By Lucy Greenwood and Richard Kwan
Prenuptial agreements (“prenups”) can seem rather unromantic. It hardly feels natural thinking about the potential end of a marriage before it has even started. But marriage is a big commitment bringing with it very considerable legal rights and financial responsibilities which many people grossly underestimate and which can leave their personal assets highly exposed.
Here are our top five reasons why prenups are worth the paper they are written on.
While prenups currently are not legally “binding” in England and Wales, they remain so in many other countries (and families often move countries throughout marriage) and the English courts will apply the provisions of a prenup provided they are fair and certain requirements are met. For example, both parties received independent legal advice before signing the agreement, they received sufficient financial disclosure and had time to consider the terms.
So why consider a prenup?
- Protecting separate property
“What's mine is (potentially) yours.”
Courts have the power to transfer legal ownership of your property to your spouse upon divorce, including, pre-marital, inherited or gifted assets. While prenups cannot currently guarantee that what is yours will remain yours, they can go a long way in clarifying your intentions and ultimately persuading a judge that you should keep what is yours (or certainly more of what is yours). Without a prenup, you are simply at the mercy of the court and in England and Wales, “the divorce capital of the world” (just take a look at the news for a long list of generous pay outs). That is an avoidable risk which you may not wish to take.
- Protecting premarital wealth
“You can’t touch my business or other assets, I brought it into this marriage.”
A common misconception is that what you bring into the marriage is ring-fenced and untouchable by your spouse. However, time and time again the English courts have shown their willingness (in particular in long marriages involving children) to divvy up pre-marital assets to meet what they deem a party’s reasonable financial needs (based on standard of living during the marriage). This is in stark contrast to many other countries, including our neighbours in Europe and even Scotland. A prenup can show a common intention that premarital assets should be ring-fenced in the event of divorce and can help minimise the risk that such assets will be divided. (Accurately stating a value for a business, pension or other asset held by you just prior to marriage can also be a very helpful aid to assess any later issues about the subsequent growth of an asset during marriage).
- Generational planning
“I want to protect my children.”
Prenups form an essential part of generational planning. You may also wish to provide security for children from a previous relationship. We often relay to clients the importance of ensuring that prenups are not simply signed and stored away in a dusty cupboard. Wealth planning which might include setting up trusts, should be carried out in line with the terms of the prenup so as not to undermine it (for example, any intermingling of marital and non-marital funds may increase the chances of your separate property being treated as marital property).
- Reduce uncertainty and costs if things do break down
“What if… we divorce?”
While some divorces are dealt with amicably and swiftly, others may drag on and eat considerably into the family assets due to legal costs (not to mention the serious emotional cost of protracted litigation). With increasing judicial support for prenups since the turn of the century, prenups now hold a greater legal authority, are increasingly socially acceptable and can help to reduce uncertainty, leading to a swifter and more cost efficient resolution should matters take a turn for the worse.
- International considerations
“The world is our oyster.”
A prenup can recite matters like to what country(ies) you and your partner plan to move. In those circumstances, dependent upon whether you are the wealthier party or not, you may either wish to retain a connection to England or alternatively specify another jurisdiction where one or both of you also hold strong connections. A prenup may provide clarity about what should happen to any foreign assets; it may even specify what country’s laws should apply (although currently an English court will not apply foreign law in the same way that many other countries will apply English law). We also find that a prenup often helps clients focus on taking stock generally about their finances and monitoring changing legal rights (e.g. if the family plans to move abroad). They also encourage couples to seek holistic advice throughout their marriage, be it for example, advice about investments, tax planning or structures for holding particular assets.
We are often asked if there is such a thing as a post nuptial agreement. There is and the laws associated with them are similar.
If you would like further information about prenups, separation agreements or post nuptial agreements, please do not hesitate to contact email@example.com or call 0044 (0) 203 178 5668. Early advice is recommended as a last-minute prenups may carry little weight.
Lucy Greenwood (Partner) and Richard Kwan (Assistant Solicitor)
The International Family Law Group LLP
© 14 December 2017