Pre-marital agreements...will they stand up in court?

Farming families use pre-marital agreements regularly in order to address concerns about the future of the farm and other capital assets should a marriage fail. But can such agreements be relied upon?

In a decision that shocked legal commentators, the Supreme Court slashed the £5.6m awarded to the ex husband of German heiress Katrin Radmacher, laying down a general principle that pre-marital agreements can carry decisive weight.

Nicolas Granatino, a French banker, married Ms Radmacher in 1998 but the couple separated in 2006, having had two children. Before the marriage he signed a German pre-marital agreement waiving all claims against her £100m inherited fortune. In divorce proceedings, the High Court awarded Mr Granatino money to buy a London home and provide him with a lifetime income, as well as directing Ms Radmacher to buy a house that he could use when staying with the children in Germany. The income fund was later reduced by the Court of Appeal to provide him with an income only until the children grew up, at which time the London housing fund should also be repaid.

The Court indicated, however, that pre-marital agreements may not always be upheld, for example where doing so would be unfair, would leave husband or wife in real financial need or would prejudice reasonable requirements of children. It said that pre-marital agreements must be voluntary, without undue pressure and with both partners’ full awareness of the agreement’s implications. But importantly, the Court stated that full financial disclosure is not always necessary – the question is whether there has been any material lack of disclosure, information or advice, and even so, if such a lack would have made no difference to whether the agreement was entered into then it should not be a reason against upholding it.

As long ago as 1998 the British Government proposed that for pre-marital agreements to be binding there should be financial disclosure, independent legal advice and a lack of undue pressure, and that a Court could overrule the agreement if it considered that enforcement of it would cause injustice to children or parents. Crucially, this case gives weight to the pre-marital agreement; indications are that the Courts will allow such agreements to stand in cases where it feels that the couple’s needs can be met without recourse to pre-existing or inherited assets.

This historic judgement will encourage more couples to consider pre-marital agreements as a matter of course. Although some consider them unromantic this case could help couples who want to protect assets (such as family farms) against possible future claims. As the nature of society changes and the average age and wealth of couples marrying for the first or second time increases, introducing more certainty into the equation may be no bad thing.

Written by Philip Hoddell and David Wybar from Birkett Long LLP. Contact Philip on 01206 217320 or email philip.hoddell@birkettlong.co.uk