The Land Mark Case - Pre-Nuptial Agreements
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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
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
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
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
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
by Julie Butler F.C.A. Butler & Co, Bowland House, West Street, Alresford,
Hampshire, SO24 9AT. Tel: 01962 735544. Email;
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