Thinking about popping the question this Valentine’s Day? Then consider a pre-nuptial agreement!
In the midst of buying Valentine’s roses and planning a candlelit dinner, we explore why a pre-nuptial agreement can be important and their increasing prevalence as a means of safeguarding and dividing family wealth.
What is a pre-nup?
A pre-nuptial agreement, or ‘pre-nup’ as they are commonly referred to, is a legal agreement made between two individuals before they marry or enter into a civil partnership that seeks to regulate their affairs in the event that their relationship ends. They are becoming increasingly popular as a means of preserving family wealth and providing certainty if a marriage breaks down.
The pre-nup will set out the details of how the couple intend to divide their assets in the event of a divorce. It will also usually define which assets are classed as ‘matrimonial property’, i.e. those assets acquired during the marriage or held in joint names, and those classed as ‘non-matrimonial’ such as gifts or inheritances received by one party only or assets owned by one party prior to the marriage. This is particularly important in order to safeguard dynastic or family wealth and businesses.
Agreement as to what is ‘matrimonial property’ and ‘non-matrimonial property’ is a key part of a pre-nup. It means that upon any relationship breakdown, the ownership of the assets has already been agreed. This should hopefully avoid any disputes over the division of the assets and subsequent time, costs and emotional stress that inevitably accompanies such disputes. They can also have a role in second marriages to ensure that any children from the first marriage are financially provided for.
In contrast, couples who divorce without a pre-nup may find, depending on the financial circumstances, that even non-matrimonial assets may need to be shared between the parties if it is necessary to meet the parties’ needs.
A pre-nup should also cover whether the parties wish there to be a clean break of the finances on divorce and, if that is not possible, whether there is to be limited maintenance and for what duration. The aim is to provide financial certainty for the parties in the event of divorce.
Are pre-nups enforceable?
Although in England and Wales pre-nups are not automatically legally binding, the terms of the agreement can be highly persuasive in the event of a dispute and may be upheld by a Court unless the effect of the agreement would be ‘unfair’. As the law currently stands, the Court should give effect to a pre-nup that is freely entered into by both parties with a full appreciation of its implications, unless it would be unfair to hold the parties to their agreement in the prevailing circumstances.
The couple should provide each other with full disclosure, so that both are aware of the effect and consequences of the provisions of the pre-nup. In that way, both parties should understand what it is they are gaining or giving up as part of the pre-nup.
The couple must also take, or at least be encouraged to take, independent legal advice on the pre-nup so they have a clear understanding of the terms of their agreement and what financial claims they may be foregoing as a result of signing it.
Pre-nups need not only be entered at the outset of the marriage. ‘Mid-nups’ or ‘post-nups’ can be entered at any time during a marriage and are becoming increasingly popular. They may be particularly relevant if the parties’ finances have changed during the marriage; for example, if one of them was to come into a significant inheritance or was gifted monies by a family member which they wished to ringfence in the event of divorce
Why should I have a pre-nup?
Whilst no one ever marries with the intention or expectation that they will divorce, the unfortunate reality is that 42% of marriages ultimately end that way. It is therefore important to protect yourself and your assets, and a pre-nup is a way of doing this from the outset of the marriage. Once the pre-nup is signed, hopefully the couple will live happily ever after, and it can be stored in a drawer never to see the light of day again.
