What happened when judge found prenup valid but unfair?
15 February 2017
Prenuptial agreements found to be valid but unfair to wife – the judge held the court should therefore step in to alleviate the unfairness and award provision to meet the financial needs of the wife and children out of the husband's separate assets (but was unable to do so in this case)
Facts: A Swedish couple started living together in 1994 and married in 2000. The husband had worked as a sportsman and had achieved very considerable success in the US until 2003, when he was involved in a very serious accident. He suffered life-threatening injuries and the accident brought an end to his sports career.
However he had made a good recovery and at the time of the final hearing his main source of income was approximately £300,000 from his substantial asset portfolio, plus about £55,000 gross per year from part-time employment, advising two businesses connected with his sport. The wife had also worked until the children were born but thereafter principally looked after the children, the home and the family.
Both parties were Swedish, by birth and nationality. The family had lived in the USA for most of the marriage, before moving to England in 2009, after a short period living in Belgium. Prior to their marriage, in 2000 (at a time when the wife was in secure employment and the husband's occupation was much less secure) the couple had executed three prenuptial agreements, which contained (in the judge's words) "two potentially crucial provisions" that:
i) if the marriage broke down, any proceedings would take place in Sweden ( a "prorogation", or "choice of law", or "jurisdiction" clause) ; and
ii) a separate property clause: that each party would retain his and her respective separate property in the event of divorce, the effect of which was that the wife would not be entitled to any capital provision from the husband, as all the assets (apart from their jointly owned former family home) were in the husband's sole name.
The marriage broke down in 2014, making this a marriage of 20 years' + duration. The husband moved out of the former family home, a substantial five bedroom detached house in Berkshire (purchased in the husband's sole name in 2011 but transferred into the couple's joint names in 2016) and the wife and children went on living there. At the time of the final hearing of the couple's respective financial applications, the husband was 50 and the wife 49 years old. They had two children, aged 12 and 8.
Following the breakdown of the marriage, both parties issued divorce proceedings in England (the wife) and Sweden (the husband). As the wife's divorce proceedings had been issued first in time, the divorce took place in England. The wife wanted to have all the financial issues dealt with within the English divorce proceedings, rather than in Sweden.
The family assets, all of which (apart from the former family home) were in the husband's name, totalled just under £11 million, made up of: the family home worth about £3 million gross (with net equity of just over £1.8 million), a property in Sweden in the husband's name worth about £40,000, and the husband's savings and investments, worth approximately £9 million.
The financial proceedings were:
i) the wife's financial remedy applications;
ii) the wife's application under Schedule 1 of the Children Act 1989;
iii) the husband's application for sale of the former family home under section 17 of the Married Women's Property Act 1882.
As the judge pithily put it: "the difference between the parties could not be starker": the husband's case being that the wife was "entitled to nothing beyond her half share of the former matrimonial home"; the wife's case being that she was "entitled to a full half share of the sum of approximately £11 million available for distribution." The couple were in agreement that the court had jurisdiction to deal with child maintenance.
Decision of Mr Justice Francis:
The issues for determination by the court were:
i) whether the prenuptial agreements had been obtained by misrepresentation, or were unfair;
ii) whether the choice of law clause was valid under European law, in particular Article 4 of Council Regulation (EC) No 4/2009 and, if so, what its effect was;
iii) the effect of the prenuptial agreements on the wife's financial claims; and
iv) whether the Schedule 1 1989 Act and the 1882 Act claims should be allowed.
The prenuptial agreements:
The wife contended that the husband had effectively tricked her into signing the prenuptial agreements, by telling her the agreements would never be implemented and that in the event of a divorce, she would receive financial provision to enable to her to maintain the matrimonial standard of living. The husband denied that the wife had been "in any way shocked or offended by the idea of a prenuptial agreement." He made it clear that he would not have gone ahead with the marriage unless the wife agreed to sign the agreements and that being married was not important to him.
The judge rejected the wife's case, preferring the husband's version of events to that of the wife, where they conflicted, although he "found the husband to be rather cold and matter-of-fact in the way he gave his evidence". It was clear that the wife had been advised by the husband and his lawyer to obtain legal advice on the agreements and that she had received (and rejected) legal advice on the second of the agreements.
It was also inconceivable that she would have signed a prenuptial agreement on three separate occasions "imagining it to be irrelevant and assuming its provisions to be of no impact." Accordingly, he held that the parties had consensually entered into one or more of the prenuptial agreements and the effect of the agreements had not been vitiated by factors such as fraud, misrepresentation or undue pressure.
However, he found the husband's "current approach towards the wife and the knock-on effect that it would have on the children to be both mean-spirited and mean…." ".. He seemed rather oblivious to the fact that …this would have grave consequences for the wife because she would be left with something a little over £500,000 and he would have some £9.5 million."
The effect of the choice of law clause:
All three agreements stipulated that Swedish law should apply to the distribution of the couple's property in the event of a divorce. The choice of law clause was valid under European law/Article 4 (as the agreement was in writing). Accordingly, as Article 4 was engaged, the English court's jurisdiction to make orders for maintenance was excluded and limited to dealing with "rights in property arising out of a matrimonial relationship." Consequently the judge was bound to stay the wife's maintenance claims, at least until such time as they were dealt with by a court in Sweden.
The effect of the prenuptial agreements on the wife's financial claims:
The Judge considered the decision in Radmacher v. Granatino . Giving effect to the agreements would leave the wife with about £560,000 (half the net value of the former family home, less her debts) (ie approximately 5% or 6% of the family assets), with the husband being left with everything else, which "would work unacceptable unfairness on the wife and.. worse still.. would adversely affect the best interests of the children…. I do not believe that it can be considered fair after a marriage of this length with these contributions and with these children for the wife to be left with almost nothing and for the husband to be left with almost everything… it would put the wife and children in a predicament of real need."
The wife argued that the judge's conclusion that the agreements were unfair meant that the court should completely disregard the agreements: in effect they should be "ripped up". The judge disagreed, since he had found that the parties had freely entered into the agreements understanding their significance. He stated it was the court's duty to step in and alleviate the unfairness by invading the other spouse's separate property where (as here) there were sufficient assets available to meet the wife's financial needs.
However, as such, the wife's claim would involve an element of maintenance and the judge had already concluded that the choice of law clause prevented him from dealing with maintenance. This meant he could only order a sale of the former family home and declare the parties each entitled to half the net sale proceeds, but could not order that the wife should have more than half of the net equity, which would be the fair outcome, as the housing needs of the wife and the children could not be met out of her half share of the former family home, without severely prejudicing the children's needs.
As the judge put it: "If I were to do so, as I think would be fair here, then I will be taking into account 'the needs and resources of each of the spouses'…. Once I do this, I step into the realms of maintenance, which I have found is currently impermissible in this case." So he ordered that the former family home should be sold, with the net sale proceeds (after payment of sale costs and mortgage) being divided equally. The wife's lump sum and maintenance claims were stayed until the Swedish court had resolved them, or declined to deal with them.
The wife's claim under Schedule 1 of the Children Act 1989:
Accordingly, at least until such time as the Swedish court had addressed the issue of the wife's maintenance claims, the wife had to fall back on her Schedule 1 application, to cover the housing needs of herself and the children. Having examined property particulars from both parties, the Judge assessed the housing needs of the wife and the children at £2 million, to be settled on the children in conventional Schedule 1 terms. He stated that it would not be fair to expect the wife to use her half share of the net sale proceeds from the former family home towards the housing needs of the children.
He therefore directed the husband to pay £2 million for the purchase of a home to house the wife and children until at least 12 months after both children had ceased full-time education to the end of 1st degree or training (to include a gap year), when the property would revert to the husband. He also ordered the husband to pay the wife the global sum of £95,000 per annum, index-linked to the CPI, as a carers allowance for herself and periodical payments for the children. This was the amount that she had been awarded as maintenance pending suit by another judge at an earlier stage of the proceedings.
As a result of the terms of the prenuptial agreements signed by the parties (including the choice of law clause) after two years of litigation, the outcome of the final hearing of the English divorce proceedings is that the wife will have to go back to Sweden (where she has not lived for many years) to seek maintenance. Depending on the result in Sweden, there may then be yet further proceedings in England. The judge therefore urged the husband to settle the case in order to bring an end to court proceedings for this family by making further provision and avoid spending more of their resources on further litigation and the necessary emotional distress that that would involve.
DB v. PB  EWHC 3431 (Fam) Mr Justice Francis in the High Court of Justice Family Division: 22 December 2016
Maeve O'Higgins Family Law Partner, Burlingtons Legal |
Email: firstname.lastname@example.org, Tel: +44 (0) 207 529 5420
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