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Home > Articles > 2012 archive

Pre-Nuptial agreements: developments since Radmacher

David Marusza of Harcourt Chambers summarises and analyses the latest cases involving prenuptial agreements.

















David Marusza, barrister, Harcourt Chambers

'To leave poor me thou hast the strength of laws' ?
(Shakespeare, Sonnet 49)
 
The judgment of the Supreme Court in Radmacher v Granatino [2010] UKSC 42; stands as a landmark in the history of English matrimonial and divorce law. It clearly established that, contrary to the previous line of authority holding that pre-nuptial agreements were against public policy, they were now to be given effect to so long as they were entered into by both parties freely and with full appreciation of their consequences. However, various factors (set out at paragraphs of 68 to 74 of Radmacher) would have a bearing, detracting from or enhancing, the weight to be accorded to such agreements within the section 25 exercise.

Since Radmacher there has not been a welter of published cases clarifying the ancillary relief ('financial remedies') practitioner's understanding of the application of the principles in Radmacher. However, there have recently been four notable Family Division judgments which deal with the weight to be accorded to such agreements and fleshing out the ratio and dicta in Radmacher.

It will not come as surprise to practitioners to learn that all four cases involved, on the one hand, husbands who wished the Court to adhere to a nuptial agreement or a matrimonial property regime in various European jurisdictions; and, on the other, wives litigating in London, who did not wish the Court to apply the agreement or regime. 

Before turning to a discussion of some of the interesting developments arising from the recent case law, it will be helpful to set out briefly the facts of those cases:

B v S (Financial Remedy: Matrimonial Property Regime) [2012] EWHC 265 (Fam)  Mostyn J
This case involved a wealthy owner of a foreign company manufacturing "widgets" embroiled in financial remedy proceedings in London. The 'agreement' in question, if agreement it may be called, as it was actually the default matrimonial property regime of separation of goods, was Catalonian. As a default regime, this is almost unique in the whole of Europe (the exception being Croatia.)

The parties were aged 43 and 42. The wife was Spanish. The husband's nationality has been redacted from the judgment. The parties were married for 11 years between 1995 and 2006, when they separated.

At the final hearing, there was an issue about the weight to be accorded to the 'tacit' agreement of the parties to apply the Catalonian default matrimonial property regime. Neither party was actually from Catalonia originally.

There had been no discussions between the spouses nor had either party taken independent legal advice as to the question of whether the agreement would have been influential or binding upon a court in England and Wales. Mostyn J accorded "absolutely no weight" to the matrimonial property regime and proceeded to conduct the usual section 25 exercise in its absence.

Kremen v Agrest (No. 11) (Financial Remedies: Non-disclosure: Post-Nuptial Agreement) [2012] EWHC 45 (Fam) Mostyn J
The husband and wife were wealthy Russians and Mostyn J found the husband had non-disclosed between £20 and £30 million at trial (N.B. this case is also a useful authority for its copious summary of the significant cases on drawing inferences from non-disclosure in financial remedy proceedings.)

The parties were married between 1991 and 2007. In 2001, when the marriage had begun to falter, they executed an Israeli post-nuptial agreement; later made into an order of the Court in Israel ( they both had Israeli citizenship).

Mostyn J found there was no full appreciation by the parties of the implications of the post-nuptial agreement and that the agreement seriously prejudiced the reasonable needs of the parties' children. He accorded no weight to it and conducted the usual section 25 exercise.

Z v Z [2011] EWHC 2878 (Fam) Moor J
The parties were French and had married in 1994 and moved to England in 2007. They separated in 2008. The wife was 50 and the husband 53 years old.

They had executed a French prenuptial agreement which provided, contrary to the default community of goods regime in France, for a regime of separation of goods. Despite there being no formal legal advice, this agreement was drawn up by two notaries.

The issue for the Court was to what extent the agreement took the sharing element out of the section 25 exercise. There had been no formal disclosure of assets. The total assets were in the region of £15 million.

Moor J upheld the agreement so far as it excluded the sharing principle, stating that the wife knew precisely what the French, (her native language) prenuptial agreement intended. However, despite excluding sharing, the wife still received an award of 40% or £6 million on a needs basis.

V v V [2011] EWHC 3230 (Fam) Charles J
On appeal from the District Judge, Charles J found inter alia that she had accorded too little weight to a Swedish marriage settlement. He therefore exercised the section 25 discretion afresh on appeal.

The marriage was a short one (2005-2008, with a 2 year pre-marital cohabitation). Charles J in his disposition also departed from equality in order to factor in the effect of pre-matrimonial assets. Charles J instated a charge back in respect of a home granted to the wife in order to reflect the terms of the marriage settlement.

Headline points emerging from these cases
The cases are helpful in exploring some of the areas Radmacher left uncharted. Before descending to the detail, it is worth quoting in full the summary (which appears both in Agrest and in B v S) by Mostyn J of the principles, as he interprets them, emerging from Radmacher. While clearly a judicial gloss, these dicta are likely to prove influential in future cases, not least because they are probably the most emphatic and shortest summing up of the topic available:

72. In Granatino v Radmacher [2011] AC 534 the Supreme Court gave definitive guidance as to the treatment of a nuptial contract in proceedings for ancillary relief following a domestic divorce. The guidance contained in the judgment of the majority delivered by Lord Phillips of Worth Matravers PSC can be summarised as follows:

i) The court should give effect to a nuptial agreement which 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 (para 75).

ii) In determining whether an agreement has been "freely entered into by each party with a full appreciation of its implications" there is no absolute black and white rule for full disclosure or independent legal advice. Rather, the question is whether in the individual case there is a material lack of disclosure, information or advice. Each party must have all the information that is material to his or her decision that the agreement should govern the financial consequences of the marriage coming to an end. An absolute rule would only be necessary if the agreement were to be contractually binding, but this is not the case as there is a safety-net of (un)fairness (para 69).

iii) The presence of any of the standard vitiating factors of duress, fraud or misrepresentation will negate any effect the agreement might otherwise have (para 71). Further, unconscionable conduct such as undue pressure (falling short of duress) will likely eliminate the weight to be attached to the agreement (ibid). Other unworthy conduct, such as exploitation of a dominant position to secure an unfair advantage, will reduce or eliminate the weight to be attached to the agreement (ibid). The court may take into account a party's emotional state, and what pressures he or she was under to agree, as well as their age and maturity, and whether either or both had been married or been in long-term relationships before (para 72). The court may take into account foreign elements to determine whether or not the parties intended their agreement to be effective (para 74).

iv) In determining whether "in the circumstances prevailing it would not be fair to hold the parties to their agreement":

a) The agreement cannot be allowed to prejudice the reasonable requirements of any children of the family (para 77).

b) Respect should be accorded to the decision of a married couple as to the manner in which their financial affairs should be regulated particularly where the agreement addresses existing circumstances and not merely the contingencies of an uncertain future (para 78). This is likely to be so where the agreement seeks to protect pre-marital property (para 79). By contrast it is less likely to be so where the agreement leaves in the hands of one spouse rather than the other the most part of a fortune which each spouse has played an equal role in their different ways in creating (para 80). If the devotion of one partner to looking after the family and the home has left the other free to accumulate wealth, it is likely to be unfair to hold the parties to an agreement that entitles the latter to retain all that he or she has earned (para 81).

c) Is likely to be unfair to hold the parties to an agreement which leaves one spouse in a predicament of real need, while the other enjoys a sufficiency or more (para 81). However, need may be interpreted as being that minimum amount required to keep a spouse from destitution. For example, if the claimant spouse had been incapacitated in the course of the marriage, so that he or she was incapable of earning a living, this might well justify, in the interests of fairness, not holding him or her to the full rigours of the ante-nuptial agreement (para 119).

73. It seems to me that it will only be in an unusual case where it can be said that absent independent legal advice and full disclosure, a party can be taken to have freely entered into a marital agreement with a full appreciation of its implications. After all, almost every common law country that has legislated in this field has as a key pre-condition these requirements as well as a safety-net where the agreement is judged to be "unfair" (e.g. British Columbia) or "unjust" (e.g. New Zealand) or "unconscionable" (e.g. Australia). It would surely have to be shown that the spouse, like Mr Granatino, had a high degree of financial and legal sophistication in order to have a full appreciation of what legal rights he or she is signing away. Equally, it seems to me that there would have to be clear evidence of significant economic capacity on the part of the claimant spouse before the assessment of needs was suppressed to that minimal level imposed on Mr Granatino. There would surely have to be an equivalent finding to that in para 119 viz "on the evidence he is extremely able, and has added to his qualifications by pursuing a D Phil in biotechnology". I have noted that in the recent decision of Z v Z (No. 2) [2011] EWHC 2878 (Fam), which concerned a French pre-nuptial agreement, Moor J generously assessed the wife's needs to include the outright ownership of valuable property and a Duxbury fund to provide a high level of income for the remainder of her life. There was no question of imposing on her an arrangement akin to an award under Schedule 1 Children Act 1989.

Specific developments
Matrimonial property regimes versus negotiated prenups
Mostyn J answers a question left unanswered by the Court of Appeal (per Thorpe LJ) in Traversa v Freddi [2011] EWCA Civ 81, in which, upon consideration of an application for leave to apply for "ancillary relief" after overseas divorce1, he posed the question [at 33] 'what then of the [Italian] matrimonial property regime?' This was described as Justin Warshaw of Counsel's 'best point' on behalf of the wife, Ms Freddi. However, in that case the issue was left to be resolved by a future case.  The resounding answer from Mostyn J in B v S to Thorpe LJ's question is: not as much as a prenuptial agreement. At paragraph 5 the he stated:

In my judgment there is a marked difference between a negotiated pre-nuptial agreement which specifically contemplates divorce and which seeks to restrict or influence the exercise of discretion to which the law gives access, and an agreement made in a civil jurisdiction which adopts a particular marital property regime…[My emphasis]

This observation suggests that in future cases in which a mere default regime (whether it be separation of property, community of property, deferred community etc.) will be accorded less weight by the courts than a tailor-made agreement. It may therefore be easier to make such arguments on the part of a spouse who has contracted out of the default regime (as was in fact the case in Z v Z).

'A predicament of real need'
In Radmacher [at 81] an agreement which would leave a former spouse in a predicament of 'real need' was stated to be a factor which would make it likely to be unfair to hold the parties to their nuptial agreement. There has been academic discussion as to precisely what 'real need' means. 2 Is it less than 'reasonable needs? How much less, and is it subsistence level? Or does it mean the level of welfare benefits, for instance.

In Mostyn J's summary one gets the feeling 'real need' it set at a very low level: '[real] need may be interpreted as being that minimum amount required to keep a spouse free from destitution' [my emphases]. The word 'destitution' does not appear in Radmacher3 However, it does seem a plain and ordinary meaning of the words 'real need'4; albeit perhaps a rather austere construction. But the use of the subjunctive 'may' has left the door open to further questions. It seems that this is a subject upon which practitioners will have to await further judicial guidance..

'Freely entered into by each party with a full appreciation of its implications'
This phrase too, and the linked questions of whether the parties have received independent legal advice and full disclosure of the other party's wealth and means, have been the subject of glossing and development in the case law.

In B v S [at 20], and in Agrest [at 73], Mostyn J foregrounds what he sees as the importance, in all but unusual cases, of full disclosure of assets and independent legal advice (indeed this appears to be precisely the reason why the agreement was accorded no weight in B v S). As he stated in B v S:

In my judgment the requirement of "a full appreciation of its implications" does not carry with it a requirement to have received specific advice as to the operation of English law on the agreement in question. Otherwise every agreement made at a time when England and Wales was not on the horizon would be discarded. But in order to have influence here it must mean more than having a mere understanding that the agreement would just govern in the country in which it was made the distribution of property in the event of death, bankruptcy or divorce. It surely must mean that the parties intended the agreement to have effect wherever they might be divorced and most particularly were they to be divorced in a jurisdiction that operated a system of discretionary equitable distribution. I have respectfully suggested in Kremen v Agrest No. 11 that usually the parties will need to have received legal advice to this effect, and will usually need to have made mutual disclosure." [Bold italics mine; other emphases original]

The importance of this paragraph might be said to be limited to cases in which there is an international element and the parties have drawn up an agreement in one jurisdiction and seek to apply or negate it in England and Wales. However, in Agrest, quoted above, in the context of the general principles emerging from Radmacher, it was also said that:

It seems to me that it will only be in an unusual case where it can be said that absent independent legal advice and full disclosure, a party can be taken to have freely entered into a marital agreement with a full appreciation of its implications.

The dicta of Mostyn J are strong authority for the idea that having independent legal advice and full disclosure is not so much the gold standard as plain standard.

However, the same enthusiasm for the importance of mutual disclosure and independent legal advice (in all but unusual cases) is not so evident in Z v Z and V v V.

In Z v Z, for example, at 46 it was said by Moor J that:

…I accept that no formal advice was given by the Notaries and no formal disclosure but neither point affects my decision. The wife knew exactly what the Agreement entailed and there was of course no advice given by the Notary 5 in Radmacher. Equally, there was no need for disclosure as each party knew the financial position of the other…[My emphasis]

The persuasive force of these comments may be slightly diminished by the fact that, as Mostyn J observes in B v S, in Z v Z, the wife conceded in her oral evidence that she had a full appreciation of the agreement's implications. It is therefore distinguishable from a case where the wife does not make such a concession. This was the argument put forward by Valentine Le Grice QC at the hearing of B v S.

In V v V too [at 50] Charles J stated the fact that the wife had not had legal advice as to the efficacy of the Swedish marriage settlement in England and Wales did not reduce the weight to be given to the agreement [at 65] and there was 'nothing inherently unfair' in this. It was held that 'the intelligent (but legally unadvised reader) would understand' what was intended by 'marital property' and would therefore understand how the husband's property would be treated differently under the agreement. Perhaps there is room for doubt as to this. This point also opens up an interesting question as to precisely what standard of comprehension or appreciation, objective or subjective, should be applied to the question of whether a spouse had 'full appreciation'. Are all spouses expected to be intelligent and highly literate, albeit legally unadvised?

There are evidently different judicial schools of thought emerging as to the importance of independent legal advice prior to concluding a nuptial agreement, particularly where such advice would go to the issue of whether the parties intended the nuptial agreement to be effective or binding in the jurisdiction of England and Wales.

Relevance of foreign law
Radmacher stated [at paragraphs 108 and 74] that the importance of foreign law could only ever be relevant to the question of whether the parties intended their agreement to be binding. This was confirmed by Charles J [at paragraph 69] in V v V.

Is oral variation of the nuptial agreement possible?
Moor J, in Z v Z, did not finally decide this question but did make obiter remarks that the 'clearest possible evidence' of  any such alleged oral variation of the agreement would be necessary and that the burden on a litigant alleging there had been an oral variation would be 'a heavy one' [at 52]. Despite alleged oral and implied assurances by the husband in Z v Z that he would not enforce the agreement (including allegedly writing "50:50" on his hand for a child of the family to see) no such oral variation was found to have been effected. In this respect there does not seem to be much scope for some type of estoppel by representation argument in order to fend off the impact of a nuptial agreement.

Only a factor?
Charles J in V v V expressly acknowledges that the nuptial agreement is only a factor [at 41] in the section 25 exercise. Charles J is categorical on this point and states [at 73]:

…in the overall assessment of the award to be made, it [the prenuptial agreement] is an important factor to be weighed in the balance and is capable of founding an award that differs from the one that would have been made had it not been entered into. [My emphasis]

Conclusion
Marriage is a matter of more worth
Than to be dealt in by attorneyship.
(1 Henry VI, V, v)

The case law surrounding the effectiveness of and weight to be given to nuptial agreements within the section 25 exercise will continue to develop organically in the higher courts. It is realistic to assume that while this may achieve the Supreme Court in Radmacher's desired goal of greater judicial recognition of autonomy in the disposition of property within or after a marriage [e.g. at 78] it may not necessarily lead to increased legal certainty in the medium term. One of the reasons for this is that by bringing quasi-contractual concepts into this area of the law but not applying the law of contract itself, and in referring to concepts such as 'real need' and 'full appreciation' the Supreme Court has set lower courts something of an interpretative challenge for a number of years hence.


___________________________

[1] Under s. 13, Part III  to the Matrimonial and Family proceedings Act 1984
[2] For instance Jo Miles of the University of Cambridge and Academic Fellow of the Inner Temple has commented upon this problematic phrase.
[3] The OED online defines destitution as: "poverty so extreme that one lacks the means to provide for oneself: the family faced eviction and destitution"
[4] As opposed to the more generously interpreted concept of need commonly interpreted since White.
[5] Dr Magis about whom, given his significance in changing English matrimonial law, curiously little is known.