25 February 2011

With this prenup I thee wed…


Brett Frankle
Partner | UK

The long awaited Supreme Court decision in the case of Radmacher v Granatino was handed down on 20 October 2010 and clarifies the approach the English family court should take to prenuptial and postnuptial agreements.  By a majority of 8 to 1 the Supreme Court effectively held a husband to a German-style marriage contract he had signed prior to his marriage at the insistence of his wife's wealthy family.  That agreement essentially barred Mr Granatino from making any financial claims on divorce and would have been binding on the parties in Germany (where the wife was from) and in France (where the husband was from).

After an eight year marriage with two children, the parties separated.  Despite the terms of the marriage contract, Mr Granatino brought financial claims during the divorce process, seeking an order against his wife for housing and an income fund for his ongoing support.  He had been an investment banker during the marriage, but at the time of the divorce was studying for a post-graduate degree at Oxford University.  The wife owned shares in a family company and her total assets (which she had received from her family) amounted to around £100m.  The High Court awarded the husband £5.5m.  On appeal by the wife, the Court of Appeal found that the husband was a ‘man of the world' and that despite the fact there had been no financial disclosure or independent legal advice, or indeed a translation of the documents from German, the Court held that the husband knew the effect of what he was signing.  The husband received £2.2m by way of a housing fund on loan until the youngest child reached the age of 22 together with a capitalised fund for child maintenance to enable him to support the children when they were with him.

Decision

The Supreme Court dismissed Mr Granatino's appeal and upheld the decision of the Court of Appeal, effectively holding him to the terms of the agreement he had signed, subject to some financial provision being made to enable him to satisfy his responsibilities as a father.

The majority Judgment in the Supreme Court declared that the divorce court should ‘give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to their agreement'. The criteria for ‘fairness' would be assessed on a case-by-case basis.  The Supreme Court removed the distinction between prenuptial and postnuptial agreements.

It remains the position that nuptial agreements (whether made before or after marriage) are not contractually binding on the English divorce court, and the court will retain its overarching discretion to determine the financial provision to be made on divorce.  However, whereas prior to the case the burden was on the financially stronger party having to justify that the terms of a prenuptial agreement should be upheld, now it is thought that the onus will be on the person seeking to get out of the agreement to demonstrate why they should not be held to its terms.  The Court will look at the effect of the agreement at the breakdown of the marriage, and will not uphold an agreement which results in one partner being left in a predicament of real need.

To enhance the effectiveness of prenuptial (and postnuptial) agreements, it is advisable for each party to have independent legal advice and for full financial disclosure to be made at the time of the agreement.

The future

This decision will assist those who wish to protect inherited and pre-marital assets in a prenuptial agreement.  It will also give food for thought to those with marriage contracts entered into in other countries or states who might be considering forum-shopping by filing for divorce in England to try to take advantage of the English courts' generous approach to finances.  

Significantly, legislative reform of the law to make prenuptial agreements legally binding moved one step closer on 11 January 2011 with the publication of the Law Commission's consultation paper on ‘marital property agreements' which invites comments on their provisional proposals for reform.  These include the possibility of making qualifying nuptial agreements which have been fairly entered into contractually enforceable providing that the pre-requisites of both parties having had independent legal advice and made full and frank financial disclosure are in place.  They suggest that such an agreement would not be enforceable in certain circumstances, for example if it does not meet the needs of the children or leaves the spouse reliant on state benefits.

The Law Commission's report and recommendations following the consultation process (expected later in 2011 or early 2012) will be of significant interest.

The Supreme Court has gone some way to address claims that the English Court is overly paternalistic and the likely upshot of the recent Radmacher Judgment and the prospect of legislative reform will be that it presents an even greater incentive than before for the financially stronger party to enter marriage with a prenuptial agreement.

Category: Article