Striking a deal: Developments in pre- and post- nuptial agreements

1 November 2009

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The recent decision of the Court of Appeal in Radmacher v Granatino [2009] EWCA Civ 649, whilst giving rise to some confusion in light of the earlier decision of the Privy Council in Macleod v Macleod [2008] UKPC 64, nevertheless provides important guidance to practitioners advising couples on pre-nuptial agreements and is likely to set the tone for future consideration of pre-nuptial agreements in the courts. The decision will also potentially have important consequences for foreign couples divorcing in this jurisdiction.

As a result of the Court of Appeal’s decision and guidance, and pending any appeal by the husband to the Supreme Court:

Pre- or post-nuptial agreements cannot be strictly binding so as to oust the jurisdiction of the court but should be given substantial weight unless invalid under ordinary contractual principles as a result of fraud, misrepresentation or undue influence
Pre-nuptial agreements should not be treated as “presumptively dispositive” but where they are made freely and knowingly they should be given decisive weight unless manifestly unfair
If the parties come from foreign jurisdictions where marital property regimes are common place then that should be taken into account by the court as part of the discretionary exercise
The absence of independent legal advice or full disclosure should not of itself prevent the court from giving substantial weight to a pre-nuptial agreement.

RADMACHER V GRANATINO - THE FACTS
The recent decision of the Court of Appeal in Radmacher v Granatino [2009] EWCA Civ A pre-nuptial agreement was entered into shortly before the marriage of Ms Radmacher (now 39) and Mr Granatino (now 37) in 1998. At the time of the agreement the husband, a French national, was a banker with JP Morgan earning a substantial salary (at its height in the region of £300,000 pa). The wife enjoyed a fortune, derived from her family’s business interests in Germany, of some £100m. The terms of the agreement were straightforward: neither party could make any financial claim on the other in the event of a divorce. Subsequently the parties had two children and the husband, disenchanted with his career in banking, returned to academia to study biotechnology possibly with a view, initially at least, to employing this scientific expertise in banking at a later date. Following their separation and prior to the husband’s financial claim being heard the parties had fought a long, acrimonious and costly (the husband’s legal costs excluding his appeal ran to £700,000) legal battle over the residence of the children, the outcome of which was that the children would spend 70% of their time in Germany with the mother and 30% of their time in England with the father.

The husband sought a lump sum on a clean break basis of £6.9m. Whilst maintaining that the husband should receive nothing in adherence to the terms of the pre-nuptial agreement, which would having been binding in both France and Germany, the wife conceded that the husband should receive £1m for a lifetime home in England (reverting to the wife thereafter), €500,000 on similar terms for a home in Germany during the children’s minority and £18,000 pa child maintenance for each child primarily to cover his and the children’s costs of travelling between their homes. If the court found that the husband was entitled to maintenance for himself it should be limited to £35,000 pa.

Baron J at first instance looked at the circumstances surrounding the pre-nuptial agreement in the light of the following six safeguards proposed in the Government’s 1998 Green Paper “Supporting Families” as militating against the enforceability of a pre-nuptial agreement:

1. The existence of children
The fact that the agreement made no provision for either party in the event of the birth of a child rendered the agreement flawed and, prima facie, unfair. Baron J said that the birth of a child inevitably alters the relationship and priorities of both sexes and found that the arrival of children was a factor in the husband’s career change which had dramatically impacted on his income.

2. Where under the general law of contract, the agreement is unenforceable
The husband contended that the wife had falsely led him to believe that she did not seek the pre-nuptial agreement herself but would be disinherited by her family if she married without one.

3. Where one or both of the couple did not receive independent legal advice before entering into the agreement. The husband had only been provided with the final draft of the agreement 7 days before the signing ceremony, the agreement was written in German (which he could not read) and the only explanation he had received had been from a German notary paid by the wife’s family (who had himself expressed dissatisfaction with the level of information provided to the husband). Whilst the court found that the husband had a commercial background, was hence familiar with contracts and understood that under German law he would receive no financial provision on divorce, that background and knowledge did not provide him with an understanding of the full legal consequences of entering into the agreement.

4. Where the court considers that the enforcement of the agreement would cause significant injustice (to one or both of the couple or a child of the marriage).
Baron J found that the absence of any financial provision in the event of real need rendered the agreement obviously unfair and stated that “the reality of injustice (if any) is always fact specific and must be considered carefully.”

5. Where one or both of the couple have failed to give full disclosure of assets and property before the agreement was made.
The wife had deliberately failed to provide any disclosure and such statements as had been made were incorrect.

6. Where the agreement was made fewer than 21 days prior to the marriage.
The agreement had been made some 4 months prior to the marriage so did not offend this safeguard designed to prevent the not unheard of situation of pre-nuptial agreements being signed - metaphorically if not literally - on the steps of the court.

In other words it was found to be a textbook example of how not to prepare and execute a pre-nuptial agreement. Crucially,
however, Baron J found that the mere fact that Mr Granatino had agreed to the pre-nuptial agreement was a “circumscribing event” in relation to his financial claim which he had already limited to his needs, disclaiming any right to share in his wife’s inherited wealth.

Thus the court awarded £2.5m to purchase a UK home (Mr Granatino had sought £2.825m), €630,000 ( as against €1m)
for German home which would revert to the wife on the children’s independence, £700,000 to clear litigation debts, £25,000 to purchase a new car, £100,000 pa (as against £125,000) maintenance capitalised at £2.335m and child maintenance of £35,000 pa per child. Ms Radmacher was therefore ordered to pay to Mr Granatino the sum of £5.56m.

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