Prenuptial agreements: not for everyone

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October 25, 2010

Prenuptial agreements are great – for the rich

By Marilyn Stowe

After nearly seven months of deliberation, it is ironic timing that as the Government announces swingeing cuts to the justice system, no fewer than nine Supreme Court judges are to finally hand down their decision in the glamorous case of multi-millionairess Katrin Radmacher and her former husband, Nicolas Granatino. The hard fought case concerns the validity of a prenuptial agreement made in Germany between a German and French national living in this country. The agreement was not upheld in the High Court, although it was later upheld by the Court of Appeal. Both courts used the same law, applying their judicial discretion – only to arrive at different conclusions. The judges of the Supreme Court will express their own views, and the majority opinion will prevail until there is statutory change of the law in Parliament. So what is all the fuss about?

Prenuptial agreements are not automatically binding in law in England and Wales. Such an agreement is only one factor for the courts to take into account when considering the principles set out in section 25 of the Matrimonial Causes Act 1973. The overall aim is to achieve fairness which, for most parties, means meeting the parties’ “reasonable needs” as there are no other assets to share. If a prenup is considered fair by a court, given the circumstances of the parties on their divorce, it will be upheld. If it is not, and needs take precedence, then it may still be taken into account in determining the final outcome even if the arrangement is not fully applied. In England, unlike some other European states, only English law is ever applied. A couple lives within the jurisdiction of the English court and the court applies English law; not the law of the country in which the agreement was made, nor the law of the parties’ nationalities.

As the Supreme Court decision in the case of Radmacher v Granatino is handed down, the Law Commission – which recommends potential changes in the law to government – is currently considering this area of the law. Some key questions are being asked:  should prenuptial agreements be automatically binding? If so, to what extent should they be binding? Should new legislation be enacted, or should there simply be amendments to the Matrimonial Causes Act 1973?

Earlier this year I was invited to speak to the Law Commission about my views on this subject, and I spent an intriguing and highly erudite session at their offices with two of their lawyers, discussing principles and possibilities. I was asked to keep the content of the conversation confidential and I have done so.

However I believe it would no longer be off limits to report I was told “there is a general appetite for change”, given that the Law Commission has confirmed that various options will be put forward to Government. These include recognition of prenuptial and postnuptial agreements and a draft bill for consideration by Parliament. The challenge will be to balance the needs of rich individuals who wish to protect their wealth, whether earned or inherited, with the needs of the average couple who may have little, or nothing, to divide if they separate. We don’t have strict division of assets in this country. Thus legislation in this somewhat “niche” area would be aiming to protect the haves against the have nots.  Would legislation that conflicts with the law’s overall aim of fairness and meeting both parties’ reasonable needs be desirable – or even necessary?

As a practising family lawyer for more than 25 years, I have become a believer in the maxim that if the law ain’t broke, it doesn’t need fixing. District judges apply discretion daily, using their own knowledge and experience when applying law to couples who come before them, and I don’t believe that the law is “broken” higher up the scale either. Our judges have previously spent many years working in practice; judicial discretion is hard-earned and a valuable tool of our law. It should not be lightly abandoned in favour of rigidity and even codification, which may bring about injustice rather than the intended effect.

Some of those who favour new legislation have argued that because the current legal status of prenups is uncertain, some men and women have been deterred from marriage because they are so fearful of potential divorce payouts. However modern family life renders such arguments utterly unconvincing.  Consider Ed Miliband, the determinedly unwed leader of the Labour Party and his partner Justine Thornton.  It is likely that Mr Miliband and Miss Thornton benefit financially from their status as an unmarried couple: after all, they retain separate incomes, assets and capital tax advantages. No social stigma attaches to them or their children and any words of commitment they may have made privately to each other require no public repetition. If couples are deliberately choosing not to marry, it is not because of the law, or any change to the law as envisaged. It is because society has irreparably changed. People are nowadays permitted to be cautious, some deciding not to marry at all or if they choose to do so, not marrying before they have had time to test the fundamental basis of the relationship and started a family.

As a direct result of a more tolerant society we are now seeing a reduction in the number of couples getting divorced. We are also seeing an increase in the number of unmarried couples breaking up for which there is no legal regulation in England and Wales (although there is in Scotland).

Two years ago a Law Commission report recommended a cost-effective measure of legal protection for cohabiting couples in the case of family breakdown. It respected marriage, but proposed financial support where economic imbalance had resulted from a broken cohabitation. Sadly that report, which proposed a useful form of modern justice for the fast growing number of unmarried families throughout the country, has been left to gather dust.

Instead, all eyes are upon heiress Katrin Radmacher and the glitzy case that will help decide the future of prenuptial agreements in England and Wales. Forget the hype and the clamour: when that much-anticipated ruling is handed down and when the Government spends its valuable time considering the Law Commission’s forthcoming options for prenuptial agreements, it is worth remembering that for all but a select number of wealthy families, new legislation on prenuptial agreements can bring no demonstrable financial or social benefits.

Marilyn Stowe is the senior partner at Stowe Family Law. She blogs at www.marilynstowe.co.uk.