Prenuptial protects husband’s wealth but does not meet wife’s needs
By:7 commentsApril 25, 2018
Despite the fact that I advised clients about them myself when I was practising (albeit prior to the Radmacher case, as mentioned below), I have always had a somewhat ambivalent attitude towards prenuptial agreements. I simply find it hard to reconcile the idea of committing your life to the person you love, whilst simultaneously consulting lawyers about how you can get the best financial settlement in the event that the marriage turns out not to be for life after all.
Still, as a lawyer I can understand why people want to enter into prenuptial agreements, particularly to protect assets they acquired prior to the marriage, which they may often wish to leave to children from a previous relationship. This was pretty much the situation of the husband in the recent case KA v MA (Prenuptial Agreement: Needs).
Before I look at the case I should just mention the leading case on the subject of prenuptial agreements and what it says about how the courts should approach such agreements, Parliament having thus far failed to give any guidance on the subject. The leading case is the 2010 Supreme Court decision in Radmacher v Granatino. The Supreme Court held, as stated by Lord Phillips, that:
“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.”
In other words, despite Parliament’s silence, the courts will now uphold prenuptial agreement unless their terms are considered to be unfair. (Radmacher was decided after the agreement in KA v MA was entered into, but that fact did not really affect the outcome of the case).
Okay, to the judgment in KA v MA, which was handed down by Mrs Justice Roberts in the High Court on 13 March last. Now, as I will mention below, this was a long judgment, and I’m therefore going to have to do some serious axe-wielding and simplification to reduce it to something that will fit into a reasonably short post. Hopefully, this summary will do the case justice, no pun intended.
Very briefly, the relevant facts in the case were that, as indicated above, the husband was a successful businessman who had amassed considerable wealth before the marriage, mostly business interests, which he wished to leave to his children, including his three sons from his previous marriage, which had ended in a “bruising” divorce. He and the second wife began a relationship in 2000 and commenced living together in 2004. They had a child together, another son, in September 2004.
From the outset of the relationship the wife had wanted to marry, and that desire came to a head as the son approached nursery school age – in particular, she wanted him to have his father’s name. The husband, traumatised by the experience of his first divorce, was initially set against marriage, but eventually agreed on the strict condition that the parties enter into a prenuptial agreement, in particular to ensure that his business interests were protected, and would pass to his sons. He proposed (ultimately) that the agreement state that should the parties divorce, the wife should receive a lump sum of £600,000 and maintenance of £2000 per month (the total value of his assets at the time of the hearing before Mrs Justice Roberts was estimated at anything between £23 and £33 million).
The wife agreed and signed the agreement, despite being advised by her lawyers that its terms were considerably less generous than she could expect from the divorce court in the absence of the agreement. She said that she felt under pressure (the wedding was by then only three weeks away), and that she did not feel that she was in any position to negotiate with the husband because he held all the bargaining power in their relationship. She did not suggest a more generous settlement, as she feared that the husband would then pull out of the marriage entirely.
The marriage went ahead in December 2008. It broke down in 2013 when the wife moved out of the matrimonial home, although the parties remained on good terms for about the next two years. Divorce proceedings were commenced, and shortly thereafter, in June 2016, the wife issued her financial remedies application. Mrs Justice Roberts summarised the position of the parties thus:
“In terms of the outcome which each seeks, the parties are a long way apart. On behalf of the wife, Mr Pointer QC advances a needs-based claim of almost £6 million. If, as Mr Marshall QC contends on behalf of the husband, she is confined to the effective implementation of the terms of the agreement, she will receive a final award of just under £1.6 million.”
So, the question was: what was the effect of the prenuptial agreement?
The wife sought to argue that the agreement should be disregarded entirely, particularly in view of the pressure she had been under to sign it: in other words she had not freely entered into it. However, Mrs Justice Roberts did not accept that the husband had subjected her to undue pressure, and considered that she entered into the agreement of her own free will.
The next question, therefore, was: were the terms of the agreement fair? The answer to this is complex, but two concessions by the wife were important. Firstly, she conceded that the husband’s pre-marital wealth should be protected, subject only to his obligations to meet her financial needs in the event of a future divorce. Secondly, the amount of her award should be driven by her ‘generously assessed needs’, rather than by any application of the (equal) sharing principle. In other words, it all boiled down to the wife’s needs – in effect, whatever sum met her needs would be fair (to put it in Radmacher terms), and it was clear that the provision contained in the agreement did not meet her needs even if, as the husband proposed, it was ‘indexed up’ for inflation.
This was accepted by Mrs Justice Roberts, who assessed the wife’s needs at £2.95 million, comprising £1.35 million to rehouse herself, and a lump sum of £1.6 million from which to derive an income to maintain herself. Taking into account her net assets, this would mean the husband paying her a lump sum of £2.73 million, and that was the amount of the wife’s award.
So the end result was that the prenuptial agreement did have an effect, in that it protected the husband’s pre-marital wealth from attack by the wife in the divorce settlement – that was fair. On the other hand, however, the full terms of the agreement were not enforced by the court, effectively on the basis that they were not fair, as they did not meet the wife’s needs. Thus the part of the agreement that was fair was upheld, and the part that was not was not – the agreement was not unfair in its entirety. (I am assuming, from the way the judgment is worded, that Mrs Justice Roberts would have reached a similar decision even if the agreement had been entered into after Radmacher, hence to make this more useful I am explaining the judgment in Radmacher terms.)
The full report of the judgment, all 136 paragraphs of it, can be read here.
Image by Jeff via Flickr under a Creative Commons licence
April 25, 2018
Categories: Finances and Divorce