What is a Prenuptial Agreement and Do I Need One? When you marry, you imagine it’s for life, but separation and divorce is a very common outcome with a third of marriages ending in divorce1 and when separation and divorce happens there is often a legal wrangling to agree how assets will be divided.
Irrespective of whether a cash injection from one party enabled the purchase of the family home, or whether one party had pre-existing investments, when you marry, in theory all assets become joint.
Can I protect my assets when I marry?
If you want to protect what you brought into the marriage, whether that be savings, investments or property for example, then a pre-nuptial agreement may be the right thing for you. It might seem unromantic to be having ‘separation planning’ discussions with the love of your life at a time when you are planning to tie the knot, but given your intentions are to stay together forever, the prenuptial agreement should never be needed, that said, I refer you to the earlier mentioned divorce rate statistics.
Prenuptials are just for the rich and famous, right?
When we talk about prenuptial agreements, we are reminded of song lyrics and celebrity news stories of prenups. Wealthy individuals who are perhaps on their second or third marriage have had their fingers burned and choose to protect their fortune before entering their next life-long marriage.
Reserving prenups for the rich and famous however is somewhat of a myth. You don’t need millions of dollars to be disadvantaged through divorce. Imagine you invested your £20,000 life savings into purchasing a family home with your partner (soon to become spouse) and your marriage broke down. Surely you’d we wanting that investment back? When divorce happens all financial matters are tabled for discussion and without the protection of a prenuptial agreement, your £20,000 investment will likely be shared.
Here are the five most common questions asked when someone is considering a prenup.
- What is a prenuptial agreement?
A prenuptial agreement is a document which sets out how a couples financial assets and income should be split in the event of a divorce. It sets out the parties’ rights to assets brought into the marriage or acquired individually during the marriage, for example through inheritance or investment. Legally, once married, all the assets of a couple become matrimonial assets and should a separation or subsequent divorce arise, then in the absence of agreement it is the divorce courts, in exercising its discretion, to decide how the wealth of a couple should be divided.
- Do I need a prenuptial agreement?
If you can answer YES to any of the following questions then a prenuptial is definitely worth your consideration.
a) Are you considering marriage for the first time and worried that if it does not work out you could be financially worse off? Maybe you have some savings that you will use to fund the purchase of a home together or some investments like ISAs or Bonds that you wish to protect.
b) Are you marrying for a second or third time and wish to protect the financial settlement you received from your first marriage? Maybe you are worried about your finances should things go wrong again.
c) Have you generated significant wealth during your working life and wish to ensure you have something to leave in your will for your children? Perhaps you have managed to build up assets such as property and a stocks and shares portfolio that you wish to protect?
d) Are you concerned that if things do not work out and you end up divorcing there could be a lengthy court dispute as to who gets what? A lengthy court battle can be both emotionally draining and expensive.
e) Are you a widower contemplating re-marriage and wish to ring-fence your assets? As a widower you may have benefited from insurances resulting in a mortgage-free home, pension income and considerable cash savings.
f) Do you have a high earning capacity and wish to cap maintenance provisions which in the event of divorce could be made to the other party? Spousal maintenance is a common provision made to the person with the lowest income.
The benefits of a prenuptial agreement are that they can provide some certainty in the event of divorce and they can reduce the legal arguments between couples at what can be a very difficult time.
- Are pre-nuptial agreements legally binding?
In short, no. Prenuptial agreements are not recognized by the present law as legally binding but there is an increasing momentum for prenuptial agreements to be recognized when looking at how the assets of parties should be divided in divorce.
In a landmark case of the Supreme Court in Radmacher v Granatino in 2010, the legal weight behind prenuptial agreements was strengthened in that they were likely to be upheld if not unfair. The Courts will look at the intention of the parties in entering into a prenuptial agreement as a circumstance of the case which needs consideration. The Court will consider
- did the parties have the benefit of taking independent legal advice
- was either party under pressure to sign the agreement
- did the parties provide financial disclosure of their assets
- did the party who had the most to lose understand the terms of the prenuptial agreement
- would it be unfair if the prenuptial agreement were to be upheld?
- How do I go about getting a pre-nuptial?
Once you have broached the subject with your spouse-to-be then you need to give careful consideration as to what you wish to include in the document. No two prenuptial agreements will be the same and must be individually tailored to your personal circumstances.
The provisions in the agreement need to be clear, precise and contain as much details as possible. The agreement can deal with the division of assets and income and how these should be dealt with upon divorce. It may also set out how assets are to be held during the marriage. You may also wish to consider how you would deal with any change in circumstances during the marriage such as illness, loss of income, future children or acquisition of future assets.
Both parties will need to take independent legal advice. This will avoid accusations of undue pressure from one party on another. Importantly, it also means that both parties fully understand the terms of the agreement they are reaching and the party who has the most to lose understands the implications of the document they are about to sign. Each party needs to provide full disclosure of their financial positions before the agreement is prepared. It is also worth considering putting in a ‘review of the agreement’ clause into the document so that it can be considered and amended if necessary at specified periods during the marriage.
- What are the costs of a prenuptial agreement and how long does it take?
The costs of preparing a pre-nuptial agreement can be upwards of £1,000 and depends on the complexity of the financial arrangements and the length of the negotiations. The upfront costs of a fairly negotiated agreement will mean that any protracted legal wrangling, should the marriage break down, are reduced thus saving on considerable solicitor and court costs.
A couple must ensure they allow sufficient time to negotiate the agreement both between themselves and with a solicitor. Time must be allowed for before completion of the prenuptial agreement for both parties to fully consider and understand the terms of the agreement.
The Law Commission recommends agreements should be entered into and finalised at least 28 days before the marriage. This is to avoid a situation arising whereby one parties alleges "duress due to time pressures” therefore it is important to start discussions well in advance.
Given most weddings take many months if not years to plan and organise, the creating of a prenuptial agreement needn’t be last minute.
If you are soon to be married and want to protect your assets then speak to us about a prenuptial. We can talk you through the process in more detail and hep you identify the assets you wish to protect.
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