20 October 2010

Prenuptial agreements can now be binding in England says Supreme Court


The Supreme Court has today upheld a Court of Appeal decision holding Nicholas Granatino to a prenuptial agreement which he signed prior to his marriage to the German heiress Katrin Radmacher. 

As a direct result of signing the prenuptial agreement, Mr Granatino's financial claims against his former wife's £100m+ fortune have been dramatically restricted.

Mr Granatino challenged the decision of the Court of Appeal, which had significantly reduced the financial award he received from the High Court, but the Supreme Court has dismissed his appeal and has clarified the law relating to pre- and postnuptial agreements in England and Wales with far-reaching and important implications for married couples, those contemplating marriage, and their advisors. 

Any suggestion that prenuptial agreements are not binding in England and Wales is overturned as a result of the decision.  The presumption is to be that they can now be binding, unless unfair.

Facts

The parties married on 28 November 1998. At the time, Ms Radmacher ran a boutique in Beauchamp Place, London and Mr Granatino worked for JP Morgan where, at the height of his career, he earned £325,000 a year.  The couple had signed a German style prenuptial agreement (otherwise known as a marriage contract), before their wedding, which barred Mr Granatino from making financial claims against his wife on any subsequent divorce.  Ms Radmacher's family required there to be a marriage contract to protect her inherited wealth and her intended further substantial inheritance.

By the time of their separation in 2006, the couple's circumstances had altered significantly. Mr Granatino, no longer working in the City, had opted to study for a D. Phil in biotechnology at Oxford University.  Ms Radmacher had amassed an inherited fortune of over £100m from her family's paper company.

High Court

In the High Court Mrs Justice Baron considered that Mr Granatino's award should be “circumscribed to a degree” to reflect the fact that he had signed a marriage contract. The Judge found that, ‘as a man of the world', he understood the underlying premise of the agreement was that he was not entitled to anything on divorce, but she also found that the agreement was manifestly unfair. Mr Granatino was awarded £2.5m for a home, £700,000 to pay off his debts and a further £2,335m (to provide him with a lifetime income). Ms Radmacher was also ordered to provide a new car and fund the cost of a furnished house in Germany for Mr Granatino, to enable him to visit their children at the weekends.

Court of Appeal decision

Mr Granatino had fully understood the terms of the agreement when he signed the marriage contract. He had the opportunity to avail himself of the conventional safeguards of taking independent legal advice and requiring financial disclosure from his spouse, but had chosen not to.

The Court of Appeal reduced Mr Granatino's award and held that, whilst Ms Radmacher should provide him with the use of a £2.5m home so as to fulfil his role as father of their children, this house would revert to her once their youngest daughter (who was 8 at the time) turned 22.  The Court of Appeal further reduced the £2.335 lump sum allocated to Mr Granatino to such amount as would give him income for 15 years, at which point his financial responsibilities as a home-maker for his daughters would come to an end.

Supreme Court Decision

The Supreme Court's judgment has clarified the law relating to prenuptial agreements in several key respects.

The Supreme Court has underlined the distinction between England and the rest of continental Europe, emphasising that, although the economic effect of cases such as Miller and McFarlane may have much in common with community of property regimes being mirrored in England in many cases, the statutory exercise carried out in each and every financial case on divorce does not equate to the existence of a matrimonial property regime generally.

So what is the position regarding prenuptial agreements in England and Wales now that this long-awaited decision has been handed down?

The Supreme Court has finally done away with the outdated view that that prenuptial agreements are contrary to public policy.  Contractual (which they can be) or not, the court applies the same criteria, such that all the circumstances of the case are taken into account (each case turning on its own facts). The court retains its discretion and therefore can overrule the agreement if so inclined.

The Supreme Court has emphasised that the key, once again, is ‘fairness'.  Each party should intend that the agreement should be effective; should be fully aware of the implications of entering into the agreement; should have all of the information material to his or her decision; and should intend that the prenuptial agreement should govern the financial consequences of the marriage coming to an end.

If a couple enter into a prenuptial agreement under their own free will without undue influence or pressure and are informed of its implications, with the benefit of information which is material to that decision, the English court will give effect to the agreement unless, in the circumstances, it would not be fair to hold the parties to it. 

When assessing whether terms of a prenuptial agreement are unfair, the court will consider several key factors, for example, whether, pursuant to the principles set out in White v White and Miller/McFarlane, the needs of one spouse or the requirement of compensation for sacrifices made during the marriage justify a departure from the terms or, for example, whether the terms prejudice the reasonable requirements of any children of the family. 

In this case, the Supreme Court decided that the agreement was freely entered into and that both husband and wife fully appreciated its implications.  It said that while it was right to depart from the agreement to the extent necessary to cater for the needs of the children, there was nothing unfair in holding the husband to the agreement once the children's needs were catered for.

The Supreme Court may have chiselled away at the court's overriding discretion to some degree by emphasising that there should be respect for individual autonomy, stating that it would be paternalistic and patronising to override the agreement simply on the basis that ‘the court knows best'.

It has also endorsed the usefulness and importance of prenuptial agreements in relation to the treatment of non-matrimonial property; if couples are able to agree what is to happen to an inheritance or assets owned by one party before the marriage, so much the better.  The Supreme Court has suggested that the shorter the marriage, the more likely that the terms of a prenuptial agreement will be upheld in their entirety; but parties should not be unfairly held to the terms of a prenuptial agreement which has not withstood the passage of time.

In summary, although the English Court maintains ultimate discretion in determining the appropriate financial provision on divorce, the Supreme Court has confirmed that if parties enter into a pre- or postnuptial agreement, there is no reason why they should not be entitled to have their agreement upheld on divorce, unless it would be unfair.

Implications

  • The case is a significant boost for the status of prenuptial agreements in England and Wales and is a further step towards making them legally binding.
  • The Supreme Court has endorsed its respect for individual autonomy, encouraging couples to decide, prior to their marriage, how their financial affairs should be regulated.
  • The decision reinforces the notion that where there is significant wealth disparity going into a marriage, it is in the interests of the financially stronger spouse to have a prenuptial agreement.
  • The case will likely encourage more couples to enter into prenuptial agreements, and will give greater recognition to those overseas prenuptial agreements / marriage contracts which are signed by foreign nationals before they move to England, even where conventional English safeguards are not in place.
  • England has acquired a reputation as the ‘divorce capital of the world' because people ‘play the system' by moving to England to get more money on divorce than they would get overseas. This decision goes some way to reversing that title and many people will consider it long overdue.
  • As stated by Baroness Hale, ‘there is not much doubt that the law of marital agreements is a mess. It is ripe for systematic review and reform.' The Law Commission is already undertaking a review and we await its recommendations for statutory reform.
  • In order to reduce arguments over what constitutes ‘material information' pre signing and to maximise the effectiveness of a prenuptial agreement in England, it is highly recommended that the parties take independent legal advice and disclose material facts before entering into such an agreement.

To read the full text of the judgment please click here.

To find out more please contact:

Michael Gouriet   +44 (0)20 7597 6125

Julian Lipson +44 (0)20 7597 6098

Suzanne Todd +44 (0)20 7597 6164

Brett Frankle +44 (0)20 7597 6222

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