Pre-nuptial agreements are often regarded as a cold-hearted approach to marriage that wealthy people use to protect their assets, with the less affluent party missing out.
But is planning ahead such a bad thing?
Can pre-nups be flipped around and used as a wealth management mechanism by couples?
Kathryn Evans, senior family law associate at Irwin Mitchell, argues that pre-nups should be treated the same way as taking out insurance.
She told International Adviser: “It seems unlikely that anyone would enjoy ‘planning for a divorce’ in the run up to their marriage. However, as a society, many of us take out insurances to protect us from other events that we hope will never happen.
“Arguably, pre-nuptial agreements should be considered in the same way,” she added.
Will MacFarlane, family law partner at Royds Withy King, told IA: “Prenuptial agreements have now entered the public consciousness and are commonly entered into by anyone seeking clarity and the minimum of disruption on divorce.”
Encourage transparency
“Many view pre-nups as something only for millionaires who want to shield their assets from a partner in the case of a divorce,” David Denton, international tax expert at Old Mutual International, told IA.
“However, while not always legally binding, a pre-nup can be a useful financial planning tool; as they encourage frank conversations about levels of wealth or debt in advance of marriage and if professionally implemented do not have to be framed in a negative way.”
Pre-nups are not legally recognised in England and Wales, unlike Scotland and many countries in continental Europe, but this doesn’t mean it is not worth entering in one.
“The courts in England and Wales may still use an agreement for guidance in their decisions, depending on the court’s view of the agreement’s fairness,” Denton added.
Be clear from the start
Vandana Chitroda, family partner at RIAA Barker Gillette, told IA: “Many people enter into pre-nuptial agreements to plan for their future and to provide financial clarity from the outset of their marriage.
“Thinking this far ahead, early on, can help them to avoid potential conflicts.
“But as some people do choose to enter into them for financial planning purposes, both legal and financial advice should be sought.”
MacFarlane sad it is crucial both parties are advised separately before entering into a pre-nup.
“Procedural requirements include that each party obtains independent legal advice, there is an exchange of financial disclosure and that there is a complete absence of duress,” he added.
Cross-border provisions
For international families or couples moving around the world, it is even more important to have a pre-nup, as domestic policies might change and impact their financial wellbeing.
Royds Withy King’s MacFarlane added: “For [ultra-high net worth (UHNW)] and [high net worth (HNW)] individuals moving to the UK, a prenuptial or postnuptial agreement is now an essential step to be coordinated with their pre-entry tax planning.
“It is crucial that internationally mobile families seek expert advice from a family lawyer with experience of working with colleagues in other jurisdictions.
“Some provisions in one jurisdiction may be contrary to public policy in another and an experienced family lawyer can coordinate advice across jurisdictions to ensure that clients are given as much protection as possible.”
This is also because different countries have different requirements or even marriage regimes altogether.
“In some countries; such as Australia, Brazil, China, Canada, Finland, Germany and Greece to name but a few, pre-nups are enforceable,” said RIAA Barker Gillette’s Chitroda.
“However, each country is likely to require that the agreement contains various provisions to ensure that it is valid and capable of enforcement.
“In other countries; such as Italy, France and Spain, at the time of marriage, couples can opt for the ‘Separation of Assets’ regime. This means that each party is entitled to their own assets only on divorce.”
Update it regularly
Sue Andrews, partner in family law at BP Collins, told IA: “The pre-nuptial agreement should always be entered into when a couple has a very different asset base at the time of the marriage, or if it’s a second marriage and there are children from a previous marriage(s) to consider or there is an expectation by one of them of a significant inheritance or gift.
“So many people consider them unromantic and interpret it as the person asking for one not having faith that the marriage will last. But actually, if you are able to have full and frank discussions about what can be a sensitive matter at day one, then it says quite a bit about the relationship.”
Chitroda added: “If a pre-nup has been drawn up fairly and reviewed regularly, with each party having disclosed their assets and taken independent legal advice at the time of entering it, it is likely that a court will uphold it, if it is fair so to do.
“Pre-nups can therefore be very effective. Even if the court does not uphold the agreement, they will look at the intentions behind the agreement when deciding upon the division of assets in divorce proceedings.”
Irwin Mitchell’s Evans believes these agreements should come under the same umbrella as any other wealth management tool, such as Wills, insurance and investment reviews.
“Especially in a situation where there is an inequality in financial wealth between the parties to a forthcoming marriage, or even where the level of their respective wealth is broadly similar, but the nature of source is different, or where it is anticipated that one party or both parties separately may benefit from a relatively sizeable inheritance in the years ahead.
“And for either party, having the discussion about financial arrangements and expectations, whether the marriage may come to an end or not, is an important discussion to have before the legal commitment to marry is formalised by a ceremony,” she added.
