Supreme Court enforces prenups in key case but maintains fairness test

The Supreme Court has for the first time backed the enforceability of prenuptial agreements in what will be regarded as a landmark ruling for family law.

The closely-watched judgment, issued this morning (20 October), is the first time that the UK’s top court has backed the use of a prenuptial agreement in a divorce case.

The eight-to-one verdict saw the court back German heiress Katrin Radmacher in her dispute with ex-husband Nicolas Granatino, a former investment banker who now works as an academic researcher.

The couple entered into a prenuptial agreement, which was drawn up in Germany in 1998, several months before the couple wed in London. The marriage ended in divorce in 2006.

French-born Granatino, who abandoned his highly-paid banking career for an academic position in 2003, challenged the validity of the prenuptial agreement, claiming he had no ideas of his wife’s fortune – which has been estimated at more than £100m – and that he had not been properly advised by a lawyer.

The High Court had refused to fully enforce the prenuptial contract, granting Granatino more than £5.5m to help him to buy a house in London where the couple’s two children lived.

Radmacher last year successfully appealed to the Court of Appeal, which concluded that the prenuptial agreement should have been given “decisive weight” in considering the case.

The Supreme Court ruling comes after a series of court judgments that have given greater weight to prenuptial agreements, which are widely used in many other countries, without recognising them as binding.

There has been much speculation that today’s ruling will curtail the UK’s supposed reputation as the divorce capital of the world. UK judges have traditionally focused heavily on legal notions of fairness in calculating divorce settlements – a stance that is viewed as strongly favouring the poorer spouse in high-net divorces.

However, the judgment will be seen as falling short of a full vindication of the use of prenups as the Court concluded that there were “no factors which rendered it unfair to hold the husband to the agreement”.

Divorce lawyers also noted that the Supreme Court left Granatino with a settlement of £1m, which he would not have been entitled to under a strict enforcement of the prenuptial agreement.

The Law Commission is currently considering whether statutory legislation should be introduced to explicitly recognise prenuptial agreements, but its recommendation is not expected until 2012.

Lady Hale was the sole dissenting judge.

Farrer & Co head of family law Simon Bruce advised Radmacher with Richard Todd QC of 1 Hare Court instructed as lead counsel.

Granatino was advised by Payne Hicks Beach partner Fiona Shackleton with 1 Hare Court’s Nicholas Mostyn QC and Deepak Nagpal of 1 King’s Bench Walk instructed as counsel.

Bruce commented: “This decision means prenups are binding as long as they are fair. This judgement is pro-marriage. Everybody hopes their marriage will last a lifetime. From today we are allowed to prepare for the possibility that it might not be the case.

He added: “This judgment supports the public’s desire to minimise conflict, and the emotional and financial cost of divorce. Cooperation, collaborative law and mediation should replace conflict – and rightly so.”

julian-lipsonExpert reaction to the ruling

Julian Lipson, head of family law, Withers
“Many people wish to protect assets they owned before they even laid eyes on their future spouse. Prenups allow them to achieve this and the Radmacher decision gives them more power to be masters of their own destiny.

“Over the last four or five years, divorce lawyers have already seen an exponential increase in the number of clients wanting prenups. I anticipate the Radmacher decision will significantly increase that trend. The procedural hurdles to be jumped through for a prenup to be valid have been lowered significantly by this decision, and to a level most family lawyers would not have anticipated. More prenups will be upheld as a result.

“The extremity of the decision does make one query whether the result would have been the same had it not been a wife who was the paying party, but the husband, as is more common. There is a common feeling that it is still much rarer for a man to achieve as big a settlement where it is the wife in the case who is the paying party.”

David Greer, matrimonial lawyer, Schillings
“Today’s eagerly-anticipated judgment is a significant move towards recognising individual autonomy and the right to enter into marriage contracts. It is likely to lead to prenups being much more widely used. In a revolutionary judgment the Supreme Court has swept away the previous obstacles to the enforceability of prenups while retaining safeguards to prevent injustice.

“In years to come this is likely to lead to an explosion of litigation as spouses try to avoid prenups being enforced. The enhanced status of prenups will enable couples to protect their privacy by avoiding acrimonious litigation and the media attention which often comes with it.”

elizabeth-hicks2Elizabeth Hicks, family partner, Irwin Mitchell
“This ruling gives important clarity in the UK as to the enforceability of prenuptial agreements by providing guidance on the legal status to those involved in divorce and family law.

“Today’s decision made it plain that if a prenuptial agreement is entered into freely ‘with a full appreciation of its implications’, then it will be upheld. The decision means that that it is more important than ever to obtain legal advice on a prenuptial agreement.

“There is still a get-out clause if it is found to be unfair and the test of fairness ‘depends upon the facts of the particular case, and it would not be desirable to lay down rules that would fetter the flexibility that the court requires to reach a fair result’.”

Arabella Saker, partner, Maurice Turnor Gardner
“For wealthy families, prenuptial agreements are a key part of their personal estate planning, to protect family wealth. Until now, a spouse divorcing in England has been able to argue that he/she should not be bound by an agreement signed before marriage, and this has contributed to the UK’s reputation as the ‘divorce capital of the world’.

“This case shows that the English courts will honour agreements made before marriage, recognising that the couple are entitled to certainty over arrangements made in good faith and of their own free will, unless there is some special circumstance which makes it unfair. A spouse merely hoping for a second bite of the cherry is now likely to be disappointed.”

Michael Gouriet, family law partner, Withers
“People often ask whether valid prenups are worth the paper they are written on, as there is a common misconception that they are not binding in this country. This decision confirms that they most definitely are.

“It would have been incredibly difficult and politically embarrassing for the Supreme Court to dismiss a valid European prenuptial agreement out of hand, in effect saying that the English law knew better than the German.”

Mark Harper, family law partner, Withers
“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 someway off following our Continental cousins by holding spouses to the prenup’s terms, irrespective of what they are. After all, Mr Granatino still got more money than the prenup actually provided (which would have been pretty much nothing).”

Caitlin Jenkins, family law partner, Mills & Reeve
“Pre-marital agreements are now finally worth the paper they are written on! This decision bolsters the concept of personal autonomy and the rights of people to make their own decisions about their future.

“In our view the decision may well have been different if this case had involved two English people and the wife had been the financially weaker party. These were two Europeans who came from a culture of pre-marital agreements. We do not think the Supreme Court would have left an English-based wife with an award that is basically not much better than she would have received if she had simply been living with her partner rather than married to him.”

Edward Reed, private client partner, Macfarlanes
“What the judgment does not do is decree for the future that prenups will be absolutely binding in English law, which would need legislation. What it does do is to clarify the ability of an English judge to give weight to a prenup, all within the confines of the duty to see fair play. The question is the extent to which a particular prenup deviates from what a court would think fair, which is something matrimonial lawyers have been focusing on for some time anyway.

“To try to encapsulate a message for the future, the Justices set out the following proposition, itself followed by guidance on what factual evidence may ‘taint’ an agreement. 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.”

Sandra Davis, head of family law, Mishcon de Reya
“Today’s decision is the latest confirmation that the legal regulation of the family has become a matter for the Judiciary and not Parliament. Interestingly enough, the only dissenting voice came from Lady Hale, the sole family lawyer amongst the Supreme Court Justices.

“Imposing contractual terms on personal relationships is now fine from a legal perspective; but it is less likely to be so from an emotional perspective. As a nation we’re culturally uncomfortable talking about money. But negotiating the terms of a pre-nup necessitates frank and difficult financial discussions in advance of a marriage about what should happen if the event of a divorce.

“Expect case after case to appear before the Courts with the financially disadvantaged trying to extricate themselves from “unfair” contract terms.”