“Whether or not you write the prenup with a lawyer, you get one.” – Vivian Tu, Financial Educator
Why are prenuptial agreements becoming more popular?
Grace Beverley, Jaimee Liang, Chris Appleton. Many influential people are discussing the topic of pre and post nuptial agreements openly and candidly this year, and we are seeing a surge in clients walking through our doors interested in pre and post nuptial agreements.
According to a recent BBC article, in the US more than half of engaged or married Americans under 45 report having a prenup, and in the UK one in three married under-35-year-olds has a prenup.
Many compare nuptial agreements to home insurance: You don’t anticipate fire or theft but you take out an insurance policy “just in case”.
A prenuptial agreement is your opportunity to influence who gets what in the event of the relationship ending. The agreement should therefore include reference to the ownership of existing assets as well as those that may be acquired in the future, such as future gifts or anticipated inheritances.
The marriage contract imposes on every married couple financial rights and responsibilities. With a nuptial agreement, you can influence the way in which they are applied and elect the starting point of your settlement.
What happens if you marry without a prenuptial agreement?
Marriage in the UK is a legally binding contract that is formed through a verbal exchange of vows and signed on a marriage schedule in front of witnesses. Unlike a business deal, you cannot write your own custom terms into a standard marriage contract. Instead, the government sets the rules, giving you automatic legal rights and duties.
You cannot just walk away. The contract only ends when a court grants a divorce, an annulment, or when a spouse dies.
If a marriage ends in divorce, the financial outcome will be determined according to the law and the particular circumstances of the case. There is no single formula or one size fits all approach.
For many this involves protracted solicitor correspondence or court proceedings, with both parties trying to make decisions about where they may live and how much may be left in their respective bank accounts at the pinnacle of the relationship breakdown.
A prenuptial agreement allows couples to design their own bespoke formula so as to influence the financial outcome should their marriage end in divorce.
Who benefits from a prenup?
A common misconception is that the person with greater wealth is the one being protected by the prenuptial agreement.
In reality, a well-drafted agreement can benefit both parties.
For example, a prenup may include provisions designed to protect the financially weaker party, be it in income or capital means, particularly where one person is expected to take time away from work to care for children or where there is a significant difference in earning capacity.
Is a nuptial agreement suitable for you?
In popular culture many believe that prenuptial agreements are for the ultra-wealthy only.
But there may be relevant factors other than the value of your existing assets. For example, the average age of couples first getting married is now 31, compared with 23 in 1970.
The rise in prenuptial popularity may be linked to the wishes of the marrying couple’s wider family; with increases in lifetime gifting and advance inheritances for the purpose of estate planning, or by those who have already paid the emotional and financial cost of a bitter divorce.
Increasingly, many marriages are second marriages, between parties who have children / dependents, or established careers and personal wealth that they wish to protect.
It is also well-established that nearly half of all marriages end in divorce so that, alongside increased financial literacy and transparency, modern couples are increasingly open to having the wealth management “just in case” conversation.
Are prenuptial agreements legally binding in England and Wales?
Prenuptial agreements in England and Wales are not legally binding on divorce but significant weight will ordinarily be given to a nuptial agreement that is freely entered into by both parties with full appreciation of its implications, and which fairly meets the needs of both parties on divorce and any children of the family.
As a result, a properly prepared fair agreement that meets needs is likely to be upheld and should be entered into expecting it to be binding.
For your agreement to have the best possible chance of being upheld, you should follow the steps detailed below:
- Independent legal advice
Take independent legal advice before signing the nuptial agreement. This helps demonstrate that both individuals fully understood the terms, the effect of the agreement and the rights they may otherwise have acquired or given up by signing the agreement. - Fair and reasonable at the time of divorce
Make sure the nuptial agreement’s terms meet both parties’ needs. Perhaps most importantly, a nuptial agreement should not seek to leave either party in a position of real financial hardship. Whilst couples have considerable freedom to decide how they wish to organise their finances, any agreement should still make fair provision for future needs and unforeseen changes in circumstances. - Disclosure
Provide financial disclosure. Both parties should have a clear understanding of the other’s financial position when entering into the nuptial agreement, allowing them to make informed decisions about the arrangements they are proposing.
Whilst financial disclosure is not essential, it should be provided in order to increase the chances of your agreement being upheld. - No undue pressure
Do not pressurise your partner to sign up. Albeit that an unwillingness to marry without a prenuptial agreement will not, by itself, amount to undue pressure, a nuptial agreement should be entered into freely and voluntarily. If one party is pressurised or coerced into signing an agreement, you should expect it to carry little weight if subsequently challenged.
The court will consider the wider circumstances to determine whether both parties entered into the agreement freely and voluntarily. - Sufficient time before the wedding
Sign up no later than 28 days before your wedding. Compared to some US states, where your lawyer may have a tux hung on the back of their chair ready to complete an on-the-aisle nuptial agreement, in England and Wales the closer an agreement is signed to the wedding date, the greater the risk of it being challenged in the event of future divorce.
Review your nuptial agreement: a vital consideration
Whilst we’d all like to have the difficult conversations just once, and then place the signed agreement in the bottom drawer, a prenuptial agreement should not be viewed as a document that is signed, filed away and forgotten.
Circumstances can change significantly over the course of a marriage, particularly where there are children, major changes in wealth, business interests, inheritances or health.
Many couples choose to review their agreement following major life events or at agreed intervals throughout their marriage. This helps ensure that the document evolves alongside the personal wealth it is intended to protect.
If the nuptial agreement is not reviewed during the marriage, it becomes more likely that the courts will feel there are fair and reasonable reasons to depart from the agreed terms.
What is a Postnuptial agreement?
If you’re already married, do not worry, you haven’t missed the boat.
A postnuptial agreement serves a similar purpose to a prenuptial agreement but is entered into after the marriage has taken place. They can be particularly useful where circumstances have changed since the wedding, such as the receipt of an inheritance, the launch of a business, a significant increase in wealth, or the arrival of children – or if you have run out of time to do a prenuptial before your wedding.
Final Thoughts
Discussing a nuptial agreement may not be the most romantic item on a wedding planning checklist. However, neither are conversations about life insurance, wills or pensions, yet most people recognise the value of planning ahead.
Rather, it is about having open and honest discussions about finances, expectations and how you would wish to treat one another if life were to take an unexpected turn.
As Vivian Tu suggests, everyone who gets married is ultimately signing up to a legal framework that will govern their financial affairs if the relationship ends. A nuptial agreement simply gives couples an opportunity to shape that framework for themselves, rather than leaving all decisions to be determined later by the court.
If you are considering a pre or postnuptial agreement and would like advice tailored to your circumstances, please contact us to speak to a member of our Family Team, who would be happy to discuss the options available to you.
