KA v MA – A Reminder of the Value of a Pre Nuptial Agreement
In 2010 the Supreme Court decision in the case of Radmacher v Granatino shaped family law in England and Wales when it comes to the court’s…
In 2010 the Supreme Court decision in the case of Radmacher v Granatino shaped family law in England and Wales when it comes to the court’s treatment of prenuptial agreements.
Shortly after the case was heard, the Law Commission made recommendations that prenuptial agreements should become binding in England and Wales, providing certain safeguards are adhered to.
Although these recommendations have not become law, and as such, prenuptial agreements do not automatically bind the divorce court, family lawyers across the jurisdiction have anecdotally reported a steep rise in couples seeking advice and entering into prenuptial agreements.
Why? Pre Nups can be challenged…
The recent case of KA v MA (Prenuptial Agreement: Needs)  EWHC 499 (Fam) reminds us that these agreements are still not infallible and in some cases can be challenged.
But at the same time, it reminds us that a pre nup is likely to be greatly beneficial to the party seeking to protect their wealth.
The parties in this case lived together for four years before getting married. Both parties had been married before. The husband had children from his first marriage, the wife did not. They had one child together. The husband’s divorce from his first wife was particularly protracted and acrimonious. He was extremely reluctant to remarry. The wife was determined she wanted to remarry. The husband made entering into a prenuptial agreement a condition of his agreement to do so.
The agreement provided for an index linked lump sum of £600,000 and monthly maintenance payments of £2,000pcm, again indexed linked. It made additional provision for their son.
To put this in context, at the time of the agreement the wife had equity in a property of approximately £245,000 from her first marriage. The husband had a 51% shareholding in his family business valued at £30 million, equity in the home in which they lived of £3 million and classic cars and antiques worth £800,000 - £850,000.
When the parties separated, the wife issued financial proceedings. The husband sought to curtail these proceedings wanting her to prove why she should not just seek a financial order that reflected the terms of the prenuptial agreement.
With both parties’ agreement, all the advice given at the time of the parties entering into the prenuptial agreement was disclosed to the court. Mrs Justice Roberts satisfied herself that in considering fairness and personal autonomy, the wife was aware from early in the relationship that the husband had not wanted to remarry and that he considered his children should be the ultimate beneficiaries of his wealth. The wife entered into the agreement freely, and the mere fact that the husband would not get married without a prenuptial agreement could not in itself be considered as improper pressure being placed on her. The judge also took into account that the wife intended to be bound by the prenuptial agreement at the time that she signed it and had been advised that she would likely be better off if she did not sign it.
At the time the case was heard, the husband had altered his position to a lump sum of £750,000, capitalised maintenance of £537,000 (rather than monthly payments) and £300,000 for the wife’s legal costs from which she could keep anything she did not spend, roughly £1.6m in total. She would also be retaining investment properties she owned. He was therefore seeking to alter the terms of the agreement himself, albeit not unfavourably to the wife.
The wife, however, sought a lump sum to cover capital and maintenance of £6m. The reason she sought a departure from the agreement was on the basis that it failed to meet her reasonable needs with reference to the lifestyle during the marriage.
Why did the court make a different award?
The lifestyle during the marriage is one of the criteria to be taken into consideration when deciding a financial settlement under the Matrimonial Causes Act 1973. The provision made in a prenuptial agreement failing to meet the reasonable needs of a party to the marriage is a reason why such an agreement can be undermined.
The judge ultimately awarded wife £2.95m.
She could not reconcile the housing particulars put forward by the husband as suitable to meet the wife and the parties’ son’s housing needs. She could not therefore reconcile the family law principle of fairness and the impact on the life of the child of the home the wife could provide, with holding the wife to the precise terms of the prenuptial agreement.
However, she equally had difficulties finding it fair that the wife should benefit to the extent the wife herself had set out as appropriate based on the provisions and intentions behind the prenuptial agreement.
She found that in limiting the wife to £2,700pcm plus her modest earning capacity comparative to the parties’ lifestyle during the marriage, risked financial hardship. Falling far short of the wife’s initial budget of over £300,000 pa, the judge capitalised her maintenance on the basis of annual income of £100,000pa.
So why was the Pre Nup of value?
So should the husband be pleased he entered into a prenuptial agreement if he ended up paying the wife over £1m more than he intended? Was it worth it?
Without the agreement, it is possible that the court may have given some consideration to the husband’s pre-acquired wealth and the nature of that wealth to the extent it comprised a shareholding in the family company. However, these factors would likely have been weighed up when looking for reasons why there should not be an equal division of assets.
The existence of the prenuptial agreement in this case meant that the starting point, even for the wife’s lawyers, was not an equal division of assets but a sum to reflect her needs.
The judge equally did not take the view that the wife should be put in a position where she should receive a home commensurate to the significant home owned by the husband.
This case demonstrates that prenuptial agreements are a powerful tool in limiting spousal maintenance claims on divorce, even if it cannot be guaranteed that the claims will be limited precisely along the same terms as provided for in that agreement.