How do English prenuptial agreements (and other marital agreements) differ from marital property agreements in European countries?
Most countries in Europe (as well as elsewhere, including South Africa) have codified civil law systems and operate marital property regimes which apply during a couple’s marriage, as well as upon divorce, bankruptcy, or death.
In such civil law countries, a couple who are about to get married can choose the marital property regime they wish to operate in respect of their property during their marriage. If no express choice of property regime is made by the couple, a default system will often operate. The default system is usually a community of property regime (which can be either immediate, or deferred community of property, and either total community or a community of acquests model). Community of property means that assets are shared equally between the couple during their marriage and in the event of divorce, bankruptcy or death. The corollary of a community of property system is that any indebtedness of one of the spouses is shared equally with the other.
Couples expressing a choice of marital property regime will often choose separation of property. This property regime allows them to avoid incurring joint liability to third-party creditors, and also has significant potential tax implications in the event of the death of one of the spouses.
Sometimes spouses who originally elected for separation of property choose to contract out of a separation of property into a community of property regime when they retire, or to alter the proportions in which their property is to be divided on death, by providing that the surviving spouse shall inherit all the other spouse’s property on his/her death.
Another important feature of marital property agreements in such European countries is that they usually apply to the couple’s assets (and liabilities), but not to the maintenance/support/income provision to be paid for the economically weaker spouse and/or the children of the family, in the event of a divorce. This is in contrast to English prenuptial agreements, which are mainly concerned with what should happen in the unhappy event of the breakdown of the marriage, and often operate a “belt and braces approach”, setting out what should happen in respect to the couple’s income as well as assets, if they get divorced.
This difference is crucial to understanding why entering into a binding marital property agreement to select a marital property regime is regarded as the norm when getting married in most other European countries, and why such agreements are usually upheld by European courts. Often there is no formal process of negotiation, or any requirement to provide material financial disclosure, and the two parties do not have separate legal representation; instead they consult a notary jointly.
In contrast, in England and Wales, we operate a common law system and there is no concept in English law of a marital property regime. Married couples can own property in their sole names, or in joint names (for example, the family home is usually owned jointly by a married couple) and the fact of their marriage makes no difference to the ownership of their property. Similarly, there is no joint liability for third party indebtedness of the other spouse. Moreover, in England and Wales, the courts operate discretionary equitable financial distribution on divorce, based on fairness between the couple. In the event of a divorce, all the couple’s financial resources, i.e. their incomes, as well as assets (whether held in the couple’s sole or joint names, and whether acquired before or after their marriage, or from a source external to the marriage, for example an inheritance) are subject to the court’s wide discretionary powers to redistribute the couple’s income and property in a holistic way, to bring about fairness between the couple.
The law concerning the financial aspects of divorce has developed through case law to a starting point of equality of division, so long as the financial needs of both the spouses and any children of the family are met. In 'smaller money' divorce cases, the couple’s financial needs and resources will be the dominant factor and often there is simply not enough money to go round so the requirement to meet the financial needs of the children and the spouse who has the main responsibility for their care (usually the wife) will dictate the financial outcome. Equal sharing will not apply in all divorce cases, as all the circumstances have to be considered by the court. Factors such as the length of the marriage, exceptionally bad conduct, or an exceptional or “stellar” contribution by one of the spouses, can all result in unequal division of the finances. In some cases, awards of even more than 50% may be made to the economically weaker spouse, for example to offset the economically stronger spouse’s greater earning potential in the future.
In England and Wales, with the development since 2000 by the courts of “the Sharing Principle” and the resulting increase in the size of the financial awards made in divorce proceedings in “Big money” cases, so too the demand for prenuptial agreements has increased. Such agreements involve the parties agreeing as far as is possible in advance a template for what should happen in relation to financial matters in the unhappy event of a future divorce.
Family Law Partner, Moon Beever
This blog is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained.