Can Prenuptial Agreement ever end with a happily ever after?
Prenuptial Agreements and Insurance
Would it be a rational argument to suggest that by having car insurance you are inviting someone to crash into your car, or that by having health insurance you are inviting a heart attack upon your loved ones? I don’t think so.
However there appears to be some rather irrational views surrounding pre-nuptial agreements and the possibility of using them as a platform for divorce insurance.
Increasingly, reasonably prudent engaged couples are entering into Prenuptial Agreements. Particularly where mature parties, who may have been married before, have acquired considerable assets and wish to preserve and protect their acquired assets as much as possible from future litigation.
Prenuptial Agreements are essentially contracts entered into by engaged couples before they marry, outlining their intentions in relation to property and finances should the marriage end in divorce.
The contents of a prenuptial agreement can vary widely, but commonly include provisions for the division of property or spousal support in the event of divorce or marriage breakdown.
Historically prenuptial agreements were not considered to be legally valid and binding upon the courts. However in recent years we have seen the courts taking them into account more frequently.
The most important recognition of prenuptial agreements was the recent case of Radmacher v Granatino.
In that case the Supreme Court said that a court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless it would not be fair to hold the parties to their agreement.
This sounds like a rebuttable presumption that nuptial agreements will be binding, and goes further than the previous approach.
In future the question for the court will be whether or not it would be unfair to hold the parties to an agreement they have made freely. Little guidance has been given on this aspect and this may be fertile ground for further challenges to such agreements. The Law Commission have entered a consultation exercise on this topic and we can be reasonably confident to expect legislation to follow.
How does insurance fit in?
Family law and in particular pre-nuptial agreements will, I believe, be seen to dovetail easily with insurance over the course of the next few years.
Generally speaking something will need to fill the void left by the swingeing cuts to the legal aid budget which will largely see financial claims upon divorce being taken out of scope. This will leave the field open for progressive insurers to work on a product that will fund financial claim litigation.
Indeed there is a precedent to support this. When legal aid was withdrawn for Personal Injury claims over 10 years ago, there were huge concerns that it would spell disaster for claimants and solicitors and prevent access to justice. The fears were however largely unfounded and forward thinking firms and insurers were able to profit from the changes.
There is no reason to think that the model cannot be replicated in the family law field. When talking about the legal aid cuts Justice Minister Jonathan Djanogly is on record as saying (when speaking about cuts to clinical negligence work) that “…it is important that victims of clinical negligence have access to legal representation in order to claim compensation from those responsible…Anyone who has a valid case can hire a lawyer on a conditional fee agreement, sometimes referred to as a ‘no-win, no-fee’ arrangement…We believe that legal aid, funded by the taxpayer, is therefore an unnecessary alternative form of funding for these cases.”
So it seems that the scene is set. Government cuts force a change in policy leaving opportunities for lateral thinkers. It will not take a quantum leap for the government to reach the conclusion that insurance could well be the way forward in the matrimonial arena. Despite previous reluctance to go down this path, it could be that cost savings will prove to be the decisive factor and that political expediency will give way to ideology.
There are already divorce insurance products available in the European market costing €200 – €300 per annum. It is possible that premiums would be higher in the early stages. There are also similar products available in theUSmarket with premiums starting at around £10 per month for the life of the marriage.
The market would look considerably more attractive if divorce insurance was linked to pre-nuptial agreements. Whilst many couples find the concept of a pre-nuptial agreement unromantic they can be invaluable in the resolution of relationship breakdown. There is a very strong argument that the document itself should be regarded as an insurance policy – protecting and insulating the couple from claims by the other – whilst at the same time hoping that it will not be required.
In a pre-nuptial agreement provision can be made for the use of mediation or collaborative law. The insurance indemnity could therefore be limited, where pre-nuptial agreements are in place, to the dissolution of the marriage and the enforcement of the terms of a pre (or post) nuptial agreement. By doing so the premium could be kept at a reasonable level. The insurance contract could also build in limitations in the event of a dispute as to the interpretation of the agreement.
As the awareness of the availability of pre-nuptial agreements grows (and there has been a huge increase in demand for them over the last 3 or 4 years) the insurance industry should be alive to the benefits of an emerging before-the-event insurance market, particularly if tied to pre-nuptial agreements. The point at which a couple enter into a pre-nuptial agreement seems to be an obvious point of entry to take out insurance against the costs of a potential marriage breakdown. The two go very much hand in hand as they both deal with the financial issues surrounding divorce.
One might have the ultimate fairytale wedding, but as unromantic as a pre-nuptial agreement and divorce insurance might be, if nearly 1 in 2 marriages end in divorce, what better way is there to ensure that the fairytale ends with a happily ever after.
Jonathan West is head of the high net worth family division at Prolegal, a law firm specialising in family, employment and personal injury law.
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