'Til death us do part?
The Daily Mail has recently reported on the divorce of a wealthy oil billionaire in the US state of Oklahoma who may stand to lose one half of his $11.3 billion fortune to his wife, who has filed for divorce after 25 years of marriage. Whether this transpires to be the most expensive divorce in history, as has been suggested, remains to be seen. Either way, according to the Daily Mail’s article, it appears that in the absence of a pre-nuptial agreement the wife in question may be entitled to a multi-billion pound settlement. Not an insignificant sum, by anyone’s standards and the question on the lips of many will be whether there is in fact a pre-nuptial agreement.
Perhaps once seen as something for celebrities or the super-rich, pre-nuptial agreements are now more routinely being entered into in Scotland, particularly by those who have previously been divorced. The wish to protect wealth from prior to a marriage (or indeed inherited or gifted assets) also remains a driving factor, especially for those with children from previous relationships. How do these provide a benefit? The main advantage to a pre-nuptial agreement is the element of control they can give to parties over the division of assets at the point of divorce. Not only can this provide peace of mind to those contemplating marriage (and their family members) but it can also avoid costly and stressful litigation if the marriage does ultimately break down.
There is often some confusion about the status of pre-nuptial agreements in Scotland which is perhaps a result, at least in part, of media focus on the English approach to these agreements. In Scots law, the starting point is that these agreements are contracts like any other and as such they will be enforceable. That is the basic position. There is the potential for challenge to such agreements, however. As with other types of contract, there are certain ‘common law’ grounds which could result in a pre-nuptial agreement being reduced, such as ‘force and fear’ or ‘essential error’. Specific to agreements which deal with financial provision, however, is the potential for a challenger to such an agreement to ask the court to set it aside because it was not ‘fair and reasonable’ when it was entered into. The legislative basis for this is contained within s.16(1)(b) of the Family Law (Scotland) Act 1985, which provides:
“Where the parties to a marriage have entered into an agreement as to financial provision to be made on divorce the court may make an order setting aside or varying…the agreement or any term of it where the agreement was not fair and reasonable at the time it was entered into”.
It is this potential for challenge which makes it particularly important that parties considering entering into a pre-nuptial agreement take the appropriate legal advice. Both the terms of such agreements and the circumstances in which they are entered into are important. In certain cases, it might be considered appropriate, for example, that there is a full disclosure of the parties’ respective financial positions pre-marriage. It is particularly important that there is no question that one party has taken advantage of the other. From that point of view, both the timing of the signing of the agreement and the correspondence evidencing the run up to the signing can be of significance.
Whilst prenuptial agreements will certainly not be for everyone contemplating marriage, it is clear that in Scotland they can be a helpful tool in regulating how spouses will divide their finances upon divorce. For those wishing to protect wealth from falling into the ‘matrimonial pot’, they can be extremely useful. What is also clear, however, is that particular care has to be taken when such agreements are entered into, given the potential for challenge later on down the line.