In the second post of the themed week, Fiona Lyon speaks about Pre-nuptial Agreements.
The term pre-nuptial agreement or "pre-nup" is understood by most people, often in the context of glitzy celebrity marriages. However, they are becoming more commonplace and rightly so. In simple terms, a prenup is an agreement between a couple that is reached prior to marriage that sets out what will happen to their finances should they divorce. Much like making a Will, taking the intiative to formalise terms shifts the power away from the Court to make decisions about your life in the event the relationship breaks down. This begs the question that if you would not allow that in death, why would you allow it in marriage?
Perhaps it is the lack of romance that discourages people from taking preventative measures to protect their assets in advance of marriage – we all know weddings can be stressful enough. There is no doubt that examination by the parties of the worst case scenario is necessary if an agreement is to be reached. This can be awkward but it can also provide reassurance, control and security for both sides. This is particularly the case where one or both parties have been divorced previously and children are involved from those marriages. Equally, there may be a need for estate planning if an inheritance has been received or is in prospect.
It is important to stress that pre-nups are not technically binding in England and Wales. This is because Parliament has not formally legislated to bring them in yet. The Law Commission have made a recommendation for a law to be passed to make them legal and many campaigners are in favour of this. It seems likely this will happen in the future when Parliament has more time, as they are readily available in many other countries. Fortunately, due to a famous case in 2011 involving a German heiress, Katrin Radmacher, the Courts are allowed to take the terms of a pre-nuptial agreement into account when looking at the division of finances upon divorce. As a result, pr-nups have become increasingly popular as more often than not they prevent costly Court applications.
The key consideration as to whether a Court will uphold a pre-nup will depend on whether the terms would result in a fair outcome for the parties and any children. This is assessed by looking at whether the parties financial needs will be adequately met, for example, in relation to property and income. It will come down to individual circumstances as to whether that threshold is met. However, the Court's primary consideration will be the housing needs of any children.
So where do you start? A very common approach is for the "moneyed" party to exclude what they are bringing into the marriage from the "matrimonial pot" and for the parties to share what they acquire together during the marriage. It is possible for a properties or assets to be earmarked for a particular party, including sentimental items. The treatment of gifts, debts and inheritances should also be expressly covered to ensure rules are in place for division. If there is a business, it is important to look at how shareholdings will be dealt with, especially if both parties are involved in the running, to allow the company to survive the separation. This is particularly important if the business provides the family income stream. A pre-nup will always be tailored to the individuals particular circumstances.
The process requires time, thought and planning. The additional criteria that has to be met in order for the agreement to be considered valid are:
- Both parties must receive legal advice and the advisor will also sign the agreement.
- Both parties must give full and frank disclosure of their assets and liabilities, which is usually attached to the agreement as a schedule.
- The agreement must be signed ideally 28 days before the wedding (allow 2 months or more before the wedding to engage solicitors to be safe).
- There must be no duress placed on one party by the other regarding signature of the document.
Originally published 14 July, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.