Pre-nuptial agreements have become more and more common in England and Wales over the course of the last few years.
The tide really turned following the Supreme Court case of Radmacher v Granatino in 2010, when the court considered whether the terms of a pre-nuptial agreement should be upheld by the courts in England when resolving the financial arrangements between the parties to a divorce, write Julia Cox, personal tax and trust lawyer, and Felicity Chapman, senior associate, at Charles Russell Speechlys.
It found that “the court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement”.
While in England and Wales the family court still retains the ultimate jurisdiction to determine the appropriate financial arrangements on divorce – in contrast to some other jurisdictions where pre-nuptial agreements have been legally binding for many years – since the Radmacher case pre-nuptial agreements have been regarded as increasingly binding.
The rise in pre-nuptial agreements has perhaps also been spurred on by the high level of financial instability since the pandemic began. They assist parties in ensuring that they have the greatest certainty and clarity possible regarding the financial arrangements between them.
Objectives
The primary purpose of a pre-nuptial agreement is usually to protect wealth brought to the marriage or likely to be received during the marriage by one or both of the parties, and to set out the financial arrangements in the event of the marriage breaking down.
It might make it clear that certain assets are to be ringfenced and not shared or claimed against in the event of a divorce. Some go into a high level of detail about the financial provision that would be made for the parties (and sometimes also children) on a future divorce.
While the parties’ Wills primarily govern the position on death, a pre-nuptial agreement can also be used to record their joint intentions and understanding of their post-death plans such as in relation to trust assets.
Tax may be a relevant consideration too, including mitigation. It could also help to stave off a possible future claim against a party’s estate on death under the Inheritance (Provision for Family and Dependants) Act 1975.
Who needs one?
There are many situations in which a pre-nuptial agreement may be advisable. They are no longer the preserve of the ultra-rich only.
Some common scenarios where pre-nuptial agreements are made include the following:
- Parties entering into a second (or subsequent) marriage, each with their own assets and wishing to preserve those for the children of their previous marriages;
- One party has or expects to receive significant wealth from family or another external source and wishes to protect that for future generations of the family;
- One or both parties are in business with others and wish to ensure that this would not be disrupted or claimed against in the event of a divorce – though the business governance position should of course be considered too;
- There are specific assets that one or both of the parties wish to make clear are to be ringfenced.
When should people enter into one?
There is no absolute deadline as to when a pre-nuptial agreement must be signed. However, the Law Commission recommended in 2014 that this should be no less than 28 days before the wedding.
While it is generally still better for the financially stronger party for there to be a pre-nuptial agreement signed shortly before the wedding than to have no pre-nuptial agreement at all; the closer the wedding date, the greater the risk of the other party later alleging that they were under undue pressure and/or did not have time to properly consider and take advice on the terms and so the agreement should not be upheld.
It is important that sufficient time is allowed for the parties to exchange some financial information, for them to take separate legal advice from their own independent advisers and for the precise terms of the agreement to be negotiated. It is therefore generally sensible to start this process several months before the planned wedding date. This timeframe also has the benefit of taking the pressure off the parties and allowing them to concentrate on wedding plans in the run-up to the big day.
Even after the parties marry, they can instead enter into a ‘post-nuptial agreement’. The purpose, remit and legal status is the same as a pre-nuptial agreement and this can be done at any point during the marriage.
Nuptial agreements now frequently form an important part of clients’ wealth planning and protection, alongside other measures such as trusts, family investment companies, their Wills and powers of attorney. Taking a holistic approach to such planning can reap significant benefits for clients in achieving their financial goals.
This article was written for International Adviser by Julia Cox, personal tax and trust lawyer, and Felicity Chapman, senior associate, at Charles Russell Speechlys.
