We provide advice to international clients concerning international prenuptial agreements that raise an issue concerning Germany. We always act in conjunction with German or other local counsel whenever appropriate.
GERMAN FEDERAL CONSTITUTIONAL COURT VOIDS MARITAL AGREEMENT
Extracted from German Law Journal, April 2001 The Federal Constitutional Court (FCC-Bundesverfassungsgericht) recently rendered a judgment that can surely be considered one of the great events both in legal practice and academia. The Court's decision of 6 February 2001, is a clear affirmation of the Court's stand on the issue of horizontal effect of constitutional law in private law relations. It is impossible here to sketch the far reaching radius of arguments and issues connected with the concept, and in particular, the vast body of case law related to the horizontal effect of constitutional law in private law relations. In fact, the debate over whether there is and can be such a thing as horizontal effect has been carrying on for decades and the literature and the jurisprudence in this field are abundant. It must, therefore, suffice to limit our observations to a small number of FCC cases from the past 10 years and a few general remarks.
In the FCC's new, seminal decision, the Court voided a marital agreement by applying constitutional standards, namely Art. 2.1 (in connection with Art. 6.4) and Art. 6.2 of the German Basic Law. Art. 2.1 protects the „free development of [one's] personality", while Art. 6.4 states that every mother is entitled to the protective care of the [public] community". Finally, Art. 6.2 of the Basic Law guarantees the parents' natural right and duty to care for and bring-up their children as well as the community's responsibility to supervise these activities.
The starting point for the FCC's decision was a marital agreement between a pregnant woman of 26 and her partner, which had been signed in 1976. The woman, who at the time the agreement was formalized, was raising a 5-year old child from her first marriage. The woman had been living with her new partner (the other party to the marital agreement) for 2 years. In the agreement the woman renounced - in the case of a divorce - any alimony for herself. The man who would become the woman's husband pursuant to the marital agreement also renounced any right to alimony – in the case of divorce. The agreement called for the husband to pay - in the case of a divorce - a monthly sum of DM 150 for child support for the child that was expected to be born in November 1976. The husband alleged that the couple had originally reached an understanding not to have children and that the woman, when finding out she was pregnant, had urged him to enter the disputed agreement and to get married. Subsequent to giving birth to a son, the woman held a position as an office clerk with a remuneration which was substantially inferior to that of her husband.
After their divorce in 1989, the woman received custody of their son, who, in 1990, sued his father for a declaration of his financial situation and for financial support. The Amtsgericht (Lower District Court) found the agreement to be contrary to public policy (gute Sitten, Section 138 para. 1 BGB), whereupon the child's father sued his former wife for violation of the agreement to forego any alimony claims superior to 150 German Marks. The Amtsgericht dismissed the husband's suit holding that the agreement constituted an attempt to forego the statutory prohibition on the renunciation of alimony among relatives (§ 1614 BGB). The father was successful before the Oberlandesgericht (State Appeals Court). It was against this judgment, in favor of the husband's efforts to enforce the agreement, that the woman brought a constitutional complaint to the Federal Constitutional Court.
The Federal Constitutional Court's ruling must be evaluated against the background described earlier, consisting predominantly of the divide between public law and private law. Indeed, the Court was confronted with the question whether constitutional rights are directly or indirectly applicable within a private law relationship. The Court's decision bears all the marks of the complexity of the debate over that question as it is, at the same time straight forward, concrete and driven by principle. While the Court ultimately affirmed the limitations on private parties' ability to renounce, by contract, the requirement of the payment of alimony, the Court also held that the Appeals Court was not sufficiently aware of and had not adequately mapped-out the boundaries of these limitations (which limit the freedom to form private law relations, spouses contracting to override constitutional law, for example). The issue of marital agreements and the acceptable levels of contractual freedom are deeply embedded in issues of economic freedom, market power, social status and education. It is, therefore, quite obvious that the highly specialized jurisprudence in this field reflects a continuous search for clear and appropriate standards. In other words: in the realm of marital agreements visions of private autonomy clash, head-on, with the pre-eminent necessity of considering the concrete, contextual conditions in which the specific agreements are concluded.
While the FCC underlined the freedom to enter into marriage and to „contract" the specifics details of that relationship, it stressed the fact that the Basic law presupposes a legal design of the institution of marriage. The FCC quoted Art. 3.2 of the Basic Law (equality of man and woman before the law) in reaching that conclusion and pointed to the importance under constitutional law that this equality not be sacrificed within the marriage. From this the Court drew the conclusion that the state is called upon to set limits on the freedom of contract in marriage where marital agreements reflect a position of domination of one spouse over the other. The Courts are asked in such cases of „disturbed contractual parity" to control and to eventually correct the contract's terms by exercising this control through the general private law in order to safeguard the spouses' constitutional rights.
Having set up this standard of control, it seems as if the FCC had an easy task in voiding the Appeals Court's decision, which had held that the spouses' freedom of contract with regard to whether or not (and under what terms) to enter into marriage superceded such fundamental rights interests. But, what seems obvious is nothing less than the FCC's balancing the fine line between constitutionally protected private autonomy, on the one hand, and the application of a rather complex control-standard on the other. While many may accept the state's control of marital agreements as laid down not only in the constitution but also within general private (family) law norms, there are strong grounds for skepticism as to how far this control ought to be carried. The FCC rightly points to the legislature's lack of regulation of marital contracts with regard to alimony obligations as opposed to agreements dealing with the spouses' distribution of their financial intakes during the time of marriage. In light of this legal status quo, the FCC finds it to be the duty of the courts' to exercise control in order to assess the possible necessity to protect pregnant women against pressure and coercion originating in their social environment or coming from the father. This, the Court stated, must especially hold true in cases where the woman is pressured into an agreement that clearly is in opposition to her interests. The court found that a similar situation exists in cases where a pregnant woman finds herself exposed to the alternatives of either raising the child mainly through her own support or of entering into a marriage with the father, thereby binding him into a set of responsibilities towards the child, but in possible exchange for a massive subjugation under severely disadvantageous terms of a marital agreement. The Court elaborated the conditional circumstances that are likely to influence the woman's discretion and finds her in a „weakened bargaining position". The FCC drew upon statistics revealing a general loss of financial means of more than 50 % for unmarried women that have to guarantee their own existence as well as that of the child. At the same time, only 15 % of children in a marriage face such financial pressures. While the Court recognized these findings as generalities that might be supportive of the actual circumstances that might be at work in a concrete case, it made clear that pregnancy at the time when a marital agreement is concluded can be no more than an indication of contractual disparity. Other facts that courts will need to illuminate in order to evaluate the woman's concrete situation include her financial situation, her professional qualifications and prospects as well as the envisioned distribution of „commercial and family labor" (Erwerbs- und Familienarbeit). Some combinations of these factors, the Court explained, can point towards the likelihood of adequate compensation for the woman, even if the marital agreement includes renunciations of legally provided guarantees. It is precisely when the contract's terms reflect a position of inferiority on the part of the unmarried pregnant woman (as in the case at issue) that the need for protection becomes evident. This, the Court found, is the case when the contract disproportionately burdens the pregnant woman and when her interests are not appropriately reflected in the terms of the agreement.
The FCC ultimately voided the Appeals Court's decision for denying, outright, the necessity to evaluate the marital agreement with respect to the factual circumstances at the time it was concluded. In the FCC's view, the Appeals Court failed to assess the consequences of the contract's terms for both the woman and her son. In applying the constitutional standards set out above and drawing on the constitutionally protected sphere of marriage and family, the FCC found that the Appeals Court failed to appropriately consider the impact that the agreement would have on mother and child. The FCC found, as inadequate, the Appeals Court's reference to the son's persisting right to child support as that right fails to account for the fact that the woman found herself already in a precarious financial situation at the time the contract was concluded. By the terms of the contract, she had to expect an even more disadvantageous situation in case of a divorce because she would have to raise the means to support her son without the help of her (former) husband.
Finally, the FCC found the agreement to be violative of the parents' duty to guarantee the child's well-being (Kindeswohl), as set out in Art. 6.2 of the Basic Law. Although, from a legal perspective, the marital agreement did not lead to the child's loss of his claim for child support, the real situation as brought about by the terms of the agreement in this concrete case were characterized by severe financial pressure resulting in a de facto waiver of the child support claims. The FCC concluded that when the financial circumstances of the woman lead to a highly problematic situation for mother and child and the well-being of the child can no longer be regarded as secure, the contract is detrimental to the child's best interest and constitutes a violation of the standards laid down in Art. 6.2 of the Basic Law.
Extracted from German Law Journal, April 2001
The Federal Constitutional Court (FCC-Bundesverfassungsgericht) recently rendered a judgment that can surely be considered one of the great events both in legal practice and academia. The Court's decision of 6 February 2001, is a clear affirmation of the Court's stand on the issue of horizontal effect of constitutional law in private law relations.
It is impossible here to sketch the far reaching radius of arguments and issues connected with the concept, and in particular, the vast body of case law related to the horizontal effect of constitutional law in private law relations. In fact, the debate over whether there is and can be such a thing as horizontal effect has been carrying on for decades and the literature and the jurisprudence in this field are abundant. It must, therefore, suffice to limit our observations to a small number of FCC cases from the past 10 years and a few general remarks.