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Landmark decision for prenuptial agreements

22 Feb 2011

A landmark decision of the Supreme Court over the validity of a pre-nuptial agreement has seen a German heiress win the battle to keep her £100m fortune, in a move which lawyers say could open the door to such agreements taking their place in English law. It has taken the Supreme Court seven months to reach the eagerly awaited decision, reflecting the controversial nature of the case and difficult issues involved. In the case, Mr Granatino, a French banker, and Ms Radmacher, a German heiress, married in London in 1998. They had two children but, by 2006 their marriage had broken down and they got divorced in London, by which time Mr Granatino had become disenchanted with banking and was studying for a PhD at Oxford on a salary of £30,000. Some weeks before the wedding, Mr Granatino and Ms Radmacher had signed a prenuptial agreement in Germany in which each agreed that, in the event of divorce, neither would make any financial claims upon the other.

A pre-nuptial agreement setting out how property is to be divided between a husband and wife in the event of their divorcing has long been regarded as void under English law because such agreements were considered to be contrary to public policy. Nicola Matthews, head of family law at Newcastle based Hay & Kilner, commented: “Many lawyers and politicians have been coming round to the view that this reflects an outdated view of marriage and that ante-nuptial agreements should be upheld by the courts. In 1998 the Law Commission recommended that such agreements should be treated as legally binding provided certain conditions were fulfilled, for example that both sides received legal advice, that the agreement would not be enforced if it was clearly unfair or if it failed to provide for children, and that there was full financial disclosure by both parties. However, the recommendations of the Law Commission have not been translated into law by the Government.”

After the marriage breakdown, Mr Granatino applied for an order for financial provision. When it reached the High Court, Ms Radmacher argued that he was not entitled to make any claim because of the pre-nuptial agreement. But the judge in that court held that the agreement was unenforceable on the grounds that Mr Granatino had not had independent legal advice; that Ms Radmacher had not made any disclosure as to her assets; that the agreement made no provision for any children; and that the agreement was unfair in making no provision for the possibility of Mr Granatino or Ms Radmacher being in a situation of real need.

The judge did, however, think that some weight should be given to the agreement because it was acknowledged by Mr Granatino that the agreement would be enforceable in Germany or in France and therefore made an order based upon Mr Granatino’s financial needs, rather than one based upon a division of capital. The upshot was that Mr Granatino was awarded about £5.5 million, which would have provided him with a house and an income for life. Ms Radmacher appealed on the ground that the judge had not given sufficient weight to the prenuptial agreement, and the Court of Appeal agreed with her. They held that Mr Granatino could have had independent advice and he could have asked for full disclosure, but he declined to do so. He may not have known exactly how wealthy his prospective wife was, but he knew she was wealthy. The agreement was therefore not unfair and the court should not interfere with any agreement freely entered into by adults. The agreement, they said should be given “decisive weight”.

As a result, the Court of Appeal reduced the award so as to give Mr Granatino financial support as a parent rather than as a former husband, so, for example, the element of the award for housing needs should be limited to the period until the younger child reached 22. This time Mr Granatino appealed, on the basis that to give decisive weight to the prenuptial agreement was contrary to English law. However the Supreme Court upheld the Court of Appeal’s decision by a majority, Baroness Hale dissenting. The decision is controversial. Many commentators have been saying that England has become the divorce capital of the world due to the generous awards made, generally to wives, and that England is out of step with the rest of Europe on this issue.

They say that recognising pre-nuptial agreements would lead to certainty and reduce wasteful litigation. Other commentators say that in reality pre-nuptial agreements are simply a way for wealthy people to ensure that the less well off party to a marriage will not get the financial settlement they would be entitled to in the courts.

They argue that since it is usually the husband who is the financially stronger party to a marriage, pre-nuptial agreements are detrimental to women. Said family law expert Nicola Matthews of Hay & Kilner: “The true effect will emerge over the next few years, as we see how the courts interpret and apply this judgement. Whilst they will be reluctant to interfere with agreements freely entered into, it may be that they continue to ignore pre-nuptial agreements in purely domestic cases, where both parties are UK residents, unlike Radmacher and Granatino, who were both from countries that would have recognised and enforced the agreement. “That’s likely to happen where they feel that adopting the terms of a pre-nuptial agreement is likely to result in an unfair decision. Even if they become the norm, no pre-nuptial agreement will have the power to replace the court’s jurisdiction, so it will be open to the court to over-rule a pre-nup where its effect might be unfair. “If anything, this case highlights the need for legislation to clarify where these agreements stand in law, as called for by the Law Commission.”

For further information please contact Nicola Matthews on 0191 232 8345 or email nicola.matthews@hay-kilner.co.uk.

Please note: This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.