What’s in a prenup? Britain’s Supreme Court considers legal status of contracts in divorce

UK Supreme Court considers prenuptial agreements

LONDON — This city filled with high-flying investment bankers is also known as the divorce capital of the world, thanks to the hefty financial settlements awarded by London courts and their willingness to ignore prenuptial agreements.

That reputation was put to the test Monday as the Supreme Court began hearing a dispute between a German heiress and her ex-husband, a case that hinges on the issue of whether prenups can be enforced in England, one of the few countries in which they have no legal standing.

If Britain’s highest court rules such contracts do have weight, it will mark a major change — and make the divorces of the rich and famous much more predictable affairs.

Katrin Radmacher, a 40-year-old paper industry heiress with a fortune of at least 55 million pounds ($82 million), and French investment banker Nicolas Granatino married in 1998. They had two children and separated eight years later. He was awarded almost 6 million pounds in a divorce settlement.

But last year, the Court of Appeal slashed Granatino’s payment, ruling that he had promised in a prenuptial agreement not to make a claim on his wife’s fortune.

Unlike the U.S. and most European countries, English law does not generally recognize prenuptial contracts. But the appeals court said they should be given “decisive weight” in divorce cases.

Granatino’s lawyers are asking the Supreme Court to overturn that judgment. But Radmacher’s lawyers say a deal is a deal.

“Ordinarily people should be held to their bargains,” said Radmacher’s attorney, Richard Todd, in a written argument to the Supreme Court. A prenup, he said, “is enforceable like any other contract.”

Both sides agree that had Radmacher and Granatino stayed in Germany, where the prenup was signed, it would be legally binding. But they married, lived and divorced in London, home of the multimillion-pound divorce payout.

In 2006, the ex-wife of insurance tycoon John Charman was awarded 48 million pounds, a record sum that prompted calls for Britain to recognize prenups. In 2008, Heather Mills was awarded 24.3 million pounds after her four-year marriage to Paul McCartney, though that was only a fraction of the former Beatle’s fortune, put by the court at 450 million pounds.

“They call us the divorce capital of the world for wives,” said Caroline Kelly, a divorce specialist at London law firm Finer Stephens Innocent.

She said in England, “the starting point in big money divorces is now 50-50″ — an equal distribution of assets.

Granatino, 38, is not seeking half his wife’s fortune, but his lawyers say the terms imposed by the lower court — a lump sum of about 1 million pounds and a 2.5 million pound loan for a house that will be returned when the younger of their two daughters turns 22 in 15 years’ time — will leave him with “severe financial difficulties.”

When the couple married, Granatino was an investment banker making more than 300,000 pounds a year. But he quit his job in 2003 to pursue a doctorate in biotechnology at Oxford University and now earns about a tenth of his former salary.

His lawyers argue that Granatino is being subjected to a form of reverse sexism. Had he been the wife of a richer husband, they say, the courts would have been more generous.

“We suggest that it is inconceivable that this result would have been ordained had the sexes been reversed,” attorney Nicholas Mostyn said in written arguments.

Radmacher’s lawyers argue that the traditional legal view in England and Wales — that prenuptial agreements are “contrary to public policy” because they undermine marriage — is outdated.

The Court of Appeal agreed. Judge Mathew Thorpe ruled in July that Britain was “in danger of isolation in the wider common law world” if it did not recognize prenups. Thorpe said their low status in British law “reflects the laws and morals of earlier generations” and is not relevant in an era when 40 percent of British marriages end in divorce.

Britain’s Law Commission is currently reviewing the status of prenuptial agreements, and will recommend whether a change of law is needed — but not until 2012.

The nine Supreme Court judges are expected to give their ruling in the next few months. Kelly said that whatever the court decides, legal wrangling in divorce cases will continue.

“Judges will still have the discretion to turn over prenups,” she said. “That’s not going to be overturned today. What the case this week might decide is the weight of importance to be given the prenup.

“Whatever happens is going to be terribly important, either way. But until Parliament enacts legislation, there will not be certainty.”