Pre-Nups Get Green Light From The Supreme Court

The process of getting divorced is invariably a time of great distress. Often a great deal of the heat is generated by arguments over property – who gets what. Some couples – particularly if wealthy – now want to make an agreement before marrying, setting out what is to happen if it all goes wrong.

Pre-nuptial agreements (pre nups) are generally enforceable in a number of European countries, as well as in the USA, Canada, Australia, New Zealand and South Africa. However, the English Courts have traditionally adopted a more cautious approach. English law has been out of step with the law elsewhere, being reluctant to allow pre nups to limit the Court’s powers on a divorce. That said, the courts are showing an increasing willingness to give weight to such agreements.

In the case of Radmacher, v. Granatino the Supreme Court has now endorsed that approach. Ms Radmacher was a German multi-millionairess with assets of approximately £100m. Mr Granatino was French, but he later became resident in England. In both their counties of origin, pre nups were commonplace and enforceable, so if this husband had succeeded in his claims here, he’d have been gaining something substantial that he’d not have got in France or Germany. He had had a successful career as an investment banker in the City, although he subsequently gave that up and pursued a career of academic study and research – again with considerable success. The parties had met in 1997 and married in November 1998. Before marrying, at Ms Radmacher’s suggestion and on her father’s insistence, they entered into a pre-nuptial agreement, which said that in the event of divorce, neither party would have any claim against the property or income of the other. That agreement was subject to German law. They had two daughters and then separated in 2006 and were divorced in 2007. Mr Granatino had no assets and was heavily in debt, sought a financial settlement from the English courts based on his needs. This was directly contrary to the pre nup he had signed.

In the High Court, he Judge ruled that it would be unfair to totally disregard the existence of the agreement, particularly in light of the fact that the agreement would have been enforceable in either of the parties’ home countries – France or Germany. Taking the agreement into account, the Judge made a number of orders in favour of Mr Granatino, including a lump sum payment of £2.5m in respect of his housing costs.

Allowing Mr Granatino’s appeal, the Court of Appeal ruled that the High Court Judge had given insufficient weight to the agreement. Mr Granatino was an experienced businessman of great ability who had been well established in the field of international banking. He had entered into the agreement with his eyes open. He had had the opportunity to take legal advice during the development of the agreement, but had decided not to do so. In the Court of Appeal’s view, the provision made for him should have been more closely tailored to his role as homemaker for the children. Accordingly, the Court of Appeal varied the order made by the Court so that Mr Granatino would only benefit from the fund of £2.5m until the youngest daughter’s 22nd birthday.

Mr Granatino appealed to the Supreme Court. Unusually the case was heard by a nine-judge Supreme Court, as the development of this law was considered to be of such huge importance. They dismissed Mr Granatino’s appeal by an 8-1 majority. The Supreme Court agreed with the Court of Appeal that he should be held to the agreement. He was an extremely able businessman. In some part, his needs would be indirectly met from the generous provision made for the needs of their two daughters, until the younger reaches the age of 22. There was no need to compensate Mr Granatino for his decision to abandon his City career, as it was not motivated by the demands of his family, but reflected his own preference. Nor did fairness entitle Mr Granatino to a share of the wealth Ms Radmacher received from her family independently of the marriage, contrary to what had been agreed at the time of the marriage.

What is the significance of this decision? The first point to note is that the courts have not simply enforced the pre-nuptial agreement according to its terms. Regardless of what the parties had agreed, some provision was necessary in order to enable Mr Granatino to provide a second home for the children commensurate with the lifestyle which they enjoyed when they were with their mother. It is likely that the English Courts will remain unsympathetic to a wealthy individual who invokes the terms of a pre-nuptial agreement simply in an attempt to deny reasonable provision to his or her former spouse. However, the Supreme Court’s decision confirms the trend of recent cases allowing greater scope for parties to anticipate and plan for what is to happen in the event of divorce. The following are situations where a pre-nuptial agreement may be especially appropriate:

• Where the parties have international backgrounds;

• Where there is a substantial in-balance in wealth prior to the marriage or there is an expectation of a substantial inheritance;

• Where one or both parties have children from a former marriage and there is a desire to protect the inheritance of those children;

• Where there is a family company or farm and, for tax or other reasons, there is a desire to ensure that the relevant assets remain within the family whilst, at the same time, ensuring that fair provision is made for both parties on a divorce.

Although in the Radmacher case, neither the fact that Mr Granatino failed to take independent advice nor the non-disclosure of wife’s assets proved fatal. However, this is rare and if considering entering into a pre nup these are normal requirements which would greatly increase the chances of an agreement standing up in court.

If you would like to know more, please contact Mary Banham-Hall or Dawn Millar.

Filed: 22/10/2010 10:48:52