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Recognition of pre-nuptial agreements

  • July 16, 2011
  • By Hunters Law

“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.”

The quote above is the fundamental proposition of the judgement in Radmacher v Granatino [2010] UKSC 42 handed down by the Supreme Court on 20th October 2010. While, strictly speaking, pre-nuptial agreements are still not binding on the Court, Radmacher demonstrates the significant extent to which, if properly prepared, they can be relied upon in this jurisdiction. In future, if an agreement is properly prepared, there will be a presumption that the parties intend to be bound by it. The Law Commission, having waited for the Judgement to be handed down, has published a consultation paper on the issue. It seems unlikely, in our view, that the position we have presently reached will be reversed, and there is every possibility of legislation which might advance it.

This reflects the movement by the Courts over the past few years, particularly through cases such as Crossley and MacLeod, increasingly to take prenuptial agreements into account, such that in Crossley the agreement was held to be “a factor of magnetic importance”. These cases emphasised that the agreement would be given weight if both parties had separate and specialist legal advice as to the law and how the agreement would impact upon it, full financial disclosure was made, and, finally, if the agreement was made at least three weeks before the wedding. Radmacher builds upon this and importantly brings to an end the suggestion that such agreements might be contrary to public policy. The case involved a French husband and a German wife, who entered into a pre-nuptial agreement in Germany waiving all claims to financial provision if they were to divorce. They married in London, and lived in England where they had two children, separating after eight years of marriage. The wife was extremely wealthy. The husband was a banker but became an academic after they had married.

When the parties separated, the husband applied to the Court forfinancial provision on the basis that he had signed the pre-nuptial agreement without legal advice or detailed financial disclosure. At first instance, the Judge agreed these were deficiencies, but that he had known both that it was intended that he should have nothing on divorce and also that the wife was very wealthy. Some weight was, therefore, given to the agreement, meaning that the £5.6m award made to him was significantly less than he would have received had there been no agreement at all.

The wife appealed, an appeal which the Court of Appeal allowed, finding that, despite the deficiencies in process the agreement should have been given “decisive” weight by the Judge. It substituted an award limited to the husband’s need to provide for his children when they were with him (which had not been provided for by the agreement) rather than his own personal long term needs. The husband appealed to the Supreme Court, which, in its judgment laid down the approach that must be adopted when considering if a pre-nuptial agreement should or should not be applied.

The Supreme Court first considered if circumstances prevailing at the time the agreement was made indicated if it should – or should not – be given weight. Were the parties free from duress? Were they properly advised? Did they have all the material knowledge required to make a decision as to whether to enter into the agreement? Did they intend the agreement to have effect? Even though the husband had not received financial disclosure or been properly advised it was found that he intended the agreement to be binding on him. The Court then asked whether the circumstances at the time the parties divorced, made it fair to depart from the terms of the agreement. The Court made clear that this would be fact specific in every case. An agreement would be clearly unfair if it did not meet the reasonable requirements of any children of the marriage. Things are not so clear cut after that; would an agreement be ignored if it failed to meet a party’s own needs? Perhaps, but Mr Granatino failed in just such circumstances, and it is far from certain.

Where does all of this take us pending any possible future legislation? While reserving the Court’s flexible approach, it is clear that the Court wishes parties to a marriage to be able to regulate their financial arrangements so long as this is done on the basis of informed and freely given consent. Where this is shown to be the case, it is likely that an agreement will be upheld unless its operation will be unfair to one party or the other, as to which the threshold is likely to be set high.

This judgment offers many advantages to people who are planning to marry and would like to avoid financial uncertainty if the relationship breaks down in future. This is particularly so if people have significant assets that they wish to protect. Such agreements have to be handled sensitively and the more time that is allowed for their preparation, the better.

Our Matrimorial & Family Department has extensive experience in dealing with nuptial agreements. Should you seek advice on such matters please contact Henry Hood or any partner in the department.

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