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MacLeod v MacLeod: Pre-nups, Post-nups and s35 of the MCA

MacLeod v MacLeod: Pre-nups, Post-nups and s35 of the MCA

Tim Scott reviews the use of nuptial agreements following the Privy Council's recent judgment in MacLeod v MacLeod

The background
1. The Judgment of the Privy Council in MacLeod v MacLeod [2008] UKPC 64(on appeal from the Isle of Man) was handed down on 18/12/08. By tradition the Privy Council speaks with one voice, but the voice here is stated to be and is recognisable as that of Baroness Hale. Since the relevant Manx statutory provisions are identical (save as to section numbers) to the English Matrimonial Causes Act 1973, the Judgment must be treated as though it were a decision of the House of Lords.

2. Mr and Mrs MacLeod are American and were married in Florida in 1994. Mr MacLeod was significantly older than Mrs MacLeod and had made a substantial fortune before the marriage. On the day of the wedding they entered into a pre-nuptial agreement which would very probably have been enforceable in Florida but which by English standards made inadequate provision for the wife.

3. In 1995 the parties moved to the Isle of Man and proceeded to have five children within the next six years. On 25/7/02 they entered into a further agreement which was substantially more generous to the wife than the 1994 agreement, but less generous than the award she would have been likely to obtain on an ancillary relief application. The 2002 agreement was negotiated by Manx lawyers over a period of time. There was financial disclosure. The Manx court was satisfied that the wife had entered into it freely, voluntarily, with a full understanding, and after taking proper legal advice which she chose not to follow.

4. The marriage broke down in August 2003, by which time the husband had fully complied with certain obligations under the agreement, including the transfer of his interest in a property known as Dove’s Hill and the payment of a lump sum. The 2002 agreement had provided that in the event of a divorce Dove’s Hill would be the home of the wife and children.

5. However, after the breakdown there were contested proceedings about the children which culminated in a shared residence arrangement. During these proceedings the court welfare officer expressed a view that Dove’s Hill was not an adequate home for the children when they were with the wife. The husband accepted this.

6. In the ancillary relief proceedings which began in 2005 the parties’ positions were in summary as follows:-

  • The wife was saying that the 2002 agreement should be ignored and sought a lump sum of £5,000,000.
  • The husband was saying that the wife should be held to the 2002 agreement, which provided for a further lump sum of £1,000,000 on divorce. However, in the light of his acceptance that Dove’s Hill was not an adequate home for the children when they were with their mother, he proposed that a further housing fund should be made available in trust for them on a basis analogous to housing provision made under Sch. 1 Children Act.

7. At first instance the deputy Deemster rejected the wife’s position and upheld the 2002 agreement subject to two important differences:-

  • He held that the additional housing fund should be £1,250,000 rather than £750,000 as proposed by the husband.
  • He rejected the husband’s suggestion of a trust and ordered £1,250,000 payable to the wife as part of her lump sum award, in addition to the £1,000,000 payable under the agreement.

8. Both parties appealed. Each substantially repeated their positions at first instance except that the husband – while still holding out for his proposed trust arrangement – accepted that it should be in the sum of £1,250,000 rather than £750,000. The appeal and cross-appeal in relation to capital were both dismissed.

In the Privy Council
9. The husband appealed further to the Privy Council. The wife did not. The sole issue before the Privy Council was whether the sum of £1,250,000 should be payable as a lump sum or on a trust basis. The husband’s appeal was allowed and a trust arrangement was substituted for the lump sum. Although some may regret that the Privy Council did not take the opportunity to develop the law relating to pre-nuptial agreements further, the decision gives rise to some interesting points. This Note focuses on two of these, namely:-

  • The impact on advice to be given about pre-nuptial agreements.
  • The effect on Edgar agreements.

Pre and post-nuptial agreements
10. At para1 of the Judgment it is said firmly that “the case is not about the validity and effect of ante-nuptial agreements as such”. This is developed later in the Judgement, and a sharp distinction is drawn between pre- and post-nuptial agreements. At para 31 it is said that:-

“The Board takes the view that it is not open to them to reverse the long standing rule that ante-nuptial agreements are contrary to public policy and thus not valid or binding in the contractual sense…There is an enormous difference in principle and practice between an agreement providing for a present state of affairs which has developed between a married couple and an agreement made before the parties have committed themselves to the rights and responsibilities of the married state purporting to govern what may happen in an uncertain and unhoped for future.”

See also para 35, where it is said that a change in the law relating to pre-nuptial agreements is a matter for Parliament, guided by the Law Commission, which is currently considering the position (para 34); and para 36.

11. Part of the reason for this distinction is that any financial arrangement made between spouses will be a maintenance agreement capable of being varied under S35 Matrimonial Causes Act 1973; whereas an agreement made before the marriage (probably) will not (para 35). However, it is also made clear that an agreement made at any time during the marriage which makes provision for the parties if and when living separately is a maintenance agreement: not just agreements made at the time of or in immediate contemplation of separation (para 37).

12. In MacLeod the operative agreement was made barely one year before the marriage broke down and at a time when the deputy Deemster had found that it was already on the rocks. However, apart from the important point about the ambit of ‘maintenance agreement’ for the purposes of s35, it is hard to see any difference in principle between (say) an agreement made on the day of the wedding but before the ceremony (as had happened in MacLeod in 1994); and an agreement executed immediately after the ceremony.

13. Nevertheless this raises an important point for those advising about possible pre-nuptial agreements. An agreement executed before the marriage is not binding on public policy grounds, though it may be taken into account in ancillary relief proceedings as part of the circumstances of the case (para.s 27-8). But an agreement executed at any time after the marriage is prima facie binding subject (a) to normal contractual considerations such as fraud or undue influence; and (b) the powers of the court to vary such an agreement under s35 if there has been a change of circumstances (para 41-2). The fact that the agreement provides differently from what a court would have ordered will not of itself displace the agreement (para 42).

14. The lesson must therefore be that an agreement executed after the marriage will carry more weight and will be more likely to be upheld than a true pre-nuptial agreement. For some couples the prospect of executing an agreement immediately before their wedding reception, or on return from honeymoon may be unattractive. But they should be advised about this distinction.

15. A further possibility might be to have a short pre-marital agreement which consisted solely of mutual covenants to enter into a further agreement after the marriage in terms contained in a Schedule to the first agreement. It could be argued that this did not fall foul of the public policy considerations. However, such an argument might well not be attractive to the court; and in any event, if a couple do not trust each other to execute after the marriage an agreement which has been negotiated before the marriage, they should perhaps not be getting married at all.

Edgar agreements
16. MacLeod reveals to us that we have all (including the Court of Appeal in Edgar and subsequent cases) been barking up the wrong tree by not considering s35 Matrimonial Causes Act 1973 (para 41). An Edgar agreement will inevitably be a maintenance agreement for the purposes of s35 and therefore:-

“the court is looking for a change in the circumstances in the light of which the financial arrangements were made, the sort of change which would make those arrangements manifestly unjust, or for a failure to make proper provision for any child of the family.”

17. It is not clear what effect (if any) this shift of emphasis will have in practice. The court is not restricted to considering change of circumstances, and can still look at the circumstances in which the agreement was reached. At para 42 it is said that:-

“We must assume that each party to a properly negotiated agreement is a grown up and able to look after him- or herself. At the same time we must be alive to the risk of unfair exploitation of superior strength. But the mere fact that the agreement is not what a court would have done cannot be enough to have it set aside.”

18. It therefore seems that any maintenance agreement, including the sub-species we have come to know as Edgar agreements, will be upheld in relation to spousal rights and obligations unless either there was unfair exploitation of superior bargaining position when the agreement was made or there has been a subsequent change of circumstances which would make it unfair to hold one party to the agreement. I suggest that this clarifies and re-frames the law but does not change it. In practice of course the longer the period of time which has passed since any separation agreement, the more likely it is that a material change of circumstances will have occurred.

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