12 December 2008

Family news - winter: NG v KR (Pre-Nuptial Contract) 2008 EWHC 1532 (Fam)


The English High Court has confirmed in this recent case that although a prenuptial agreement is not binding under English law, it is a ‘circumstance of the case' which the Court will consider in reaching a conclusion as to a fair outcome of financial issues on divorce.  

Prior to their marriage (after some pressure from the wife's family) the parties (a German woman and a French man) entered into a German prenuptial agreement.  The agreement provided for a separation of assets and no financial provision to be made for either spouse in the event of divorce.  

At the time of their marriage, the husband was working for an investment bank in London, and subsequently earned up to around £300,000 a year.  By the time of the divorce, the husband had left banking and was studying for a PhD at Oxford University.  His earning capacity as a long term researcher was put at around £20,000 net per year.  He had debts of around £800,000.  In contrast, the wife had substantial wealth from her family.  She had shares (worth in the region of £50m) in the family company.  She also had further assets outside of the company of around £55m (the vast majority of which had been acquired prior to the marriage).  Her net annual income was around £2.6m.  The parties separated in 2006 after 8 years of marriage.  They had two children.  On divorce in England, the husband sought a sum of just over £9m to meet his claimed income and capital needs.  The wife sought the upholding of the prenuptial agreement on the basis that it had been willingly signed by the husband and there would have been no marriage without it.  

In considering what weight should be given to a prenuptial agreement, the English court said that it would look to see whether various safeguards had been complied with, such as each party receiving independent legal advice prior to entering into the agreement; there being no undue pressure; and there having been financial disclosure of all assets by both parties.  Importantly, the terms of any agreement needed to be considered against the English courts discretion to achieve a ‘fair' outcome.  

The judge acknowledged that the husband came from a country (France) where pre marriage contracts were commonplace and he was aware that under the terms of the prenuptial agreement he could make no claims upon divorce.  However, the judge decided that neither that knowledge, his background nor the information he was given represented the same as understanding the full legal consequences of his decision or its later enforceability.  The husband had only seen the draft agreement (in German) one week prior to its execution.  He had not received a translation of it and had only had it explained to him in broken English from the German notary on the day of signing.  There had been no financial disclosure by the wife.  There had been no negotiations on the terms of the agreement; and the husband had not received independent legal advice.  The agreement made no provision in the event of the birth of children.  The judge held that the most manifest unfairness was that it made no financial provision for the husband even in the case of real need.  

The court decided that it mattered not that the prenuptial agreement would have been valid and enforceable in Germany (where the wife was from and where the agreement was executed), or in France (where the husband was from).  These were just part of the circumstances of the case and were not determinative.  

The judge described the husband as ‘a man of the world', and as such he understood the underlying premise that he was not entitled to anything on divorce and that he was expected to be self-sufficient.  His decision to enter into the agreement restricted the level of the court's award.  However, the court found that the husband had needs which needed to be met and that it would be unjust not to do so.  He was awarded a sum of approximately £5.5m (which included £2.5m for a home in England; a capitalized income fund of £2.3m and repayment of debts of £700,000).  In addition, the wife was required to provide a furnished house in Germany (to a value of €600,000) to be owned by her but for the husband's occupation to enable him to visit his children at weekends.  

The judge rejected the wife's claims that the English statute governing financial orders on divorce was incompatible with her human rights (and thus in contravention of the European Convention) because it restricted her from entering into binding contractual relations with her spouse by way of a prenuptial agreement.  The court found that the Convention on Human Rights was not breached as a result of the method by which the English courts resolve financial applications on divorce.  

Whilst it may seem strange that the parties were able to agree on the terms of a prenuptial agreement which would bind them in some European states but not others, the English court has once again confirmed that as a matter of public policy prenuptial agreements are not binding as of right under English law.  Such an agreement will be just one of the circumstances of the case when the court performs its discretionary exercise in determining what is a fair financial outcome between spouses on divorce.  What is clear though is that the existence of a prenuptial agreement is likely to limit potential claims, and the more so where the safeguards of independent legal advice and financial disclosure have been engaged.  For example, in the Court of Appeal case of Crossley v Crossley [2008] 1 FLR 1467 (where the parties had been married for only 14 months) the prenuptial agreement was found to be a ‘factor of magnetic importance', and the wife's claims were rejected.

It is understood that the wife in NG v KR is appealing the decision and the case will be heard by the Court of Appeal in 2009. 

Practitioners are also awaiting the outcome of a case on an appeal from the Court of Appeal in the Isle of Man to the Privy Council in the UK (equivalent to the House of Lords) in November 2008.  It is the first time the most senior Judges in the country will consider the impact of pre and postnuptial agreements on divorce since the case of Hyman in 1929 when such agreements were judged to be contrary to public policy.

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