In a recent case involving a couple with two young children who had signed a pre-marital agreement (“PMA”), the family court had to balance the terms of the PMA with the wife’s needs and her role as the children’s primary caregiver. The judge decided to depart from the terms of the PMA to ensure fairness.

In this article, trainee solicitor Brogan Pennington reviews the case of AH v BH [2024] EWFC 125.

Background

The parties, both aged 40, began their relationship in 2016 and were married in 2018. They had a short marriage of around five and a half years, during which they had two children, aged four and two at the date of the hearing.

The husband set up a business in 2007 with a partner, with its operations being in another country although it has a presence in the UK and other jurisdictions. The parties signed a pre-martial agreement in April 2018 and were married later that month. The court was satisfied that no vitiating factors undermined the agreement.

The PMA provided that it should be reviewed upon the birth of any children during the marriage, although this review did not take place. At the time of signing the PMA, the wife had a mortgage-free flat in London. She was financially independent and was in employment. Upon the birth of the parties’ first child in 2019, the wife gave up employment and sold her flat, contributing £100,000 of the sale proceeds towards the refurbishment of the former matrimonial home (“FMH”), which had been purchased the year before in the husband’s sole name for £2.79m. The sale of the wife’s property also generated a stamp duty tax rebate for the husband on the purchase of the FMH of around £84,000.

The marriage broke down in September 2022. The wife claimed that the PMA should be departed from as it did not meet her financial needs. At the time of the parties’ separation, the husband’s assets were just over £50m, in contrast to the wife’s limited assets of just under £300,000. Mr Justice Peel comments in the judgment that the wife is no longer financially independent and is “vulnerable and dependent”.

Judgment

The wife’s open offer proposed a transfer of the FMH into her name, to be sold upon both children finishing tertiary education. At that point, she would receive 50% of the sale proceeds, and the husband would receive the balance. The wife proposed £1,867,522 as an income fund for her, calculated as £250,000 per year for 10 years, reduced by her estimated earning capacity, and to be offset by £200,000 from her own capital resources. She also sought £60,000 per year in child maintenance.

The husband’s open offer reflected the provision under the PMA that the FMH be sold and the proceeds be divided so that the wife would receive 40% of the proceeds (approximately £1.9m) to purchase a property on a Schedule 1 of the Children Act 1898 type basis, ie the property would revert to the husband upon the children completing their tertiary education. The husband proposed a lump sum payment to the wife of £818,025, child maintenance at £60,000 per year until February 2025, then £36,000 per year until the younger child reaches secondary education, and thereafter in accordance with the Child Maintenance Service calculation.

The judgment provides a useful summary of the leading authority on the enforceability of pre-marital agreements and the weight they should be given in financial proceedings, Radmacher v Granatino.

The primary issues in this case were fairness and needs. Mr Justice Peel’s judgment gives significant weight to the wife’s role as the primary caregiver to the children as a powerful counterweight to the PMA. He concluded that a departure from the PMA was fair and that a Schedule 1 basis housing arrangement was not suitable. He ordered that the FMH be sold, with the wife receiving 56.7% (£2.75m) of the proceeds to purchase her own property. He said: “I do not think it fair to run the risk of the children, who by then will be adults, seeing their mother in heavily reduced financial circumstances whereas their father will be far wealthier.” He also ordered the husband to pay the wife a lump sum of £300,000 on the sale of the FMH to cover stamp duty and the costs of purchase and refurbishment.

Upon consideration of the wife’s income needs, Mr Justice Peel examined the wife’s analysis of bank statements and credit cards and concluded that her budget of £375,000 per year was “considerably overstated”. The judge calculated the Duxbury figure for a 10-year term to be £910,000, reduced by £200,000 to offset the wife’s own assets to £710,000. (The Duxbury calculation is a method the court uses to arrive at a lump sum to replace regular maintenance payments.)

In respect of child maintenance, the husband was ordered to pay £20,000 per year from the date of sale of the FMH until completion of their tertiary education, apportioning one-third to the wife and two-thirds to each child. The husband was also ordered to pay nursery and school fees for each child and interim maintenance to the wife of £12,500 per month for three months and £5,000 per month thereafter until the FMH is sold.

Conclusion

Partner Richard Hogwood comments: “Neither party (ultimately) argued in this case that the pre-nup should be disregarded nor that the wife should have a sharing claim. Instead, in assessing the wife’s needs and comparing them to the provision in the pre-nup, the decision highlighted the challenge with ‘getting it right’ when agreeing the terms of a pre-nup, and especially when factoring in life events such as having children.

It perhaps also expressed a cautionary note about review clauses in pre-nups, especially when the review is not then undertaken.”

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