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The Land Mark Case - Pre-Nuptial Agreements


Julie Butler - Expert Author

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The Focus On Succession Planning

Every tax planner must ask the question of 100% inheritance tax (IHT) relief on business property and agricultural property - how long will it last? Should we pass wealth to the next generation now? But what of worries over divorce?

It is appreciated that holdover relief for capital gains tax in respect of business property is still in existence so why is property not being passed to the next generation - because of concerns over divorce and the next generation? Has a recent “Pre-Nuptial agreement” case given some confidence of passing property to the next generation?

A victory in the Court of Appeal of 2 July saw that the Pre-Nuptial contract was endorsed in emphatic style to give reassuring backing to those contemplating their use. Above all, it is considered that this brings England into line with the rest of Europe. The case of Katrin Radmacher 39, an heiress said to be worth £100 million ruled that a Pre-Nuptial Contract should be decisive when the courts divide a couple’s assets after a marriage fails.

Until this decision judges have regarded Pre-Nuptial agreements as “persuasive” but in future courts will regard them as binding unless there is a reason not to do so.

Prior to this case, the case of Crossley v Crossley reported in December 2007, confirms that the Courts are increasingly prepared to take Pre-Nuptial agreements into account. What are the facts of this case? Mr and Mrs Crossley became engaged after a whirlwind romance. They were both wealthy, well into middle age and each with grown up children. Before their wedding they entered into an agreement that, if the marriage collapsed, they would walk away taking only those assets they had personally introduced.

The collapse of the marriage happened after only 14 months. Mrs Crossley then, contrary to the agreement, issued a financial claim as well as the divorce petition, maintaining that Mr Crossley had failed to give full disclosure of his means at the time they entered the agreement, and that, as a result, Mrs Crossley should not be bound by it. The Judge considered Mrs Crossley’s claim should be struck out.

In making this order, the Judge was not employing any specific rule relevant to family proceedings, but the general power the Court has to manage its own proceedings. Mrs Crossley appealed on the basis that the Judge had exceeded his powers. The Court of Appeal did not think the Judge had. The Judge’s order was allowed to stand and the Court of Appeal praised him for a decision that reflected the growing importance of Pre-Nuptial agreements. The case of Katrin Radmacher is a landmark ruling.

A simple change by the Treasury to say 50% BPR and APR from 100% would bring £millions into the IHT net so does the landmark case present a driver for tax planning?

With Entrepreneurs’ Relief (ER) seen as a poor replacement for Business Asset Taper Relief there will be focus on both rollover relief and holdover relief so perhaps this will herald a consideration for passing down business assets before death. There are complexities of both rollover and holdover.

Whatever the decision of the taxpayer with regard to succession planning there is a nightmare of complexities – are assets passed down before a change to the 100% rate? If assets do flow down to the next generation what happens if IHT reliefs remain the same and there is a divorce? Will the Pre-Nuptial agreement help?

There are those who say we are faced with a difficult environment to encourage a tax adviser to be pro-active on succession planning, not least with potential litigation claims. However, we still have to present a full synopsis of what might and might not happen on passing down wealth to the next generation either through lifetime or death transfers.

The order of the day will be “crystal balls”, luck, well explained “down sides” as well as safeguards and a strong understanding of what the client really needs. Good luck to all those brave enough to discuss the subject as part of proactive tax planning. However, the ruling of Lord Justice Thorpe made clear that Pre-Nuptial contracts were not just for the rich.

Lord Justice Thorpe was clearly influenced by the harsh contrast with European law. In Germany the contract between Katrin Radmacher and Nicolas Granatino would have been accepted and enforced, as it would be in Granatino’s native France. Justice Thorpe said that nowadays “divorce is a statistical commonplace.”

Does this herald much UK confidence to pass assets to the next generation secure in the knowledge that these assets can be protected by a Pre-Nuptial contract? Interesting times ahead.

10 August 2009

About the Author

Article supplied by Julie Butler F.C.A. Butler & Co, Bowland House, West Street, Alresford, Hampshire, SO24 9AT.  Tel: 01962 735544.  Email;, Website;

Julie Butler F.C.A. is the author of Tax Planning for Farm and Land Diversification ISBN: 0754517691 (1st edition) and ISBN: 0754522180 (2nd edition) and Equine Tax Planning ISBN: 0406966540.  The third edition of Tax Planning For Farm and Land Diversification will be published shortly. 

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Article Published/Sorted/Amended on Scopulus 2009-08-23 17:28:30 in Tax Articles

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