Prenuptial agreements and conduct – am I bound by the agreement if my spouse has behaved badly?

In my practice, I frequently advise on prenuptial agreements. Research by the Marriage Foundation suggests that one in five of couples married since 2000 have one in place. Whilst still a minority practice, they are increasingly common amongst younger couples who have generated their own wealth before the marriage, couples with family wealth or interests in family businesses, those who are marrying for the second (or subsequent time) or those who have international connections. I have also seen an increase in couples entering a postnuptial agreement during an otherwise happy marriage, where couples engage in wider family wealth planning and wish to ensure that such wealth remains in the bloodline.

So what happens if the marriage breaks down and there is a dispute as to whether the terms of the nuptial agreement should be upheld?

A quick reminder of the law, as established by the leading case of Radmacher v Granatino in 2010 – courts should generally give effect to a nuptial agreement freely entered into by both parties with a full appreciation of its implications, unless it would be unfair to do so. To unpick this:

• both parties must enter into the agreement voluntarily, without undue pressure, duress or exploitation of a dominant position. To avoid such potential arguments arising later down the line, the agreement should ideally be signed at least 28 days before the wedding;
• both parties must have a full appreciation of the implications of the agreement – to ensure this, obtaining independent legal advice and exchanging material financial disclosure are essential; and
• the agreement must be fair at the time of implementation – it must meet the needs of both parties and, most importantly, any minor children.

Presuming the above is all in place, and the agreement does not leave one party in a “predicament of real need”, the parties should expect the court to hold them to the terms of the prenuptial agreement, as negotiated before the wedding.

However, Radmacher v Granatino also said that the court would give effect to the agreement “unless it would be unfair to do so”. This does not simply mean that it would be unfair to hold the financially weaker party to an agreement which failed to meet their needs. It also means that the court can intervene in the implementation of the agreement if one party’s conduct is such that it would “inequitable to disregard it” (under section 25(2)(g) of the Matrimonial Causes Act 1973).

The issue came to the fore in the recent case of Wei-Lyn Loh v Ardal Loh-Gronager. Both parties accepted the validity of the prenuptial agreement and were prepared to be bound by it. But, the wife said that the husband had behaved in such a way that it would inequitable to hold her to the precise terms of the agreement, which provided for her to pay a lump sum to the husband of some £6.45m. She said that he had transferred monies from her accounts to himself during the marriage, had fabricated documents to suggest that she had agreed to such transactions and acted in such a way during the court proceedings so as to harass her. The question for the court was to what extent such allegations were true and, if so, how such should impact upon the otherwise valid prenuptial agreement.

The question of conduct in financial remedy proceedings is constantly evolving. Section 25(2)(g) says that, for conduct to be relevant, if must be inequitable to disregard. Whilst it may be more difficult to convince a court that misbehaviour during the marriage should be taken into account, the court are less shy about imposing consequences for financial misconduct or misconduct affecting the integrity of the litigation process.

Returning to the case of Mr Loh-Gronager and Mrs Loh, the court concluded that it would indeed be inequitable to simply shut its eyes to the husband’s conduct, having established that he had transferred funds without the wife’s authority and that the documents on which he sought to rely were likely created, altered or otherwise unreliable. Whilst the court did not accept the wife’s submission that the husband should not receive anything due to his conduct, the lump sum award was reduced to £2.37m – just over one-third of that which he would have received.

So what can we take away from this case and how is it applied in cases other than those involving “big money”?

1. Prenuptial agreements will be upheld, but conduct can still matter. The court will always retain discretion, and this includes considering serious conduct that the court simply cannot ignore. The important distinction, however, is what constitutes “serious”. What the parties to the proceedings may perceive as being “serious” (e.g. an affair, drug and/or alcohol misuse, gambling etc.) does not always meet the court’s high threshold of “inequitable to disregard.” Typically, the conduct must have a direct financial consequence on the other party for it to be taken into account;
2. Financial misconduct may reduce an award. Even where a case is determined on a party’s needs, those needs may be assessed lower than would have otherwise been the case where there has been misconduct;
3. Litigation misconduct can have substantive consequences, both in terms of costs (where the party guilty of the misconduct has to pay the other’s costs) and the substantive award itself; and
4. The evidential burden for a conduct argument remains high. Conduct arguments should not be pleaded routinely and the court will continue to gatekeep such approach. However, where there is evidence of significant financial wrongdoing or dishonesty (as was the established case for Mr Loh-Gronager), the court may be prepared to engage with such arguments.

The message from the case is not that prenuptial agreements are easily displaced. Far from it: they remain powerful and persuasive documents. However, they do not remove the court’s discretion altogether, particularly where there has been serious financial wrongdoing or dishonesty.

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If this article raises any questions for you, or if you would like to discuss how a prenuptial or postnuptial agreement might apply in your own circumstances, please do get in touch.