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Unfair prenups, creative solutions

This week we’ve seen an interesting and complex case in our High Court where a judge has had to find a creative solution to rehousing appropriately two young children and their mother, in the face of factors prohibiting what the court would see as the usual fair division of assets on divorce.

The case involves a Swedish couple, worth about £11m. The wealth is largely on the husband’s side: he was formerly a sportsman, the judgment tells us, before an accident in 2003 sadly ended his career. His substantial income now comes from active management of the money made before his retirement plus a couple of consultancies relating to his sport. The couple lived in the USA and Belgium before settling in England in 2009. The two children are now 12 and 8. The wife’s only money in her own name is half the net equity of the matrimonial home, about £900,000, and she has no income.

This former couple’s lawyers did agree that if the case were to have been straightforward, the answer would probably have been broadly an equal division of the assets between the husband and wife. However, there were two major complicating factors that meant it was not straightforward at all. One: there was a pre-nuptial agreement (or in fact a series of them) in which the wife signed away her rights to any money in the husband’s name. Two: this pre-nuptial agreement also provided for the Swedish courts to be in charge of any dispute arising at the end of the marriage, and the matter had now come before the English court, as the divorce had taken place under English law.

The wife claimed that the pre-nup was invalid, either because the husband had obtained her signature by telling her that the agreement would never be implemented and/or the agreement was so unfair as to be unenforceable. The husband contended that the agreements were perfectly valid and the wife knew what she was doing by signing them. He gave evidence that the wife had had discussions with a lawyer, who had advised her not to sign the agreement, but she did so anyway, and he had made it clear to her that he would not marry without an agreement for the separation of property on divorce, as was common in their home country, Sweden. The judge, despite calling the husband’s approach to the effect of the agreements “both mean-spirited and mean”, agreed that the pre-nup was valid, even though he “was struck during the course of the husband’s evidence by the fact that he seemed rather oblivious to the fact that all of 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 £9.5m.” Being unfair did not mean that the agreement could not legally be upheld.

The second complication was that the pre-nup provided that the City Court of Stockholm, Sweden, would have exclusive jurisdiction to determine any dispute arising from the marriage. The English court found that in order for this provision to be valid it would have to satisfy conditions imposed by the European Maintenance Regulation: it did so. Taking into account the specific provisions of the pre-nup involved in this case, the English court found that it did not have the jurisdiction to make any order relating to the distribution of property arising from the marriage that deviated from the default legal position, i.e. a 50/50 split of jointly-owned property.

A rum deal for the wife and the children, you might think – but thankfully, our law provides a safety-net of sorts in Schedule 1 to the Children Act 1989, which allows the court to make property orders against parents regardless of marital status, for the benefit of children. Under that provision, the court awarded the wife £2 million as a housing fund, in addition to her 50% share of the equity in the former matrimonial home. This £2m award would, however, as is usual for an award made under Schedule 1, revert back to the husband a year after the end of the younger child’s first degree at university – i.e. the wife will have to sell the house then if she has no other way to pay him off. The court also ordered the husband to pay the wife £95,000 per year by way of a carer’s allowance and child maintenance for the children, plus school fees for the older child (the younger one was at the local primary school and his future schooling had not yet been determined). The court determined that the wife’s full claims arising strictly from her marriage would be paused pending the determination of the Swedish court.

The judge concluded:

“The husband is 50 and may not see the return of his £2m housing fund … for some 18 years or so. The wife will now doubtless pursue her claims in Sweden. She may then, according to outcome, decide to renew her claims here. Whilst not in any way seeking to foretell what may be the outcome of any applications that may be made, they will doubtless be expensive and they will be hard for the parties and, more importantly, for the children to bear. They have already been engaged in litigation for almost two years. The husband has sought to rely on the terms of the pre-nuptial agreement and he has been largely successful. I have found it to be unfair and have been forced by the technicalities of the European Maintenance Agreement to use the unusual route (within divorce proceedings) of Schedule 1. I urge him to see whether he would not, even at this late stage, wish to settle this case on terms that would now draw a line under this marriage and this family’s battle, rather than prolong the family’s agony for what, at the end of the day, is money that he can spare.”

Although the result may not be “fair”, this case does show the power of a pre-nup: even one so markedly “unfair” as this can be upheld by the court if it has validly been signed, so if you want to marry but you’re determined to keep hold of your wealth, it’s a must-have. Conversely, if you’re the financially weaker party in a relationship, it’s essential to understand the risks in signing one, and not to rely on the court doing its best to find a solution that puts the children’s welfare centre stage. If you’ve got any questions about pre-nuptial agreements, the jurisdiction of foreign courts, using Schedule 1 of the Children Act to obtain provision for children, or any other family law matter, you can give us a call on 01223 443333 and ask for an appointment to speak to Sue, Gail, Tricia, Adam or Simon.

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