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Fair and reasonable

  • Author : Andrew Barton
  • Date : January 2011
ABOUT THE AUTHOR: Andrew Barton is a Family Associate at Stephens Scown Solicitors

T he Supreme Court judgement in the case of Radmacher v Granatino was the first of any modern-day Supreme Court in England and Wales to consider the status of prenuptial agreements. Besides its obvious relevance to those contemplating marriage, the decision is particularly important for advisors of parents seeking to protect transfers to children from the claims of their soon-to-be spouses. Does the judgement really bring about the tectonic shift in the status of such agreements as has been suggested? How will it change the approach taken by courts when faced with arguments either that prenuptial agreements should be held as binding or ignored in their entirety?

Prior to Radmacher

The division of finances in the context of divorce proceedings in England and Wales remains underpinned by the Matrimonial Causes Act 1973 (the Act). In its 37-year existence, attitudes to marriage, divorce and the ability to self-regulate one’s finances have developed significantly. However, the Act has proven itself malleable enough to accommodate these shifts in social trend. What is, in essence, a universal filtration system of matrimonial claims was always going to be challenged by a concept aimed at bypassing that filter entirely. This is demonstrated by the comments of Mr Justice Thorpe, as he then was, in F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR:

‘The rights and responsibilities of those whose financial affairs are regulated by statute cannot be much influenced by contractual terms which were devised for the control and limitation of standards that are intended to be of universal application throughout our society.’

Against this, there was at that time an ongoing recognition of the weight being attached to such agreements in the United States and other members of the European Community. The increasing incidence of economic migration inevitably meant a greater number of divorces involving a foreign national and, as a consequence, an increased expectation on the part of the married couple that their prenuptial agreement would carry weight. Numerous first instance cases since F v F have chipped away at the judicial resistance to self-regulation. This change of attitude was to eventually filter through to the Court of Appeal in Lord Justice Thorpe’s judgment in Crossley v Crossley [2008] 1 FLR 1467. That case involved a short, childless marriage between two wealthy individuals. In those circumstances Lord Justice Thorpe referred to the existence of a prenuptial agreement as being ‘a factor of magnetic importance’.

If there had been any doubt before as to whether prenuptial agreements were a worthwhile precaution to take in this country there was no longer. Such agreements have since offered varying amounts of persuasive value to the courts either on the basis that s25(1) of the Act requires that all the circumstances of the case should be taken into account, or on the basis that the parties’ signing of a prenuptial agreement is conduct that it would be inequitable to disregard under s25(2)(g). This did not make prenuptial agreements binding, but there was the strong potential that they could be of significant influence.

The facts of Radmacher

Mrs Radmacher, the wife, came from a rich German family. She had significant wealth at the time the parties met; however, when they got engaged in June the following year her father made it known that she was in line for a significant share of the remaining family wealth provided she and her future husband entered into a prenuptial agreement. Mr Granatino, the husband, had good prospects and a good income working for an investment bank. He agreed that a prenuptial agreement should be drawn up.

The draft agreement was prepared at the instigation of the wife’s family by a notary in Germany and was written in German. While the first draft included a disclosure provision, the wife asked that this be removed. She stated that she and Mr Granatino would separately notify each other of the value of their assets. Whether this actually occurred prior to the marriage is not clear. Although he had seen the prenuptial agreement and been told about its basic terms, the husband could not understand German and had not been told that a translation would be required. He and the wife attended the offices of her notary to sign up to the prenuptial agreement. It was not translated to the husband line by line; however, the notary took the husband through its terms in English, which the husband was able to understand.

The parties married in November 1998, and after a brief and unhappy foray to New York due to the husband’s employment, the family returned to settle again in England in 2001. Two years later the husband gave up his employment to embark on a research doctorate at Oxford University. It was accepted by all that this change of tack was due solely to the husband’s disenchantment with the banking profession at that time. He had planned to combine his newly acquired scientific knowledge with his banking experience and return to the financial sector at a later date. By the time of their separation in 2006 they had two daughters aged seven and five.

The wife sought to rely on the terms of the prenuptial agreement. The husband took the view that its terms and the manner in which it was entered into rendered the arrangement unfair.

The Supreme Court judgement

The overwhelming majority of the Justices confirmed that any agreement between parties to a marriage cannot oust the discretion of the Court to regulate financial provision on divorce. Courts have a statutory duty to determine appropriate financial relief levels on divorce, and under current law parties to a marriage cannot agree to exclude that judicial oversight. In was ruled that the existence of any agreement, pre – or post-nuptial, could not be ignored by the courts but should instead be given weight appropriate to the individual case. The Justices set out the rule as follows:

‘The 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’.

The majority of the Justices identified a number of factors as having an influence on the weight that would be attached to an agreement, to include:

awhether the parties entered into it of their own free will without any duress or undue pressurebwhether there was any material lack of disclosure or advicecwhether it was entered into with the intention that it should be effectivedthe emotional state and the pressures each party were under at the time the agreement is signedethe age, maturity and relationship experience of the parties, i.e. whether either had been married beforefwhether the marriage would be in jeopardy if the agreement were not signedgwhether the agreement would be binding under the parties’ national law.

Reference was also made to the safeguards contained in the Home Office’s 1998 Supporting Families consultation paper. These safeguards were included as a means of protecting the interests of the economically weaker party when drafting prenuptial agreements and included the need to take independent legal advice, volunteer full financial disclosure and execute the agreement not less than 21 days prior to the wedding date.

Faced with the facts of Radmacher, in which the husband had not received legal advice, had not read the German agreement or been offered financial disclosure, one could be forgiven for thinking that an application of these principles to the facts would lead to the agreement being abandoned. However, while the husband had not taken advice he had been given the opportunity to do so and had in any event understood the agreement’s basic terms. Furthermore, although the wife had not disclosed the value of her assets, the husband knew that her wealth was substantial and showed no interest in ascertaining its worth. Applying the tests of need and compensation to the facts of the case, the husband had generous provision to cater for the needs of his daughters and had given up very little in reliance on the marriage. The Court held that the wife was entitled to see the terms of the agreement upheld insofar as they were in dispute.

Life after Radmacher

Much has already been made of the Radmacher case introducing a burden of responsibility on the financially weaker party. In some quarters, it has even been suggested that this represents an attempt on the judiciary’s part to redress the balance more towards the husband after ten years of case law that has ostensibly favoured the wife. I would suggest that this is taking the judgment too literally, however. While it has the effect of inverting the universal filtration of matrimonial claims put in place by the Act, divorces involving a prenuptial agreement will continue to pass through the filter and remain subject to Court’s discretionary exercise. This point is made by Lord Mance in his judgment:

‘But the ultimate question remains on any view what is fair and reasonable, and the starting point or onus is, as I have said, unlikely to matter once all the facts are before the court.’

The Law Commission will shortly publish its consultation paper on the enforceability of agreements made between spouses, civil partners and those contemplating marriage or civil partnership. Its recommendations will inevitably be scrutinised for further hints of a movement towards giving prenuptial agreements a new ‘binding’ status. The Act is so at odds with the concept, however, that while it remains in place it seems unlikely the law will move on significantly in this area.

Notwithstanding this, the Radmacher case has placed much focus on the benefits of prenuptial agreements and perhaps eroded some of the taboos that still surround them. For parents looking to preserve transfers to children from the claims of soon-to-be sons – or daughters-in-law, they remain a most effective form of wealth protection.


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