[Update: 27 Feb 14 – The Law Commission’s Report on marital agreements has now been published and you can read it here]

Pre-nups (or pre-marital or pre-civil partnership agreements) are beloved of the popular press, especially when the latest celebrity couple are getting married or splitting up. However, they are not just for the rich, famous, or paranoid. At CFLP, we advise people from all walks of life and all financial backgrounds about the pros and cons of having a pre-nup, and in many cases they can be a sensible bit of financial planning, however wealthy you are (or not). So we thought we would have a brief look at the sort of people who sign up to these agreements, and in what sorts of circumstances they may be of use.

(A quick word about post-nuptial agreements: they are simply agreements entered into after you marry or enter a civil partnership, contain the same sort of terms, and are treated the same way by the courts. So, for pre-nup in what follows, please read “pre-nup, pre-cip, post-nup or post-cip”.)

It is worth recapping where we are in the development of the law relating to pre-nuptial agreements. The landmark case was the Supreme Court’s decision in Radmacher v Granatino (2010) . The court ruled that a pre-nuptial agreement which is freely entered into, and where both parties fully appreciate its implications, should generally be upheld by the courts unless it would be unfair to do so. In practice this means that whilst pre-nups are not automatically binding as such, a court will tend not to let people back out of them if both parties have willingly signed the pre-nup (coercion, bullying or deliberate hiding of assets can defeat the agreement). Legal advice and financial disclosure are highly desirable, but a court may enforce an agreement where both parties were clear about what they signed up to, even if they did not have legal advice.

The court looks at the practical effect of enforcing the agreement and whether it would leave either spouse and/or the children in dire financial need. If it does, the court may choose not to uphold the agreement, or may only uphold part of it. The question of what “need” means is highly subjective and depends on the particular circumstances of the case. This issue is so important that the Law Commission have expanded their project on prenuptial agreements to consider this aspect of the law too, with the intention of producing some guidelines about what “need” in family finance really means.

Pre-nups are not just for the rich. If you have property, business interests or assets which you want to keep separate from wealth which you may build up during the marriage or partnership which is likely to be shared on divorce/dissolution, it is possible to draft a pre-nup that will ring-fence particular assets. Likewise if you do not want to share with your spouse/partner any money or property you have inherited or may inherit, then again it is possible to agree in advance what should happen to that inheritance if you separate .

Those embarking on marriage for a second or subsequent time tend to be older, more financially aware and more sanguine about the prospects of a marriage lasting until death do they part. At CFLP many clients considering a second marriage come to see us about pre-nups as a way to decide in advance what the financial outcome will be if things don’t work out, in the hope of reducing stress and disagreements over money at that point. Also, those getting married later in life who have children from a previous relationship often want to do their best to ensure the children receive at least some of their assets, and a pre-nup is a good way of setting out those expectations and understandings.

It’s not just about the nuts and bolts of financial provision though; we tend to encourage couples to include a commitment in their pre-nups to resolving any marital difficulties through either mediation or collaborative law. It’s a good opportunity for people to get a picture of the types of process that are likely to be available if necessary, and to make a choice in advance about the way they might want to handle any separation, should the worst come to the worst.

A pre-nup may be particularly important if either spouse or civil partner has property or assets abroad, or if one of you holds foreign nationality. If you plan to get married overseas, you may find that the laws of another country are applied. For example in many European countries the law imposes a “marital property regime” on your assets once you marry, meaning either that all the property you buy during the marriage is considered to be joint property, or that it is owned by the person who buys it. These regimes may operate like a pre-nup to decide what happens on divorce. If you would rather decide for yourself what happens to your assets, a pre-nup that shifts those parameters is important. Expert legal advice is essential to ensure that the agreement will be valid in all relevant jurisdictions.

For many people, a pre-nup is simply a matter of common sense to ensure that it is the couple’s own vision of fairness rather than someone else’s that will be applied in the event of a break-up. There is a lot to be said for sitting down with your intended in good time before your marriage and discussing how to divide what you have fairly, should the worst happen. We can help you think about the sorts of things the agreement would need to cover, and it is possible to draw up a pre-nup collaboratively or in mediation so that you retain full control over the discussions rather than asking solicitors to negotiate at arm’s length.

Finally, it’s worth remembering that nobody can be forced to enter into a pre-nup. Pre-nups are agreements and must be entered into voluntarily; but on the other hand, if you want to get married and the alternative to signing the agreement may be not to get married, you might not feel you have much choice. That’s why if you’re on the receiving end of a pre-nup, it’s important to get legal advice on how entering into it will affect your likely settlement in the event of the divorce. For the wealthy, the safest way to protect assets is still not to get married, as the courts do not have general powers to distribute wealth on the grounds of “fairness” after the end of cohabitation. For the rest of us, a pre-nup may simply be the most sensible way to peace of mind for the future.

If you’d like to know more about pre-nups or any other marital agreement, do give Gail, Sue, Simon, or Adam a call on 01223 443333 or you can read more or download our factsheet here.

 

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