The Supreme Court and pre-nups: a victory for 40-year-old law?
October 25, 2010 8 comments
So it has finally happened. The new Millennium began with a bang in the form of the White v White case, and ten years later we’ve started the new decade with a similarly momentous development following the Supreme Court’s long awaited judgement in the Radmacher v Granatino case. And how we English family lawyers needed it!
But despite my excitement last week at the news pre-nups will be given greater legal force in England and Wales, not everyone shared the same emotion.
“Whats all the fuss about?” asked the American we dined with this weekend. He was used to the concept of prenuptial agreements, and added: “Isn’t it the case that if you marry a wealthy woman the idea is to stay married to her?” He certainly had a point and I couldn’t help laughing. But when my laughter subsided I explained the nuances of the subject from our perspective, using an old case of mine to illustrate.
About 15-years ago, a father and his daughter came to see me. At that time I was still doing commercial work as well as family law. The legality of documents intended to form a contract has always interested me. The daughter was getting married. Her father, a successful local businessman, wanted to protect her valuable shares in his company. They wanted my advice about whether she and her future husband should sign a pre-nup.
At that time pre-nups were rare, however I decided to advise them from a contract law perspective. Although it didn’t seem fair to leave her so wealthy in the event of divorce, and while I could give no guarantees, I advised them that such an agreement could be made and certain conditions should be followed. If we fully disclosed the number and value of shares she owned and her financial position and her prospective husband did likewise, there was no duress and both parties were independently advised, then we could argue that the agreement be upheld in the event of divorce. For a document signed in the presence of both their lawyers, freely entered into and intended to bind both parties, should do just that.
The husband’s solicitors, known for being aggressive, raised no objections at all to the pre-nup. It was drafted by a London-based barrister and excluded her shares from any divorce settlement made in the husband’s favour. The agreement was signed and I subsequently learned from the father that the husband’s solicitors had advised him that the pre-nup wasn’t worth the paper it was written on. They told him it would never stand up in court, but he signed it to make his future wife and in-laws happy. They had advised him a pre-nup was contrary to public policy, and that anything of value that made up the matrimonial assets could not be excluded from a divorce settlement.
The couple are still married and the document has never been tested. But I reckon that following the Supreme Court’s decision in the Radmacher v Granatino case, it would withstand the test of time.
The Supreme Court decision in question was delivered by its President, Lord Phillips. He sat with Deputy President Lord Hope, a Scottish judge used to a codified system of law, and another seven of the most illustrious judges in the UK, including Lord Collins, a former solicitor and expert in the international conflict of laws. Despite their glittering backgrounds and credentials, and with the exception of Lady Hale, none of the nine are family judges.
And that is probably the reason why this judgment has heralded such significant change. Change some have considered revolutionary and others have thought to be heresy. I believe that what the court has done is move us, perhaps kick us, into the 21st Century with a judgment that would never have been made by a family bench. They would inevitably have been bogged down in the minutiae of a narrowly drawn interpretation of family law.
Even though I have reservations about prenuptial agreements per se, and I don’t like them, I find this judgment to be exciting. It is a breath of fresh air and common sense tempered with justice, and will finally move our law in-line with that found abroad. I believe the ruling is deliberately pro-marriage, and that it should now encourage couples who wish to protect their assets in the event of divorce to marry, as well as making those who have a pre-nup think twice about divorcing for fear of what may happen if they do. From now on there is a presumption that pre-nups are legally binding unless they are unfair. The judgment leaves room for a lower court to exercise its judicial discretion and not uphold a pre-nup if it is clearly unfair. However, that will no doubt be far from easy.
I expect courts will now uphold arrangements we might previously have regarded to be unfair. On the face of them the facts of this particular case are certainly unfair: a wife leaves the marriage with her £100 million fortune intact and the husband has nothing. But Mr Granatino is a French national and his former wife is German. He signed the prenuptial agreement in Germany and these were not matrimonial assets acquired by them both. It was the wife’s family money her family wished to remain within their family. It would be absurd for him to benefit in England, when he wouldn’t in both France and Germany where the pre-nup is legally binding.
Yet within the context of reasonable needs, one of the factors contained in section 25 of the Matrimonial Causes Act 1973, it seems manifestly unfair. Should he have kept the £5m he was awarded by the first court to hear the case? It seems obvious to me that the Supreme Court’s intention was not merely to make a decision for Mr Granatino and Ms Radmacher, but to also develop and interpret the law.
In doing so they have set the bar very high, and as with White v White at the turn of the Millennium we will have to see how jurisprudence develops and how unfairness comes to be defined.
In her dissenting judgment Lady Hale does not agree that statute permits the presumption, that unlike a postnuptial settlement (as in her leading decision of Macleod v Macleod (2008) UKPC 64), a pre-nup should automatically be presumed binding. She believes the law is in a mess and that is should be left to the Law Commission to recommend changes to Parliament. She objects to what she describes as “impermissible judicial gloss” going further than the statute permits. Furthermore, in ignoring his reasonable needs on divorce, she believes the Granatino marriage was relegated to the status of mere cohabitation and therefore the judgement by her other eight colleagues in the Supreme Court devalues the status of marriage.
Both the dissenting judgment she made, and that supported by the other eight judges are convincing. You could easily argue they are both right, but overall I prefer the judgment of the majority.
With its Scottish, commercial and international make-up, I believe that the Supreme Court has done exactly what its predecessor, the Law Lords, did in White V White and later in Miller v Miller and McFarlane V McFarlane (2006) UKHL 24. The court has interpreted section 25 as they see it now, taking into account our position in Europe and the rest of the world.
You will look long and hard at section 25 to come up with “a 50:50 starting point for division of matrimonial assets” as per the White judgement. Similarly, you will look equally hard for words such as “sharing” or “compensation” as found in the Macfarlane judgement. The terms “stellar contribution” and “departure from equality” found in the Charman (Charman v Charman (2007) EWCA Civ 503) decision aren’t there either. Prior to White, wealthy wives were lucky to walk away with 30 per cent of the assets. You won’t find percentage shares enshrined in the law. The approach before and after White differed, yet the same statute applied. In the same way discretion has been exercised again and a new approach to pre-nups derived.
Overall, what I like most about this decision is that it is a triumph for 40-year-old legislation that still clearly works. The Matrimonial Causes Act 1973 stands up to the test of time and new interpretations that fit modern society. All it needs is a court bold enough to make such an interpretation. As I have said on many occasions: if the law ain’t broke, it doesn’t need fixing. It just needs a fresh approach in common with changing times.
It will be interesting to see what happens next. Given that pre-nups are now presumed binding unless unfair, what will the Law Commission’s report add to the subject? Is anything else needed?
October 25, 2010
Categories: Family Law