What is a Pre-Nuptial Agreement?
Pre-marriage agreements can also be known as a nuptial agreement, pre-nup, pre-nuptial agreement and post-nuptial agreement.
A pre-marriage agreement is a contract between two people who are intending to marry, made in contemplation of their marriage. This will deal with what will happen to any or all of their income and capital, what liabilities either or both bring into the intended marriage and consider how such capital and income should be treated if the marriage were to end in divorce .
In general in the UK there is no obligation to disclose your financial position whether you are entering into a pre-marriage agreement or pre-court proceedings. In fact the Supreme Court have developed the law to ensure that a pre-marriage agreement cannot be fully binding on a court in the event of a divorce. However, so long as the agreement is fair, it is impossible for the court to ignore it.
Advantages of a Pre-Marital Agreement
Both pre-marriage and post-marriage agreements have the ability to protect assets, debt, and even future earnings. Many people think that these types of agreements are only useful for those who are already wealthy, but the truth is that both types of agreements can be beneficial for any couple. Below is a closer look at a few of the many advantages that they have to offer.
Protection of Assets
As mentioned above, pre-marriage agreements can help protect your current assets from becoming a marital asset should you or your spouse get a divorce. Generally, property acquired after the marriage goes towards the division; however, if one person owned the property beforehand, it is protected. In a pre-marriage agreement, you can protect property that was given to you before your marriage, which will keep it from being divided if you divorce in the future.
Protection of Debt
Just as property before a marriage is protected by a pre-marriage agreement, any debt is too. In this case, it prevents your spouse from being responsible for any debt that you had prior to your marriage, which is sometimes the case. Your spouse could still be held responsible for any new debt that occurred during the marriage, but will be protected from any debts that either of you accrued before the wedding day.
Clarity and Control
Another great advantage of pre-marriage agreements is that they allow both parties to have some say when it comes to the management and future of their marital assets. In a divorce, British courts do their best to be fair about the division of assets, but marital assets are divided in relation to a few different things, meaning that the decision can be anything but clear. Any money related issues can be agreed upon in a pre-marriage agreement, giving each party clear instructions and helping them take control of their finances, before a problem ever occurs.
Most of the time, couples would rather avoid the uncomfortable discussions a pre-marriage agreement can cause, and instead, focus on the planning of their wedding. However, doing so does not give them an idea of what to expect should their marriage end in the future. A pre-marriage agreement can offer you the comfort of knowing you will have some say over what happens to your money if things go terribly wrong, and feel a little more secure with your future.
Recognition and Enforceability in the UK
The legal status of pre-marriage agreements, or prenuptial agreements, in the UK has evolved over time. Historically, such agreements were viewed as unenforceable in a court of law, primarily due to the perception that marriage was a contract only of love, not of finance. However, in the 2007 decision of Radmacher v Granatino the Supreme Court departed from this earlier view and took a middle ground. The court held that prenuptial agreements are not outright enforceable in the UK, but they should be given appropriate weight, and enforced in the absence of certain circumstances in particular the absence of unfairness.
A number of factors may affect the enforceability of prenuptial agreements, and the weight given to a prenuptial agreement can be significantly affected by the level of disclosure of the financial position of each party prior to entering into the agreement, and whether both the husband and the wife received independent legal advice. Significant weight is likely to be attached to prenuptial agreements entered into by both parties if the following conditions are satisfied:
In determining whether the pre-nuptial agreement is enforceable, the courts may consider that any amendment of its provisions would not have been acceptable to both parties at the time it was entered into and would therefore uphold the agreement even if changed circumstances may result in the application of the agreement leading to hardship on one party. The courts will not uphold such an agreement if it would put a spouse in a position so serious that it would be allowed to override other marital obligations.
Pre-marriage agreements may result in financial savings for the parties as the legal costs associated with a divorce are likely to be reduced where they successfully prevent disputes as to how the assets accumulated by the parties during the marriage will be divided. However, there are situations where a prenuptial agreement may not be appropriate. For example, an agreement that provides for an inequitable distribution of assets should not be entered into. If one or both parties have children, a court may be reluctant to uphold an agreement that does not provide adequately for them.
Characteristics of a Pre-Nuptial Agreement
To ensure that a pre-marriage agreement is comprehensive, there are several key elements that should be taken into account:
Intended Start Date
The start date can either commence at the time you marry or when you begin to cohabit together. Alternatively, you may decide to defer the intended start date of your pre-nup until you have lived together for a certain period of time after your marriage. If the latter is chosen, the agreement should automatically terminate if you are separated for more than 6 months before the intended start date.
Full Disclosure of Assets
A comprehensive pre-marriage agreement needs to list and identify the assets and liabilities of both parties. However, the obligation to disclosure of assets is not absolute. The assets should be disclosed to the best of your knowledge and belief. Full valuations of assets do not need to be carried out, but valuation of all real property and of business assets may be important if you are to have a meaningful understanding of the value of what is being vested upon the other party.
Residuary Clause
In the event of death within 3 years of the intended start date in the UK, consideration needs to be given to whether the agreement should be adhered to if there is a dispute regarding the assets of the estate; in particular the division of any life policies or certain pension rights. Generally, in this situation, the agreement will be treated as a "non-probate" asset, however, should you wish to create certainty, this can be protected through the use of a residuary provision within your will. This means that the pre-marriage agreement can be implemented even if you die before the agreement has had its intended effect.
Assets Owned by Third Parties
It is important to consider whether you own assets through a company and if so, how these may be treated in the event of divorce. Furthermore, should you or the other party own an interest in a family company which should be protected, it is essential to consider how you may ringfence the value of your shares. Such arrangements will likely require careful consideration of company law and tax implications, and is discussed more fully below.
Signed Before The Marriage Takes Place
It is a fundamental requirement that once both parties have had a clear understanding of the scope of the agreement and its implications (this will be helped by each party receiving independent legal advice), the agreement is signed before the marriage takes place and that the agreement is to commence at the point of marriage.
Timing
Although a pre-marriage agreement should be entered into as early as possible (preferably at least 21 days before the marriage takes place), a minimum waiting period of 14 days from signing is required so that both parties have sufficient time to seek legal advice before entering into the marriage.
How to Write a Pre-Nuptial Agreement
An essential part of the pre-marriage agreement process is to give both parties full and frank disclosure before the agreement is signed. This is essential to ensure that any agreement reached is fair and that the parties have sufficient information to make an informed decision. It is good practice (albeit not a strict requirement) for the same solicitor to prepare the agreement and then to have a different solicitor act for each party to give advice on it. This protects your interest at a time when you are very much in love and may not be thinking in a rational way. Legal issues relating to relationship breakdown can be very difficult to deal with when you are emotionally involved.
If you decide not to appoint the same solicitor to prepare the agreement, then you should ensure that the other party’s solicitor provides to you a disclosure statement and all financial documentation (see below for an idea of documents that you should be given) which you can then take to your own solicitor so that you can receive independent advice.
Unfortunately it’s not uncommon for one party to want a pre-marriage agreement and the other to resist it. In some cases the reason for this is that one party has considerable wealth that they would wish to preserve. However, the failure to disclose relevant information and documentation could be used later on to attack the validity of the agreement especially if it was clear that the reasons for not disclosing any information were due to the terms of any proposed agreement and not because the information or documentation was irrelevant.
As with many things communication is key. If you are seeking a pre-marriage agreement you should first raise the subject with your partner prior to any proposal and express your reasons for wanting such an agreement. You need to be open about your finances and you should hope that your partner understands your message. A pre-marriage agreement is about protecting both parties and their individual contributions on divorce. Once a decision has been made to speak to a lawyer, a realistic and practical approach should be adopted .
You should be prepared to provide key details to your lawyer such as:
Provided their intentions are clear, the disclosure statement may be a great time saver. It lists all financial and other interests including the income and capital arising from those interests.
An example of what a disclosure statement could include is as follows:-
Marriage agreement date xxx
Client’s name xxx
Partner’s name xxx
Details of their families / dependants etc xxx
Your assets Situated on date of agreement Value
The following property information is attached to this disclosure statement: mortgage details; land registry title numbers and insurance details
Details of your title in land value
Details of other property owned by you
Any equity value in these properties?
Banks/ building societies/ credit unions
Accounts held? Whether in credit or overdraft, whether left undisclosed (e.g. unused overdraft protection)
Shares
Name, class and quantity
Cash value of shareholdings
Do you have any pensions?
Current value or projected value?
Usual monthly income?
Estimate of income from investments?
Business assets
Shareholdings in private or family companies?
Value of all business assets, shares, plant and goodwill?
Any other assets, such as jewellery, antiques, art etc.
Existing liabilities:
Details of any liabilities
Documentation attached
Access to documentation
Proposals for settlement
What you expect from the other party
Undertakings to be given by the other party
Sole names to be included on [insert:]
Joint names to be included on [insert:]
Documents to be attached (the following documentation should be attached to the disclosure statement):
Last three months’ salary slips.
Last three months’ bank statements.
Last three years’ tax returns, including calculations.
Latest personal credit rating.
Personal bank details.
Credit card details.
Share certificate numbers.
Motor vehicle details.
Life policies.
Deeds of property.
Insurance policies.
Income guarantee insurance.
Birth certificate.
Passport.
Driving licence.
Myths
An area that is often confusing for clients are the finances and liabilities which are to be considered prior to marriage. Sometimes a pre-marriage finance agreement is used as a financial remedy to protect an individual’s assets.
Unfortunately, there are many misconceptions about the effectiveness of pre-nuptial agreements. I provide below a few examples in order to debunk the myths surrounding pre-marriage agreements in the hope that you are clearer and have some more information to work with prior to making that all-important decision to marry. The most common misconception concerning pre-nuptial agreements is that pre-marital agreements are not recognised in UK law. This is simply not the case. They are acknowledged by our courts and as a general rule, will be upheld and treated with a considerable degree of respect. However, that means that each case will be judged and the circumstances considered individually. The Court will not be bound by the terms of the agreement but they will be dependent on the facts of the given case before them. It might be said that the Law Court will only set aside a pre-marital agreement if it would be unfair to hold the party to the agreement or the agreement was entered into without sufficient understanding and knowledge of the implications. The criteria includes: full and frank disclosure of assets, a fair agreement, Both parties seeking independent legal advice, a window of a minimum of 28 days between the proposed agreement being shown to the other party and the date of the wedding taking place. Another common misconception is that a pre-nuptial agreement is a waste of time and energy in the UK and even Europe because courts will never uphold a prenup. This again, is simply not true. As stated above, judges will consider the circumstances of each individual case and will be favourable towards an agreement which provides a fair and just solution to the problem presented to the Court at that time. The leading case is Granatino v Radmacher which we expounded in our last post. The court in that case said that "[w]here the parties are of full age [..] and contract freely to waive their future entitlement to share in the assets of their spouse, the contract should be given effect if, in all the circumstances, it would be manifestly unfair to do so." So, if the prenuptial agreement complies with that, then it is likely to be upheld. Furthermore, it is a matter of record that the number of marital agreements decided on by judges that were found to be fair have increased significantly.
Options available instead of Pre-Nuptial Agreements
Post-nuptial agreements have been around for a number of years, often seen as a compromise for those who were unable to agree pre-marriage, or anyone who has decided to enter into an agreement after marriage. A post-nuptial agreement would be appropriate if you have decided to marry without entering into a pre-nuptial agreement but want to have the same type of protection provided by a pre-nuptial agreement. If a post-nuptial agreement is entered into and the marital relationship subsequently breaks down, the court has the power to uphold the agreement, or set it aside (whether or not it is on the basis that there was a significant change in circumstances). It is likely to do this if the court believes that it is fair to do so. However , it must take account of any children of the family in making that decision. We do not yet know how strong a post-nuptial agreement might be in the event of a person losing capacity whilst married; however, it may be that clarity between partners, the provision made for spouses in a Will and the arrangements for children may be taken into consideration in determining a case. If you are considering a pre-nuptial or post-nuptial agreement, as with all contractual agreements the circumstances existing at the time of entering into the agreement must be fully considered.