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Revolution in the court room on Pre Nuptial Agreements
Radmacher v Granatino
There has been a lot in the English Press about pre-nuptial agreements (PNA’s) and their recognition and effect on a divorce/civil partnership dissolution. The Supreme Court (the highest English court) has now clarified the position under English law in Radmacher v Granatino. You may recall that last year, a French man, Gratinatino, was trying to get the English court to ignore the pre-nuptial agreement that he had signed not knowing that his future wife was a German heiress. His wife, Radmacher, was fighting his claim in court and tried to get the pre-nuptial recognised by the Supreme Court.
Why, if it is a legally binding contract, should it be any less enforceable because it is between a husband and wife than between strangers?
The position has been that PNA’s are not legally enforceable under English law but whilst up until now they have been held by some judges to be ‘void as against public policy’, they have been treated by others as being a ‘relevant factor’ for the court to take into account on a divorce. This has led to confusion. Why, if it is a legally binding contract, should it be any less enforceable because it is between a husband and wife than between strangers? It is now clearly stated that the rule that agreements between husband and wife making provision for a future separation being ‘void for public policy’ and thereby unenforceable, should stop.
There has also been legal debate whether a pre-nuptial agreement (sometimes called an ante-nuptial agreement, made before marriage) should have the same treatment as a post-nuptial agreement (made after marriage). The distinction being that a post-nuptial agreement can be amended by the court and, as such, should be recognized by the court, whereas the PNA cannot be amended by the court and therefore should not be recognized.
The Supreme Court (the highest English court) has now ruled that these distinctions have now gone and that a pre-nuptial, post-nuptial and settlement agreement (made at the time when the parties are separating to arrange their future financial arrangements) should receive the same recognition. Their Lordships said:
‘The 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’.
|A carefully drawn marriage contract entered into with full disclosure, over time, with legal advice and anticipating future changes, such as the arrival of children, should from now on, be binding on the court when dealing with the financial arrangements on a divorce.|
Why is there such a distinction between England and the E.U. on PNA’s? The major difference between England and most E.U. countries concerns ‘property regimes’. Since feudal times, on the Continent property regimes have developed to protect rights in land and to keep land in the family, although these do differ from country to country. The marriage contract has developed to support the way property regimes work during the marriage and limit any land leaving the family and are, in turn, respected by the court of those countries on divorce. This means on divorce in many E.U. countries the court has limited power to transfer property from one spouse to the other.
In England, a PNA has its roots in the marriage dowry, with obligations on the bride’s father to put up money on the marriage to provide for his daughter in the future, particularly on the death of the husband. It was only by the 1882 Married Women’s Property Act that it was recognized that a wife could have her own separate property, even after marriage.
In England, there are no property regimes, in the sense applying in Continental Europe, but property is treated as belonging to the person who paid for it. The English court on divorce/dissolution has a wide discretion to re-allocate assets and transfer them from one spouse to the other, in a way that it considers ‘fair’.
The effect of a PNA in England is usually to limit the claims on the wealthier party’s assets and are particularly useful where there is an imbalance of assets at the beginning of the relationship, or unequal financial responsibilities, such as on a second marriage where there are already existing families.
Whilst on the Continent the property regimes are distinct, such as séparation des biens, and the terms are understood by those marrying, in England there are no clear regimes to follow and in drafting a PNA it is like starting with a blank piece of paper. The terms have to be agreed upon and there are no formal rules to apply. This is one reason why the drafting of the PNA is important, as consideration has to be given to both the situation as it is at the time of the marriage, but also changes that are likely, such as the arrival of children, illness or redundancy and time is needed to prepare the agreement. There must be a ‘meeting of the minds’.
There is a difference under English law between the law that applies on divorce and the law that applies by way of ownership of property, which is relevant where, for example, there is a bankruptcy.
The English Court’s approach
On a divorce the courts have to give consideration to a number of factors which are described as the section 25 criteria and include matters such as the age, wealth, and health of the parties, financial contribution and non-financial contribution. In recent years, the courts have begun, particularly where it is a short marriage, to treat the existence of a PNA as a section 25 factor and give effect to it.
It was generally considered that in order to have any effect, a number of factors must apply to ensure there is informed consent and no duress and these include:
1) Both parties must have separate legal advice (or be advised to seek advice);
2) Both parties must give full financial disclosure to the other;
3) The agreement should state that it is to be reviewed on the happening of certain foreseeable events including on the birth of a child, the redundancy or incapacity of either party or every five years, or include provision for such events;
4) The agreement must be freely entered into, without duress or undue pressure.
In 1998, a Government White Paper recommended that PNA’s should be legally enforceable, subject to certain safeguards, but nothing happened. Recently the Law Commission have been asked to look at this area again and they are due to report in 2012. It must be remembered that it is only Parliament that can change the law, the Judges only interpret it, so for now, we must rely on the findings of the Supreme Court in Radmacher v Granatino but should take notice of the recommendations of the 1998 White Paper which are:
- Both parties must have separate legal advice (or be advised to seek advice);
- Full financial disclosure must be given by both parties;
- It would not be enforceable where there are any children, whether born before or after the marriage;
- That it should be prepared over time and there should be a minimum of three weeks between the preparation of the prenuptial agreement and the marriage;
- That the court would not be enforced where it would cause ‘significant injustice’.
Whilst there can be no guarantee that Parliament will enshrine the court’s findings, as the law is intended to follow public opinion, it is likely any formal changes in the law will be similar to the findings of the Supreme Court and are likely to reflect the recommendations in the 1998 White Paper.
Radmacher V Granatino 2010
There was a German marriage contract between a German Wife and French Husband, entered into in Germany, under German law, with the husband being advised to seek independent advice and no full financial disclosure being given. The contract provided that neither party would be entitled to acquire property from the other during the marriage or on its termination. At the time of the marriage the Husband was a banker and earning good money. The Wife was significantly wealthy having received shares in the family business. The Wife was keen to ensure her husband was not marrying her for her money, although it is her parents who initiated the making of the contract.
There are two children of the family. Towards the end of the marriage the Husband gave up his lucrative career to study and remained in the academic field.
The first judgment:
Baron J. awarded the Husband £5 Million of the Wife’s £100,000 Million, although this was more than he would have had under the German marriage contract, but not the sort of settlement he would have received had there been no agreement.
The Wife’s appeal:
Lord Justice Thorpe reversed Baron J.’s judgment, on the basis that there was a valid marriage contract and made an award on the basis of the claim a Father would have under the Children’s Act 1989 and the Husband received a housing fund of £2.5 Million to provide housing for him until the youngest child reaches the age of 22. The fund then reverts to the Wife. In addition, the Husband was awarded a fund to clear most of his debts and a Duxbury fund based on the capitalization of his income need of £100,000 per annum until the youngest child is 22.
The Husband was given further funds to provide for additional housing to provide accommodation for him and the children during contact visits in Monaco.
Thorpe L.J was clearly influenced in his judgment by a desire to reach harmonization of law between E.U. states, but underlying the provision is the view that the Husband should not benefit personally from the marriage and therefore he should be put in the same position as an unmarried parent who receives housing provision whilst the children are dependant.
The Supreme Court’s decision:
Their Lordships, by an eight out of nine majority, dismissed the Husband’s appeal and ruled that the Court of Appeal judgment should stand. The reasoning being that as the Husband and Wife came from countries where pre-nuptial agreements are usual, that the English Court could take notice that the Husband and Wife understood the effect of entering into such a contract and as such should be held to the terms of the agreement.
Their Lordships recognized that with the uncertainty of the position under English law up to now, that if a party has entered into a PNA understanding it to have no legal effect that they should not be held to it. But, their Lordships drew a distinction between couples coming from jurisdictions where PNA’s are usual and any one entering one in England from now on, saying:
‘Thus in future it will be natural to infer that parties who enter into an ante-nuptial agreement to which English law is likely to be applied intend that effect should be given to it.’
Their Lordships considered in particular:
- Were there circumstances attending the making of the agreement that detract from the weight which should be accorded to it? The fact that full financial disclosure had not been given and independent legal advice not sought were not considered material in this case as neither had not influenced the Husband’s decision whether to contract or not.
- Were there circumstances attending the making of the agreement that enhance the weight that should be accorded to it; the foreign element? The fact that this was a German marriage contract entered into and binding under German law was relevant and that at the time the parties entered into it, they expected it to be binding. In future, the presumption will be that marriage contracts entered into under English law will be binding as well.
- Did the circumstances prevailing when the court’s order was made, make it fair or just to depart from the agreement? The Court should now give effect to agreements freely entered into with a full appreciation of its implications unless it would not be fair. This is to allow for unforeseen or unforeseeable changes or changes for which provision had not been made between the making of the agreement and the time when it came before the court on the breakdown of the marriage.
- That the needs of the children must be met. In this case, as is usual in many E.U. countries the marriage contract made no provision in the event of there being children, so the Court made provision to meet that need, on the basis that would apply if the parties had not married.
Whilst their Lordships acknowledged that in making any PNA the usual contractual provisions must apply namely that it must be ‘freely concluded’ and ‘properly informed’ and whilst they did not consider at present that the 1998 recommendations must be complied with, they acknowledged that such safeguards are highly relevant.
PNA’s can be entered into under English law and, if entered into properly, and taking the appropriate steps should be followed on a divorce. This includes:
- Full financial disclosure is necessary, as a starting point;
- Freely entered into without duress or undue pressure;
- Time and independent advice is needed to ensure that the parties are informed of the effect of the agreement and not subject to duress or unreasonable pressure;
- Consideration must be given to what it is sought to achieve and in particular what are you trying to protect. Is it for example, monies already generated or inheritances, past or future, or is there already a financial obligation to others to take account of. The overriding obligation is ‘fairness’.
It seems the English Court will now follow a PNA entered into in other jurisdictions where they are usual and where financial disclosure, independent legal advice and preparation over time are not required. This means the French family, for example, who move to England for work, could be caught by the provisions of a French marriage contract and therefore the weaker financial party, usually the wife, may be unable to obtain what would be considered reasonable for a Wife under English law.
Since the effect of the PNA is relevant in England at the time of the divorce, consideration needs to be given at the time of the marriage to which countries could deal with a divorce, in the future. Jurisdiction for divorce relies on factors of nationality (outside the U.K.), domicile (in the U.K.) and habitual residence and outside the E.U. (and Denmark) where the family has the strongest connection.
Consideration should also be given to what law a country may apply on a divorce, as some E.U. counties will apply the law of another member state if, say, after the marriage the couple make their home there.
As the law may change in 2012 after the Law Commission report, it must be appropriate to comply with the 1998 guidelines.
And finally, how is the best way to make an agreement, at a time when the last thing anyone wants to think about is a divorce. In this regard experienced lawyers can assist and the collaborative approach, the purpose of which is to assist the clients reach agreement, may help.
Accredited Family Lawyer and Collaborative Lawyer