The Importance of Nuptial Agreement - Essay Example

Nuptial Agreements The case of Radmacher v Granatino1 highlighted the importance of nuptial agreements. A Frenchman d Granatino married Radmacher, a German heiress. The latter entered a pre – nuptial agreement with Granatino, which was chiefly aimed at protecting the amount that she was to inherit from her father. Subsequently, the marriage was dissolved in the UK, and Granatino challenged the validity of this pre – nuptial agreement.2 Granatino approached the High Court, after the dissolution of the marriage for financial relief. The Court granted him around £5.5 million. This was to provide him with an annual income of £100,000 for the rest of his life and enable him to purchase a home in London. In this decision, the pre – nuptial agreement was not accorded much significance. 3 In reply, Radmacher took recourse to the Court of Appeal, where it was held that the pre – nuptial agreement was crucial to the issue. Consequently, the husband Granatino was to be provided for his role as the father of their children. No provision was granted for the long term requirements of Granatino. This prompted Granatino to approach the Supreme Court which in a majority ruling, with Baroness Hale dissenting, upheld the ruling of the Court of Appeal.4 Lady Hale, in this case, was of the opinion that there were significant policy considerations that justified the adoption of a different approach towards nuptial agreements made prior to and subsequent to marriage. In addition, she opined, the guiding principle with regard to nuptial agreements should be fairness. This should be determined on the basis of the actual and conceivable circumstances at the time of judgement by the court. 5 She was categorical in her opinion that the Court of Appeal had erroneously regarded the parties as cohabitants rather than a married couple. This had caused the Appellate Court to ignore the fact that a parent, frequently expects to be a resource for the children. As such, she was in favoured better compensation for Granatino. 6 It was her considered opinion that the court at first instance was empowered to merely alter the agreement, in order to provide adequate provision for the children. She categorically declared that the court had failed to do so. Consequently, she remitted the matter back to the High Court, with orders to draft an appropriate deed. As such, in the Radmacher case, the High Court had awarded the husband around £5.5 million of Radmacher’s £100 million assets. This was set aside by the Court of Appeal, which upheld the pre – nuptial agreement between Radmacher and her husband. As a result, the award was reduced to £700,000, and housing and maintenance till such time as the children left home. This was in accordance with the pre – nuptial agreement between Radmacher and her husband, which had been entered into in the year 1998.7 Section 25 of the Matrimonial Causes Act 1973 provides a discretionary system. The courts make financial orders on divorce on the basis of this discretionary mechanism. The ruling in White v White,8 reiterated the fact that the fundamental objective of the courts, while exercising such discretion, was to ensure fairness.9 According to English law, marriage is a partnership of equals. Consequently, the courts decide in a manner that ensures the equality of the partners. As such, the yardstick of equality is the norm that is utilised in such decisions. Subsequent to this decision, the law has been rid of the gender discrimination that had been an integral part of the previous reasonable requirements methodology. 10 This was clearly illustrated in the decision in Dart v Dart.11 The outcome of these developments was that the courts had effectively deprived decisions in this area of law, of the certainty of outcome. The decision in White served to substantially enhance the amount awarded as financial relief. Thereafter, the House of Lords took up the case of Miller v Miller, which had generated considerable hope in the academic and legal circles. The general expectation was that the House of Lords would establish better clarity and direction, while ruling in Miller v Miller and McFarlane v McFarlane. This hope was belied, from the perspective of legal practitioners. 12 The House of Lords had propounded three distributive principles that are to influence the exercise of discretion by the courts. These are need, sharing, and compensation. As their Lordships had not provided adequate guidelines regarding the operation of these distributive principles, considerable confusion has been created. This hold good especially with regard to the sharing principle. 13 Moreover, in MacLeod v Macleod,14 the judge’s decision to modify a post nuptial agreement was appealed by the husband to the Privy Council. The pre – nuptial agreement between this couple had been altered twice by consent, during the marriage. However, the agreement failed to provide specific support for the children of the marriage. 15 The Manx courts heard the wife’s plea and enhanced the amount to be paid to her. At the Privy Council, Baroness Hale held the agreement to be enforceable, as it no longer breached public policy. Previously there had been a rule that there was an enforceable duty that required a husband and wife to live together. This was subsequently abolished. 16 As such, in the MacLeod and Radmacher cases, the Privy Council and the Court of Appeal, respectively; struck a warning note regarding the pitfalls inherent in judicial reform, in contrast to changes effected by legislation. In the Radmacher ruling, the Court of Appeal conceded the role of legislature as propounded by the Board; however, it promoted a radically different approach towards the validity of pre – nuptial agreements.17 This approach was markedly different and served to introduce an element of uncertainty. In general the courts have adopted the stance that nuptial contracts should accorded importance, only on the basis of facts. As a consequence, the importance attached to such contracts admits of considerable divergence. This in turn renders these contracts of ambiguous standing. In addition, the Matrimonial Causes Act 1973 provides extensive powers to the courts. These powers enable courts to deal with issues relating to assets on annulment, divorce, and judicial separation. The Family Law Act 1996 provides rights to couples in the event of their divorce. 18 Moreover, section 21 of the Matrimonial Causes Act 1973 empowers the courts to make important orders, such as property adjustment, transfer and settlement orders. The courts can issue Martin Orders and Mesher Orders under the provisions of this section. The court can issue an order of sale, under the provisions of section 24 A of the Matrimonial Causes Act 1973. 19 Furthermore, section 23 of this Act permits the issuance of orders relating to financial provision. It encompasses single payment and periodic payment orders. Section 25(1) of this Act, requires courts to take into account all the facts of the case, before issuing an order. 20 In this regard, the first and foremost issue to be addressed is the presence of children whose age is less than 18 years. Such consideration is also provided to the step children, if any. However, it does not apply to children above the age of 18 years. The courts are required under the provisions of section 25A of this Act, to evaluate whether it would benefit the parties to grant a clean break order. 21 Most importantly, section 25(2) of the Matrimonial Causes Act 1973 obliges the court to take some factors into account, while deciding to award ancillary or financial relief. These include the income and earning capacity of the parties, financial obligations of the parties, standard of living, age, and duration of the marriage. 22 In addition, factors, such as, whether the parties have any mental or physical disabilities, contribution of the parties towards their family, and conduct of the parties, and the value of any benefit that the parties would be deprived of on account of divorce or annulment of the marriage have to be taken into consideration by the court. 23 Specifically, the courts take into account several important aspects of the marriage. These include the duration of the marriage, the circumstances under which the contract was made, and the changes that have subsequently taken place in the contract. This seems to be better than a statutory system that could potentially provide lesser protection to the parties. 24 Miller v Miller25 and Macfarlane v Macfarlane26 are two important cases in this area. In these cases, the court stressed upon the significance of fairness. It also recognised the requirements of the parties and the principles of sharing and compensation. 27 The ruling in Miller v Miller and McFarlane v McFarlane makes it abundantly clear that ancillary relief has the objective of addressing the needs of the parties. It also aims at providing compensation for the disadvantages resulting from the marriage and equal sharing. At the time of deciding on ancillary relief, the English courts concentrate on addressing the needs of the spouses. The other two objectives are reserved for cases relating to the exceedingly wealthy couples. 28 As a consequence, English courts enjoy the possibility of concentrating on requirements, at the time of deciding whether to consider an agreement relating to marital property. One of the possible solutions in this context could be that at the time of concluding the agreement, the parties should be quite definite in their evaluation that they will not find it difficult to satisfy their reasonable needs in the future. 29 Establishing the private autonomy of the spouses in matrimonial law is aided to a major extent if the objectives of the law of ancillary relief are determined. Thereafter, the comparative significance of these purposes is to be decided upon. There is considerable difficulty involved in such determination. The chief reason behind this difficulty lies with the English law of ancillary relief.30 This law continues to develop, on account of the importance accorded to marital property agreements by the courts, during the process of describing ancillary relief. The wealth of a spouse can be transferred to the other spouse, as per the provisions of section 23 – 25 of the Matrimonial Causes Act 1973. All the same the claimant is not to be accorded the status of a petitioner.31 Under the provisions of 23,24 and 24A of the Matrimonial Causes Act, the matters to be considered by the court are; the income of the parties, their earning capacity, property and other funds available with the parties and going to get in the near future.32 Moreover, the Matrimonial Causes Act 1973 provides discretion to the court to redistribute the property of the spouses. However, the provision of such ancillary relief can be done only with regard to the event of divorce.33 In general, the majority of the people may not have sufficient assets to be distributed at the time of divorce. This highlights the importance of maintenance and pension sharing. These rights are critical for protecting the income of divorced spouses, at the time of their old age or illness. 34 The extant English law does not contain any provision that would make a pre – nuptial agreement enforceable. In fact, section 25 of the Matrimonial Causes Act 1973, directs that the all the facts of the case have to be taken into consideration by the court. Therefore, a pre – nuptial agreement constitutes one of the factors that would be considered by the court at the time of apportioning finances during a divorce.35 A pre – nuptial agreement is given appropriate weightage by the court, only if parties provide a full and accurate description of assets and property. Such disclosure has to be made prior to the formation of the agreement. In addition, the parties have to be cognisant of the effect of the agreement and should obtain independent legal advice. 36 A very important requirement of such agreements is that they should not restrict provision for any child of the family. In addition, no pressure should be brought to bear on a party to execute the agreement. Consequently, such agreements have to be formed much before the day of the wedding. It should be more than 21 days prior to the wedding. 37 Despite the ruling in Radmacher, no change has been effected to the statutory basis of pre – nuptial agreements. Furthermore, legislative change in this context seems to be a remote possibility. Consequently, it is not possible to circumvent expensive litigation or obtain a clear picture regarding marital breakdown, by resorting to a pre – nuptial agreement. 38 Section 25 of the Matrimonial Causes Act stipulated some guidelines for settling the financial issues in cases of failure of marriage. Specifically, it stated that the guidelines should be adhered to by the courts, while issuing financial provision orders, property adjustment orders, and ancillary orders, as prescribed by sections 23, 24, and 24A of the Matrimonial Act Causes Act. 39 Under the provisions of 23,24 and 24 A of the Matrimonial Causes Act, the matters to be considered by the court are; the income of the parties, their earning capacity, property and other funds available with the parties or which they are likely to obtain in the near future. Moreover, all awards that are to be granted by the Court in respect of income, earning capacity and property should be based on the circumstances of the case. However, in practice, courts will not pass any such orders unless, some persuasive need is present.40 Courts should strike a balance between the requirements of the parties. While making a decision in respect of these issues, the courts will take into consideration; the financial needs of the parties, obligations as well as responsibilities of the spouses at that moment and in the near future.In addition, the standard of living of the parties, their age, duration of the marriage, and the contributions made by each of the parties towards the welfare of the family, are some of the important issues to be considered by the courts, while taking decisions relating to the settlement of properties, in such cases. 41 Prior to the Radmacher ruling the three rationales adopted as fair division, with regard to the distribution of family assets, in divorcé settlement were "need, compensation and sharing". In the past, the decisions in White, Miller, and McFarlane had clearly stated that fairness in division of income was essential in such settlements. However, the decision in Radmacher has muddled the notion of what constitutes fair distribution.42 The Court of Appeal was categorical in its declaration that during the matrimonial division of property, the courts had to ensure fairness between the parties. To this end they were to take into account the conditions specified in the relevant pre – nuptial agreements.43 It was the considered opinion of this court that ignoring pre – nuptial agreements, as had been the practice in English law, was out dated and inequitable.44 As such, there has been a significant change in the attitude of public policy and the judiciary, with respect to prenuptial agreements in England and Wales. This change has engendered a marked preference towards such agreements in the creative and developmental areas of judicial policy. These agreements are being regarded as an important factor that is to be taken into account, by the courts. Such recognition constitutes a fundamental part of the exercise of discretion under section 25 of the Matrimonial Causes Act 1973. Consequently, with the enactment of the Matrimonial Causes Act, English matrimonial law has been rendered substantially flexible. Thus, judges have considerable discretion while making orders that take into consideration the specific circumstances of the parties, consequent to the failure of their marriage. In instances of divorce, important changes in the property relations of the spouses would have taken place. Such distribution will be governed by section 25 of the Matrimonial Causes Act 1973. Section 25 of the Matrimonial Causes Act 1973, directs that the first priority has to be accorded to a child in the family who is less than 18 years of age. It is the common conviction in the UK that pre – nuptial should not be binding, as they cannot be permitted to compromise the reasonable needs of any child in the family.45 However, after the ruling in Radmacher the principal issue to be considered by the courts, while deciding upon the distribution of family assets, is fairness in the prenuptial agreements. As such, the extant English law protects the interests of parties who had entered into pre-nuptial agreements. Thus, in the event of injustice, the losing party can make a claim against the other party. Moreover, under the pre-nuptial agreements, wealthy people can retain and safeguard their fortunes by keeping them independent. Bibliography Dart v Dart [1996] 2 FLR 286. Family Law Act 1996. MacLeod v MacLeod [2008] UKPC 64. ‘MacLeod v MacLeod [2008] UKPC 64’ (Family Law Week, 2008) accessed 3 January 2012. Matrimonial Causes Act 1973. McFarlane v McFarlane [2006] UKHL 24. 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Mooney H, ‘The Price of Love’ Legal Week (14 July 2011). Sanders A, ‘Private Autonomy and Marital Property Agreements’ (2010) 59(3) International & Comparative Law Quarterly 571. Saunders S, ‘The Status of Pre – nuptial Contracts under English Law’ (2010) 2 The New Researcher 6. Singer S, ‘Charman v Charman’ (2008) 30(2) Journal of Social Welfare & Family Law 155. Siveter L and Whitney T, ‘Pre – nups and downs’ Money Marketing (4 November 2010) 58. Twitchen B, ‘Prenuptial agreements – are they now binding on divorce?’ accessed 4 January 2012. Warshaw J, ‘Divorced from reality’ Evening Standard (17 July 2009). Read More