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Pre-nups and protecting the family fortune

England has long been out of step with much of the rest of the world when it comes to the enforceability of pre-nuptial agreements. In July, the headlines which greeted the Court of Appeal's landmark judgment in Radmacher v Granatino proclaimed that England was finally in step with the rest of the world: if you have a pre-nup, you can rely on it in the English Courts. The reality is more complicated. The ruling is the clearest indication yet that the English Courts will give significant weight to pre-nups, but wealthy individuals and families must still beware.

Katrin Radmacher has wealth derived from the family business in Germany worth in the region of £100 million. Her French ex-husband, Nicolas Granatino, gave up an investment banking career after they married in 1998 to pursue a doctorate in biotechnology. Mr Granatino and Ms Radmacher signed a valid pre-nup in Germany at Ms Radmacher's father's insistence before the marriage. It provided that neither would make any claims against the other for capital or maintenance.

When they divorced in 2006, Mr Granatino, who by then had no assets, substantial debts and a low income, made claims against Ms Radmacher for housing, capital and maintenance. In July, the Court of Appeal overturned a lower Court's decision to award Mr Granatino a lump sum of £5.5 million for housing and maintenance, ruling that the pre-nup should be given "decisive weight". Instead of receiving capital outright for a house, the Court ordered Ms Radmacher to provide a housing fund on trust to be returned to her when the youngest of the daughters reaches 22 years of age.

Importantly, Mr Granatino was still not held to the pre-nup; what happened was that his award was greatly reduced. The English Court has wide statutory discretion to consider what is fair in all the circumstances of a divorce, and a pre-nup, however much weight it is given, will not override that until English law is changed.

Change may be coming. The Law Commission review of pre-nuptial agreements will report by 2012. It is widely expected to recommend that pre-nups become binding on the English Courts, subject to safeguards such as separate legal advice for both parties and the exchange of full and frank financial disclosure. 

In much of the rest of the world, engaged couples enter into marriage contracts choosing a marital regime, whether separate assets or shared property. These contracts are common in most of Europe, as well as Latin America, Russia and South Africa. It is quite usual for there to be little or no financial disclosure. The contracts are often signed close to the wedding day, with one lawyer or notary instructed to draft the document for both parties.

In some jurisdictions such as Portugal and Italy, a box is simply ticked on the marriage certificate to indicate whether a regime of separate assets or shared property will apply. Such marriage contracts are unlikely to carry significant weight with the English Courts, even if the law is changed, in the absence of separate legal representation and the provision of financial disclosure. Pre-nups are common in the US, although rules vary hugely from state to state; for example not all require full disclosure and separate legal advice.

Individuals or families who wish to protect their wealth on marriage, whether they are English or likely to live in England, should take specialist legal advice about entering into a pre-nup, well before the wedding day. Although pre-nups are not binding here they can have decisive weight, as Mr Granatino has found. The English Court looks carefully at marriage contracts or pre-nups validly entered into abroad, and these too may be given significant weight if the parties divorce in England.

A separate recent ruling gave greater weight to post-nuptial agreements, which are concluded after the marriage, than to pre-nups. These complications and uncertainties fuel London's reputation as the world's divorce capital - encouraged by a wealthy and cosmopolitan population, the wide discretion of the Courts and high awards, including indefinite spousal maintenance awards. Ms Radmacher and Mr Granatino may yet find themselves arguing their case again in the UK's new Supreme Court. England has not yet joined the rest of the world on pre-nups, but it is getting there. For now, the more marrying couples can do to avoid becoming locked in to lengthy and expensive litigation on divorce, the better.