Pre-nuptial or pre-marital agreements are entered into prior to marriage to clarify the way in which it is intended that a husband and wife will hold their assets when they are married and, more importantly, how they will be dealt with if the couple should divorce. Unlike the United States and most of Europe, pre-nups have never been legally binding in this country. As such, many couples may not have considered them a worthwhile investment before marrying; choosing instead to apply to the court for a financial order after the marriage has broken down. The judicial landscape is however changing and the decisions in several recent cases all but legalise pre-nups in this country.
Crossley v Crossley (2007)
Stuart Crossley, a property tycoon worth an estimated £45m and his wife, Susan, herself worth £18m following three previous divorces, signed a detailed pre-nup just weeks before their wedding in January 2006. They each agreed not to seek a share of the other’s assets should the marriage fail. However, on separation 14 months later, Mrs Crossley issued financial proceedings alleging that her husband had failed to disclose the full extent of his wealth when the agreement was negotiated and on those grounds the pre-nup was invalid.
Unfortunately for Mrs Crossley, the Court of Appeal confirmed the persuasive nature of the pre-nup and stated that it should be considered a “factor of magnetic importance” rather than simply a peripheral aspect of the case. Mrs Crossley therefore accepted that she was unlikely to be successful due to the terms of the pre-nup and final settlement was reached.
MacLeod v MacLeod (2008)
Just under 12 months later, the issue of the pre-nup was considered further, this time in relation to the marriage of Roderick and Marcia MacLeod. Prior to their marriage in 1994, Mr & Mrs MacLeod entered into a pre-nup which provided that each would retain what they brought into the marriage, they would split any jointly owned properties and that Mrs MacLeod, 22 years her husband’s junior, would receive a lump sum payment.
After several years of marriage they entered into a further agreement confirming the pre-nup but making some additions. A short time after entering into this post-nup, they separated. Mrs MacLeod questioned the validity of the pre-nup, alleging that she had not had appropriate legal advice and that her husband had not disclosed all of his assets at the time of entering into it. The judge did not accept this but did order that she should have a larger lump sum. Mr MacLeod appealed to the Isle of Man Court of Appeal and lost. He then appealed the matter further to the Privy Council, whose decisions are binding on England and Wales. They acknowledged that “in the right case” an agreement between the parties which is only one of the factors in the process can be “the most compelling factor” and that MacLeod was an example of “the right case”. Baroness Hale, who gave her judgement on the MacLeod case, said that pre-nups should be legally binding but added that this was a matter for the Government to consider. She also put greater weight on post-nups saying that they are usually fairer because one party cannot refuse to marry the other if they do not get what they want, as can happen with pre-nups.
Radmacher v Granatino (2009)
This position was reinforced yet further when the high profile case of Katrin Radmacher, a German Heiress worth £100million, was dealt with by the Court of Appeal. Ms Radmacher met Nicolas Granatino in 1997 and they married in 1998 having signed a pre-nup in Germany, the terms of which provided that neither party was to benefit financially if the marriage broke down.
The couple separated in 2006, the marriage having begun to struggle following Mr Granatino’s decision to give up his £120,000 a year banking job and return to an academic career on a far lower salary whilst continuing to live the “champagne lifestyle”. The couple therefore divorced in 2007, at which time it was ordered that Ms Radmacher would have to pay a lump sum of £5.85 million to her husband. Ms Radmacher has however now managed to successfully overturn that earlier ruling and the proposed payout has been reduced by the Court of Appeal to approximately £1million as a lump sum in lieu of maintenance. Mr Granatino is also entitled to £2.5 million to purchase a house but this will eventually revert to Ms Radmacher who is also to pay a lump sum to discharge the majority of his £800,000 debts.
Whilst Mr Granatino is expected to now take his case to the House of Lords in the hope of overturning this decision, his prospects do not seem good, the Court of Appeal having made it clear that it is “increasingly unrealistic” for courts to disregard pre-nups.
Best practice
It is vital that each party obtains independent legal advice, provides full disclosure of all their assets and thereafter enters into the agreement freely and without duress.
Who should have one?
There is little point in a couple with children and few assets beyond the family home entering into a pre-nup as in the event of a divorce, the Court’s first concern will be to ensure that there is proper housing and resources for the children.
Pre-nups are therefore likely to be useful in the following situations:
- Wealthy couples with no children;
- Couples marrying for the second time who wish to protect assets to ensure an inheritance for the children of their first marriage;
- Couples where there is a disparity of wealth, perhaps where one party has inherited assets;
- Where one and/or the other party has strong links to another jurisdiction where such agreements are recognised.
The future
Whilst we still have no definitive answer to the pre-nup question, it appears to be the case that judges, who remain keen to cut the time and expense of divorce proceedings, are increasingly likely to hold couples to what they agreed before they married. Such agreements seem unromantic and may be hard to broach with a loved one before the ‘big day’, in which case the post-nuptial agreement may become far more popular. Either way, it is certainly a more pragmatic approach to take which will hopefully mean that, in the event of the marriage failing, the parties will make savings in terms of the time, cost and stress of litigation.
September 2009
For more information about pre-nuptial or pre-marital agreements contact
Peter Lowe.
