The Court of Appeal has made a ruling representing a giant step forward for the status of pre-nuptial agreements. As the law currently stands in England and Wales, pre-nuptial agreements are not legally binding.
This is a point that is often misunderstood, and sets the law apart in a very significant way from the US and virtually all of our European neighbours.It is also a position that is frequently criticised by those wishing to control their own financial affairs when embarking on marriage in order to avoid or minimise the risk of an expensive settlement if their marriage ends in divorce.
Key case
Katrin Radmacher and Nicolas Granatino were married for eight years before they separated. They had two children together. Miss Radmacher came from a very wealthy German family and had personal wealth of around £100m. Although Mr Granatino had previously worked as a banker for JP Morgan earning over £300,000 a year, he had begun a doctorate in bio-technology in Oxford in the latter years of the marriage and was only earning around 10% of his previous earnings at the time they separated.
The pre-nuptial agreement simply provided that they should each go their separate ways on divorce. In the first set of court proceedings Mr Granatino was awarded around £5.5m. The effect of this latest appeal decision is to slash this award dramatically, allowing Mr Granatino only around £1m plus an additional sum for housing of £2.25m. Crucially, the second lump sum is only to be provided by way of loan, and must be returned to Mrs Granatino when the youngest child leaves home.
Under the previous order, prior to the appeal, the money was to be Mr Granatino's to keep. Although the first judge overseeing the case thought the pre-nuptial agreement was "manifestly unfair", the judges in the Court of Appeal took a far stricter approach. It is noteworthy, of course, that neither court felt that Mr Granatino should get nothing at all, despite him having signed the contract prior to the marriage which provided for such an outcome.
The effect
What does all of this mean for pre-nuptial agreements? Legal commentators across the board having been unanimous in viewing this decision as probably the most important endorsement of pre-nuptial agreements in recent years, and one which is likely to represent a seismic shift in how such agreements are treated.
There is now the strongest indication possible that these agreements will be treated as binding, save in the most unusual of circumstances, or where there are very compelling reasons to disregard them. There will be a presumption of such contracts being upheld, and it will now be the responsibility of the person trying to extricate themselves from the agreement to show that it should be disregarded.
This is a huge shift from the approach to date, where it has been the responsibility of the person benefiting from the pre-nuptial agreement to fight hard to show why it must be followed. Until Parliament formally legislates on this issue - the Law Commission is preparing a report which is not expected before 2012 - pre-nuptial agreements will still retain an uncertain status.
The court will retain the power to ignore or vary them. Nonetheless, a very clear message is being sent out to those entering into such an agreements - it is more likely than ever that they will be held to its terms.
