In many jurisdictions prenuptial agreements are given contractual status, so that the parties will almost always be held to them. In such circumstances the outcome of the case will obviously usually simply follow the terms of the agreement.

But in England and Wales prenuptial agreements do not enjoy such status. Here the law, as enunciated by the Supreme Court, states that: “The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.”

Clearly, this is quite different from stating that the parties will simply be held to the terms of the agreement, with the result that the outcome of a case in this jurisdiction is not entirely predictable.

But that is not to say that a prenuptial agreement will have little or no bearing upon the outcome. On the contrary, it will usually be a major factor, which will often have a very significant bearing upon the outcome.

Quite how a prenuptial agreement can affect a divorce settlement was demonstrated by a recent decision of Mr Justice Peel, in the case AH v BH.

Principal issue

The case concerned a wife’s financial remedies application, involving assets of about £50 million. Almost all of the assets were in the name of the husband, the majority in his business. The wife, on the other hand, had very modest resources of about £291,000.

The marriage had been relatively short – the period of cohabitation and marriage together lasted about 5½ years. There were two children, aged 2 and 4, for whom the wife would remain the primary carer.

As Mr Justice Peel explained, the principal issue that he had to determine was the interplay between the terms of a prenuptial agreement that the parties had entered into and the financial needs of the wife and the children.

The prenuptial agreement essentially provided that in the event that the marriage should break down each party would retain their separate property and any jointly owned property would be divided equally. It also included a provision that if the parties had children, then should the marriage last less than 7 years the husband would pay the wife £600,000, plus £200,000 for each completed year thereafter, up to a maximum of £4 million.

The wife did not seek to escape the terms of the prenuptial agreement, but rather argued that it did not reasonably or adequately meet her financial needs. Accordingly, she claimed, it should be departed from to the extent necessary to achieve a just outcome by reference to needs.

The husband, by contrast, argued that the wife should be held to the terms of the agreement, which both parties considered were fair and appropriate at the time, and which were a necessary condition for their marriage.

Restricting the wife’s claims

Mr Justice Peel accepted that the terms of the prenuptial agreement did not meet the wife’s needs, and that it would therefore be unfair to hold the wife to those terms. However, as we will see, that did not mean that the agreement would be disregarded entirely.

The wife’s needs were twofold: for housing and income (her own earning capacity was quite modest, and would of course be affected by her parenting commitments).

As to housing, Mr Justice Peel considered that the wife would need about £2.75 million, plus another £300,000 to cover the purchase costs, stamp duty and refurbishment. He therefore ordered that the former matrimonial home should be sold and that the wife should receive 56.7% of the proceeds, which would realise £2.75 million on the basis of the valuation of the property. He also awarded her a lump sum of £300,000.

As to income, Mr Justice Peel considered that the wife needed £110,000 per annum, which he capitalised to £710,000.

The net effect of these orders was that the wife would be left with some £4,051,000, including her own assets.

The husband, on the other hand, would be left with about £46.3 million.

In percentage terms, the wife would exit the marriage with about 8% of the assets, and the husband about 92%.

Mr Justice Peel concluded his judgment by pointing out the effect of the prenuptial agreement.

Without the agreement, he said, the wife might have been entitled to receive on a sharing basis (i.e. equally sharing the assets accrued during the marriage) as much as £7.5 million, being one half of the increase in value of the husband’s business during the marriage, and possibly more. And even on a needs basis, he considered that, absent the agreement, her award would likely have been greater than he had provided for.

In short, the agreement had considerably restricted the extent of the wife’s claims.