This week’s decision by the Supreme Court in the Radmacher case was heralded by triumphant photos of the German heiress who had succeeded in the upholding of her prenuptial agreement.
On first glance would it appear therefore that pre-nuptials are legally binding? Not so quick – in fact the Supreme Court has used that favourite of all lawyers phrases “it all depends on the circumstances”.
In the particular case of Radmacher the dominant factor appears to have been that Mr Grantino – the investment banker who married the wealthy heiress – knew exactly what he was doing in signing the agreement and therefore he should be held to it. The court described him as “extremely able” and obviously felt he was able to look after himself.
The facts of Radmacher are quite extreme. The wife was worth £100 million – the husband a well paid investment banker at the time of the marriage. He subsequently gave that up for a more lowly paid academic career. A prenuptial agreement was signed at the insistence of the wife’s family and essentially provided that neither party would claim against the assets of the other if they divorced. When they did, two children later, Mr Grantino decided to try to challenge the agreement – a decision he must severely regret now. He relied to a considerable extent on the fact that he did not have independent legal advice, had not properly appreciated the wife’s wealth and that the agreement was fundamentally unfair. At first instance the court agreed and gave him £6million . On Mrs Radmacher’s appeal to the Court of Appeal the court reversed the decision, upheld the agreement and gave him £1million only for his role as a father to the children rather than a former husband! He then appealed to the Supreme Court and on 20th October the Supreme Court essentially told him “tough!”. He kept what he had got and no more. So does this mean all such agreements will be binding? Oh no, it’s not that simple said the Supreme Court.
The essential principle as outlined by Lord Mance now seems to be:
“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.”
It is therefore fair to say that the court appears to have laid down a presumption that a prenuptial agreement will be valid if it is fair but it then goes on to say that the court should have the widest discretion to decide what is fair! It appears that the understanding of the parties will be crucial and therefore it will be necessary to demonstrate in the agreement that both parties fully understand the terms of the agreement. This should involve legal and financial explanations having been given to the couple individually. This seems fraught with the possibilities of future litigation. The court also said that the longer the marriage, the more the chance that there would be “unfairness” in the original provisions given changes of circumstances and unforeseen events in the marriage.
So what does all this mean for the person with wealth they have built up before the marriage, marrying someone much younger than them? In those circumstances will a prenuptial agreement be binding? Not necessarily according to the Court – in this country we are still a long way from some foreign courts who automatically recognise a pre-nuptial contract. The agreement must be fair and fully understood and this will mean that the validity of the pre-nuptial agreement is going to be determined to large extent by the meticulous drafting of the agreement and the careful management of the circumstances in which it is signed – specialist legal advice is even more essential than it was in the light of this judgement.
The simple reality is that this judgement makes it clear that in future pre-nuptial agreements will offer huge protection to wealthy spouses seeking to retain their wealth on divorce. They are a form of imperfect insurance – the agreement doesn’t offer complete protection against the financial damage that divorce can bring, but in the majority of cases it will limit the risks of claims being made to a huge extent. Romantic? No. A practical and sensible precaution? Yes
Liz Allen is a partner at Stephens Scown and is the only lawyer in the South West to be named in the Honours category of the 2010 Citywealth Leaders List, a directory for wealthy individuals of the UK’s top advisers and managers. Stephens Scown Family Team has also been shortlisted for the Private Client/Family Team of the Year 2010 in the British Legal Awards.