Prenuptial agreements in UK divorce law (3)

The law relating to prenuptial agreements in England may be strongly affected in the future by the case of Radmacher v Granatino decided by the Court of Appeal and which later went to the Supreme Court.

The facts of this case were that Mr Granatino, a French national, married Ms Radmacher, a German national, in 1998. The marriage lasted until 2006 and they had two children during the course of the marriage. Ms Radmacher belonged to a wealthy industrial German family. They came to live in England and in due course sought a divorce in England. By the time of the divorce it was calculated that Ms Radmacher was worth approximately £100 million.

Mr Granatino at the time of the marriage had been a banker and had earned in the region of $500,000 per annum. However, during the marriage he had given up this job and returned to university at Oxford to pursue a doctorate. Much of the wife’s wealth had been given to her by her family during the course of the marriage.

Prior to the marriage the wife’s family had been concerned to ensure that if they gave any capital to Ms Radmacher then her future husband would have no claim upon it. Ms Radmacher therefore had a pre-nuptial agreement drawn up by German law (in German, a language Mr Granatino did not read) which excluded Mr Grantino’s claims in the event of divorce. Mr Granatino did not have independent legal advice of his own and there was no meaningful negotiation. The wife simply said, ‘Take it or leave it’. Further, two children were born during the marriage but the agreement did not vary in any way if there were children.

These were all factors which would traditionally have led the court to discount the pre-nuptial agreement and to decide the case on the basis of ‘needs’. This is what the High Court judge did at first instance. It is fair to say that Mr Granatino did not say that his ‘needs’ amounted to half his wife’s wealth. What he sought was a house for himself and capitalised maintenance. His total claim was in the region of £5 million. Ms Radmacher appealed to the Court of Appeal.

What was striking about the decision of the Court of Appeal was how forcefully each of the three judges expressed the view that adults ought to be free to make their own bargains. They therefore decided that although Ms Radmacher ought to buy her husband a house he would only have the right to occupy that house while the children were dependent. Thereafter the house was to revert to Ms Radmacher.

This decision suprised most in the profession and it also seemed to be inconsistent with the Privy Council case of McLeod v McLeod. (The judges in Privy Council cases are the same judges who used to sit in the House of Lords and who now sit in the Supreme Court). Nevertheless the Court of Appeal decision has changed the perception of the law in this area and the profession is waiting to see how it develops.

Subsequently the case went on to the Supreme Court where it was heard by a full court and where judgement was reserved for many months. The judges of the Supreme Court clearly wanted to give a steer on the likely future treatment of prenuptial agreements.

The basic decision of the Supreme Court was that the decision of the Court of Appeal was upheld that Mr Granatino should be held to the terms of the prenuptial agreement. The court made observations about these agreements which it clearly intended to be applied generally.

In general terms the court was of the view that spouses should be entitled to regulate their own affairs and that where they had entered into an agreement in which knew what they were doing and in which they each had the opportunity to take legal advice that agreement should be respected.

However, do please note that in this case the total wealth of the wife was approximately £100 million and what the husband received amounted to millions. In these circumstances it is relatively easy to stick to the terms of an agreement and still provide for the reasonable needs of the husband or even for the needs of the husband ‘generously assessed’.

Most cases which come before the courts are not like this in that there are not millions to divide up. What is in issue in most cases is how limited capital is to be divided to provide for the reasonable needs of both parties and any children. More often than not there is not enough capital to go around and each side has to make compromises. Although it has yet to be decided in the sort of case which affects most people the fact of the matter is that a prenuptial agreement will not trump ‘needs’. Parties cannot come to whatever agreement they want and be confident that agreement will be respected by the courts. The overwhelming likelihood is that where ‘needs’ are in conflict with the agreement then a court will give more weight to needs. Indeed, it is hard to see how that could not be the case because the law is laid down by statute and its main provisions are plain to see on the right. The courts cannot change statute law.

The effect of a prenuptial agreement may well be that the award to one of the spouses may be at the lower end of the scale that might be considered reasonable but a prenuptial agreement will not make a court leave that scale altogether.

Please note that this firm does not draft prenuptial agreements because possessing one may provide a sense of security which proves illusory when put to the test.

Spouses involved in divorce in England always want to know on what basis the UK divorce law decides financial issues between husband and wife if the Courts have to decide the issue. Indeed, this is what is at the heart of most divorce cases. If there is a dispute it is more likely than not to be about money whether that is about periodical payments for a spouse, dividing the equity in the former matrimonial home or divorce and pensions. In fact, the relevant principles are set out in Section 25 of the Matrimonial Causes Act 1973 which, essentially, reads:-

”It shall be the duty of the court in deciding whether to exercise its powers ….. to have regard to all the circumstances of the cases, first consideration being given to the welfare while a minor of any child of the family who has not attained the age of eighteen.

25 (1) It shall be the duty of the court in deciding whether to exercise its powers …. to have regard to all the circumstances of the case including the following matters, that is to say –

(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future;

(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;

(c) the standard of living enjoyed by the family before the breakdown of the marriage;

(d) the age of each party to the marriage and the duration of the marriage;

(e) any physical or mental disability of either of the parties to the marriage;

(f) the contributions made by each of the parties to the welfare of the family, including any contribution made by looking after the home or caring for the family;

(g) …the value to either of the parties to the marriage of any benefit (for example, a pension) which … (by reason of the divorce) ..that party will lose the chance of acquiring;…”

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