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Nuptial agreements: does the gender of the wealthy spouse affect the award?

Posted: 24/11/2016

Let's go back to the year 2010 and the landmark decision in Radmacher (Formerly Granatino) v Granatino [2010] UKSC 42, [2010] 2 FLR 1900. In the space of 195 paragraphs, the Supreme Court's judgment changed the legal landscape regarding nuptial agreements. The two-stage test formulated by Lord Phillips, giving judgment on behalf of the majority of the nine judges, remains the test used today to determine the weight to be given to a nuptial agreement:

‘The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.'

The ninth Justice, Baroness Hale, not only disagreed with the formulation of the test but also disagreed that a court of eight men and one woman was a suitable forum in which to establish any test. One of her concerns was the ‘gender dimension' to nuptial agreements arising by virtue of women, ‘usually although by no means invariably', being the economically weaker spouse. Baroness Hale asked how far individual couples should be free to rewrite their marriage contract, particularly the ‘irreducible minimum' of the couple's mutual duty to support one another and their children. She considered this to be a question which should be addressed by Parliament, preferably with guidance from the Law Commission.

In February 2014, the Law Commission published a long-awaited report on ‘Matrimonial Property, Needs and Agreements’. The report recommended the introduction of binding nuptial agreements, to be known as Qualifying Nuptial Agreements (QNAs). This term encompasses both pre- and post-nuptial agreements and the report recognised the increasing frequency of the former and the growing practice of treating such agreements as part of the relevant circumstances to be taken into account when making financial awards, as exemplified by Radmacher. The Law Commission recommended legislation to introduce QNAs on the basis that couples entering into one would not be able to contract out of meeting each other's financial needs on separation and divorce. Paragraph 3.67 of the report outlined the objective of enabling:

‘… a transition to independence, to the extent that that is possible, in light of choices made within the marriage, the length of the marriage, the marital standard of living . . . and the continued shared responsibilities (importantly childcare) in the future.' 

The report concluded that the concept of ‘fairness' as used by the Supreme Court in Radmacher was too inexact to supply a safeguard with the level of certainty that was needed to ensure QNAs would be upheld. 

An examination of whether any pre-nuptial agreement passes the first limb of the test in Radmacher is, of course, only carried out once the marriage has broken down, often many years later when circumstances may have changed significantly. In Radmacher, the normal safeguards of independent legal advice on the implications of the agreement for each party and disclosure of their respective financial circumstances, were not met. Prior to their marriage in London in 1998, the French husband and German wife entered into a pre-nuptial agreement before a German Notary at the instigation of the wife and her family. The agreement provided that neither party was to acquire any benefit from the property of the other during the marriage or on its termination. The wife had liquid assets of £54 million, all inherited, and an annual net income of £2 million from her minority interests in two family-owned companies. There were two children of the eight year marriage, who split their time equally between their parents. By the time the case reached the Supreme Court, the husband was in debt. He had given up a lucrative career in banking to undertake doctoral studies and had neither capital nor income. Despite the absence of legal advice, Mr Granatino was held to be financially astute and thus deemed to have appreciated what he was giving up by entering into the agreement.

With the agreement in Radmacher having crossed the first hurdle, the court had to determine whether it was fair to hold Mr Granatino to it. The majority found that it was and upheld the view of the Court of Appeal that Mr Granatino should only be granted provision for his role as a father and not for his long-term needs. The authors submit that the decision of the Supreme Court supports the view that husbands of wealthy spouses fare less well at both stages of the test than wives and that the line of cases, starting with Radmacher, illustrates the gender bias which Baroness Hale anticipated and feared in her dissenting judgment in that case. 

Ultimately, the effect of autonomous decisions made by parties at the inception of their marriage is subject to judicial discretion at its termination. In exercising its discretion at termination, the court has applied the principles enunciated in White v White [2001] 1 AC 596, [2000] 2 FLR 981 and Miller v Miller, McFarlane v McFarlane [2006] UKHL 24, [2006] 1 FLR 1186 which encompass the three strands of (1) sharing, (2) compensation and (3) the meeting of needs, with the overall objective of achieving fairness between the parties. The court has generally focused on two of the three strands when making a financial remedy order: notably sharing of matrimonial assets and meeting needs. The third element (compensation for financial sacrifices made during the marriage) has rarely succeeded in enhancing an award. It is in relation to the sharing principle and the curbing of needs that nuptial agreements have been most effective, with Radmacher being a high point in restricting the entitlement of a spouse to a level comparable to the sort of award made to the parent of a non-marital child. Is it fair to treat the economically weaker spouse as though the marriage had never taken place so that his or her needs are only met while parenting minor or dependent children? Baroness Hale in Radmacher held that: 

‘Married parents are different, in that the court has power to make provision, not only for the child, but also for the parent' and that ‘There is no reason in principle why the court should limit its support in the same way that it has to limit support for the unmarried parent' (paragraph [191]). 

Baroness Hale dissented from the majority and supported the decision of Baron J at first instance to the effect that Mr Granatino should have his English home for life and not just while the children were growing up. How have subsequent courts dealt with the provision of housing for the economically weaker spouse and is there a distinction between the provision made for male and female spouses? Further, are ‘needs' an ‘irreducible minimum' (Lady Hale) or has the concept been narrowed in nuptial agreement cases so as to conflict with the Law Commission's recommendation that it should remain as ‘understood in the general law'? The relevant cases post-Radmacher are set out below and assist in providing answers to these important questions. 

Z v Z (No 2) (Financial Remedies: Marriage Contract) [2011] EWHC 2878 (Fam), [2012] 1 FLR 1100 was decided by Moor J a year after Radmacher. The couple, both of whom were French, had signed a Separation de Biens excluding the default regime of community of property. The total assets were £15.1 million. The economically weaker wife had her needs assessed ‘generously' and was awarded a housing fund of £3.25 million outright and capitalised maintenance of £100,000 per annum for life, taking into account the standard of living during the marriage and the available resources. She also received £25,000 per annum per child until the end of tertiary education. This contrasts sharply with the award to Mr Granatino. His award for the purchase of a home in London and one in Germany for contact with the children, who had relocated to Germany and subsequently to Monaco, reverted to Ms Radmacher upon the youngest child reaching the age of 22. The capitalised income award of £100,000 terminated at the same time. As Baroness Hale emphasised, limiting support in this way meant that Mr Granatino was treated as equivalent to a claimant on behalf of a non-marital child under Schedule 1 of the Children Act 1989.

Why was the wife in Z v Z treated more favourably? In Z v Z, assets had accrued during a relatively long marriage to which both parties contributed. Absent the financial agreement, assets would have been shared equally. The agreement reduced the wife's award to 40% of the assets but enabled her to leave assets on her death if she arranged her affairs so as to preserve rather than amortise the income and capital provision made for her. Mr Granatino, by contrast, was claiming against wealth inherited by or gifted to his wife by her family, in part in reliance on the prenuptial agreement. His underlying earning capacity was also a significant factor, although not sufficient to account for his treatment in circumstances where the wife was worth £54 million and had a net income of £2 million per annum. 

In V v V (Prenuptial Agreement) [2011] EWHC 3230 (Fam), [2012] 1 FLR 1315 Charles J delivered judgment one month after judgment in Z v Z. The case involved a wealthy Italian husband and a Swedish wife who had signed a very short marriage settlement document in Sweden giving the husband ownership of all his pre-owned property and any property gifted to or inherited by him during the marriage. Assets totalled £1.3 million excluding pension and chattels and the husband's net income was £55,000 per annum. The marriage was short and there were two minor children. At first instance, the wife was awarded £667,100 to purchase a property and £30,000 per annum in global periodical payments, with the spousal element payable for life. On appeal, the husband challenged the fact that he had not been awarded a charge back in respect of the wife's housing fund. He succeeded in achieving a charge back of 33.33%, representing the difference between the house required for Mrs V until the children reached their majority and the property she required thereafter. The judge found that it would be wrong in law and manifestly unfair not to order a charge back simply because the husband had the opportunity to earn more in the future. There was a risk that he could earn less and should not be saddled with all the risk in that case. If he were to earn more, the wife would have the opportunity of applying to vary and/or capitalise the spousal maintenance payments. Although provision for Mrs V was less than that for Mrs Z in light of the charge back, this reflected the far lower asset value as much as the weight attributed to the agreement by the judge. Like Mrs Z, Mrs V retained her housing fund, albeit at a reduced level, on an outright basis.

Subsequent cases feature charge backs in favour of the economically stronger party, particularly where that person is a wealthy wife. In Luckwell v Limata [2014] EWHC 502 (Fam), [2014] 2 FLR 168 the wife was ordered to make some capital provision for her husband despite a pre-nuptial agreement and two supplemental agreements to the effect that he would not make any claim to her separate property or to gifts made or to be made to her by her family. While commenting that ‘There must be no discrimination or bias based on gender alone, nor on any stereo-typical view that a wife may be dependent on her husband but not vice versa', Holman J provided for 45% of the husband's housing fund to revert to the wife on the youngest child attaining the age of 22. The judge acknowledged that the husband was much less able to make provision for his old age than Mr Granatino had been and was in ‘a predicament of real need'. Furthermore, the judge recognised that if the genders were reversed, it was inconceivable that the agreement would have outweighed making a substantial award to the wife. 

The decision in Luckwell appears to support the proposition that the courts are more generous to wives in assessing their real or reasonable needs than they are to husbands. Moreover, it appears that the courts construe agreements more strictly against men than women, particularly where men have allowed themselves to be dependent on their wife's family wealth, as was the case in Radmacher and Luckwell

Judgment was given in SA v PA (Pre-Marital Agreement: Compensation) [2014] EWHC 392 (Fam), [2014] 2 FLR 1028 in the same year. A wealthy Dutch husband and English wife had signed a pre-nuptial agreement one day before the marriage which dealt only with capital division and provided for the preservation of property brought into the marriage by each party as well as property acquired during the marriage. The Notary provided written and verbal advice to both parties, who were found to have entered into the agreement freely, understanding its implications. At the conclusion of the 18-year marriage with four children, the assets excluding pension totalled £3.8 million of which the net value of the matrimonial home was £2.2 million. The wife was permitted to remain in the matrimonial home for five years following which she was expected to downsize and to use the husband's notional 22.5% share as a Duxbury fund. The agreement resulted in gifts to the husband totalling £363,284 being excluded from the sharing exercise to the extent that he had retained money in accounts in his sole name rather than using them to fund building works to the home. Generous spousal maintenance provision was made as well as division of the husband's substantial pension funds. This decision illustrates the way in which judges mitigate the effects of a pre-nuptial agreement by focusing on meeting the needs of the economically weaker party, particularly where that party is a dependent wife.

In July 2015, Nicholas Cusworth QC sitting as a Deputy High Court Judge in the case of WW v HW (Pre-Nuptial Agreement: Needs: Conduct) [2015] EWHC 1844 (Fam), [2016] FLR (forthcoming) found that, in contrast to Luckwell, any capital provision which the economically stronger wife made for the husband would not detrimentally impact on the children's lives as they would continue to be able to enjoy housing stability whilst with her at their home. Despite this being an 11 year marriage, the husband was limited to lifetime housing provision as a result of the agreement, with a stepdown of 45% when the youngest child reached 23, with the balance reverting to the wife. The judge held that any award to meet the husband's needs had to be made from non-matrimonial assets and even absent the agreement, which specifically protected the wealthy wife's assets, there was, ‘no obvious basis for any generosity in the interpretation of the husband's needs'. It was material to the judge's decision that the husband had exaggerated both his income and assets in the disclosure provided at the time of the agreement. Moreover, his actions in relation to a tax liability incurred by the wife on commission resulting from the sale of a very valuable painting were found to be dishonest and self-serving. Although the judge felt that both parties were on occasion not entirely frank in what they said in evidence, he found the bulk of the wife's evidence ‘honest and open' whereas the husband told the truth ‘only where he felt it was . . . in his best interests to do so'. Adopting the proposition set out by Holman J in Luckwell (paragraph [130]), the judge concluded that the husband had had every opportunity to be advised on the agreement and that his understanding of the consequence of signing it was sufficient so that ‘significant weight ought to be afforded to the agreement', thus limiting his claim to his needs. These encompassed lifetime provision for housing and income to be supplemented by earnings and state pension. His income fund depended on the level of penalties imposed by HMRC in a rare instance of financial conduct having a bearing on the level of provision for a spouse.

Conclusions and practice points

It appears that courts post-Radmacher are inclined to limit the husbands of wealthy wives to having their income and capital needs met at the most basic level, with Radmacher being the high point of such limitations. To some extent this may be because inherited wealth features so prominently in cases involving wealthy wives so that an element of ring-fencing might be applied even in the absence of a pre-nuptial agreement, save as is necessary to meet needs. Judges also appear to be more inclined to find that husbands have appreciated the effect of pre-nuptial agreements despite foregoing the safeguards identified in Radmacher and the Law Commission Report. 

Is there any way of limiting the court's discretion in the assessment of needs by providing for them in a pre-nuptial agreement? The difficulty here is in making an assessment of what might be required many years hence when totally different circumstances might prevail. It may nevertheless be worth building the following safeguards into an agreement:

  • Consider making express provision for a capital award in respect of housing to be for the lifetime of the less wealthy spouse only, with a charge back upon children completing full-time education. Consider the impact of CGT and make provision for its payment.
  • Where protection of inherited wealth or gifts from family is the objective, record items carefully in a schedule to the agreement. Advise clients not to mingle inherited wealth with other assets. Where capital is invested in a family home, it is likely to be treated as a joint asset in the absence of a specific declaration with respect to beneficial entitlement to the property otherwise than in equal shares.
  • Consider drafting supplemental agreements upon the acquisition of further family assets, with declarations as to beneficial interests in the case of assets being acquired for use by the family, for example as holiday homes.
  • Consider including provision for the substance and effect of the agreement to be reviewed periodically or upon a significant change in the parties' circumstances, such as the birth of a child.
  • Recite in a preamble to the agreement the intention of the parties to enter into a legally binding arrangement, their satisfaction with the disclosure provided and their freedom from duress in entering into the agreement.
  • Secure certification from the legal adviser to the economically weaker spouse that he or she has been independently advised on the implications of the agreement.

This article was published in Family Law (an imprint of Jordan Publishing) in September 2016.

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