Friday, 30 December 2011

Pre nups – the logic develops V v. V 2011

Needs don't just trump contributions, they also trump pre nuptial agreements. Well, sort of. Following on from Radmacher v.Granatino, V v. V has just been reported as an appeal before Charles J in the High Court. You can find it here:

The facts, briefly, are that H and W cohabited from 2002, became engaged and had a child in 2003, signed a pre nup in July 2005 and married in August 2005. They separated in 2008, by which time there were two children, aged 5 and 2. H is now 41 years old, 10 years older than W. So this was a short marriage/relationship of just six years or so.

By the time the District Judge came to decide the case, the capital to be divided totalled just over £1¼m. H also had a pension fund of some £94k. It seems that H had been a very high earner but had had to change jobs in 2009 and his new employment had appreciably lower income of around £55k p.a. net. A large part of the capital had been accumulated by H prior to the marriage from his own efforts and from inheritance. The pre nup identified this capital as amounting to just over £1m at the time. W is Swedish and at H's request, she agreed to enter into a pre nup and a Swedish lawyer known to her family prepared it.

The order at first instance was pretty demanding on H. W was to get capital of £800,000, so just over 62% of the total immediately available, apparently. In addition she was to receive global maintenance of £30k, with incomes being equalised as a result. This was on a joint lives basis.

At first instance, the judge placed, as she put it, limited weight on the marriage settlement document, as the pre nup was designated. This was a gloriously brief document and is set out in full in the judgment:

"We, [the wife and the husband], agreed to marry, and we hereby agree upon the following Marriage Settlement.
All property that is now owned by [the husband], including any future return yield hereof property (sic), shall be his private property, and [the wife] has consequently no right to marital property in this property.
All property that any one of us may inherit or receive from a will, or as a gift, as well as the yield hereof (sic) shall be the inheritor's / the receiver's private property.
All other property that any one of us acquires during the marriage shall be marital property.
Swedish law shall be applicable to this Marriage Settlement.
A list of the property that [the husband] now owns is enclosed to this Marriage Settlement"

As an aside, I have to say that if Swedish law is such that a pre nup can be as short and to the point as this, it may have a lot going for it! It seems that Swedish law has a community of property approach, so identifying what is not marital property is the key to apportionment after separation. The DJ took the view for various reasons (which followed what one might call the conventional approach to pre nups), that she could not place any significant weight on the agreement. Interestingly, one of those reasons was that it failed to specify what would happen if the parties separated.

On appeal, H focused on the argument that there should have been a charge back on the house W was going to buy with her share of the assets. This would reflect the agreement they had previously entered into to the extent that was reasonable. It was never argued that the agreement was entirely binding and should be followed to the letter. Had it been, this would have left W with probably £250k at most, which was plainly inadequate to house her in London where she and the children live.

Charles J decided that Granatino has changed fundamentally the correct approach to pre nups – "At the heart of that significant change, is the need to recognise the weight that should now be given to autonomy, and thus to the choices made by the parties to a marriage (see paragraph 78). The new respect to be given to individual autonomy means that the fact of an agreement can alter what is a fair result and so found a different award to the one that would otherwise have been made".

And also, "Having said that, it is also very important to recognise and remember that it is the court and not any prior agreement between, or choices made by, the parties that will determine the award to be made under the MCA 1973 (see for example paragraph 7 of the majority judgment in Granatino). It follows that:

i) a nuptial agreement is only a factor in the exercise of the judicial discretion conferred by the MCA, and
ii) the guidance given in Granatino, on the approach to be adopted by the court, and on the weight to be given to an agreement (and thus to autonomy in a given case) and to factors which detract from and enhance that weight, have to be read and applied in that context,"
Charles J then sets out an approach the court should adopt when confronted by a pre nup:

"the court should consider:
i) the meaning of, and the existence of any vitiating factors in respect of, the marriage settlement, and then
ii) its impact on the result suggested by sharing principle, and then
iii) its impact on the overall award."
It's clear that by vitiating factors, the usual suspects are contemplated – was there non disclosure of assets, was there duress, was there adequate legal advice? These are more fully set out in the judgment (paras. 55-65) and are well worth reading and keeping to hand. In this case, Charles J was satisfied on the evidence the DJ heard that none were engaged. The judge concluded that the DJ had adopted an approach appropriate prior to Granatino but which was now inappropriate. He also found that there were other factors which pointed to a departure from equality in H's favour:

i) the husband had pre-acquired assets, and so an "unmatched contribution" of around £1m,
ii) part, albeit a small part, of those assets were acquired by way of inheritance, and
iii) the length of the marriage assessed by reference to the date the parties started living together (5 and a half years) was a reasonably short one.
As a result, the order was overturned. There was some updating information and recalculating of the arithmetic. Charles J then awarded H a Mesher type charge back for one third of the value of the house W intended to buy, making H better off to the tune of £250k. He cross checked this against what he considered W would need to live in once the children were off her hands, which confirmed that the reduced amount would be sufficient. Furthermore, because H had been successful in his appeal, he also received a costs order in his favour, which was provided for by an increase in the amount of the charge back.

In conclusion, the pre nup provided for over £1m of H's assets to be ring fenced but the final order gave him only a relatively modest credit for this. However, it is explicitly relied on as a reason for skewing the order back in his favour. When all is said and done though, one does have to question the DJ's failure to take into account the short marriage, the very substantial pre-acquired assets and the inheritance. Can it really be said that the key factor was the pre nup? Weren't these other factors sufficient justification for Charles J's order on their own?

When thinking this over, I remain unconvinced that the pre nup has actually made any material difference to the outcome at all.  How can a document which purportedly excluded over £1m of assets but didn't, be said to have had a critical effect over and above the other listed factors? By how much exactly?  The principles are reasonably clear now but the measurable effect much less so.



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