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Analysis: nuptial agreements

Date:20 FEB 2019
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Joanne Edwards and Rosie Schumm, of Forsters LLP, write that engagements and wedding planning are joyful and heart-warming experiences during which talk of a nuptial agreement is often viewed as being at odds with this special time. However, attitudes are changing.

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More and more couples are signing nuptial agreements, valuing the certainty and financial transparency that such agreements bring, and rejecting the notion that nuptial agreements are unromantic.

Nevertheless, many feel apprehensive about raising the subject of nuptial agreements, partly due to the lack of impartial information and the influence of popular misheld beliefs.

The term 'nuptial agreement' refers to both pre-nuptial and post-nuptial agreements (ie, those entered into before or after marriage). The aim of such agreements is to set out what a financial settlement would look like if a couple ever got divorced and to ringfence any assets that one or both of them are bringing to the marriage, or that they may inherit. An agreement helps to provide certainty and security if a marriage breaks down and is also a good way of entering marriage with full knowledge of the financial picture. It gives couples more control to make their own arrangements for the future, rather than leaving everything up to chance (and potentially costly court proceedings in the event of divorce).

Myths about nuptial agreements

Nuptial agreements are commonly associated with the rich and famous and can often be sensationalised by popular news stories. This has led to the widespread belief that nuptial agreements are unfair, worthless and unromantic, when in fact they can be a sensible, fair and transparent way to discuss the financial aspects of a marriage and agree the outcome if ever it breaks down.

Myth one – nuptial agreements are not recognised in the United Kingdom
This is one of the most common misconceptions about nuptial agreements. While nuptial agreements have no statutory footing in England and Wales (laws are different in England and Wales and Scotland), they are likely to be upheld by the English courts if they are drawn up properly and meet the required safeguards. This is due to the landmark 2010 case Radmacher v Granatino, which saw the Supreme Court clarify for the first time that a nuptial agreement will be upheld unless one person can show why it should not be. The Supreme Court stated as follows:

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 the agreement.

Since this decision, the Law Commission (an independent body which keeps the law under review) published a report in 2014 in which it recommended the introduction of 'qualifying nuptial agreements', which would enable couples to make binding arrangements for the financial consequences of divorce. To be a 'qualifying nuptial agreement', an agreement must meet certain procedural safeguards and cannot be used to contract out of fairness or to meet the financial needs of each party and any dependants.

Although the Law Commission's recommendations have not yet been enacted, couples should expect to be held to the terms of their nuptial agreement if they meet the following key requirements:

  • Its terms must be fair (viewed against the circumstances at the time of divorce).
  • It must have been entered into without duress and signed at least 28 days before marriage (see myth four).
  • Both parties must have fully understood the terms and have obtained independent legal advice (or had the opportunity to do so).
  • Full financial disclosure must have been provided.

Where a couple moves to England having signed a nuptial agreement in another country, they should take advice about whether the agreement would be recognised in England and, if not, enter into a fresh agreement which respects these principles.

Myth two – nuptial agreements are only for the wealthy
Although nuptial agreements have traditionally been thought of as the preserve of the wealthy, there are many different reasons for getting one. Examples include the following:

  • A young professional couple without children who wish to keep their assets ringfenced as they accumulate savings from earnings.
  • An older couple where one or both of them have been married before and who want to pool their resources to a limited degree (eg, buy a house together), but otherwise keep their assets separate, so that they can leave them to children from a previous marriage.
  • Where one of the spouses-to-be is a widow or widower and they want to carve out and protect assets left to them by their deceased spouse, perhaps for children or charitable purposes.
  • If there are expectations of future inheritances on one or both sides, a couple may wish to clarify what would not stand to be shared on divorce.
  • If the 'bank of mum and dad' or another family member is gifting the couple money (eg, to put towards a property purchase), it is sensible to have a nuptial agreement which states that in the event of divorce, that money would stay with the spouse whose family gifted the money.
  • A family may wish to protect wealth that has been built up over many generations. There may also be assets that have been passed down the generations and which have great significance beyond monetary value, such as a family heirloom or landed estate that a couple are going to live on once married.

It must be remembered that needs trump all. If the effect of ringfencing assets is that the other spouse is left without money for a house on divorce (especially where there are children), a court may seek to raid some of the assets referred to above. Having a nuptial agreement allows for the parties to be creative (eg, saying that any money provided for housing will be 'loaned' from one spouse to the other on divorce and return to them or their estate on the death of the spouse who has been loaned the money or once the children are grown up).

Myth three – nuptial agreements are about one person protecting their assets Nuptial agreements are not about one party retaining all of the money on divorce, as the courts would rightly override a document which did that. They are about avoiding the acrimony and costs which can be associated with litigation on divorce by having a sensible discussion before or after marriage about what the financial landscape would look like on divorce. Having an open conversation at the beginning of a marriage about how assets will be treated on divorce is sensible. Many couples find the discussions around a nuptial agreement helpful; when done ahead of a wedding, it means that a couple start married life with their eyes open about each other's finances having discussed whether they will have children, where they will live and whether they will both work.

Although the expectation is that the lawyers will go into battle, most couples find the reality to be quite different. Although parties must instruct lawyers in order to get independent legal advice, they control the process. Most lawyers will suggest face-to-face discussions, involving clients as appropriate to iron out any differences about the terms, sometimes in the collaborative process. It is also possible to see a mediator to agree the headline terms before instructing solicitors to work from the agreed principles.

Myth four – pre-nuptial agreements can be signed as couples walk down the aisle Often, a couple will make contact with solicitors about a nuptial agreement in the days leading up to their wedding. In general, to stand the greatest chance of being upheld on divorce, a pre-nuptial agreement should be signed at least 28 days before the wedding date. It is less likely, if that is the case, for one person to say on divorce that they were under pressure to sign. Further, it also gives enough time for financial disclosure to be prepared and legal advice to be obtained.

Clients are generally advised to start discussing a nuptial agreement or instruct their solicitors at least three to four months before their wedding date, to give time for proper discussion in a period when they will also be preoccupied with wedding planning.

If a pre-nuptial agreement is not signed at least 28 days before a wedding, all is not lost. Sometimes negotiations have started months beforehand and it just happens that the signing is delayed. In such cases, wording should be included in the agreement explaining that it was under discussion for many months and there was no duress. Where the idea of a pre-nuptial agreement is raised too close to the wedding, parties should sign an agreement to enter into a post-nuptial agreement within a couple of months of their wedding rather than signing a document which will be rushed, ill-thought through and prone to later accusations of duress.

Myth five – pre-nuptial agreements can only be signed before marriage
Most people have heard only of pre-nuptial agreements. However, it is possible to draw up a post-nuptial agreement after a wedding. The circumstances in which post-nuptial agreements may be entered into include the following:

  • where there has not been enough time to prepare a pre-nuptial agreement (or a detailed and well-thought through pre-nuptial agreement) before the wedding;
  • where there has been a considerable change in circumstances since a pre-nuptial agreement was entered into which may make its terms unfair (eg, where one spouse falls seriously ill or the financial picture changes in an unexpected way, although pre-nuptial agreements can try to anticipate such eventualities);
  • no pre-nuptial agreement has been entered into but one party comes into unexpected wealth which they wish to protect if there is a divorce or preserve to leave for their children;
  • there are difficulties in the marriage and although no conclusion has been reached about divorce, the couple wish to have an early discussion about what the financial terms of divorce may look like;
  • a conclusion has been reached that there will be a divorce, but for tax or other reasons the couple wish to remain married and leave their asset structure unchanged for a while. A post-nuptial agreement can set out the details of how finances will operate on separation before divorce and on ultimate divorce (as well as giving thought to what would happen if one party dies after separation but before divorce); or
  • where a pre-nuptial agreement has been entered into in another country, the couple subsequently move to or acquire another connection with England and are advised that their pre-nuptial agreement would not be respected there. This will sometimes lead to more generous provision being made in an agreement entered into in England than was the case overseas, so that its terms are regarded as fair in the eyes of the English courts.

It is often more difficult to persuade one spouse to sign a post-nuptial than a pre-nuptial agreement. With a pre-nuptial agreement there is the focus of the wedding and it is usually clear why one person would want such an agreement. In post-nuptial agreement discussions there is often no particular hook to persuade the other spouse to engage in discussions or sign the agreement. People can see it as a suggestion that the marriage is in difficulty, whereas the proposal is usually made for one of the reasons set out above. Often, an incentive to sign a post-nuptial agreement can be to suggest terms which are more favourable than if there were a divorce without a nuptial agreement, but which over time become less so.

Joanne Edwards and Rosie Schumm, Forsters LLP
joanne.edwards@forsters.co.uk or rosie.schumm@forsters.co.uk

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