Supreme Court upholds Pre-nuptial Agreement in high profile case

Historically, pre-nuptial agreements have been subject to much debate. It used to be that the starting point was any such agreements that purport to bind the hands of the Court in the event of the breakdown of a relationship were not strictly enforceable in this country. They were also previously viewed as contrary to public policy. This is in contrast with the position in many other parts of the world, including several other countries in Europe. Recently it has become increasingly clear that these agreements will be given regard to by the Court in determining the financial settlement.

The case of Radmacher v Granatino was heard in the Court of Appeal in July 2009 and involved a couple who had signed a pre-nuptial agreement, also known as ante-nuptial agreements. This agreement was valid under German law but the couple then divorced in England. The agreement provided that there would be no readjustment of assets in the event of a divorce. The wife was from an extremely wealthy German family and, at the time of the marriage in November 1998, the French husband was a highly paid banker. Pre-nuptial agreements are commonplace in both parties’ countries of birth. The parties separated in 2006, at which time the husband had given up his lucrative career to study at Oxford University. The husband then issued an application to the Court for a financial settlement based on his needs. The wife attempted to rely on the pre-nuptial agreement.

The High Court initially awarded the husband a sum of around £5.6 million which comprised of capital for housing, a lump sum to cover maintenance for him and a sum to cover his debts, together with maintenance for the parties’ two children who live with him one third of the year. The wife appealed against this, and the Court of Appeal allowed her appeal. It was held that the original order gave insufficient weight to the pre-nuptial agreement which was considered to have decisive weight where the parties had entered into it freely and willingly. Lord Justice Thorpe considered it relevant that this husband was well established in the banking field, that such agreements are commonplace in the parties’ native countries and that the husband had been given the opportunity and time to take independent legal advice, despite the fact that he had not taken it nor had he sought to negotiate the terms of the agreement. There was not full disclosure of the wife’s financial circumstances, but the Court of Appeal did not consider that this should detract from the agreement as the husband was aware of the wife’s wealth and considerable inheritance in the future. Finally, although the agreement did not consider the birth of children to the couple, the Court of Appeal found that it should be assumed that they expected to have a family.

The settlement was altered by the Court to the extent that the husband was to have a housing fund to purchase a property in England, but that this will ultimately revert to the wife. A property was to be provided in similar terms in Europe, and the maintenance payment to the husband was based on his needs as carer for the children and not on his needs as a spouse. The Court was clear that it was necessary to give proper weight to the pre-nuptial agreement.

Mr Granatino then took the case to the Supreme Court in March 2010, appealing against the decision of the Court of Appeal. The decision has now been handed down with the Court holding that the Court of Appeal was correct to hold the husband to the terms of the pre-nuptial agreement.

Lord Phillips commented on the fact that it used to be considered contrary to public policy for a couple who were married or about to be married to enter into such an agreement. He noted that since 1957 separation agreements and postnuptial agreements have been given increasing weight, and there is not necessarily a material difference between these agreements and pre-nuptial agreements.

The judgement refers to three issues which arise for consideration by the Court.

“a. Were there circumstances attending the making of the agreement that detract from the weight that should be accorded to it?
b. Were there circumstances attending the making of the agreement that enhance the weight that should be accorded to it; the foreign element?
c. Did the circumstances prevailing when the court’s order was made make it fair or just to depart from the agreement?”

It is clear that parties must enter into a pre-nuptial agreement voluntarily. There must be no undue pressure on them and they need to be informed of the implications of the agreement. The Court will also look at whether there were any circumstances surrounding the making of the agreement which means that greater weight should be given to it. In the Radmacher case, the fact that the agreement was binding under German law was relevant. Any pre-nuptial agreements entered into in England and Wales after this judgment are likely to carry greater weight.

A Court will also consider whether it is just or fair to depart from the agreement. Where an agreement is manifestly unfair to a party the Court may not give effect to it. The effect of the Supreme Court decision is that a Court should uphold a pre-nuptial agreement, provided it has been freely entered into by each party with full understanding of the implications, unless it would be unfair to do so. First consideration must still be given to any children of the family.

It is clear that in certain cases a pre-nuptial agreement will have decisive or compelling weight. In the Radmacher case, it was considered that there were no circumstances which made it unfair for the husband to be held to the agreement. It would not be fair for him to receive a proportion of his wife’s wealth, acquired independently of the marriage, when he had previously agreed that he should not be entitled to this.

The call for pre-nuptial agreements is particularly prevalent where the parties have amassed significant assets prior to the marriage, or have children from an earlier marriage who they wish to protect. Increasingly people wish to retain control over their financial circumstances and not leave them in the hands of the Court. The Law Commission is undertaking a review of the law in this field and a response is anticipated in 2012.

In the meantime, it remains of primary importance to ensure that pre-nuptial agreements are expertly negotiated and drafted. For further information please contact a member of the Family Team at BLB Solicitors.