20 Oct 2010

Supreme Court gives pre-nups legal status

The German paper industry heiress Katrin Radmacher has won a legal battle over the terms of her divorce, giving new status to pre-nuptial agreements.

Ms Radmacher's ex-husband, Nicolas Granatino

Ms Radmacher’s ex-husband, Nicolas Granatino, went to the Supreme Court after appeal court judges slashed his divorce settlement from £5 million to £1 million. They ruled that “decisive weight” should be given to the settlement he signed before marrying Ms Radmacher-agreeing to make no claim on her estimated £100 million fortune.

Mr Granatino’s lawyer, Nicholas Mostyn QC, argued that the appeal court ruling was both unfair and impermissible, because it implied a court could legislate over prenuptial agreements which are not binding under English law.

The couple, who married in 1998, have two children, and spent most of their time living in Chelsea in west London. They separated eight years later. Both partners had agreed not to make a claim against the other if they got divorced- but Mr Grantino demanded a payout after they broke up. A former investment banker at JP Morgan, Mr Granatino is now working as a reseacher at Oxford University, earning £30,000 a year.

‘Manifestly unfair’
Back in 2008, at the High Court, Mrs Justice Baron said their pre-marriage contract had been “manifestly unfair” because Mr Granatino had not had his own legal advice and it could leave him with nothing even if he ran into financial difficulties. He was awarded a lump sum, but that was subsequently reduced at the Court of Appeal after they said pre-nups should be taken into account.

Ms Radmacher’s lawyer – Richard Todd QC, argued that her former husband had still been left very well-catered for under the divorce settlement – including rent-free accommodation in a multi-million pound property, a personal income of £76,000 for the next 15 years, and £70,000 a year towards child maintenance, even though his ex-wife is their primary carer. He also said Mr Grantino stood to inherit millions from his tax-exile parents, who are worth up to £30 million.

Katrin Radmacher has won a legal battle over the terms of her divorce

Majority verdict
Today the Supreme Court Justices agreed by eight to one to dismiss Mr Grantino’s final appeal, saying it would be “natural to infer that parties entering into agreements will intend that effect be given to them.” Judges will still be able to waive any pre or post-nup agreement on a case by case basis, especially if it is deemed unfair to any children of the marriage.

After the ruling, Ms Radmacher said she was delighted that the court had “upheld fairness”, adding that she hoped the couple could now concentrate on being the best parents they could be to their two daughters.

Her solicitor described the judgement as “pro-marriage”, which would encourage more stability in relationships.

Until now, English courts have used the 2000 White v White case as a benchmark, which stated that the starting point in divorce cases should be an equal division of assets.

But the Supreme Court decision will now bring the country into line with the rest of Europe and the United States, where pre-nup contracts are legally binding. It could also dispel England’s reputation as the ‘divorce capital of the world’, where the partners of wealthy individuals could expect huge pay-outs.

The Law Commission is now examining whether to change the law to give formal recognition to pre-nuptial agreements.

What does it mean for UK law?
While more pre-nups are now likely to be recognised as legally binding, they "will not be upheld in every case", writes Bross Bennett family lawyer Sharon Bennett.

The recent judgement of the Supreme Court on Radmacher will change the way that courts will look at pre-nuptial agreements. They will still not be upheld in every case.

In reality a pre-nup is an attempt by the party with money to prevent the other (usually the wife) from getting what a court would otherwise give her. The courts have had to decide to what extent a husband or wife should be able to get out of an agreement they had entered into, believing it to be binding.

From now, it is likely that a pre-nup will be binding providing that both parties have enough information about the other's finances, and that they both fully understand what they are entering into and what the implications are. There will have to be some fundamental aspect of unfairness about the agreement for a court to decide that it should not be upheld. For example, a court is still likely to continue to refuse to allow a pre-nup to affect the well-being of any children. It is going to be much easier for pre nups to be upheld in marriages where there are no children.

The Law Commission is due to report on pre-nups in 2012. For the moment, there will still be arguments concerning the extent to which a pre-nup should be enforced.

Long overdue
Lawyers have largely welcomed the decision to give marriage contracts more force within family law courts.

Elizabeth Hicks, of the family law team at Irwin Mitchell, said: “This ruling gives important clarity in the UK as to the enforceability of pre-nuptial agreements by providing guidance on the legal status to those involved in divorce and family law.

Family lawyer at Withers LLP, Mark Harper, said: “England has acquired a reputation as the ‘divorce capital of the world’ because people play the system by moving to England to get more money on divorce than they would get overseas.

“This decision goes some way to reversing that title and many people will consider it long overdue.

“The English courts might now be less protective of the financially weaker spouse as their reputation may suggest, but we are still some way off following our continental cousins by holding spouses to the pre-nup’s terms, irrespective of what they are,” he said.

Andrew Newbury, Head of Family Law at the Manchester-based law firm, Pannone, said the ruling provided a “point of no return” in the ongoing debate about whether prenuptial agreements should be given the full force of law.

He added: “We are not looking at a situation in which this ruling makes pre-nups binding. However, the judgement does strengthen the position of those people choosing to enter into them because the court has said that couples should have a greater amount of say in how they regulate their relationships and their financial affairs.

“There is certainly now less room for manoeuvre for those seeking to argue their way out of properly drawn up agreements such as these.

“This decision will give weight to any recommendations by the Law Commission in its forthcoming report that prenuptial agreements should be clarified by parliament.”