Since 2010 the courts of England and Wales have given effect to pre-nuptial agreements that are freely entered into by each party with a full appreciation of their implications, unless they have found that in the circumstances it would not be fair to hold the parties to the agreement.
Thus, when the case Helliwell v Entwistle went to a final hearing before Mr Justice Francis last year it was perhaps unsurprising that he gave effect to a pre-nuptial agreement under which the husband was to receive no settlement upon divorce.
But before a pre-nuptial agreement is entered into the parties should make full disclosure of their means, so that they can take legal advice as to whether its terms are fair. The husband in Helliwell v Entwistle considered that the wife had knowingly made a false and material non-disclosure, which invalidated the agreement. Accordingly, he appealed, to the Court of Appeal.
‘Drop hands’ agreement
The background to the case can be stated simply.
The parties were married for three years, and had no children. The wife informed the court before the final hearing that she had assets of approximately £61.5 million, and the husband’s assets were approximately £850,000. The wife’s income was approximately £600,000 a year, and the husband was not working.
On the day that the parties married, they signed a pre-nuptial agreement which provided that in the event of divorce each party would retain their own separate property, that any jointly owned property would be split between them, and that neither party would bring a claim against the other in any jurisdiction. This is what is known as a ‘drop hands’ agreement.
The agreement made clear that it was based on the premise of full and frank financial disclosure by both parties. The husband, while aware that the wife possessed significant wealth, had entered into the agreement on this basis.
However, it was later revealed that the wife had deliberately failed to disclose a substantial portion of her assets, roughly 73% of her total wealth.
The husband argued that this non-disclosure invalidated the agreement. However, Mr Justice Francis did not agree, saying: “It was obvious to the husband that the wife was extremely wealthy and whilst understanding that full and frank disclosure is always the gold standard to aim for in a pre-nuptial agreement, if, as here, there is an understanding that one party is exceptionally wealthy, you cannot, as the economically weaker party, simply get out of the consequences of the pre-nuptial agreement because the number that was provided in terms of the wealth was a number that was lower than the truth or lower than it should have been.”
Accordingly, Mr Justice Francis upheld the agreement. He did, however, find that fairness required that a lump sum order of £400,000 should be paid to the husband, in order to meet his needs.
The husband appealed.
Fraudulent non-disclosure
The Court of Appeal, led by Lady Justice King, found that the non-disclosure of the majority of her assets by the wife was undoubtedly deliberate. She further found that the wife’s decision not to disclose the assets was fraudulent, falsifying an express representation to the husband in the agreement that she had made full and frank disclosure of her financial resources.
Lady Justice King explained that where, as here, the parties agree and record in the document the extent of and approach to be taken to disclosure, they are agreeing as to what information is to be made available to enable each of the parties to make a decision as to whether they wish to be bound by the terms contained in the proposed agreement. Wilful or fraudulent breach of that agreement such that the disclosure made bears no resemblance to the true wealth of a party is capable of being material non-disclosure, as it deprives the other party of the information that they have agreed is necessary in order for them to decide whether to agree to a pre-nuptial agreement in the terms proposed.
Since the husband was deliberately deprived of information which it had been agreed that he should have, the agreement could not stand. It followed that the appeal must be allowed, as the non-disclosure by the wife was a vitiating circumstance which negated the effect of the agreement.