Prenuptial Agreements – essential for entrepreneurs

Advice  |   23 August 2012

Until recently, prenuptial agreements entered into before a marriage were used infrequently. Such agreements were fairly easy to wriggle out of and seldom used, being seen as unromantic and pessimistic

Until recently, prenuptial agreements entered into before a marriage were used infrequently. Such agreements were fairly easy to wriggle out of and seldom used, being seen as unromantic and pessimistic. One of the spouses would argue a change of circumstances since the agreement was entered into and it would then often carry very little, if any, weight.

This was characterised in the 2003 movie ‘Intolerable Cruelty’, where Catherine Zeta Jones played much-divorced Marilyn Rexroth, “a hard-headed woman pursuing financial independence through serial matrimony”.

Society, however, is changing. There are now more second marriages, couples are marrying later in life and more people, particularly entrepreneurs come into a marriage with hard-earned wealth from building a successful business. It therefore makes sense to try and protect that wealth from potential claims in the event of a divorce.

Historically, the reason that many prenuptial agreements have not been upheld is that upon divorce, the court has a checklist of factors set out by statute to apply to the circumstances of the parties. It was up to the court as to what weight should be applied if such an agreement existed, in order to achieve fairness between the spouses.

There is a wide range of views on this subject and as Baroness Hale commented:

“Some may regard people who are about to marry as in all respects fully autonomous beings; others may wonder whether people who are typically (although not invariably) in love can be expected to make rational choices in the same way that businessmen can.”

“Some may regard the recognition of these factual differences as patronising or paternalistic; others may regard them as sensible and realistic.”

“Some may believe that giving greater force to marital agreements will encourage more people to marry; others may wonder whether they will encourage more people to divorce.”

However, prenuptial agreements were strengthened when The Supreme Court decided the case of Radmacher v Granatino and upheld a prenuptial agreement, influencing how other courts will approach prenuptial agreements for future divorces.

In this case, Katrin Radmacher, a German heiress worth over £100 million, married Nicolas Granatino. Her banker husband signed a prenuptial agreement promising to make no claims on her fortune if the marriage failed - "a way of proving you are marrying only for love".

When the couple separated and divorced, Nicolas Granatino challenged the validity of the prenuptial agreement in the hope of obtaining a greater share of his wife’s £100 million fortune. Given the UK’s previous reputation for ignoring prenuptial agreements, this might seem to have been well worth trying for.

However, in this case, for the first time, The Supreme Court upheld the prenuptial agreement giving Granatino just £1 million, and the use of a home until the children have grown up.

Courts now have to look more closely at the circumstances in which a pre-nuptial agreement was originally made. Each person should:

  • enter into the agreement freely
  • be under no undue pressure
  • be informed of the implications of the agreement
  • make full disclosure to each other
  • have the opportunity to obtain legal advice.

The agreement should also be flexible and anticipate any potential change in circumstances, for example the birth of children or receipt of inheritance.

Courts now infer that spouses entering into such an agreement fully intended that agreement to be put into effect by the court, unless circumstances mean that it would not be fair on either of the spouses to hold them to it.

The Supreme Court decision reduces uncertainty for the wealthy where there is such an agreement but it does not eliminate it completely. The more thought and care that goes into an agreement, the more watertight it is going to be.

Our specialist family team will be able to help and advise you on drawing up an agreement that will preserve your wealth in the best possible way.

For more information please contact Paul Antoniou.