John Charman and his wife-to-be Beverley were teenagers at school in Rochester, Kent, when they met. At the time, they could scarcely have imagined how wealthy they would become. Once out of school, neither went on to university and they had next to nothing when, still in their early twenties, they married in 1976. They began their married life with Beverley’s parents because they had no home of their own.

However, both had jobs, and a few months after their marriage, they were able to put down a deposit on a small house in Strood, Kent, costing £14,500. Beverley had joined the civil service as an inspector in what is now the Department for Work and Pensions while John had gone into insurance, starting as a junior clerk at Sturge, a Lloyd’s of London underwriting firm.

Would you say “I do”
to a pre-nup?

YouGov asked adults who are not married or in a civil partnership if they would consider a pre-nuptial agreement in the future. (YouGov Plc/Scottish Widows)

12%: Yes, it’s a way of securing my financial independence

16%: Yes, it’s a way of making sure our finances are split fairly

1%: Yes, if my partner is wealthy it could secure my financial future

5%: Yes, if my partner is less wealthy it could make sure they don’t take all of my money

1%: Yes, for another reason

21%: Maybe, it would depend on my partner

12%: No, I wouldn’t even consider it as it’s unromantic

9%: No, for another reason

10%: Don’t know/not sure

14%: Not applicable – I will never get married/will not marry again

The high court judge who later presided over their divorce settlement described John as a ”dynamic, energetic, self-made entrepreneur”, and perhaps he would have succeeded in any business. But it was insurance he chose and it was in insurance that he made his fortune. After a spell with an insurance company owned by C.H. Tung of Hong Kong, he returned to Lloyd’s and became an underwriting member himself. He formed a company called Charman Underwriting Agencies and later merged it with the Bermuda-based Ace group of insurance companies; then in 2001, after falling out with Ace, he set up a new global insurance group, the Bermuda-based Axis Capital – a company now quoted on the New York Stock Exchange with a stock market value of $4.5bn.

Meanwhile Beverley, described by the judge as a “quiet, even reticent woman, but steady and determined”, had given up her job shortly before the first of their two boys was born and never returned to paid employment, although she later became (and remains) a lay magistrate. After 2001, John began to spend increasing amounts of time in Bermuda and this became a source of growing tension between husband and wife; John wanted to move there for tax reasons but Beverley was reluctant to leave her family and her position on the bench. Eventually, she agreed to move for a trial period, but by this time, the judge said, John “regarded the marriage as over for other reasons and, I think, had by then embarked on another relationship”. At the end of 2003, John told Beverley their 27-year marriage was over.

The family fortune, all of it built up during the marriage, amounted to £131m, not including £30m in a trust for the now grown-up children. How was this to be divided? John Charman thought he was being generous when he offered his wife £20m. She, however, thought the wealth should be divided more evenly – not 50/50, perhaps, because his financial contribution had been so exceptional, but something much closer to it.

Mr Justice Coleridge, sitting in the high court, agreed. In the largest contested divorce settlement in English legal history, he awarded Beverley Charman £48m, just under 37 per cent of the family’s assets – and the figure fell short of 50 per cent only because the wealth had been created by John Charman’s “extraordinary talent and energy”. John Charman appealed, calling the size of the award “grotesque and unfair”, but three appeal court judges upheld the settlement last year.

The award is just one of a series of big money divorce cases in which women have walked away with vast fortunes after divorcing, or being divorced by, their husbands. In 2005, Sandra Sorrell, former wife of Sir Martin Sorrell, founder of the WPP advertising empire, was awarded £29m, equivalent to 40 per cent of the couple’s accumulated wealth – and again, the figure fell short of 50 per cent only because of Sir Martin’s exceptional contribution. Previously, plumber’s daughter Shan Lambert won a full 50 per cent of the £20m fortune made by her former husband Harry Lambert, founder of Adscene, a company publishing free newspapers. In a case that went all the way to the House of Lords, Melissa Miller won £5m from City fund manager Alan Miller after a childless marriage lasting just two years and nine months. Earlier this year, Heather Mills, Sir Paul McCartney’s ex-wife, won £24m from the former Beatle after a marriage lasting just four years from wedding day to breakdown – although this fell far short of the £125m she had claimed.

Big pay-outs, of course, are not unique to England and Wales; they can occur wherever the wealthy divorce. But the English regime has become uniquely favourable to the economically weaker partner (usually, the wife) for two main reasons: first, the courts have adopted a rule of thumb that both partners are entitled to an equal share of the accumulated riches on divorce, regardless of who generated them and however enormous those riches might be; and second, husbands cannot protect their assets by drawing up a pre-nuptial agreement because, in English courts, such agreements are unenforceable.

As a result, England has become the divorce capital of the world for wives seeking huge settlements. In the Anglophone world, even in jurisdictions such as California that favour a 50/50 split, the rich can usually protect their assets through pre-nups of one sort or another. Continental Europe and Latin America have a Napoleonic system of marriage contracts under which couples choose whether to hold their assets separately or communally. Rich men normally opt for a separate property regime, meaning their wives receive no capital at all on divorce – just maintenance, and not particularly generous maintenance at that.

The English system, though, is heading for change. Although the Law Commission has ducked out of a wholesale review of divorce law, it announced in June that it would start looking at the legal enforceability of pre-nups next year with a view to drafting legislation in 2012. But will this be a step towards fairer treatment for the super-rich breadwinner on divorce – or a step back from equality for the homemaker?

. . .

According to the Office for National Statistics, 45 per cent of marriages end in divorce. In the vast majority of cases, there are not enough assets to meet both partners’ housing and income needs after the break-up, so the financial settlement ends up as an awkward and often unsatisfactory attempt to distribute what there is as fairly as possible after providing for any children. Where the rich are concerned, however, a different consideration arises. If there is easily enough money to satisfy the reasonable needs of both partners, what is to be done with the surplus?

In the old days, explains divorce lawyer Mark Harper, a partner at the City law firm Withers which has acted in many big money divorce cases, a woman leaving a wealthy man would expect to get only a small percentage of his assets – usually, somewhere to live and a pot of money just big enough to produce an income stream that would meet her reasonable requirements each year until her statistically predicted date of death, at which point both income and capital would be exhausted. “For divorce lawyers,” says Harper, “our greatest excitement was justifying that a wife needed a house in the country as well as a house in London and a place in the sun, and compiling some fantastic list of outgoings that justified someone needing £1 million a year or something extraordinary like that.”

One paradox of this arrangement was that, the longer a marriage lasted, the smaller the ex-wife’s pot of money would be, because her remaining life expectancy would be lower. But more importantly, the system failed to recognise changes in society’s attitudes towards conventional gender roles. There was a growing perception that marriage was a partnership of equals and that one spouse’s financial success was often made possible or even enhanced by the other spouse’s contribution at home.

The day everything changed came in October 2000 when, in the case of White v White, the House of Lords said there was no place for discrimination between husband and wife and their respective roles when assessing their contributions to the family. ”There should be no bias in favour of the money-earner and against the home-maker and the child-carer,” the Lords said, adding that this was a principle applying to all marriages.

The trouble was, while establishing the principle of equality, the Lords held back from making it a rule. Instead, they said it was a “yardstick” that judges should keep in mind when considering the terms of a settlement – one that should be departed from “only if, and to the extent that” there was good reason for doing so. For ordinary couples with limited resources, the distinction made little difference – needs still came first, and there was rarely any money left over after providing for them. But for the wealthy, the ruling opened the way for an outbreak of what Harper calls “furious litigation and endless test cases” as lawyers explored the potential for departing from a strict 50/50 division of the surplus millions.

In the Lambert case, which ended with a 50/50 split, the appeal court tried to put a lid on claims by husbands that their greater financial contribution to the marriage entitled them to a greater share of the assets. “There must be an end to the sterile assertion that the breadwinner’s contribution weighs heavier than the homemaker’s,” it said. Yet three years later, Sir Martin Sorrell managed to winkle 60 per cent out of the courts based on his exceptional contribution, and Charman won 63 per cent for the same reason. (In Charman’s case, the appeal court decreed that a contribution might have to be at least £30m to be classed as exceptional.) The Miller case established that, in a very short marriage, the marital home and all the assets accumulated during the marriage were to be shared, but pre-marital assets could be left out. In the case of Sir Paul McCartney and Heather Mills, although Sir Paul was said to have £400m in assets, relatively little of this was made during the short marriage so Mills was awarded £24m based on her reasonable needs, generously interpreted. And so on.

Says Harper: “Since White v White, the divorce world has been set on fire because the House of Lords completely changed all the rules.” Now, he says, the law is evolving on a case-by-case basis as judges try to work out how best to achieve fairness to both parties, applying the new yardstick of equality. “It’s all judge-made law – every four to six weeks there’s a new decision that nibbles away at unresolved issues,” Harper says.

The result is uncertainty – and very expensive uncertainty, too. Quite apart from the cost of litigation, for wealthy individuals going into a contested divorce settlement, tens of millions of pounds may be riding on an outcome determined not by a clearly expressed set of rules that everyone understands but by what Resolution, an organisation representing 5,000 family lawyers, has termed “a judicial lottery”.

There is also a widespread feeling, at least among men, that the pendulum has swung too far in favour of women. Martin Mears, a family lawyer, a former president of the Law Society and the author of a report called Institutional Injustice: The Family Courts, published by the Civitas think-tank, says: “What the courts do is no approximation to general ideas of justice.” Husbands, he says, now enter divorce proceedings “at a crippling disadvantage” to their wives because, while the husband’s contribution to the marriage is forensically analysed and quantified in money terms, the court takes no interest in what the wife’s role was nor how well or badly she performed it. It simply assumes that her role was just as demanding as her husband’s and that she performed it just as well – even if she left all the homemaking to cleaners and nannies and spent her days lunching and shopping.

“All the assumptions are in favour of the wife. All of them,” Mears says. “And the problem with these decisions is, they’re so grotesquely wife-biased that any potential husband – certainly rich ones, properly advised – wouldn’t get married. At least in America, a rich man can cover himself with a pre-nup but here, you can’t.”

. . .

Pre-nups are often seen as a Hollywood phenomenon, used by rich celebrities to insure against their alarmingly high divorce rates in a state that otherwise insists on a 50/50 split of marital assets. In fact, their origins lie deep in history. Once, when a woman married, she became legally as one with her husband and all the property she owned became his. If he deserted her or died, she could easily be left in penury; so, sometimes as part of the dowry negotiations, her family would try to arrange a pre-nuptial agreement providing her with some means of her own in the event the marriage should founder.

In Britain and the US, this kind of agreement fell into disuse in the late 19th century as the women’s rights movement gained strength and new legislation extended property rights to wives. The pre-nups we see today are very different: in most cases, the people they are protecting are no longer poor women, but wealthy men.

This partly reflects the emergence in recent years of a new generation of super-rich entrepreneurs and financiers. Previously, big money divorce cases in Britain were few in number and typically involved fortunes created by previous generations. Today, vast fortunes are being created within the lifetime of a marriage – and since White v White, this has opened the way for claimants to seek, and obtain, unprecedented sums from spouses.

Rules of engagement: how to draw up a bullet-proof pre-nup: legally, financially and diplomatically

Pre-nups are not just for pop stars and investment bankers. “Anyone with more than a million or two would be mad not to have one,” says Mark Harper of the City law firm Withers. Perhaps a lawyer would say that. But a pre-nup today could deprive a lawyer of some nice, juicy litigation later on. And even if the agreement is at present unenforceable, that will almost certainly have changed by the time your divorce comes around.

So, how much does it cost? Perhaps £1,000 for a couple of modest means. For the better-off: “It’s time-relative but anything between £5,000 and £10,000 is a reasonable guide when you’re dealing with what can be quite complex financial entities world-wide,” says Sandra Davis, head of family law at Mishcon de Reya. “People who are of a type – hedge fund managers, City types, entrepreneurs – often have their money in a variety of jurisdictions.” As Davis points out, sums such as these are trifling compared to the cost of fighting a divorce battle in court.

Clearly, the document itself will be as simple or as complex as your financial affairs. The essential elements will set out how your assets will be distributed upon divorce. One section might set out how joint assets, including the matrimonial home, are to be shared out, with a schedule listing the assets. A second section might set out which assets are to be retained as the absolute property of the separate parties, with schedules listing the assets. A third section might deal with any assets acquired after the marriage and not yet listed in the schedules. A final section might provide for the agreement to be reviewed every five years, whenever a child is born or whenever there is a material change in either party’s financial circumstances, such as losing a job or winning the lottery.

The law is likely to set out a number of safeguards to prevent one party taking advantage of the other. Both parties will need to be independently advised by their own lawyers, and the agreement is unlikely to hold if it is manifestly unfair or unreasonable, if either party fails to disclose assets or if there are any signs of pressure or duress. (“Sign here, darling, or the wedding’s off.”) This would include presenting your partner with a pre-nup after the invitations had gone out.

So, why are pre-nups not binding here? Until now, they have been seen as undermining the institution of marriage and ousting the jurisdiction of the courts. But that position is harder to maintain when they are accepted almost everywhere else. And why, it is asked, cannot people order their financial affairs as they wish instead of having the state or the courts do it for them? It is especially anomalous that married couples cannot bind themselves with pre-partnership contracts, while for cohabitants it is not only acceptable but encouraged.

At Mishcon de Reya, a law firm that has acted in many headline-hitting divorce cases including the late Princess Diana’s, partner Sandra Davis reels off some examples of where pre-nups would be helpful. “Families that have wealth inherited through the generations may want that ring-fenced in a way that current law doesn’t allow,” she says. Two parents who have worked hard all their lives and given their son a house might not want to see a wife divorcing him after just two years and getting half of what had become the matrimonial home. And wealthy men could protect themselves from, as Davis puts it, “the investment wife who may have collected her partner-to-be at Tramp or Annabel’s and who, after a short marriage, may get, if not half, then a decent percentage of her husband’s assets.”

Then, there are the married men from other countries who relocate to London little suspecting how vulnerable they are leaving themselves to the financial consequences of divorce. “If the marriage hasn’t been going particularly well and the wife has done due diligence on where would be the most appropriate forum in which to petition,” Davis says, “she will already have discovered that England offers the best possible outcome for women in the world.” So, once the family has settled in, the divorce papers land – and only then does the husband discover that the supposedly bullet-proof pre-nup he had drawn up in his own country is now close to worthless.

A particular problem in these cases, says Davis, is that when companies relocate high-flying executives or others on very high incomes, they rarely offer a package of advice on what might happen to them if their marriage breaks down in the new jurisdiction. “It’s surprising,” she says, “because relocation is a huge stress that has repercussions on family life and, even if the marriage is sound before the relocation takes place, the strains of accommodating to a new life in a new country take their toll.”

. . .

Recently, though, the courts have shown signs of becoming more sympathetic to pre-nups. A landmark decision came last year in the divorce battle between property tycoon Stuart Crossley, with assets of £45m, and his wife Susan, described in court as a “career divorcee” with a fortune of £18m accumulated through three previous marriages. At the outset of their short and unhappy union, the Crossleys had signed an agreement that both would walk away from any marital breakdown with whatever they had brought in, and the appeal court, describing the agreement as “a factor of magnetic importance”, ruled that they should be held to it. It also urged that pre-nups should be given legal recognition.

Even before that, lawyers say, the alarm created by recent big-money settlements has meant an increase in the number of wealthy clients seeking pre-nups. And interest has spread to other income groups. “I’m finding more and more couples of what I’d call modest financial circumstances entering into agreements,” says Andrew Greensmith, a national committee member (and former chair) of Resolution, a national organisation of family lawyers, and a partner at Dickson Haslam, a Lancashire law firm.

So far, the overall take-up remains small. Last month Scottish Widows published research by the YouGov polling organisation showing that, of the 2,181 British adults surveyed, only 1 per cent of those who had ever married had signed a pre-nup. However, 4 per cent said they would draw one up if they could turn the clock back and 8 per cent said they would at least consider it – and of the unmarried respondents, 56 per cent said they would consider a pre-nup before getting married.

Greensmith says pre-nups are especially appealing to people entering second marriages because they do not want to risk losing assets saved or acquired from the first one – even more so if there are children from the previous relationship and the parent wants to protect their inheritance. “These are the people who really understand what an uncertain system we have for dividing assets on the breakdown of a marriage, because they’re the ones who have been through it,” Greensmith says.

Pre-nups may seem the ideal solution to the vagaries of the English divorce system, and Resolution, which advocates a non-confrontational approach to divorce, is strongly in favour. But not everyone is as enthusiastic. The most common criticism is that pre-nups are “unromantic” because two people who really love each other don’t go into a marriage wondering whether it will last. The Church of England says: “Christians believe that marriage is a gift from God. In the marriage ceremony, the couple make a public declaration of a life-long commitment to love one another, come what may. To anticipate a marriage’s breakdown before it has even begun completely undercuts its Christian basis.”

Marilyn Stowe, a high-profile divorce lawyer with her own firm, Stowe Family Law, says strains may arise where, as is typically the case, the pre-nup is imposed by an economically stronger partner on an economically weaker one. “Personally, I wouldn’t marry a person who wanted to impose one on me,” she says. “If you knew that your spouse, whom you were supposed to trust 100 per cent, had imposed that on you, wouldn’t it affect the marriage from the beginning? And if the agreement was for a period of years before it came up for review, wouldn’t you be thinking about what was going to happen at the end of that period – whether you were going to be chucked out?“

In spite of her personal views, Stowe has drawn up many pre-nups for her clients and has no objections to them in principle. She does, however, object to the idea that they should become legally binding. At the moment, she points out, although the courts will look at a pre-nup, they will not be bound by it; instead, the burden of upholding it falls upon the party who stands to gain most from it. “And I think that’s fair, because if the person who wants the pre-nup and stands to benefit from it still has to persuade the court that it’s fair and reasonable, then that strikes the right balance. If you reverse that burden, then it becomes doubly unfair to the recipient.”

. . .

Everybody accepts that divorce settlements should be fair to both parties. The trouble is, every case is different and even when looking at the same case, people can have different ideas about what fairness requires. As Lord Nicholls put it in the landmark White v White case, “fairness, like beauty, lies in the eye of the beholder”, so it will always be difficult to find a system that keeps everyone happy.

A mandatory 50/50 division may have the advantage of ending all arguments but will always seem unfair to the economically stronger partner. It may also seem unfair to the do-it-all wife who combines a high-flying career with homemaking and raising the children, yet receives no greater recognition of her contribution than does the lady of leisure. Perhaps the do-it-all wife should get more than 50 per cent of the marital assets because of her exceptional contribution; a test case has yet to be brought.

What system would be fair? A courageous government would research all the possibilities and carry out a controversial, but desperately needed, review of the law on financial settlements. The existing legislation, the Matrimonial Causes Act 1973, is widely regarded as out of date, and senior judges, uncomfortable with the way they are having to reinterpret it to suit the times, have repeatedly urged the government to replace it.

Instead, we are getting pre-nups, which by comparison look like a cop-out and come too late for the millions of couples already married. For couples as yet unmarried, however, they do have one big advantage. In effect, they allow anyone who thinks the English divorce system is unfair to replace it with a regime of their own. If both parties are happy with the arrangement, what could be fairer than that?

To those who say pre-nups are unromantic, the answer is that, with a divorce rate of 45 per cent – and higher than that for subsequent marriages – anyone not planning for the contingency of marital breakdown is simply ignoring reality. Greensmith says: “I haven’t had a single situation where people have entered into a pre-marital agreement and regretted it or thought the process undermined their relationship. Not one. And I’ve done a lot.” Harper says pre-nups encourage people to talk more freely and openly about money with their spouses, a process he sees as healthy. “Sometimes, the marriages that don’t happen as a result of going through the pre-nup process are the ones where there’s a fundamental problem in terms of money. Either the person who has it is too mean to want to share it properly, or the person without it is really only in it for the money and resents it when there’s an attempt to restrict their rights.”

The paradox is, where pre-nups were once seen as undermining the institution of marriage, they could now be seen as encouraging it. Cohabitation rates have soared in recent years: according to the ONS, those cohabiting with or without children rose by 65 per cent in the decade to 2006. That may be for a number of reasons, but if one of them is that the divorce system stinks, the pre-nup could bring more couples to the altar.

Richard Tomkins is the FT’s chief feature writer