Individuals who are getting married or entering into a civil partnership may not want to think about the practicalities of splitting up at such an exciting time. However, entering into a prenuptial agreement can be a positive and sensible choice, allowing couples to financially safeguard their future against all eventualities, making this decision together from a place of mutual consideration.
A prenuptial agreement gives all parties the opportunity to exercise an informed choice about the type of financial arrangement they would wish to craft for themselves. As such, prenuptial agreements have become an increasingly popular option for couples in England and Wales as a means of reducing the risk of a painful and complicated divorce, should they decide to separate in future.
Here, we explore some of the key concepts behind prenuptial agreements to help you consider whether they should form part of your wealth planning strategy.
What Is A Prenuptial Agreement?
A prenuptial agreement is a document signed by a couple before they get married to determine what will happen to their property, assets and income in the event that their marriage ends.
A similar agreement can also be made before a civil partnership ceremony, referred to as a pre-partnership agreement. The relevant legal issues are the same.
You can also make an agreement with your spouse or partner after entering a marriage or civil partnership, or revise the terms of your prenup in response to a change of circumstances or periodic review. An agreement of this type is called a postnuptial agreement, and works in much the same way as a prenup.
The overriding purpose of all these agreements is to provide clarity on how assets and income will be distributed in the event of a divorce or dissolution.
Are Prenuptial Agreements Legally Binding?
Prenups are not legally enforceable in England and Wales. However, this statement of strict legal principle is misleading.
Although the court always retains the power to award something different from what the parties themselves agreed, the reality is that a properly drafted prenuptial agreement has a good chance of being upheld by the court in the event that it is challenged. This has been the state of the law since the landmark Supreme Court case of Radmacher v Granatino in 2010.
This quotation from the case best sums up the position:
“The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.”
There are no set criteria for the court to consider, because each situation where a prenuptial agreement is challenged is different. However, the court will probably consider some or all of the following questions:
- Was the agreement entered into freely by both parties?
- Did each of them understand the full implications of the agreement, and intend to be bound by its terms?
- Did the parties receive independent legal advice before signing it?
- What form of financial disclosure was exchanged before the agreement was signed?
- When was the agreement signed? The court may have concerns about an agreement signed very close (less than 21 days, as a general rule) to the date of the wedding, which is why it is best to avoid rushing this process and have your prenup completed and signed months before the ceremony
- Does the agreement prejudice any children of the family?
- Do the arrangements adequately meet each of the parties’ needs?
- Are there any other reasons why the agreement may be unfair?
The aim is to identify the factors that might prevent the court from upholding a particular prenuptial agreement and eliminate them to the greatest extent possible.
How Can You Predict “Need”?
The concept of “need”, as it pertains to prenuptial agreements, broadly covers the parties’ requirements for income to meet their outgoings. It also takes into account capital needs, primarily for housing and - depending on their age - retirement provision.
Need is a very flexible concept and what is appropriate at the point of divorce will depend on the parties’ general financial situation, and the standard of living enjoyed during the marriage. For this reason, sketching out future financial arrangements that will meet the parties’ needs at a level acceptable to the court will usually require the expertise of a trained solicitor.
Evidence from reported cases shows that even when a prenuptial agreement is not upheld in its entirety, it still has a profound influence on the size of the financial award and can limit substantially the assessment of need, compared to a case with similar facts where there was no prenup.
What Can Be Covered By A Prenuptial Agreement?
The contents of the agreement will be dictated by the parties’ financial position and their objectives. Agreements may include:
- A plan for how the financially weaker party’s need for housing and income will be met, whether by way of a transfer of property, a lump sum, periodical payments or a combination of all three
- A definition of what can be considered as “matrimonial” property to be shared, and “non-matrimonial” property that will be ring-fenced in the event of divorce. This could include pre-existing business assets or an interest under a trust
- How future property will be held and divided on divorce
- The treatment of inheritances and gifts received during the marriage
- A mechanism to divide personal possessions and provisions for individually valuable items or collections
Who Are Prenuptial Agreements Most Suitable For?
Anybody can make a prenuptial or pre-partnership agreement and many couples who would not consider themselves “wealthy” could benefit from the greater certainty they can bring. Deciding the financial arrangements on divorce in advance, arguably at a calmer time than the point of separation itself, can prevent litigation, avoiding stress and legal costs.
Prenups can make a real difference to the financial provision made on divorce in any number of situations, but they have the greatest potential impact in cases involving:
- Individuals who are remarrying and have existing assets and/or children from a previous relationship
- Relationships in which one or both parties are independently wealthy, perhaps with an interest in one or more family trusts
- Entrepreneurs who have built up a substantial business before marriage
- Parties who have received or expect to receive a large inheritance
- The descendants of wealthy individuals who are keen to preserve “dynastic” family assets
Find Out More
Creating an effective prenup or postnup is not straightforward. We want you to have access to the best expert advice at an early stage, whether you wish to enter into an agreement or are being asked to sign one, so that you are empowered to make the right choices for you and your family. Our prenuptial agreements are drawn up by our in-house barrister Abigail Bennett, who also sits part-time as a district judge.