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12 April 2019

Testing their limits – where are we with prenups?

In many countries it is possible for couples about to marry to enter into a document designed to set out what will happen to their assets on divorce or death. Essentially in those countries the couple make an election for a particular marital property regime. That may often be designed to keep their pre-acquired and inherited wealth separate. It can therefore come as something of a shock to such people that England does not have a similar system of marital property regimes and that prenuptial agreements designed to regulate what happens on divorce are the exception rather than the norm.

Of course, prenuptial agreements are not always without value and in the leading case of Radmacher v Granatino (‘Radmacher’) which went to the Supreme Court ‘significant weight’ was attached to the terms that the couple had agreed prior to their marriage. The result was that the husband’s award was substantially curtailed.

Radmacher involved the marriage of a French citizen and a German citizen celebrated in both London and Switzerland. Subsequently the couple cohabited in London and New York and so the case had all the hallmarks of internationality. As we stand on the brink of Brexit it is interesting to note that in his judgment in the Court Appeal Lord Justice Thorpe addressed what he called the European Dimension. He referred to the search for harmonisation within Europe highlighting that, whilst civil law jurisdictions of Europe generally employed notarised marital property regimes to regulate both the property consequences of marriage and divorce, the common law jurisdictions attached no property consequences to marriage and relied on a very wide judicial discretion to fix the property consequences of divorce.

Thorpe LJ went on to explain that he thought that due respect for adult autonomy suggested that, subject of course to proper safeguards, a carefully fashioned contract should be available as an alternative to the stress, anxieties and expense of a submission to the width of the judicial discretion. He went on to explain why he held the opinion he did and gave a number of reasons not least:

  • any rule that held that such contracts were void did not sufficiently recognise the rights of autonomous adults to govern their future financial relationship by agreement in an age when marriage was not generally regarded as a sacrament and divorce was statistically common place;
  • as a society we should be seeking to reduce and not maintain rules of law that divide us from the majority of the member states of Europe; and
  • Europe apart, we were in danger of isolation in the wider common law world if we did not give greater force and effect to nuptial contracts.

Radmacher then proceeded to the Supreme Court in 2010 where the husband was largely held to the terms that he had agreed with his wife prior to marriage.

It is possible to extract a number of principles from Radmacher not least that, whilst the parties cannot oust the jurisdiction of the court by entering into a nuptial agreement, the court should give effect to any nuptial agreement that was freely entered into by each party with a full appreciation of its implications unless, in the circumstances prevailing when the matter comes before the court, it would not be fair to hold the parties to their agreement. The fact that a party may receive significantly less under the terms of the agreement than he or she would have received if the court was exercising its discretion in the absence of any agreement, is not sufficient reason to deprive the other party of his bargain. Since the Radmacher decision the court has had to consider on various occasions whether to hold people to their bargains and the circumstances in which it would be right to disregard the terms of the agreement in part or in whole.

So where are we now almost a decade on? A pre-nuptial agreement has recently been examined by Mr Justice Mostyn in the case of Anil Ipekci v Morgan McConnell, a case widely reported in the press because of its interesting facts.

Anil and Morgan came from very different backgrounds. At the time of the hearing Anil was 45 and was the head concierge of the London Hilton Metropole hotel earning about £35,000 a year gross. He had no capital apart from a 50% interest in his mother’s house in Turkey worth just under £50,000. Morgan was the great granddaughter of the founder of the Avon products business empire. Along with other relatives she was the beneficiary of trusts in the US with an overall value of at least $65,000,000.

The parties had cohabited from January 2005, married in November of that year and had two children aged 11 and 7. Throughout the marriage, Anil’s money had contributed to the household budget but that had mainly been funded by resources available to Morgan. Relying on the security of Morgan’s assets, Anil had not made any provision for himself either by way of savings or pension.

15 days prior to the marriage, Anil and Morgan had signed an agreement. This not only contained a jurisdiction clause in favour of the courts of New York but also stipulated what would happen on a divorce. In the light of the length of the marriage and the birth of the two children Anil was to receive a one-half share of the increase in value of three properties in Barnes, Hanwell and New York. The judge determined that the result of this would be that Anil got nothing.

When the marriage broke down in 2016 Anil brought financial proceedings in England against Morgan and the court had to consider whether he should be held to the terms of the agreement and if not, what was the appropriate order to make in all the circumstances.

At the conclusion of the hearing Mostyn J decided that Anil should be awarded a lump sum of £1,333,500 of which £375,000 would be subject to a charge back enforceable on his death. This was on the basis of a clean break between the parties and on the basis that Morgan would not pursue Anil for child support under the Child Support Act.

The judge stated that he had no hesitation in deciding that it would be wholly unfair to hold Anil to the agreement on the facts of the case. There were a number of reasons for this:

  • the parties had specifically contracted that the agreement would be governed by New York law but the expert evidence was to the effect that, due to a defect in the preparation of the agreement, it would have minimal weight, if any, in New York. The judge considered that it would be wholly unjust to attribute weight to the agreement when, under the law that the parties had elected it would be afforded no weight.
  • it was plain that Anil could not be said to have had a full appreciation of the implications of agreement. He received English advice from the lawyer who had previously acted for Morgan in her divorce and he had received no legal advice at all about the impact of New York law; and
  • the agreement did not meet any needs of the husband. Mostyn J referred back to a comment in the Radmacher judgment where it was said that a failure of an agreement to meet the parties’ needs could render it unfair to hold the parties to their agreement.

In deciding what was the appropriate amount to award Anil, the judge took into account in particular the length of time that the parties had been together, the standard of living enjoyed during the marriage and the importance of the children having a comfortable home with both parents and not viewing their father as the poor relation. The judge thought Anil needed £750,000 to re-house and that half of this should be subject to the charge-back. Further sums were then ordered to be paid to meet the costs of purchase, the acquisition of furniture and to pay various debts. Finally, a sum of £445,500 was awarded to supplement Anil’s income as the judge wished to avoid an unhappy and divisive disparity between the standards of living of the two parents. The judge considered that a sum of £1,353,500, or $1,700,000, could be funded by Morgan from one trust set up in 1964. That was a trust where the judge found Morgan was solely and beneficially entitled to the trust assets.

This case shows that, whilst nuptial agreements clearly have their uses, there are limits to the protection that they afford. It is understandable that Morgan and her family wished to protect family wealth to which Anil had not contributed but agreements which make little or no provision for the less well-off spouse are often going to be susceptible to challenge. As Mostyn J stated:

‘All the assets in this case either are or have their origin in non-matrimonial property. Therefore, the claim will be decided solely by reference to the principle of needs’.

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