While the idea of signing a pre-nuptial agreement may seem unromantic or pessimistic, this is far from the truth, they are a sensible way of starting a marriage with a shared sense of openness and honesty.
Rebecca Patience, senior associate solicitor and Grace McGarvey, apprentice solicitor from our divorce and family team outline what a pre-nuptial agreement is and why you should consider arranging one.
What is a pre-nuptial agreement?
A pre-nuptial agreement (often referred to as a pre-nup) is a contract entered into between two parties before they marry.
It records the ownership of assets and details what will happen to these assets should the marriage break down and end in divorce.
In the simplest of terms, a pre-nuptial agreement dictates “who gets what”, but there is a lot to consider before signing a pre-nuptial agreement and many misconceptions about them.
Who should get a pre-nuptial agreement?
Once you are married, any assets you formally owned yourself may become “matrimonial” assets. If they are treated as matrimonial assets, they may ultimately be shared between you and your partner in the event of a divorce.
A pre-nuptial agreement allows for each partner to propose that certain assets should be protected from this eventuality, classing them as “separate property”.
There are many reasons to consider getting a pre-nuptial agreement and here is a list of circumstances that may warrant preparing one:
Protect a high net worth individual
Considered to be the ‘most expensive divorce in history’, Jeff Bezos (founder of Amazon) experienced the harsh reality of his failure to ring-fence the wealth he generated throughout his career.
As part of their divorce settlement, his wife received a 4% stake in his online business valued at over £29bn.
Provision regarding children
Pre-nuptial agreements can contain clauses regarding child support, medical insurance, education costs or personal child-raising issues.
They can also set out your intention to continue to provide for your children from a previous relationship.
Personal assets
Pre-nuptial agreements usually contain an inventory of each partner’s assets and details of how they are to be dealt with in the event of a marriage breakdown.
This agreement can include high valued items such as cars, jewellery and family heirlooms as well as properties, investments, pensions and savings.
An agreement provides clarity on how those items should be retained or divided.
Inherited wealth
Pre-nuptial agreements can also help protect inherited assets and/ or future inheritances from being accessed by an ex-spouse as well as ensuring the inheritance(s) remain with your family after a divorce.
A partner with substantial debt
Pre-nuptial agreements with a ‘debt clause’ may help limit your debt liability if your partner has an accumulation of substantial debts. It may also protect you from being affected by your spouse’s poor credit history.
Protect business shares or ownership
A pre-nuptial agreement can help isolate equity you may own relating to a family or private business. This can be an essential consideration for business owners who have worked hard to establish a successful, profitable business.
Distribution of the matrimonial home
A pre-nuptial agreement can set out how the parties wish for the marital home to be treated if the relationship breaks down.
The drafted agreement will give guidance to the entitlement of each spouse. This could be a consideration if unequal contributions have been made towards the purchase of the property.
Are pre-nuptial agreements binding?
Even though the Supreme Court has endorsed the use of pre-nuptial agreements, to demonstrate the intention of marrying couples, it should be highlighted that pre-nuptial agreements may not necessarily be upheld by the Court.
Parties to a marriage cannot exclude the jurisdiction of the court and so, if at the time of separation, the agreement appears to be unfair, the Family Court retains power to overrule the pre-nuptial agreement.
However, entering into such an agreement can be very persuasive evidence to the court should the marriage breakdown and the court is then asked to consider the division of assets.
The Law Commission recommends that any nuptial agreement should be finalised as far in advance as possible of a marriage or civil partnership and ideally no later than 28 days before the marriage, to prevent any argument being signed by a party under duress.
It is also recommended that pre-nuptial agreements are reviewed periodically during the marriage, to ensure they are up-to-date, and reflect the current circumstances between parties, to increase the likelihood that the agreement will be upheld by the court.