Divorce: The End of the Russian Winter?

26 January 2012

A constellation of recent decisions from our Supreme Court confirm that agreements reached between spouses about what ought to happen if they divorce should usually be upheld. So, in cases like Granatino –v- Radmacher, the court has said that these agreements should be given legal effect. There are some exceptions, for example, if the agreement was not entered into freely, or if its implications would not be fair to the parties. This applies not only to prenuptial agreements (those entered into prior to marrying), but also to postnuptial ones (that is, those reached after the parties have married).

Last week saw the High Court give Judgment in a case applying the Supreme Court’s principles and guidance. The case, Kremen –v- Agrest, concerned a claim made in England by a wife following a Russian divorce. The marriage had lasted ten years and produced three children. The Russian financier husband sought to limit the wife’s claims, relying on an agreement she signed in 2001. The net effect of the agreement was to cap the wife’s claims to a little under £1 million, of a fortune that the court concluded was in the bracket of between £20 million and £30 million.

The trial Judge had no difficulty, within the structure provided by the Supreme Court, in dismissing the terms of the postnuptial agreement. The wife had not, the court found, entered into it freely, or with a full appreciation of its legal consequences. There was an absence of independent legal advice and disclosure. Furthermore, to hold the wife to the terms of the agreement would be grossly unfair, in particular as it failed to meet her reasonable needs and those of the children.

The Judge therefore took no account of the postnuptial agreement when deciding that the wife should receive an award of £12.5 million.

Kremen –v- Agrest is an unusual case on its facts (the litigation between the warring spouses having been up to the Court of Appeal and back on numerous occasions), and the Judgment makes for absorbing reading on that basis alone. What the decision does buttress is the need for certain fundamental points to be addressed if a nuptial agreement is to bind or influence the court’s decision on divorce.

In short, a court will likely give effect to such an agreement if:

  • it is entered into freely by both parties, who fully appreciate its implications;
  • there is proper disclosure by each party to the other (sufficient to enable an informed decision to be taken as to whether the agreement should govern the financial consequences of the marriage ending);
  • both parties have obtained (or at least had an opportunity to obtain) independent legal advice, and
  • it is not undermined by duress, fraud, misrepresentation or other unconscionable behaviour.

Fairness remains the touchstone when a court comes to consider whether and how to apply a nuptial agreement. Those entered into freely, with the benefit of proper advice and full disclosure, will not be given full effect if to do so would be unfair. An agreement between spouses would be unfair if it prejudiced (as was the case in Kremen) the needs of the family’s children.  Nor would the court likely consider fair an agreement putting one party in a predicament of financial need, whilst the other retained the most part of a fortune that they had had an equal role (albeit in different ways) in creating.

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