UK Tax & Private Client: Prenuptial Agreements Move into the Future

July 22, 2009

English courts moved a step toward accepting the enforceability of foreign prenuptial agreements, following the English Court of Appeal decision in Radmacher, formerly Grantino v Grantino.

Case Background

Katrin Radmacher is a German heiress with assets in the region of £100 million. In 1998, she married a Frenchman, Nicholas Grantino, who was also heir to a multimillion-pound estate. At the time of the marriage, he was a banker with an annual income in excess of £300,000.

At Radmacher’s father’s insistence, and to protect the inheritance, a prenuptial agreement was signed by the parties in Germany. There was no disclosure of the wife’s assets, and the husband did not seek legal advice before signing the agreement. In 2003, he gave up his banking job and took a position as a researcher with an annual salary of £30,000. There were children of the marriage. By the time of the divorce in 2006, the husband was heavily in debt and made an application for financial settlement based on his argument that he needed money to live on – the “needs basis.”

The initial decision of the English court required the wife to pay the husband certain sums, including a lump sum of £5,560,000. The wife appealed to the Court of Appeal who overturned that decision and ordered that the terms of the prenuptial agreement be implemented. As a result, the lump sum was reduced to about £1 million in lieu of maintenance.

English Law

Until this case, the existence of a prenuptial agreement might be a material consideration of the English court in deciding what financial settlement should be awarded following a divorce. However, there has been no guarantee that the terms of the agreement will be implemented, and the extent to which it will be followed depends on various factors relating principally to the fairness of the agreement. These include whether there has been full disclosure of assets and whether both parties obtained independent legal advice. Given the absence of both of these factors, we can see a significant departure by the Court of Appeal.

Case Importance

This English approach differs considerably to that of many jurisdictions, e.g. the United States, Sweden and Germany, where prenuptial agreements are considered contractual agreements that are generally upheld. The result has been that England is sometimes a preferred jurisdiction for divorce for individuals who have signed unfavourable prenuptials in the past.

The decision is of particular interest to anyone living an international lifestyle that may include a period of time living in England. The effect is that where parties enter prenuptial agreements in jurisdictions where they are accepted as law, English judges should give due consideration to those prenuptials.

For example, if you have a prenuptial in Denmark, the court should accept its terms to the same extent as they would in Denmark if you divorce in England. However, we are still a long way off from this being law, and it is noted that this case is likely to be taken to the House of Lords. At present, it is therefore better to take English advice, if you wish to be well-placed to have the prenuptial take effect.

Hopefully, this gives an indication of what we can expect from the pending Law Commissioners report on the subject. We are pleased to advise on prenuptials, postnuptials, and any aspect of divorce.

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