Postnuptial agreements and “America’s Messiest Divorce”: what would happen here?

Divorce|September 17th 2010

This week I read a fascinating piece in U.S. Marie Claire magazine, by Justine Musk. “I Was a Starter Wife”: Inside America’s Messiest Divorce describes her marriage to the fabulously wealthy entrepreneur Elon Musk. He is the co-founder of Paypal, co-founder of electric car company Tesla Motors and CEO of SpaceX, which manufactures space launch vehicles. His fortune was estimated at $328 million in 2005.

Elon and Justine Musk were married for 10 years and have five children. The divorce case has been “winding its way through the California divorce courts” for two years. Both parties have met new partners, with Elon’s coming in the form of the young British actress Talulah Riley. In his own editorial about the divorce, in the Huffington Post, he describes his new fiancée as “one of the most kind hearted and gentle people in the world” (and to whom is he comparing her, one wonders?).

At the heart of this unpleasant divorce is a postnuptial agreement and two very rich and determined adversaries.

The postnup

It is very interesting to see what has happened. According to Justine, her husband urged her to enter into a period of “mediation” before their marriage at the behest of his board. Later she signed a postnuptial agreement.

She has now accused him of not being wholly truthful within the mediation and of misrepresenting his financial position. Justine says that had she known the truth, she would not have signed. But she did – and she cannot reveal details of the mediation process due to the confidentiality agreement that governed it. Therefore under Californian law, and regardless what was said during the negotiations, she now appears to be bound by that postnup.

For his part, her former husband claims she has turned down a higher settlement of more than $40 million – twice what she received in the postnuptial settlement – to then lose in court. She is now appealing, although given the risk I would have advised her to take his offer. But I am a pragmatic sort and this is not my case.

So what would have happened to the Musks here in England? There are two angles that are worth considering.

Postnups and a couple’s entitlement to mediation privacy.

The first is the extent to which privacy would apply in this case. In other words, whether what happened in mediation could be subsequently revealed in court.

This is an interesting area, explored in this month’s Family Law by my favourite brainbox barrister John Wilson, and practising mediator Susan Tilley. Neither is happy with the possibility of a mediator being called to court to give evidence in relation to confidential discussions between couples. In the piece they take a look through the authorities, considering the debate through the eyes of without prejudice negotiations and the exceptions to that rule as set out in the leading case of Unilever plc -v-Proctor and Gamble (2001)1 WLR2436. (There is also a good article on the web by barrister Charlotte Black on a similar theme.)

The authors then look at the legal concept of confidentiality, which again would not prevent a court from ordering disclosure of documents or information in the process of litigation, if it is necessary for the fair disposal of the case and in the interests of justice.

They also consider whether there is such a thing as Mediation Privilege, and agree with Mr Justice Ramsey’s decision in one leading case that there is not.

So if an agreement has resulted, or is claimed to have resulted from fraud or misrepresentation, it could be set aside and evidence of without prejudice discussions can be given in court.

If the Musks had divorced in this country, it appears that Justine Musk could have issued a witness summons against the independent mediator. The court would have heard evidence of what was said during the negotiations that resulted in a signed postnuptial agreement.

I believe, however, that this procedure would have been unnecessary in English divorce proceedings. Let me explain…

A fabulous divorce settlement…and staying married

Postnuptial agreements, which provide financial arrangements to be put into effect both during and upon the breakdown of marriage, are becoming more common in this country. They are enthusiastically touted by some lawyers as a panacea for any broken marriage.

I don’t think they are a marriage saver at all. In many ways it’s like trying to apply a sticking plaster to a septic wound: useless. Not least because it can easily worsen the relationship and affect the parties’ own perception of their standing in the marriage. As Justine Musk said in Marie Claire:

 

This, and the vast economic imbalance between us, meant that in the months following our wedding, a certain dynamic began to take hold. Elon’s judgment overruled mine, and he was constantly remarking on the ways he found me lacking. “I am your wife,” I told him repeatedly, “not your employee.”

“If you were my employee,” he said just as often, “I would fire you.”

However if you, like Elon Musk, still want to enter into a postnuptial agreement, because you see it as a way of resolving issues in your favour, how binding will it be? Can you make provision for a divorce settlement and still stay married – at least for a short while afterwards?

Here we look at the stormy case of MacLeod  v MacLeod (2008) UKPC 64 heard by the Privy Council in the Isle of Man. The law is also applicable in England.

In this case a postnup negotiated by the couple was clearly detrimental to the wife. She regretted signing it, but as she was graphically told when the highest court in the land found against her, a bad bargain does not mean she could not be held to it.

The applicable law is found in sections 34 to 36 of the Matrimonial Causes Act 1973. Section 34 provides that a postnuptial arrangement may be ratified by the court. In that respect it is a very different animal to a prenuptial agreement, which has no such provision.

However under section 35 it states that such an arrangement may yet be varied by the court, if for example there has been a change in circumstances which affects the basis upon which any financial arrangements in the agreement were made. So the court still has the power to vary the postnuptial agreement, albeit in limited circumstances.

If there has been misrepresentation of the couple’s financial situation at the time the agreement was concluded, then the court has the power to set aside the agreement and refuse to ratify it.

So how can you bomb-proof a postnup?

  • Firstly, the parties must be independently advised before they sign up, even if they have entered mediation and produced an agreement in principal. The problem at that point is neither party may have had independent advice. In order for a postnup to stand up to a court’s scrutiny, both parties should be sent off to their own lawyers to ensure they really do want to sign it and demonstrate that they have the opportunity to gain their own independent advice. Anyone trying to steal a march on the other side runs a risk of it not being upheld. It is essential to remain calm and cool throughout or it won’t work.
  • Ideally there should have been full, frank and legally sworn disclosure of their financial positions incorporated into the post nuptial document, so it can be seen exactly what they are telling on another and what each party is relying upon. Again the less disclosure the greater the opportunity for argument.
  • There should be recognition by the parties of the advice they have received, both as to the nature of the agreement itself and the law governing it. Both parties should agree that they intend to be bound by the agreement and will only be able to vary it by executing another agreement, which will of course require the consent of both parties. They should also agree to be bound by English law given that English law is governing the settlement.
  • The agreed arrangements should be fully recited in the document so the parties know exactly what is going to happen to their own and joint property during the marriage and upon divorce. The more detail there is, including for example dealing with any taxation issues that may arise or provisions for the sale of property, the less likely it is to be set aside.

For a full belt and braces effect both lawyers should also sign the document, confirming the advice they have given to their respective clients and confirming that it was to their client’s advantage to sign the document, as well as fair and reasonable to do so.

If that document is signed and the information is substantially correct, it would be virtually “bomb-proof”.

So had Justine Musk been mediating in England, she would have a much better chance of turning over the postnuptial agreement in this country precisely because it appears none of the above happened.

Finally, lets speculate on her settlement in this country. She certainly wouldn’t have got half of his assets in England because of the assets owned by him before their marriage, which formed the basis of his business empire which grew so substantially during the marriage. Also his “stellar” contribution to the assets – available only to the very successful entrepreneur, would also come into play. I doubt also that she would have taken slices of his companies as she wants – but if he is illiquid she might have got shares, although  in order to avoid her causing trouble within the businesses he would probably still retain control of them, with the benefits accruing to her. Overall, she would certainly have had more than the $40 million that she has been offered. That she signed up to a bad bargain with her billionaire husband, who has substantially increased his fortune during the marriage, seems beyond doubt.

So the moral of this story is: if in doubt, always make sure you have three people in your marriage – you, your spouse and….your lawyer!

Author: Marilyn Stowe

The founder of Stowe Family Law, Marilyn Stowe is one of Britain’s best known divorce lawyers. She retired from Stowe Family Law in 2017.

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