Kim Beatson, Partner
New Law Journal - 27 January 2012
email Kim
The EU provides for citizens to live and work in fellow member states which can lead to disharmony between the civil law jurisdictions of Europe which generally employ notarised marital property regimes and the common law jurisdictions which attach no property consequences to marriage and rely on judicial discretion.
Difficulties have arisen as separating couples have raced to seize jurisdiction, not choosing the jurisdiction with which the marriage has the closest connection, but deliberately concentrating on the financial outcome.
English advantage
It is not, therefore, surprising that the most prominent recent case law on pre-nuptial agreements involves foreign nationals seeking advantage from the
English courts.
Most practitioners will be familiar with the case of Granatino v Radmacher [2010] UKSC 42, [2011] 1 All ER 373. The Supreme Court judgment was handed down in October 2010 when Nicholas Granatino, a French-born banker, challenged the Court of Appeal ruling which reduced his divorce settlement from his former wife, Katrin Radmacher from £5.85m to £1m.
At the first hearing, the wife argued that the husband should be bound by a pre-nuptial agreement which had been prepared by her notary in Germany. The husband had not taken independent legal advice and there had been no disclosure by the wife of her assets or any negotiations about the terms whereby the husband had agreed not to make any financial claims whatsoever against the wife.
By the time of the marriage breakdown the wife was worth £100m. The judge at the first hearing decided that the husband was not bound by the prenuptial agreement as a result of the lack of independent legal advice and disclosure. That judge awarded the husband £2.5m for housing and £2.335m by way of capitalised maintenance.
The wife appealed the decision and the Court of Appeal decided that the husband was largely bound by the agreement. The order was amended so that the housing fund of £2.5m reverted to the wife after the children had grown up and the capitalised maintenance award was set aside. The court was influenced by the fact that the agreement was governed by German law where such arrangements are binding. The court was convinced that the husband was familiar with his future wife’s financial circumstances and that he had chosen to leave his very successful career in investment banking.
The husband appealed and judgment was handed down by the Supreme Court in October 2010. The Supreme Court decided to uphold the Court of Appeal judgment, concluding that the parties intended the agreement to have legal effect and that it was not unfair to hold the husband to the agreement. That the agreement would have been binding under German law was significant.
Recent case law
The first contested case after the Radmacher decision was the decision of Mr Justice Moor in Z v Z [2011] EWHC 2878 (Fam), [2011] All ER (D) 112 (Dec).
Moor J stated that Radmacher had “changed the position fundamentally” in relation to pre-nuptial agreements and referred to a “seismic” shift in this area of law.
This case concerned a French couple who were married in 1994. They began to live in England in 2007 and their marriage broke down soon after. There
were three children of the family, aged 14, 12 and 9. The couple had entered into a séparation de biens upon marriage in France, which provides for the separation of individual goods and assets in the event of marriage breakdown.
The judge found that the couple entered into the agreement freely and understood the implications, despite the fact that neither received formal advice, nor was there financial disclosure.
The wife argued that she should not be bound by the agreement and that the total assets of £15m should be divided equally. The husband argued that the séparation de biens agreement meant that equal sharing was inappropriate, although he conceded that the agreement did not prevent the wife from claiming maintenance equivalent to her needs.
As with Radmacher the foreign element was highly significant as the husband claimed that this was a French case and the judge should be bound by French principles.
The judge took a hybrid position. He was mindful of foreign law when deciding whether to uphold the séparation de biens but he preferred to apply English law when deciding the appropriate level of spousal maintenance, acknowledging that the award would have been lower in France. The judge
awarded the wife 40% of the overall assets of £15m. The departure from equality was as a result of the séparation de biens in so far as it excluded sharing.
Hot off the press
The latest case on pre-nuptial agreements involves an appeal from DJ Cushing to Mr Justice Charles sitting in the High Court (V v V [2011] EWHC 3230 (Fam), [2012] All ER (D) 18 (Jan)). Here the husband was Italian and the wife Swedish. The husband was 10 years older than the wife and had amassed a certain amount of wealth prior to the commencement of their relationship. They began to co-habit in 2002. After the birth of their oldest child in 2003, the parties decided to marry in 2005 and entered into a prenuptial agreement in June of that year. This was drawn up by a Swedish lawyer known to the wife’s family with whom the wife had communicated by e-mail. It was a short document which, in simple terms, sought to exclude pre-acquired (premarital) property whilst providing for property acquired during the marriage to be “marital property”. It went on to say that Swedish Law would be applicable to the settlement.
The parties separated in May 2008, the wife remaining in the home. The husband was made redundant in 2009, but quickly found work as a banker on a salary of £55,000 per annum, which was significantly lower than the remuneration in his earlier job.
In capital terms, this was not a high-value case. Excluding chattels and pension, capital totalled approximately £1.3m of which around £134,000 was in the wife’s name. The husband also had a pension fund of some £94,000. The husband’s income was relatively modest and the wife was in receipt of benefits.
The mix of assets in the husband’s name was as follows:
- House in Italy, £274,000 (bought in 2003).
- Land in Italy, £59,000 (transferred to the husband and his sister in 1985). Both of the above two assets were referred to as the husband's in the pre-nuptial settlement, together with investments in bank accounts in Sweden and Switzerland, with a combined value of around £1.1m.
- Bank accounts, £13,000.
- Investments, £698,000.
- Guaranteed bonus from husband's previous employer, £583,000.
- Liabilities, (£466,000).
The district judge made the following order:
- The husband was to pay the wife £667,100 which, together with her assets, gave her around £800,000; and
- The husband was to pay global maintenance for the wife and two children at the rate of £30,000, with a recital that the wife's household income had to be £40,000 or more before there was any impact on the quantum of maintenance. The spousal maintenance was payable during joint lives.
The case was argued on the basis that the wife intended to remain in England with the children and that the husband would be living in Italy. The award left the husband with £489,000 of non-pension capital, of which £156,000 was liquid. In percentage terms, the wife received 58% and the husband 42%. If pension was excluded, the wife received 62% and the husband 38%.
Of relevance was the fact that the husband had been a much higher earner during his previous employment and the family had enjoyed a very high standard of living. There seemed to be some uncertainty as to whether the husband would recover his higher earning capacity in the very near future.
On appeal
The focus of the appeal was whether the husband should receive a charge-back against the property to be purchased by the wife from her lump sum in the style of a Mesher order.
Mr Justice Charles emphasised the impact of Radmacher in what was a very lengthy judgment. He stated that it “effectively adds another rationale or principled approach to the reasoning to be applied in the judgemental or balancing exercise demanded by the statutory test, namely that weight should be given to autonomy”.
He found that the pre-nuptial settlement made it clear that the wife could not assert “marital property” over the property of the husband referred to in that agreement, which was specifically excluded from sharing. He also found that the marriage was conditional upon there being a pre-nuptial agreement to
protect the husband’s pre-existing property, the wife being absolutely clear about the purpose. Neither of the parties sought advice as to the impact of the agreement in Swedish or English law, but the wife’s evidence made it clear that, had she received such advice, she would have entered into the agreement willingly. Accordingly, the lack of legal advice was not crucial. Neither was the fact that there had been no material disclosure because, on the wife’s evidence, she made it clear that she would have been indifferent to detailed financial disclosure. Hence, the circumstances were very similar to that of Radmacher.
The judge then looked at the impact of the agreement on the s 25 exercise and found that it did not reduce the impact of the agreement finding: “(i) When assessing the sharing principle and the impact of contributions, the marriage settlement provides a good and powerful reason for departing from an equal division of the assets that are now available; and (ii) in the overall assessment of the award to be made, it is an important factor to be weighed in the balance and it is capable of founding an award that differs from the one that would have been made if it had not been entered into.”
Had the marriage settlement been adhered to in its entirety, it would have produced a 28/72 division of assets in favour of the husband, leaving the wife with £358,358 and the husband £930,989, from total assets of £1,289,347. That would not have met the wife’s housing needs which had been assessed in the court below at £750,000. However, Charles J accepted the charge back arguments and agreed that the charge in favour of the husband should be 35.83%, to include the cost of the appeal which the wife was ordered to pay.
Watch this space
The Law Commission published a consultation in January 2011 and indicated an intention to report in early 2012. However, there has been slippage and it now seems unlikely that the report will be published until autumn 2012.
Kim Beatson is a Partner and Mediator and head of Anthony Gold's Family & Divorce Law team. For further information email Kim or call 020 7940 4000 for advice on any aspect of family law.
This article was first published in New Law Journal, “Failing to Go the Distance”, NLJ 27 January 2012, p 125.
