Marital agreement reform

 

The appeal of Radmacher v Granatino dramatically reduced the husband’s award to place him in circumstances more in line with the pre-nup that he signed.  It is certainly worth noting the judicial perspective of the parties as ‘autonomous adults’ who freely contracted with each other.  Previously emphasis had been placed on whether the agreement upon which reliance was sought met various criteria of ‘fairness’.  Now, even if a party has not taken independent legal advice or seen full and frank disclosure, the agreement can still be relied on as a ‘decisive factor’.

The case

This is an unusual case in that the wife was the wealthy party.  The wife was a German national with an estimated wealth of £100m.  The husband, a French National, had been earning £330,000 at his peak working for J.P. Morgan.  At the time of the divorce and at the time of the appeal he was studying for a D. Phil. in biotechnology at Oxford and estimated his future earnings, as an academic, were £30,000 gross per annum.  I refer to my article in the February 2009 edition of the FLJ (83, p8) for details of the first instance considerations in the High Court.  Mrs Justice Baron, in 2008, awarded the husband £5.56m.  He had sought £10m.

In May 2009 the wife’s Appeal came before Lord Justices Thorpe, Rix and Wilson and judgment was published on 2 July.  The Justices considered law and policy in both the domestic and the European context.
The European Dimension

It was considered that the case has all the hallmarks of internationality as the marriage was celebrated in both London and Switzerland and the parties co-habited in both London and New York.  It was not in dispute that the parties’ pre-nuptial agreement (signed in Germany almost three months before the marriage) was valid and enforceable under the laws of both Germany and France.  This agreement provided for a separation of assets upon marriage and no provision for either spouse upon divorce.

The commencement date of 1st March 2003 given to Regulation Brussels II introduced jurisdictional rules for divorce and parental responsibilities respecting children of married parents throughout all but one of the then fourteen member states.  This interim measure was swiftly enlarged by Brussels IIBi, or Revised with its commencement date of 1st March 2005.  These regulations did not deal with maintenance, the territory of Brussels I, or with the property consequences of divorce (see recitals 8 and 11 of Brussels II Revised).

Lord Justice Thorpe set out that the ambition of the European Commission was to design a regulation Brussels III which would meet the problems created by diverse national laws and traditions.  To that end a Green Paper was published in July 2006 inviting responses from member states by 30th November 2006.  Various experts were consulted but the drafting of a single unified response proved difficult which meant that no substantive response was sent.  The European Commission intends to convene a meeting of experts in Brussels on 28th September 2009.   Thorpe LJ records this detail to illustrate how difficult it will be to devise a solution that will deliver uniformity of outcome throughout the member states of Europe.
The Domestic Dimension

In paragraphs 12 to 29 of the judgment Thorpe LJ records the evolution of the court’s treatment of the ante-nuptial contract.  He quoted himself in F v F [1995] 2 FLR 45 saying in this jurisdiction they must be of very limited significance.  Of his current stance he says I would not be so dismissive if such a case were now to come before this court on appeal.  He then referred to Baroness Hale of Richmond in MacLeod v MacLeod [2008] UKPC 64 who said The Board takes the view that it is not open to them to reverse the long standing rule that ante-nuptial agreements are contrary to public policy and thus not valid or binding in the contractual sense.  Thorpe LJ set out how he differs from this approach and made reference to the following developments:

February 1998     Solicitor General announced that the government intends to reform the law of ancillary relief as a matter of urgency to achieve greater certainty and predictability of outcome
1998     Home Office White Paper ‘Supporting Families’ proposes to give statutory force to ante-nuptial agreements subject to safeguards
2005     Report published by Resolution ‘A More Certain Future – Recognition of Pre-marital Agreements in England and Wales’
June 2008     The Law Commission and the Money and Property sub-committee of the Family Justice Council decide to examine the status and enforceability of agreements made between spouses or civil partners made before or after the marriage or civil partnership. This project is due to commence in late 2009 with a report and draft bill expected in late 2012

Following the run through of the European and domestic context above, Thorpe LJ observed at paragraph 27 that: Due respect for adult autonomy suggests that, subject of course to proper safeguards, a carefully fashioned contract should be available as an alternative to the stress, anxieties and expense of a submission to the width of the judicial discretion.

He further stresses that in so far as the rule that such contracts are void survives, it is increasingly unrealistic; they reflect the laws and morals of ‘earlier generations’. Interestingly he refers to a current ‘age when marriage is not generally regarded as a sacrament and divorce is a statistical commonplace’. Significantly he proffers that as a society we should be seeking to reduce and not to maintain rules of law that divide us from the majority of the member states of Europe.

This appeal judgment certainly provides a fascinating discussion on the judicial concerns about current statutory constraints.   A clear message has been sent that the rule which still survives, that pre-nuptial agreements are void; is a rule which is increasingly unrealistic. It was further stated that there is no need to describe such agreements as being void for reasons of public policy.  So, practitioners, please mind your language!
Findings

Mrs Justice Baron had found at first instance that the pre-nuptial agreement was ‘defective under English law’ because (a) the husband received no independent advice; (b) the agreement purported to deprive the husband of all claims even in a situation of want; (c) there was no disclosure of assets by the wife; (d) there were no negotiations; and (e) two children were born of the marriage.  Lord Justice Rix said he was sceptical about demanding too much of the requirement of knowledge.  Further knowledge had been expressly waived in the contract.  It is worth reminding oneself of Justice Baron’s observations of the husband which were as follows:

He understood the underlying premise that he was not entitled to anything if the parties divorced.  In essence, he accepted that he was expected to be self-sufficient.  As a man of the world that was abundantly clear.  His decision to enter into the agreement must therefore affect the award.
Lord Justice Rix, whilst paying tribute to the care and well-recognised experience which Justice Baron brought to her decision, concluded that she made the following errors:-

  1. while recognising the agreement as effective for the purposes of having regard to it under s25, she discounted it as a flawed and tainted agreement;
  2. in this connection she regarded the agreement as ineffective to deprive the husband of any claim for his needs, although that was his agreement; and
  3. although she purported to discount an award based on his needs by reference to his agreement, the Lords found it difficult to find that she applied any real discount over and beyond a conventional or legitimate scepticism over the quantification of the husband’s claims.

Rix LJ further commented that he saw great force in a doctrine of presumptively valid: There is fairness and justice too in a proper appreciation of party autonomy and that there are dangers in overly paternalistic or patronising attitudes or in an insufficiently international outlook.

Wilson LJ rejected the argument that the absence of the husband receiving independent legal advice enabled him to escape its effect.  The absence of the disclosure of the wife’s means was also not held to be of significance. It was observed that there was no finding by the judge at first instance that, had there been accurate mutual disclosure, the husband might not have entered into the agreement.  He knew the wife was of significant wealth and he was employed in the area of finance.  It was held that the birth of the girls did not impact on the effect to be ascribed to the contract because the contract does not purport to, and cannot under English law, affect either parent’s obligation to provide for their benefit.

There was a further comment that in the contract the parties specifically elected that German law should govern the financial effects of their marriage and it was concluded that the judge at first instance did not allow for that dimension.

The court concluded that the pre-nuptial agreement should be given ‘decisive weight’ in this case.  It was inferred that without such agreement this marriage would not have taken place.   It was re-stated that without such agreement the wife’s father would not have made over to the wife the additional resources which followed her marriage.  It was common ground in the case that the agreement in no way trespassed on the court’s full freedom to make any disposition with regard to the children‘s interests that appeared to it to be right.

The justices concluded, in favour of the wife, that there is no case for making that home and financial support should be the husband’s to command for the whole of his life-time.

Order of the court

The husband’s housing fund of £2.5m which had previously been awarded to him outright, albeit with his agreement (though not enforceable) that he would leave this to his daughters upon his death, is now to be held by the wife on trust for him only during his parenting years.  It is to revert to the wife upon the youngest child attaining the age of 22.   It is of note that the wife, in the first instance, had offered the husband a smaller housing fund of £1m, but had suggested he have a life interest in the same on a Schedule 1 Children Act basis.

The husband’s maintenance, although to remain at the same level of £35,000 per annum per child, is to be restricted to his parenting years.  It was previously calculated to allow the husband to receive a net spendable income of £100,000 (to include his ascribed gross income of £30,000) for the rest of his statistical life.  The manner in which it is to be reduced is to be the subject of written submissions and will revert back to Baron J for determination.

The justices did not interfere with other lump sum awards (amounting to approximately £800,000) to the husband.

Accordingly, the husband’s award for himself was dramatically reduced in line with his agreement upon marriage to be self-sufficient in the event of divorce.

Judicial Comment

At paragraph 71 Rix LJ states that the present rule, while driven by a principle that public policy trumps private autonomy, has left it difficult or impossible to lay down even guidelines as to the circumstances in which the interests of private autonomy are to have weight.   Judges currently have the guiding principle of fairness.   Rix LJ observed it may be difficult to say what is meant by fairness: is it fairness in the contents of the contract, in the circumstances of its making, or in the circumstances which have come about?  Fairness, it was said, was to be a matter which has to be assessed as between the parties to the agreement.  This husband, it was accepted, knew he was to be self-sufficient upon any divorce.

Wilson LJ considered Mr Todd’s quest (on behalf of the wife) to deploy the pre-nuptial contract as a defence to an application for ancillary relief at paragraph 122.  He observed that a presumption of the dispositiveness of any nuptial contract is inconsistent with s25 of the Act of 1973 but, nevertheless, a presumption of dispositiveness has much to recommend it.   He further states that he will, if consulted, be arguing to the Law Commission for reform along the same lines.  He says that he suffers ‘forensic discomfort’ about the lack of clarity in the treatment of pre-nuptial contracts under our present law and a loss of confidence in the justice of an approach which differs from that adopted by most of the other jurisdictions to which we have the closest links (he mentioned Australia and most of the states of the U.S).

Thorpe LJ marked his own evolution from his negative disposal towards pre-nuptial contracts in F v F (Ancillary Relief: Substantial Assets) [1995] 2 FLR 45 at 66 E – H to his current thinking that such a contract must be given decisive weight, not withstanding the event of children and lack of disclosure of assets and taking of independent legal advice.

In practice

Paragraph 53 of the judgment specifies that in cases broadly in line with the present case on the facts, the judge should give due weight to the marital property regime into which the parties freely entered.  Emphasis must be placed on the first few words.  The wife was wealthy and was able to discharge the husband’s debts.  She was also able to meet the husband’s housing and income needs during his parenting years to a standard of living that then girls were accustomed to.  Both parties were also nationals of countries where pre-nuptial agreements were binding.

Whilst there was judicial recognition that it may be argued that a European contract ought to have greater regard paid to it than an English contract between English nationals (given the current law), it was nevertheless recognised that an agreement in similar circumstances between English nationals should receive equal treatment.  It was the subject of judicial comment that the wife issued divorce proceedings in this country: It is seemingly bizarre that it was the wife who engaged this jurisdiction (paragraph 11).

Now, more than ever, practitioners must look to the future.  Not only must they consider all the reasonable requirements of a pre-nuptial agreement as set out in K v K and the Green Paper ‘Supporting Families’, but they must also consider that it may only be a matter of time before the rule of law states that marital agreements are valid.   Significantly, even if a pre-nuptial agreement falls foul of some of the safeguards (such as each party taking independent legal advice) the parties could still be held to it.    This case goes further than stating that the agreement is simply one of the section 25 factors to be taken into consideration, such an agreement has ‘decisive weight’.   Following this decision, the existence of a marital agreement significantly limits the discretion of the judge.

Cases considered:

Radmacher v Granatino [2009] EWCA Civ 649
Macleod v Macleod [2008] UKPC 64, [2009] 1 All ER 851
NG v KR (Pre-nuptial contract) [2008] EHWC 1532 (Fam)
Crossley v Crossley [2008] EWCA Civ 1491
K v K (Ancillary Relief pre-nuptial agreement) [2003] 1 FLR 120