PRE NUPTIAL AGREEMENTS - NEWCASTLE CONFERENCE

Celebrity divorce lawyer Raoul Felder once said, "Today if you don't have a prenup

and you're getting married, you ought to see a psychiatrist and not a lawyer."

PNAs were considered by the Privy Council in the case of MacLeod v MacLeod[2010] 1 AC 298. This was an appeal from the High Court in the Isle of Man. Thehusband and wife had married in Florida after signing a PNA. A year later theymoved to the Isle of Man. 6 years and 5 children later the marriage ran intodifficulties and the parties executed a deed which made substantial variations to thePNA. The marriage completely broke down some time thereafter and the wifebrought ancillary relief proceedings arguing that the deed of variation should bedisregarded.

In their findings the Privy Council drew a distinction between ante-nuptial and post-nuptial agreements. They held that the latter did in fact constitute contracts.

However they felt that "Post NAs however are very different from pre NAs. Thecouple are now married. They have undertaken towards one another the obligations

and responsibilities of the married state. A pre NA is no longer the price which one

party may extract for his or her willingness to marry. There is nothing to stop acouple entering into contractual financial arrangements governing their life together,as this couple did as part of their 2002 agreement (post NA) " - para 36 of the

judgment.

This represented the first shift in the sands of public policy. The next occurred in the

landmark case of:

Granatino v Radmacher [2010] UKSC 42

Facts:The facts are:

The husband was French. He was employed as an investment banker prior to the

marriage and was earning a good salary as a result of this employment. The wife wasGerman. She was from an extremely wealth family.

The wife's father was particularly concerned with the need to protect the family'sassets and insisted that the parties enter into a PNA prior to the marriage. By so

doing, each party renounced any interest in or benefit from the property of the other,either during the marriage or upon its termination. The agreement was signed inGermany 3 months prior to the wedding although the parties married in London andlived their married lives there whilst going on to have 2 children together.

During the marriage 2 key things occurred. Firstly, the wife's family transferredsignificant assets to her safe in the knowledge of the terms of the PNA. Secondly, thehusband became disenchanted with the world of investment banking leading to a

change in career. By the end of the marriage he was studying a doctorate in Oxford.

The Judge of first instance gave some weight to the PNA but departed from its termson the basis of reservations about the circumstances of its formulation and the extent

of its terms. Substantial sums were awarded to the husband to enable him to purchase

a home and to have a lifetime annual income.

The wife appealed. The Court of Appeal determined that the lower court should have

attached decisive weight to the PNA and should only have made provision for thehusband in his role as a father to the 2 children of the marriage.

The Supreme Court dismissed the husband's appeal. The judgment is hugely

interesting and I would recommend to anyone who hasn't read it, to do so. Ultimately

it was determined 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." (paragraph 75). In so doing the Supreme Court effectively abolished the

mle that agreements made in contemplation of future separation are contrary to public

policy and void. Accordingly, the departed from the principles as set down by thePrivy Council in IVIacLeod.

This now means that in appropriate circumstances the court could hold the parties tothe PNA, even when the result would be different from that which the court would

otherwise have ordered if a PNA had never been drawn up.

At paragraph 67 of the judgment the court asked itself 3 questions:

(a) Were there circumstances attending the making of the agreement thatdetract from the weight that should be accorded to it?

(b) Were there circumstances attending the making of the agreement thatenhance the weight that should be accorded to it; the foreign element?

(c) Did the circumstances prevailing when the court's order was made make it

fair or just to depart from the agreement?

But what are these circumstances? When should a PNA be given weight? When

should it not?

(a) It is essential that both parties must enter into the PNA of their own freewill, without undue influence or pressure and informed of its implications

(para 68). Each party should have all the information that is material tohis/her decision and should intend that the agreement will govern the

financial consequences of the marriage coming to an end. Are any of thestandard vitiating factors present - duress, fraud or misrepresentation?

Factors such as undue pressure (falling short of duress) and other

unworthy conduct are relevant issues. Other issues such as the age of the

parties, their maturity, their experience of previous long termrelationships/marriage and whether the marriage would have proceeded in

the absence of this particular PNA.

(b) Is there a foreign element to the case. In the circumstances ofRadmacher,

the PNA was valid under both German and French law (the husband being

French and the wife being German). The agreement had a German law

clause.

(c) Fairness will depend upon the facts of the individual case. The Supreme

Court offered guidance in this area rather than fast mles capable of

fettering the flexibility that the court requires to reach a fair result. Such

guidance included consideration of the children of the family, respect for

individual autonomy, the parties' express intention for the protection of

non matrimonial property and future circumstances (and the extent towhich they could have been envisaged).

For me, this is the key conundrum - freedom versus fairness. As adults we should all

be able to enter into contracts or arrangements to govern our affairs. We should all

have personal autonomy. 45% of marriages break down. Why should parties nothave the ability to determine what happens to their assets, or assets that they may

consider to be their family's assets, in the future in such circumstances? Particularly

given those odds. Why should parties have to go through stressful and expensive

court proceedings to determine what they could agree before they start? What iswrong with a bit of certainty in an otherwise uncertain world?

But, on the other side of the coin, what if there is inequality between the parties? One

party (let's say the wife) will probably be starting on a footing of financial inequality.In all likelihood the husband to be (or his family) will have been responsible forraising the idea of a PNA. He will probably pay the legal costs of the wife to be'slawyer. He may even direct her towards a lawyer. The wife to be may feel that she

can't say no to the PNA or even to its terms as then it will appear that she is marrying

for money, not love. And, in any event, her marriage will not be one of the 45%. Hermarriage will endure. So the fact of the PNA or its terms will be irrelevant. So why

not sign?

Baroness Hale noted this dichotomy in her judgment in the Radmacher case at

paragraphs 135 and 136.

"Some may regard people who are about to marry as in all respects fully autonomous

beings; others may wonder whether people who are typically (although not

invariably) in love can be expected to make rational choices in the same way that

businessmen can. Some may regard the recognition of these factual differences aspatronising or paternalistic; others may regard them as sensible and realistic. Some

may think that to accord a greater legal status to these agreements will producegreater certainty and lesser costs should the couple divorce; others may question

whether this will in fact be achieved, save at the price ofinflexibility and injustice.

Some may believe that giving greater force to marital agreements will encourage

more people to marry; others may wonder -whether they -will encourage more people

to divorce. Perhaps above all, some may think it permissible to contract out of the

guiding principles of equality and non-discrimination within marriage; others maythink this a retrograde step likely only to benefit the strong at the expense of the weak.

I think that this passage best encapsulates the dichotomy that is inherent in the

discussion about PNAs. But which side is right? Again, Baroness Hale sums this up

at paragraph 136 of the judgment:

"These difficult issues cannot be resolved in an individual case, in particular a case

with such very unusual features as this one. Different people will naturally react to

this particular human story in different -ways, depending upon their values and

experience of life. There may be some, for example, -who are astonished that an

intelligent young man, -who -was apparently happy to sign away all claims upon hisbride-to-be's considerable fortune, should now be seeking to make any claims upon

her at all. There may be others who are astonished that afabulously wealthy young•woman should begrudge -what is a very small proportion of her estate to ensure that

the father of her children can live in reasonable comfort for the rest of his days. "

And I was most struck by the observation that she makes at paragraph 137:

"Above all, perhaps, the court hearing a particular case can all too easily lose sight

of the fact that, unlike a separation agreement, the object of an ante-nuptialagreement is to deny the economically weaker spouse the provision to which she — it isusually although by no means invariably she — would otherwise be entitled."

That is a rather whistle stop tour of the Radmacher judgment. But, how has this been

interpreted thereafter?

AH v PR [2013] EWHC 3873 (Fam)

Facts:

The husband was worth £50 million at the time of the ancillary relief hearing. Thewife was a personal trainer and had no independent means. The parties were bothScandinavian although they lived their married life in England. The wife had alwaysthought that the parties would eventually return to their homeland but it transpired

during the proceedings that this was not an intention that was shared by the husband

in reality.

The parties had entered into a PNA in Scandinavia. This was signed the day prior to

the wedding, although the terms had been agreed some time earlier. Both parties

were legally advised in Scandinavia in relation to the terms. The husband relied upon

the terms of the PNA heavily during the subsequent ancillary relief claim.

Moor J had the benefit of expert evidence from Scandinavia which concluded that the

PNA would not have been upheld in that particular country as it included a clause

which is not permitted.

At paragraph 67 of the judgment Moor J eloquently asks himself "So, should Iconsign the Settlement to history and ignore it altogether? In most respects, lamsatisfied that I should.. "

Of particular note for the court was that the Settlement did not provide for English

housing for the wife which was now necessary due to her intention to remain therewith the children and also that the Settlement did not prevent a claim for maintenance.

The court also looked at the minds of the parties at the relevant time. At paragraph 58

"... I have to assess her understanding and appreciation of the significance of theMarriage Settlement. It was soon clear that she is neither commercially astute nor

sophisticated in relation to legal concepts. I mean no criticism of her in this regard,

but she is no Mr Radmacher. She is simply not well versed in the ways of business.

This is in stark contrast to the position of this Husband. He is most definitely

financially astute. I soon concluded that he also has a good grasp of legal matters. "

The husband had described divorce courts in the UK as being 'generous " to wives.

The wife had absolutely no such knowledge.

Ultimately the judgment provided for the wife being given a clean break award of£7,775,000. This contrasts heavily with the £1.1 million figure that the husbandstated that the wife was due to receive under the terms of the PNA.

Luckwell v Limata [2014] EWHC 502

Facts:

In this case the wife was from a wealthy background and the parties entered into a

PNA which stated that the husband would have no claim upon her property includinggifts made to her during the marriage. 2 separate supplemental agreements weremade during the course of the marriage when the wife's family made sizeable gifts to

her. The husband brought an ancillary relief claim upon the breakdown of the

marriage.

Holman J perhaps best encapsulates this area by stating at paragraph 1 that "The law

on this topic is not difficult to state. But it requires a discretionary decision by the

court -which is, in my view, and on the facts of this case, an exceptionally difficultone. "

In this case the court gave us a stark reminder of how unsettling litigation can be forthe parties when he said "This is a case -which never needed to come to court and

which was eminently capable of settlement..... this terrible conflict-was as avoidableas it has been destructive. "

The Trial Judge helpfully summarized the relevant law at paragraph 130 of hisjudgment in the following manner:

"1. It is the court, and not the parties, that decides the ultimate question of-what

provision is to be made;

2. The over-arching criterion remains the search for 'fairness'

3. An agreement should be given weight in that process, although that weight may be

anything from slight to decisive in an appropriate case;

4. The weight to be given to an agreement may be enhanced or reduced by a variety

of factors;

5. Effect should be given to an agreement that is entered into freely with full

appreciation of the implications unless in the circumstances prevailing it would notbe fair to hold the parties to that agreement, i.e. There is at least a burden on the

husband to show that the agreement should not prevail;

6. Whether it will 'not be fair to hold the parties to the agreement'will necessarily

depend on the facts, but some guidance can be given:

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than Radmacher), and (2) the husband in this case is much less able than Mr

Radmacher to make provision for his older age.

Ultimately Holman J (amongst other issues) awarded the husband the sum of£900,000 to enable the husband to purchase a house that was suitable for the children.

This house is to be sold when the youngest child turns 22 with 45% of the netproceeds reverting to the wife. The balance must be reinvested in a smaller home for

the use of the husband for the rest of his life.

The justification for departing from the terms of the PNA (which made no realprovision for the husband) was that parenthood does not end when a child attains 18

or even 22. The husband will still need a home at which the children can visit him. Itwould be highly damaging to the children to see their father effectively "evicted".

This is best described at paragraph 166 of the judgment - "This is a decision and

judgment based entirely upon the needs of (the husband), considered in conjunction

-with his role as father. Whilst not implementing the agreements, it still affords great

weight to them. But for the agreements, I would have awarded a larger housing fundand the -whole of it outright. "

WW v HW [2015] EWHC 1844 (Fam):

Facts:

The facts of this case involved a wealthy wife with a £27 million fortune. Thehusband's net capital position was probably around £300,000. It was found that he

had exaggerated his financial position at the time of the discussions around the PNA,

most probably to secure the marriage. Legal advice had been taken and the terms ofthe PNA stipulated that each party would retain their own assets and neither would

make an ancillary relief claim against the other in the event of a marriage breakdown.

It should be noted at this point that the ultimate costs in the subsequent ancillary relief

hearing ended up being £1.7 million.

The judge felt that there should be significant weight afforded to the judgment in lightof the mature age of the parties, their intention that the terms should be binding and

the fact that legal advice had been obtained.

At paragraph 51 the Judge stated "I have no difficulty in finding that it would be fairto hold (the husband) to the parties' agreement unless his needs should dictate a

different outcome. In those circumstances I must consider (a) how (the husband's)

needs should be assessed in the light of the agreement, and (b) how (the husband)would be left once his claim as father of the children has been considered, and•whether in those circumstances he can be seen to be in a predicament of 'real need'

in all the circumstances of this case. "

In this regard the Judge noted the views ofMostyn J in Kremen v Agrest (No 11)

f Financial Remedy: Non-Disclosure: PostNuptial Agreement) [2012] EWHC 45(Fam) when he stated "needs may be interpreted as being that minimal amount

required to keep a spouse from destitution ".

The Judge's assessment of the husband's dishonest conduct was influential in this

regard. The Judge was particularly unimpressed with the husband's evidence and

found him to be evasive and even untmthful. Indeed, at paragraph 64, the Judgecommented that "-when I finally come to determine the amount that (the husband) will

have at his disposal to meet need, I can in fairness avoid being overly protective of

him, especially where uncertainties created by that conduct in the way of penaltiesare the biggest risk to his future financial security. "

The outcome was for the Judge to make a housing fund of £1.7 million available tothe husband which would be reduced by 45% when the youngest child turned 23.

Further, the Judge ordered the wife to make a lump sum payment to the husband of

£215,000.

So, until Radmacher, the law was vague albeit moving gradually towards paying more

regard to such agreements. Now, it is clear that courts are more willing to uphold

such agreements provided it is not unfair to do so. However, exploration of the facts

surrounding the individual case may be required before the question can be fullyanswered.

But in my view this has the potential to involve lengthy (and expensive) courthearings which in themselves perhaps defeat the primary object ofaPNA.

DRAFTING POINTSi

So, how to enter the tricky world of drafting PNAs? What can a PNA do and not do?

• It cannot oust the jurisdiction of the court.

• It is not contractually binding and will only attain the force of law when

sanctioned by a court.

• It cannot achieve a result which is fundamentally unfair in UK law expectwhere parties have a greater connection with another country and have elected

to be governed by the laws of that country.

• It cannot allow a breadwinner to contract out of providing reasonable financial

support for a child.

• It must be procedurally fair. There must be no undue pressure. There must berelevant and material disclosure. There must be the opportunity for each party

to avail of independent legal advice.

• The terms must be settled within a reasonable time before the marriage.

These terms are not exhaustive. Each case will turn on its facts. Accordingly, the

world ofPNA drafting and litigation is far from simple.

So is it better to enter marriage with a view to its termination or to have confidence

that the marriage will be for life? Wliich would you put your money on?

Suzarme Simpson QC,

September 2016.