Pre-Nuptial Agreement

PRE-NUPTIAL AGREEMENT

The eagerly awaited Judgement in the case of Granatino-v-Radmacher was handed down on 20 October 2010 by the Supreme Court.  It contains authoritative endorsement of Pre-Nuptial Agreements in English law.

THE FACTS

The parties were married in November 1998 in England.  The wife was from a wealthy German family which owned and ran a large paper manufacturing business.  The husband was French and had been a successful banker, earning as much as $470,000.

Prior to their marriage, the parties had entered into a Pre-Nuptial Agreement at the wife’s request.  They signed it in Germany whilst visiting in August 1998.  The terms of the Agreement provided that neither party would gain financially from the other in the event that they divorced.  The husband had first been shown a draft of the Agreement in Germany only a week before the signing ceremony before the Notary and there had been no disclosure of assets and no negotiation of the terms.  The husband had not sought a translation of the document, nor had he received any separate legal advice.

The couple lived in London throughout most of their marriage and had two daughters, both born in England.  In 2003, the husband gave up his career in banking and became a student at Oxford University. 

The couple separated in 2006 and the wife petitioned for divorce in London in 2007.  A joint Residence Order was made in respect of their children and the wife was given permission to remove the children to Dusseldorf. 

When the case came before the High Court, the wife was worth approximately £100m, a fortune which comprised capital of approximately £54.3m plus Company shares which provided her with an income of £2m net per annum.  She also had other income of approximately £600,000 per annum.  By contrast, the husband submitted that his earnings as an academic were only expected to be approximately £30,000 per annum for the foreseeable future. 

FIRST INSTANCE DECISION

The case came before Mrs Justice Baron sitting at the Royal Courts of Justice in London.  She awarded the husband £5.56m.  Of this, £2.5m was for a home in England as a base for him and the children and £2.335m was for capitalised maintenance based on net spendable income of approximately £100,000 per annum.  In addition, the wife was willing to pay the husband £70,000 per annum in respect of child maintenance and to provide him with rent-free housing in which he could stay when spending time with the children in Germany (this property would revert to the wife or the children upon the youngest child reaching the age of 18).

The Judge’s reasoning was as follows:-

The Pre-Nuptial Agreement was defective from an English perspective because:-

1. It deprived the parties of all claims, even in a situation of need, which is manifestly unfair; 
2. No disclosure had been given by the wife; 
3. There had been no negotiations.  Instead, the wife’s family had simply instructed the Notary to draft the Agreement; 
4. It made no provision in the event of any children born to the parties during the marriage.

Also, the Court determined that claims for financial relief in the law in England and Wales applied the criteria set out in the Matrimonial Causes Act 1973, which provides a “bespoke” remedy in each case.  The Pre-Nuptial Agreement is a factor to be taken into account in that process, but the Judge at first instance in this case did not believe it was a compelling factor nor was it to be a determinative factor.

THE DECISION IN THE COURT OF APPEAL

The wife appealed the decision.  Her appeal was successful insofar as it gave back  to the wife the husband’s housing fund of £2.5m.  This was only to be available to him via a Trust arrangement and only until the youngest child had attained the age of 22.  Also, the maintenance that was payable to him would only be paid to him for this period and not beyond the youngest child’s 22nd birthday.  That maintenance would again be capitalised.  However, because it would only be capitalised until the youngest child completed education and not for his life it would be reduced from the original £2.335m to a sum not far off £1m.

The outcome provided for the following conclusion:

1. It remained the case that Pre-Nuptial Agreements are not binding per se.  Nor are they “presumptively dispositive” of financial claims on divorce.  The Judge must follow the criteria set out in the Matrimonial Causes Act 1973 and consider what weight to accord to an Agreement in each case.
2. However, “Due respect for adult autonomy suggest that, subject of course to proper safeguards, a carefully fashioned contract should be available as an alternative to the stress, anxieties and expense” of litigation in the divorce Courts.

 The Husband appealed the decision and sought reinstatement of the earlier order.

 SUPREME COURT DECISION

By an 8-1 majority decision their Lordships in the Supreme Court dismissed the husband’s appeal and did not reinstate the first instance decision.  The decision made by the Court of Appeal providing the husband for a home for “his use” until the youngest child was 22 years of age and an income to cover only his expenses as a home-maker for the children, rather than it be an award for life, was upheld.

Three important factors in relation to the Agreement arose:

1. The parties must enter into the Pre-Nuptial Agreement voluntarily, without undue pressure and be informed of its implications;
2. Did any foreign element enhance the weight that should be accorded to the Agreement.  The fact that it was binding under German law was relevant to the question of whether the parties intended the Agreement to be effective.  After this Judgement it will be natural to infer that parties entering into Agreements governed by English law will intend that effect be given to them.
3. The principle to be applied is that a Court should give effect to a Pre-Nuptial Agreement that is freely entered into by each party with a full appreciation of its implications unless, in prevailing circumstances, it would not be fair to hold the parties to the agreement.

RAMIFICATIONS

The Supreme Court upheld that the Court of Appeal was correct to conclude that there was no factors which rendered it unfair to hold the husband to the agreement.

Each Pre-Nuptial Agreement will still need to be considered on its merits.  However, if this example is followed, Courts will be more inclined only to allow a claiming party financial provision which is allowed under the Agreement.

The decision does not allow a green light for home made, one sided Pre-Nuptial Agreements to be foisted by one party upon the other.

If the Pre-Nuptial Agreement is to be given weight by the Court, it needs to be “fair”, properly understood and freely signed.

WHO NEEDS A PRE-NUPTIAL AGREEMENT?

It is not just the mega wealthy who may need or request a Pre-Nuptial Agreement.  Such an Agreement can identify the asset one party to the marriage may have received or may be due to receive during the marriage such as an inheritance.

The parties to the marriage may have been previously divorced or widowed and wish to “ring-fence” the assets they acquired during that previous marriage and do not wish to share those assets should the second marriage fail. For instance this could apply to protect or identify assets that are not intended to be considered future marital property such as a business.

WHY DO CLIENTS NEED PRE-NUPTIAL AGREEMENTS? 

Pros
They can contain evidence as to what assets are brought to the marriage by each party and perhaps agreement that these assets should not be regarded as matrimonial property – this can be important on a later marriage breakdown;

They can provide more certainty (and as a result can reduce legal costs in the event of divorce).

This Judgement of the Supreme Court appears to favour an amendment to Statute in respect of Pre-Nuptial Agreements. Until statute is amended, Pre-Nups may be authoritative, but the overriding determination for financial claims within the jurisdiction of England and Wales continues to be the criteria set out in the Matrimonial Causes Act 1973.

CONTACT

At Hughes Paddison, we have one of the largest family law practices in the county.  Our Firm has a strong reputation for its family work, and integrated with our private law department, we can advise on tax planning and provide wealth protection advice.

If you have any queries or you require further information, please do not hesitate to contact us on 01242 574244