts. The Court of Appeal stated that, if ever there was a paradigm case in which the court would look at a pre-nup as not simply one of the peripheral factors, but a factor of magnetic importance, the Crossley case was it.
The Court of Appeal went on to make some general observations about the importance of pre-nups, suggesting that there should be greater opportunity for the parties to contract in advance of the marriage, making provision for the possibility of dissolution. Following the Court of Appeal hearing, the case settled in light of the Court of Appeal’s observations.
At present, full financial disclosure is required, together with independent legal advice. The pre-nup should be signed ideally at least 21 days before the marriage. The most difficult test is that the terms of the pre-nup must be fair in the eyes of the judge at the time of the divorce.
Judges can only evolve case law so far. For pre-nups to become binding under English law, it will require an Act of Parliament.
However, the decision in Crossley will be a very useful tool in the right case and it is a sign that the English Courts will continue to give increasing importance to pre-nups. n
Mark Harper is a partner and Lucie Alhadeff a solicitor at Withers, which advised Mr Crossley.
