Once upon a pre-nup

Thinking about entering into a pre-nuptial agreement (otherwise known a pre-nup)? Make sure you understand exactly what you are signing. Here is a cautionary tale…

Once upon a time there was a husband and wife, now both aged 46, who had three children and entered a pre-nup on the day of their wedding on 26 July 2014. This is a real life case (HD v WB [2023] EWFC 2).

Case history

Husband and wife were athletes who initially met in 1996 and lived together in 1999. Following the breakdown of their relationship, the wife moved to another country to train. The husband subsequently secured employment offered to him by wife’s mother and he remained employed there until 2017. 

The parties reconciled their relationship and began living together again in 2001. Husband proposed to wife in 2003 but the parties did not marry until July 2014. Wife’s parents were very wealthy and generated a high income from a family business. 

In 2006, wife purchased a property (CD House) for £3.59m and land for £5.9m. The funds for the property were raised by way of a £4m loan from a family Trust (referred to as ‘the 2017 Trust’) held by the wife’s family.    

In 2008, the family moved to a cottage on the grounds whilst renovation works (which ultimately totalled £7.7m) took place. On completion of the renovation, husband and wife moved in and ran a business from the property. 

During the time from 2006-2014, wife received a total of £8m from the 2017 Trust, which included the £4m loan for the purchase of CD House. The 2017 Trust was then wound up. 

In late 2012, the parties decided they were going to marry in 2014. Unfortunately, in April 2014, wife was involved in a serious accident sustaining head injuries from which she recovered. 

The two eventually married on 26 July 2014 - the same date that a pre-nup was signed. 

In 2016, wife sold CD House and the associated land for £13.75m plus additional sums for its contents. She then purchased a £7m property, EF Park, a Grade II listed mansion. This became the next family home. Again, extensive renovation works were undertaken which were overseen by husband and funded by wife.

Wife also bought GH for £1.43m which the couple converted into a business centre and renovations were undertaken to make these premises a top end sports facility. 

Wife bought five further properties (one just before the marriage and four after). Of these properties, two were set up as corporate purchases in which husband and wife held equal shares in. However, wife had director’s loans on both of these properties in respect of the purchase price and renovation costs.

Wife’s family money came from a company founded in 1935 from which her father took over control as CEO in 1980. Whilst wife had no role to play in the business, she held shares. These shares were held by her outright from 2018. In 2017, the business was sold and wife received a total of £47m gross in cash and loan notes. 

Throughout their marriage, the parties did not own any property or investments together save for the equal shares in the two properties. They held no joint bank accounts. Only on one occasion an asset was equally held and the proceeds of sale of €1.32m were divided equally between them.

Husband had interest in a family business, MM Company, founded by his father in 1978. MM Company was restructured in 2010 and the shares passed to husband and his two brothers.  

An agreement was put in place, dated 22 December 2011, which provided for the ownership of MM Company. Whilst the sale of MM Company was agreed in 2019, this was blocked and did not take place.  

In turn, husband’s father received a one-off payment by way of dividends in relation to his interest. The purpose of this agreement was to protect the business interest in the event that any of the brothers divorced.  

The Judge assessed husband’s gross interest in this business at £6.4m (net interest of £3.7m) although the Judge pointed out that husband could not release the sums to meet his housing needs. Plus, the provisions of the agreement meant that husband’s father could veto any sale or release of any funds.

Husband and wife separated in December 2020. 

Elements of a pre-nup

The Judge took the opportunity to go over the vital elements of apPre-nuptial agreement being as follows:

1.           All information should be provided that is relevant to a party that is maternal to him or her making their decision.

2.           Parties are expected to be grown-up and be able to look after themselves.

3.           The purpose of a court giving weight to a pre-nuptial Agreement (or indeed a post-nuptial Agreement of which there is no distinction) is that the parties have the right to decide what they want and that the court should not act like a parent. 

4.           The court should ask itself if there is anything that negates a pre-nuptial Agreement (or Post-Nuptial Agreement), for example, duress, fraud, misrepresentation and/or undue pressure.

5.           A pre-nuptial agreement must be entered into freely and with the full appreciation of the implications unless there are circumstances which would make it unfair for a party to be held to it. 

6.           The court needs to ask whether the pre-nuptial agreement meets the criteria of ‘needs’ and ‘compensation’. It is not intended to leave any party in a state of financial destitution. 

7.           Where each party is in a position to meet his or her needs, fairness may not require a departure from the parties’ pre-nuptial agreement.

8.           Sound legal advice is “desirable”. 

Advanced arguments

Husband argued that the pre-nuptial agreement should be disregarded, putting forward that it had been entered into haste; he had not taken any legal advice; there had been insufficient financial disclosure and that he had not understood the pre-nup and how this would impact upon his future needs.

Note that at the time that the pre-nup was formulated, it was based on a pre-nuptial agreement entered in by wife’s sister and her husband given that wife purported that her circumstances were identical to that of her sister’s.  

It was around this time that wife had suffered her head injury and was recovering. Therefore the negotiations were between wife’s sister and husband.  

On 2 July 2014, wife’s sister sent to husband a copy of a pre-nup which, during the course of the few weeks and up until the day of the wedding, was banded to and fro.  

The original pre-nup had been prepared by wife’s sister’s solicitors. Husband had also been in communication with solicitors for himself. But, he had not taken substantive advice or provided them with a copy of the draft agreement.  

In fact, husband made amendments to the document himself. He also gave the impression to wife and her sister that he was taking or was in the process of taking legal advice.  

On the day of the wedding, husband brought a final draft of the pre-nup which he signed and left for wife’s signature. Yet, husband had made amendments to the document, which wife later said that was not aware about. Later that day, wife had signed the pre-nuptial agreement, not noting the changes made. 

Happily ever after?

The Judge rejected husband’s arguments and indicated that:

• Husband had several weeks from 2 July 2014 to read and understand the draft pre-nuptial agreement. 
• There had been discussions concerning the document between husband, wife and wife’s sister. 
• Husband had made amendments to the draft pre-nuptial agreement document.
• He had engaged in communication with a solicitor. 

The Judge went on to say that husband knew that the Pre-Nuptial Agreement was designed to protect family wealth and that he had engaged in this process and was aware of the importance of taking legal advice.  

Further, the Judge stated that the financial disclosure provided was broadly accurate and that wife should not be penalised for husband not taking the initiative to confirm with her the values of certain assets.  

Additionally, the Judge stated that from considering the exchange of emails between the parties, there seemed to be no hurry. 

That said, the Judge stated that the pre-nup did not properly meet husband’s needs, mainly that it was a lump sum payment of £112,000 plus a repayment of a loan amounting to £250,000. 

The Judge on this occasion departed from the terms of the pre-nup and awarded the husband a lump sum of £1.9m as well as a right to occupy a property for life (to the value of £2.5m) with this property reverting back to wife. 

Legal Costs

Of particular note in this case is the costs incurred by the parties. Wife’s offer remained that of £362,500 in accordance with the pre-nup. Husband wanted a settlement of £8m.

Husband had incurred costs of £417,000 from the time his offer was made in May 2022. Wife’s costs were approximately £850,000, of which she sought 20% from husband, amounting to approximately £170,000.  

The Judge, whilst holding husband partly responsible for his approach to the pre-nuptial agreement, thought wife’s legal costs were reasonably sought but reduced this figure by a further 30%. 

The Lesson

In this case, the lesson is this: merely making an assertion that you had not taken legal advice at the time of entering or signing a pre-nup, and asserting that you did not understand - despite knowing the importance of taking legal advice - is not sufficient enough not to be bound by the terms of the pre-nup (or indeed post-nup). 

On the other hand, any pre-nuptial agreement should not leave a party financially destitute. It should address any needs - for example for housing and income needs - as well as take into consideration elements of compensation if there are surplus assets or income in the marital pot after meeting those needs. 

Should you wish to discuss elements of a pre-nuptial agreement or post-nuptial agreement, please do not hesitate to contact me via my profile. 

Birkett Long is a Tier 1, Legal 500 firm in family law. We specialise in divorce and matrimonial matters and all aspects concerning family life. We provide a 15 minute free telephone consultation.