Cross border pre-nuptial agreements - the great divide

25 April 2014

The Law Commission’s February reforms, outlining measures to make it easier for separating couples to manage their financial affairs, recommended that the law should give greater recognition to private ‘qualifying’ pre-nuptial agreements, which have been growing in popularity despite the fact that they are not currently legally binding. That’s all well and good for English agreements for English couples, who will benefit from greater economic certainty and protection against the discretionary powers of the English courts should their marriage break down — statistically a one-in-three chance.

But these reforms, should they be enacted, will not even begin to meet the needs of the growing number of European and international couples who reside in the UK. Many have foreign agreements in place and wrongly assume they will automatically apply in England and Wales in the event of divorce. Nor will the proposed changes help those UK citizens who forge a nuptial agreement here but then move abroad for reasons of work or family relationships.

Despite the fact we live in a mobile and cosmopolitan world with at least 350,000 binational marriages in the EU each year, there is no pan-European
standard for pre-nuptial agreements. Each country continues to legislate and reform in this area on an individual and piecemeal basis, yet the movement of
intermarriage EU citizens continues apace.

When things go south

The EU has legislated in many areas of cross-border family law, such as children issues, divorce procedure and maintenance. But in the area of nuptial
agreements and matrimonial property regimes, reform is long overdue.

The stumbling block is the huge divide between the approach of Anglo-Saxon and other civil law countries to marital agreements. For instance, in the
Anglo-Saxon world, in general, assets are divided by considering the matrimonial pot, then the judge crafts an overall financial settlement which is fair.

Maintenance may take the form of pure monthly payments, or capital in lieu, or a mix of both. So the capital and income resources can be mixed up. The
result is tailor-made.

On the continent, matrimonial regimes apply. All couples sign up to a regime on marriage or are placed into one by default. There is no choice, therefore, on
divorce in terms of the regime which applies for the division of capital assets. The income issue is dealt with separately, and often with tougher rules than
Anglo-Saxon countries, by restricting or excluding ongoing maintenance support altogether.

Married couples who move abroad face a menu of difficult choices if they want to protect their assets in the event of a split. They can:

  • Hope that the court of residence at the time of separation will apply the historic marital agreement of the country where they married. Many couples mistakenly believe the law of their country of marriage will automatically apply if they are living in a different country when they divorce. But this is often not the case — for example in England, Ireland and Denmark, the law of those countries will apply, rather than foreign law (although this is subject to change under new case law and interpretations). Yet in Spain, France, Germany and Italy, for example, the foreign law of the country of marriage can be applied. But the judges find this hard.
  • Negotiate a post-nuptial agreement upon arrival in their new country of residence. This can be very attractive for the wealthier spouse if they move to a ‘generous’ jurisdiction, but it can be a hard sell to the other spouse because it could simply the asking spouse is contemplating divorce.
  • Take out a second agreement, thereby keeping the old one from the jurisdiction of origin and seeking to replicate it. A so-called mirror agreement will, however, incur time and cost and lead to potential for conflict in future as to drafting interpretation or as to which agreement will govern.
  • Do nothing and simply hope for the best.

Grey areas

EU countries are at different stages in recognising foreign pre-nuptial agreements either partially or in their entirety. In England, for example, many foreigners have found out to their cost that a foreign pre- or post-nuptial agreement will not be applied here, and that the wide discretion of English family law was applied by the UK courts instead.

Yet on occasion the reverse has happened. In the Radmacher case in 2010, a foreign agreement in Germany was applied to give nil outright capital to a French husband divorcing his German heiress wife in London. One judge recently also fully upheld a Dutch agreement that was modest in effect — against the wife of a City lawyer.

Another ‘took into account’ a tougher French agreement against the wife of a private equity boss, but still gave her almost half the couple’s £15 million assets. Only in the last few years has the High Court even properly considered foreign agreements — the case law is evolving and unclear.

Elsewhere in the EU, Germany, Spain and Portugal all recognise pre-nuptial agreements, whereas France and Italy say they are contrary to public policy
as regards maintenance. New EU rules suggest they cannot do that.

So, given this patchwork of laws across Europe, couples would be well advised to consider jurisdiction clauses as to where and how they want their marital agreement to be recognised in the future. Until the EU can agree pan-European standards for nuptial agreements, there can be little guarantee of the outcome for all scenarios.

It is high time that EU marital law kept pace with the continued rise in cross-border and internationally mobile relationships.

This article was first published in Spear's Wealth Magazine, May/June 2014 edition and originally at Spear's Wealth online.

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