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05 Jan 2023

The power of nuptial agreements in the English Courts

In its recent Judgment, reported under the citation CMX v EJX [2022] EWFC 136, the Family Division of the High Court was tasked with assessing the impact of a French marriage contract, signed in France by two French parties before their marriage, on their financial claims against one another arising out of their divorce in England 26 years later.

Nuptial agreements are not automatically binding in the English jurisdiction and instead are only one factor for the Family Court to consider, among many others, when exercising its broad discretion in search of a fair financial outcome in each case.  If the provision made in a nuptial agreement is not within the range of what “fairness” dictates at the time of relationship breakdown, the Court retains the ultimate power to override the agreement.

The law in relation to nuptial agreements in this jurisdiction is set out in the 2010 Supreme Court decision in the landmark case of Radmacher v Granatino, which concerned a German nuptial agreement.  It was held that:

The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.

And so, in addition to passing the “fairness” test, for a divorcing spouse to be held to their bargain, it must be shown that they signed the agreement in absence of duress or undue pressure and with a full understanding of the nature and effect of the document and what they might be giving up by signing it.

Parties entering into English nuptial agreements tend to demonstrate the requisite understanding by each party providing financial disclosure to the other and receiving independent legal advice before the agreement is signed.  However, when the English Family Court comes to consider foreign nuptial agreements, it will have regard to what would be considered standard practice in the foreign jurisdiction where it was signed, and the absence of financial disclosure or independent legal advice will not necessarily be fatal to the effectiveness of the agreement (for example the Swedish pre-marital agreement featuring in the 2018 Court of Appeal decision in Versteegh v Versteegh).

In the present case, the parties married in France when the wife, who had already embarked upon a career in marketing, was 26 and the husband, a student, was 28. Two weeks before their civil wedding ceremony they signed a marriage contract electing the “séparation de biens” marital property regime, by virtue of which (broadly speaking) only assets held in joint names are divided on divorce, while assets held solely by one party or the other are retained by that party.

Shortly after the wedding the parties moved to London where they raised their three children. The husband became an investment banker and accumulated significant wealth from his earnings during the long marriage. The wife worked as a marketing executive and later an entrepreneur, as well as taking on the more traditional role of home maker. The family enjoyed a high standard of living. At the time of the final hearing, the parties’ assets were worth in excess of £25m. Of this, there were two jointly-owned properties worth roughly £7m, and the balance was held for the most part in the husband’s name.

The wife contended that she should not be held to the marriage contract because she lacked the requisite full appreciation of its implications at the time of signing it. She said she thought that signing the contract was a necessary stepping stone to marriage and that their common intention was only to protect their respective inherited assets. She accepted that the parties had attended in front of a notary to sign the contract but said she could not remember what the notary told them at the meeting and she did not understand that the contract would be operative in the event of a divorce. The wife had no recollection of discussing the proposed contract with the husband before the meeting at the notary’s office and she asserted that the manner in which they had arranged their finances during the marriage was entirely contrary to the principle of “séparation de biens”. The wife’s case was that the marriage contract should be ignored and she sought a 50% share of the matrimonial assets (excluding assets inherited by either party) to reflect her full contribution to their long marriage.

The husband’s position was that protecting inherited wealth for future generations was important to both of them, but this would have been achieved by not entering into any marriage contract. They opted for separation de biens because of their mutual desire for independence. The parties were part of a particular social set in Paris where “séparation de biens” marriage contracts are very common and everyone knows what they entail.  The husband pointed out that the notary instructed to prepare the contract was the wife’s family’s notary. He remembered receiving a brochure about the different types of marriage contract before meeting the notary and had a vivid recollection of being told off for complaining when the notary started to talk about the effect of the contact upon divorce. Had the contract been applied strictly, the wife would have walked away with roughly £5m (comprising her 50% share of the joint property and what she had in her own name), but the husband readily acknowledged that she would require a further lump sum to meet her reasonable needs, which he calculated should leave her with an overall award of £7m.

The Judge ruled that both parties had had a full appreciation of what they were signing up to.  He was particularly struck by the fact that it was the wife’s family’s notary who had been instructed to draw up the contract, noting that the very function of the notary was to explain to the parties the implications of signing the contract and to satisfy themselves that both parties had the requisite understanding. He commented that these contracts are relatively commonplace in France and that the wife in his judgment was sophisticated enough to understand the effect of the contract in the event of divorce.  He therefore held that the wife should receive an award assessed to meet her reasonable needs, generously interpreted, instead of the full 50% share she had claimed.  The Judge assessed the wife’s needs at £9.5m, comprising a fund to purchase three properties, a lifetime income fund and a share of the husband’s pension.

The outcome of cases involving a contested nuptial agreement often turn on the evidence, and in this case the wife failed to persuade the court that she had not understood the implications of the marriage contract at the time of signing, resulting in her award being limited to a sum to meet her reasonable needs (generously interpreted) rather than the full 50% share she would have been entitled to had she not entered into the marriage contract.

The takeaway cannot be summarised better than at paragraph 64 of the Judgment:

Those who sign marriage contracts must understand that it is a significant step with very important consequences. These contracts will be enforced in France and will not simply be torn up in this jurisdiction.

This article was first published in Wealth Briefing in January 2023.