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  1. Wealth
July 25, 2018updated 03 Aug 2018 9:30am

Why the pre-nup is actually a time machine

By Spear's

A close look at the Radmacher case in divorce shows that the Supreme Court might have subconsciously enabled time travel, by means of nuptial agreements, writes Conrad Adam

The years after the landmark House of Lords’ decision in White v White, the starting point of the 50:50 split in divorce, saw several successful business professionals seeking to challenge the notion of equal division and seek to develop the argument of ‘stellar contribution’ as a reason to depart from equality. Some succeed, and some don’t, and over time, this door starts to be slowly closed by the courts. It is still slightly ajar, but not by very much at all.

Enter stage left, Ms Radmacher (in 2008) seeking to hold her husband, Mr Granatino, to the terms of a German pre-nuptial agreement (on which he has received no legal advice) and which made no provision for him at all.

Two years of litigation follow as the Radmacher case slowly winds its way through the English court system until it is considered the Supreme Court. A final decision is given in October 2010 and it is a slam-dunk for pre-nuptial agreements. A full Supreme Court of nine judges decide 8:1 in favour of Mrs Radmacher. The only dissenting voice is that of Baroness Hale – who having decided some 18 months previously in the Privy Council that whereas post-nuptial agreements can be binding (as in certain circumstances they can be considered a creature of statute) pre-nuptial agreements however are not binding for public policy reasons – could hardly be seen to have changed her mind about that so soon afterwards.

Once the smoke clears and the dust begins to settle, it becomes clear that what the Supreme Court has in fact done is to start the engine on a prototype – but fully functioning, time-machine.

For such a complicated machine, the instruction manual is a work of art in minimalism.  The instructions are given in bold at paragraph 75 of the judgment:

‘The courts should give effect to a nuptial agreement that is freely entered into by each party with full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.’

The first point to note is the use of the expression ‘nuptial’ agreement.  This means that the same proposition of law will apply both to pre-nuptial agreements and post-nuptial agreements. The test is threefold: firstly, it must be freely entered into by each party, second, with a full appreciation of its implications and lastly, unless in the prevailing circumstances, it would not be fair to hold the parties to it.

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The first two limbs to the test have generally become accepted as meaning that there must be no obvious undue influence, and that where each party has independent legal advice and there has been a disclosure between the parties their means and resources in advance of signing the agreement, those aspects should not be problematic. The difficulty comes in terms of the third test.

In Radmacher, the court deliberately did not give detailed guidance about what would or would not be fair. However, it did say that to uphold an agreement which would have the effect of one party not being able to meet their needs at all, may be considered as unfair.

There follows from this the question of what is meant by ‘needs’. Under the law pre-White, reasonable needs was always an elastic concept, and there was a dovetailing in relation to the standard of living, so that one person’s ‘reasonable needs’ were often assessed by the courts as being very different from somebody else’s.

Some 10 years on from Radmacher first coming into the court system, these thorny issues still exercise court time, but family lawyers are now grateful for a recent High Court case reported in March 2018 giving guidance on this: KA v MA, (subtitle Pre-Nuptial Agreements: Needs).

The judgment helpfully reviews a fair number of authorities and cases since the Radmacher decision and looks at the question of ‘needs’ in the context of there being a pre-nuptial agreement. In keeping with a number of cases on pre-nuptial agreements, the judgment neither holds the claiming party completely to the terms of the pre-nuptial agreement, nor does it agree to provide to the claiming party all that is asked for.

On a scale of 1 – 10, with 1 being the provision set out in the pre-nuptial agreement, and 10 being the amount the claimant wife could hope to receive, post White v White, and without a pre-nuptial agreement, in my analysis the wife scores around about a 4. A pretty good result for the husband. The court is certainly much closer to what the husband says than what the wife asks for. The court in this case considered that to strictly apply the precise terms of the pre-nuptial agreement would not be enough for the wife to have her reasonable needs met, but she received far less than otherwise. She perhaps received about as much as she would have done almost 20 years ago, pre- White.

The time traveller’s wife.

A properly drafted pre-nuptial agreement can certainly rewind time to before the year 2000 (perhaps further back than that in fact) and in so doing, side-step any notion of equal division and the application of the yard stick of equality.

Little wonder that pre-nuptial agreements are now used as a fundamental vehicle in relation to wealth preservation and can be seen waxed, polished and parked alongside the more conventional high-end modes of transport we associate with our clients.

Conrad Adam is a partner in the Family Team at Wedlake Bell LLP

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