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  1. Wealth
October 20, 2010

Radmacher: Pre-Nups Upheld

By Spear's

The Supreme Court has held that Katrin Radmacher’s pre-nup should carry “decisive weight”, setting a precedent for the UK

The Supreme Court has held that Katrin Radmacher’s pre-nup should carry “decisive weight”, setting a precedent for the UK

James Freeman at Speechly Bircham says:

“The Supreme Court has largely endorsed the reasoning of the Court of Appeal and has upheld the pre-nuptial agreement. However it would be a mistake to be seduced into believing that every pre-nuptial (or post-nuptial) agreement will be automatically or contractually binding going forward.

“Although not contractually binding, nuptial agreements will be particularly effective in shielding inherited or other ‘family’ wealth, assets acquired before the beginning of the marital partnership and surplus assets in high value cases.

“The pre-nup was upheld here because it was fair to uphold it in these circumstances – the outcome would clearly have been different without it. Not to uphold it would have paid insufficient respect to the parties’ adult autonomy. In this case the husband’s financial needs were adequately covered by his own earning capacity and, indirectly, by the child-related financial provision to which he will have access for some time to come.

“This will not be the case for every couple, and the implication is that where an agreement does not provide adequately for one party’s ‘needs’, the courts will not wish to leave that party in a situation of genuine want. This is particularly so where the agreement was made a long time ago and life has moved on since.

“The underlying message from the court is that a sensible, balanced pre-nuptial agreement is likely to be significantly more effective than an ill-considered and cavalier one.”

Comments from Melissa Lesson at Mishcon:

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“An 8-1 judicial majority have now ruled in favour of Pre-Nuptial Agreements being upheld if freely entered into with full appreciation of the consequences; the dissenting minority being the only Family lawyer amongst the Supreme Court Justices. The significant caveat to this is the the Agreement must be ‘fair’ thereby ensuring that the Court’s jurisdiction in the matter is not ousted, but merely fettered. Whilst declining to provide guidelines as to how one is to now interpret the concept of ‘fairness’, three main points have emerged in considering this issue:

1. The reasonable requirements of any child of the family must not be prejudiced by the terms of the Agreement;

2. The duration of the marriage may render the terms of the Agreement unfair;

3. The terms of the Agreement may not properly provide for needs or compensation.

All this however is to be balanced against upholding parties’ autonomy to financially self regulate their marriage and the Court stepping back from the paternalistic and somewhat patronising approach of ‘the Court knows best’.”
Comments from David Greer in Schillings’ family dept:

“Today’s eagerly anticipated judgment in favour of Katrin Radmacher is a significant move towards recognising individual autonomy and the right to enter into marriage contracts. It is likely to lead to prenups being much more widely used. In a revolutionary judgment the Supreme Court has swept away the previous obstacles to the enforceability of pre-nups whilst retaining safeguards to prevent injustice. In years to come this is likely to lead to an explosion of litigation as spouses try to avoid pre-nups being enforced. The enhanced status of pre-nups will enable couples to protect their privacy by avoiding acrimonious litigation and the media attention which often comes with it. “
Have just got off the phone with William Massey of Farrer, the firm which represented Radmacher at the Supreme Court, and he clarified the point Lady Hale raised below (10.36) on pre-nups being used to force poorer parties into disadvantageous positions:

The court retains its discretion to determine whether a pre-nup should be enforced or not. There’s a change of emphasis to that it [the pre-nup] should be followed unless they say that it’s unfair. There will be a lot of pre-marital agreements where it’s not followed, due to a change in circumstances or for example where the needs of a party aren’t provided for.

The judgment doesn’t say that pre-marital agreements are binding. We haven’t reached the stage of a lot of the rest of the world where pre-nups are automatically upheld. The overriding test is of fairness. Within the test of fairness, considerable emphasis will be placed on the fact that these people have entered into the agreement.

“This is a very English state of affairs where the courts retain discretion.”

One of the more intriguing facets of this judgment is Lady Hale’s dissent: first, she argues that Parliament needs to clear up the “mess” (her word) of the law of marital agreements; the Courts have legislated from the bench in allowing post- and now pre-nups, but Parliament has not actually passed laws regarding these.

Second, she says that “these difficult issues [how far contracts apply to marriage, etc] cannot be resolved in an individual case”: as they say, hard cases make bad law. Radmacher vs Granatino is so complex – he is French, she German, the pre-nup agreed in Germany – and on such a large scale that can its facts produce principles applicable to all pre-nups?

Finally, and most damningly, Lady Hale writes: “The court hearing a particular case can all too easily lose sight of the fact that, unlike a separation agreement, the object of an ante-nuptial agreement is to deny the economically weaker spouse the provision to which she – it is usually although by no means invariably she – would otherwise be entitled.”

The importance of this is that a poor spouse can be crushed into agreeing a pre-nup by a rich spouse’s lawyers and family, so even if they have a long marriage and children and the poor spouse earns nothing, the poor spouse may have agreed a pre-nup which leaves them with nothing, despite their contribution to the marriage.

It will be interesting to see how this plays out when an “unfair” pre-nup is challenged.


Comments from Diana Parker of Withers:

If Ms Radmacher had not won this case, England would have been reduced to an absconders’ asylum – a Northern Cyprus for the Asil Nadirs of foreign married couples. A couple entering into a legally binding transaction in the first world country of their choice where neither is duped into doing so should not have to organise their lives to avoid living in another first world country in order to continue to be bound by that transaction – particularly not a country such as ours which is famed for its concept of Equity.”

And Julian Lipson of Withers:

“Many people wish to protect assets they owned before they even laid eyes on their future spouse.  Pre-nups allow them to achieve this and the Radmacher decision gives them more power to be masters of their own destiny. Over the last 4 or 5 years, divorce lawyers have already seen an exponential increase in the number of clients wanting pre-nups. I anticipate the Radmacher decision will significantly increase that trend.

“The procedural hurdles to be jumped through for a pre-nup to be valid have been lowered significantly by this decision, and to a level most family lawyers would not have anticipated. More pre-nups will be upheld as a result. The extremity of the decision does make one query whether the result would have been the same had it not been a wife who was the paying party, but the husband, as is more common. There is a common feeling that it is still much rarer for a man to achieve as big a settlement where it is the wife in the case who is the paying party.
Statement from Katrin Radmacher:

“I’m really pleased with the ruling, but saddened at the four year process that brought us to this point. I’m delighted that Britain has upheld fairness. It is important to me that no one else should have to go through this.

“For Nicolas and I, in our homelands – France and Germany – these agreements are entirely normal and routine. We made a promise to each other that if anything went wrong between us, both of us would walk away without making financial claims on each other. The promise made to me was broken.

“I know some people think of pre-nuptial agreements as being unromantic, but for us it was meant to be a way of proving you are marrying only for love. It was a natural part of the marriage process. In my case, my father insisted upon it to protect my inheritance. Sadly it has taken four years to have our agreement upheld in the British courts. I’m so relieved it’s over.

“I have always wanted to ensure our daughters are well provided for whilst in my former husband’s care and this will continue to be the case. Now I hope we can concentrate on being the best parents we can possibly be for our two lovely daughters.”
Statement from Katrin’s solicitor, Simon Bruce, head of the family team at Farrer and Co, said:

“Katrin never wanted it to come to this. The whole point of a properly-honoured pre-nup is to prevent any such dispute. This decision means pre-nups are binding as long as they are fair. Everybody hopes their marriage will last a lifetime. From today we are allowed to prepare for the possibility that it might not be the case.

“Pre-nups are like a form of fire insurance – better taken out before the event rather than after it. Couples can now decide in the best of times what the outcome would be in the worst of times.

“The Supreme Court has said that Katrin’s pre-nup was fair. Her former husband is a really intelligent man, had a glittering banking career in the City and in New York, and has studied at Oxford University for a PhD in biotechnology – he is nobody’s fool.

“He is well able to look after himself, and has really generous maintenance from Katrin for each of the two girls. He sees them for less than a third of a year, and receives £35,000 per child per annum. That is, £70,000 per annum tax-free (the equivalent of about £130,000 a year gross) for the two of them. It is extraordinarily generous by any standard. On top of that, Katrin is paying for him to have a multi-million pound house in London, plus a nice property near their home in France, until the youngest child is aged 22 – that is, another 14 years.

“It should also be borne in mind that Katrin has always had the role of full-time parent.  Her former husband has always been free to pursue his chosen career without the added responsibility of full-time parental duties.

“This judgement is pro-marriage. Good pre-nups will keep couples together if they marry for love, not money. It holds for co-habiting couples, too. This judgement supports the public’s desire to minimise conflict, and the emotional and financial cost of divorce.

“More couples will marry for love not money. Overall we are likely to see more stability in relationships. Couples who marry with a pre-nup will want to be together, and will understand their rights and responsibilities. Co-operation, collaborative law and mediation should replace conflict – and rightly so.”
The Supreme Court has held that Katrin Radmacher’s pre-nup should carry “decisive weight”, setting a precedent for the UK Lots of expert analysis to follow.

Download the whole Radmacher vs Granatino judgment by clicking here
Here is a summary of the judgment, provided by the Court:

Lord Phillips observed that it used to be contrary to public policy for a couple who were married or about to be married to make an agreement which provided for the contingency that they were about to separate, on the basis that this might encourage them to do so, and the court paid no regard to them [31].

After 1957 separation agreements were given considerable weight, as increasingly were post-nuptial agreements, in marked distinction to the treatment of ante-nuptial agreements[42]. But the reasons for sweeping away the old rule for separation agreements applied equally to ante-nuptial agreements[52]. There was not necessarily a material difference between the two[57] and the court was entitled to overrule the agreement in either case [63].    The question was how the court should approach the task of deciding what weight should be given to an ante-nuptial agreement.

Three issues arose in relation to the agreement in this case for the court to consider:

(i) Were there circumstances attending the making of the agreement which should detract from the weight which should be accorded to it?    Parties must enter into an ante-nuptial agreement voluntarily, without undue pressure and be informed of its implications. The question is whether there is any material lack of disclosure, information or advice [69].

(ii)    Did the foreign elements of the case enhance the weight that should be accorded to the agreement?    In 1998, when this agreement was signed, the fact that it was binding under German law was relevant to the question of whether the parties intended the agreement to be effective, at a time when it would not have been recognised in the English courts.    After this judgment it will be natural to infer that parties entering into agreements governed by English law will intend that effect be given to them [74]

(iii)    Did the circumstances prevailing at the time the court made its order make it fair or just to depart from the agreement?    An ante-nuptial agreement may make provisions that conflict with what a court would otherwise consider to be fair. The principle, however, to be applied is that a 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 [75]. A nuptial agreement cannot be allowed to prejudice the reasonable requirements of any children of the family [77], but respect should be given to individual autonomy [78] and to the reasonable desire to make provision for existing property [79].    In the right case an ante-nuptial agreement can have decisive or compelling weight [83].

Applying these principles to the facts, the Court of Appeal was correct to conclude that there were no factors which rendered it unfair to hold the husband to the agreement. He is extremely able and his own needs will in large measure be indirectly met from the generous relief given to cater for the needs of his two daughters until the younger reaches the age of 22 [120]. There is no compensation factor as the husband’s decision to abandon his career in the city was not motivated by the demands of his family but reflected his own preference [121].    Fairness did not entitle him to a portion of his wife’s wealth, received from her family independently of the marriage, when he had agreed he should not be so entitled when he married her [122].

Lord Mance agreed with the conclusion of the majority but, in common with Lady Hale, expressed no view on the binding or other nature of an ante-nuptial agreement, which did not arise for decision.

Lady Hale (dissenting) stated that modern marriage still possesses an irreducible minimum, which includes a couple’s mutual duty to support one another and their children.    The issue in this case was how far individuals should be free to rewrite that essential feature of the marital relationship as they chose [132]. The law of marital agreements is in a mess and ripe for systematic review and reform. The Law Commission has a current project to examine the status and enforceability of agreements and can then make detailed proposals for legislative reform that Parliament can consider. That is the democratic way of achieving comprehensive and principled reform [135].    The facts of this particular case obscure the fact that the object of an ante-nuptial agreement is to deny the economically weaker spouse (usually the wife) the provision to which she would otherwise be entitled [137].

The points on which Lady Hale dissents from the majority are summarised at [138] and include the upholding of the Court of Appeal’s decision as to the actual outcome of the case.    In her view, there remain important policy considerations justifying a different approach for agreements made before and after a marriage [162].    The test to be applied by the court when considering an ante-nuptial agreement should not introduce a presumption or starting point in favour of holding the parties to it: the guiding principle should be fairness in the light of the actual and foreseeable circumstances at the time when the court comes to make its order [169].    In this case the Court of Appeal appeared wrongly to treat the parties as if they had never married but only cohabited, and failed to recognise that a parent often expects to continue to be a resource for his or her grown-up children [192]. Lady Hale would have varied the judge’s award to give greater weight to the agreement but would have granted the husband his English home for life [194].

References in square brackets are to paragraph numbers in the judgment.
Today, as you’ve no doubt been made aware through the anguished yelps of your ex-partner, the case of Radmacher vs Granatino reaches its finale today. The Supreme Court hands down its first nine-member judgment, settling (we hope) whether pre-nups are legally binding.

The case has its origins in the divorce of German paper-industry heiress Katrin Radmacher from her husband Nicolas Granatino. The pre-nup which they had signed in 1998 was contested in their divorce of 2006, and it was not upheld by the High Court in 2008, but in 2009 the Court of Appeals said that Britain was out of step with most European countries and that it should stand. Granatino appealed to the Supreme Court and we are awaiting this judgment imminently.

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