English divorce law is recipe for financial strife

January 17, 2011


–The author is a Reuters Breakingviews columnist. The opinions expressed are her own–

It’s hard to feel sympathy when millionaires divorce. But after some mega-payouts in recent English court cases, a review of the law is welcome. While marriage isn’t a business transaction, the wealthy in particular could benefit from being able to agree legally enforceable pre-nuptial agreements.

England’s divorce laws are a mess. That creates huge uncertainty as to the division of assets when couples separate. Unlike the formulaic divisions of continental Europe, a London divorce can seem like a crapshoot. That really matters when the numbers involved are huge.

To anyone in business and finance accustomed to dealing with big money and thick contracts, pre-nuptial agreements look like the obvious solution. But until recently, these had little force. That changed in October, when a dispute between German heiress Katrin Radmacher and her French ex-husband, a former banker, led to a Supreme Court ruling that pre-nups would be decisive so long as they were “fair”.

The snag is that this still leaves plenty of scope for disagreement as to what is “fair” — and that decision is in the hands of English judges. There is no reason, in principle, why adults should not be free to contract with one another to spare needless disputes and expense later. So it would be better if the law concerning pre-nups were set out on the statute books rather than subject to courts’ discretion.

For any such regime to be robust, it would need the two parties to be required to fully disclose their assets, and to take independent legal advice. After all, any transaction should involve some good due diligence.

Fortunately, this seems to be the direction that the Law Commission, whose consultation began on January 11th, is headed. Break-clauses may now be frowned on in UK M&A. But there are some deals where they still have a place.

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