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End of the affair

Divorce can be disastrous for business but the courts' changing attitude to pre-nups could help

Established owner/managers can be particularly vulnerable in a divorce. They
have probably spent a long time establishing their business, possibly
sacrificing other career opportunities. They may have substantial capital tied
up in the business. The business may be sacrificing short-term profits to ensure
continued growth.

In this situation even a relatively short marriage can then be disastrous for
the business if it fails. A dynamic business person may find they are having to
raise a substantial amount of capital to pay out a non-contributing partner. In
this case, a well-drafted pre-nuptial may be immensely valuable. It may be
possible to quarantine the founder director’s loan account, or their
shareholding. It may also require consideration as to how the business should be
structured if it is intended to pass it on to the next generation.

The Court of Appeal (Radmacher v Granatino) recently made a significant
ruling upholding a pre-nuptial agreement. Accounting professionals can expect
many clients to ask as to whether they consider a pre-nuptial agreement a good
idea. The prospects that a well-drafted agreement will be accepted have
considerably improved but it is far from black and white.

As a specialist divorce solicitor, clients often ask me for a “standard
pre-nuptial”. When I explain that there is no such animal they look a bit
puzzled and say: “You know, one that says what we each have, we keep, and what
we build up together we split 50/50.”

If they are a young professional couple, both working, and they separate in a
couple of years, that is probably fine. But what if in three years the woman
gives up her job to have a family? Perhaps her husband has done well enough that
they were able to make a joint decision that they can afford to live on his
resources. Perhaps they are living in the house he owned before they married.
Ten years later they separate. Should the pre-nup be binding?

What about a young man marrying the daughter of a very rich family. Her
family insist that there must be a pre-nuptial agreement to avoid any danger to
the family business should they divorce. Does he have any real choice in either
choosing between signing what is offered to him or deciding not to marry her?

Pre-nups’ day in court
In the first instance decision on Radmacher v Granatino the Judge set out the
law, stating: “I am certain that English courts are now much more ready to
attribute the appropriate (and in the right case, decisive) weight to an
agreement as part of all the circumstances of the case.” She also referred to
the Law Commission’s green paper of 1998, which set out its conclusions about
the safeguards which ought to be in place before the contract became
enforceable. If one or more of the following circumstances was found to apply,
the written agreement would not be legally binding ­ where there is a child of
the family; where one or both of the couple did not receive independent legal
advice; where the court considers that the enforcement of the agreement would
cause significant injustice; where one or both of the couple have failed to give
full disclosure; or where the agreement was made fewer than 21 days before the

She found that the pre-nuptial agreement in the Radmacher v Granatino case
was defective under English law because the husband received no independent
legal advice; it deprived the husband of all claims even in a situation of want,
and was manifestly unfair; there was no disclosure by the wife; there were no
negotiations; two children had been born during the marriage.

In reality it is quite difficult to meet all those criteria. For example, if
your client is a reasonably wealthy businessman, contemplating marriage with
someone from another country, it is difficult to ensure that real independent
legal advice can be given to the other party. Furthermore, the client may be
very justifiably reluctant to make a full disclosure of his financial situation.
In the example I gave above, the family may strongly object to its financial
affairs being laid out for others to study.

The facts of Radmacher v Granatino were these. The wife came from a very
wealthy family and was involved in its business. The husband was from a modestly
well off French family, but was a “high flyer” in the city. They entered into a
pre-nuptial agreement drawn up by the wife’s family’s lawyer in Germany,
effectively blocking any claim that the husband might make on the wife’s estate.
They subsequently married in France. As will be seen by the conclusions of Mrs
Justice Baron, the circumstances in which the pre-nuptial agreement was signed
appeared not to entitle it to acceptance under English law. However the Court of
Appeal analysed the issues more deeply and decided that in fact the pre-nuptial
agreement should be upheld.

It asked why independent legal advice was desirable. “Because proof of
receipt of independent legal advice is often the only, and always the simplest,
way of demonstrating that [the party] entered into it knowingly.” However it was
not essential: “In the national and cultural milieu of the husband, as in that
of the wife, the contract was a commonplace prelude to marriage.” The absence of
negotiations was similarly not critical. Their absence “was testament only to
the fact that the background to the parties rendered… such a contract a

As to the absence of disclosure, the Court of Appeal ruled that the critical
question was whether, there had been accurate disclosure, the party complaining
about the contract would not have, or might well not have entered into the

Detailed decision
The Court of Appeal cannot possibly be saying that one law applies to litigants
of foreign origin, where such contracts are commonplace, and another applies to
people with an English background. The fact that such agreements are commonplace
in some countries may make it easier to believe that both the parties understand
what they are doing, but it is still a question of fact. So if there can be a
clear acknowledgement that whether or not disclosure is made, and whether or not
independent legal advice is obtained, the prospective spouse nevertheless fully
understands what they are doing, then on the face of it the contract is likely
to hold good.

The contract in Radmacher v Granatino was very detailed. It did not ignore
the prospect that children would be born, and it allowed the husband to make a
claim in respect of his role as a parent.

Almost every “standard pre-nuptial” I have seen, drawn up by either the
parties themselves or an inexperienced legal practitioner is deficient because
it does not consider what could change over time. Pre-nuptial agreements have to
think about contingencies which the parties themselves have not considered.

It is too early to say that we can rely on all pre-nuptial agreements being
accepted by the courts, but the prospects that a well-drafted pre-nuptial
agreement will indeed be accepted have considerably improved and therefore your
client should be aware of factors that will determine whether an agreement is
upheld or not when he or she is looking to protect their financial interests.

Henry Brookman, founding partner of Brookman Solicitors.

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