Why consider a Prenuptial Agreement?

Following the Christmas season and with Valentine’s Day just around the corner, romance will be in the air and proposals of marriage are likely to be in abundance.

There is much to do when planning a wedding, but all too often the consideration of whether or not a Prenuptial Agreement (prenup) should be put in place is left until the last minute, leaving insufficient time for proper thought and legal advice.

Whilst prenups might appear to be somewhat unromantic as they are essentially planning for a marriage to fail, they can provide certainty and can help to avoid distress and significant legal costs further down the line if the marriage does not go to plan. Such agreements are definitely worthwhile entering into if there are assets to be protected if, for example, there is substantial family wealth to protect or a business set up before the spouses met to protect or if parents are to be repaid sums for monies transferred to help with a house purchase, or if a spouse wishes to protect assets for children from a first marriage when entering into a second marriage.

The Law Commission has recently proposed for prenups to be legally binding with the aim of reducing disputes over asset division during divorce. The Commission argues that the current rules are unpredictable and can often lead to conflict, stating that they “promote dispute.”

What is a prenup?

Agreements, entered into voluntarily, with a full appreciation of their implications, will be upheld on divorce unless it would be unfair to do so and so ultimately, prenups are not binding like a commercial contract, but they do become the default position.

• There are two factors, however, which might make any prenup unfair, if they are not dealt with properly, and they are procedural and financial:
• Procedural factors mean:
  • financial disclosure being given on both sides prior to the Agreement being entered into;
  • independent legal advice having been given to both spouses prior to entering into the Agreement;
  • no unfair pressure on either spouse prior to entering into the Agreement which essentially means that time for reflection is very important before entering into the Agreement; it is wise therefore to allow at least a gap of 28 days between the signing of a Prenuptial Agreement and the wedding itself, if not more (and especially so if the spouses are going to be living in other jurisdictions potentially in due course as legal advice from foreign family lawyers will doubtless be required before concluding the Prenuptial Agreement ). If, however, the Agreement is entered into closer to the wedding itself, it is advisable to enter into a Post Nuptial Agreement shortly after the wedding to reconfirm the terms as that will give the Prenuptial Agreement more weight

• Financial factors mean:
  • that the court cannot leave a spouse in a “predicament of real need”, but that means a number of things in different cases; for example, it might mean meeting needs simply or it could mean a harsher test which concerns essentially the alleviation of hardship, or it means whatever the judge wants it to mean – there have been three cases recently which talk about a “predicament of real need” meaning different things. The absence of clarity from case law means that the harsher test, concerned simply with the alleviation of hardship, as in Cummings v Fawn, is probably correct, but this is yet to be resolved by the Court of Appeal and so caution is required in this area;
  • In practice, judges often determine whether the financial provision in a Prenuptial Agreement is broadly within the right parameters and make findings on the Agreement accordingly, but the trend is certainly for Agreements to carry greater weight and for procedural arguments to carry lesser force. It is for those reasons that an Agreement entered into is likely to have substantial weight if there is provision for a split in assets and income on divorce going forward.

Types of prenups

There are different types of prenups:

• Agreements which are essentially very general and specifically exclude a particular asset or assets in the event that the marriage breaks down;
• Extremely detailed Agreements which set out the exact provision to be made if the marriage breaks down in less than a year, within 1-3 years, 3-5 years, 5-7 years, 10-15 years, 15-20 years and 20 years and over, and either with children or without children;
• Agreements setting out principles that should apply in the event the marriage breaks down within certain timescales and with children of the marriage or with no children of the marriage.

Agreements setting out principles are often far more realistic because they are not so rigid and specific that an Agreement of some 50 pages or so is required, but they do provide the clarity that is needed, very simply, without having to consider every possible conceivable future scenario.

They also mean that regular reviews are not needed. This is hugely important as in many cases, reviews hardly ever take place, for a number of reasons, but essentially because nobody wants to start raking up these issues again when the marriage is going well.

With principles set out, there is often far less tension and anxiety in the lead up to a wedding, compared to the very detailed Agreements and they do give the reassurance that everyone involved requires in terms of security and certainty. For instance, it is possible to provide for a percentage of the family home that one spouse will have, in circumstances where there are children and where there are no children, along with any provision for a holiday home, emergency funds and reasonable income needs for a spouse and children including payment of school fees and nanny costs. These principles are particularly useful where one of the spouses is from a particularly wealthy background or who has brought considerable wealth to the marriage.

In summary, if there is wealth to be protected, it is far better to have a prenup in place rather than have no Agreement at all. Also, if both spouses to be would rather have certainty generally as to what might happen if the marriage breaks down, it is worth entering into an Agreement. A well thought out and respectful Agreement on both sides (discussed either in mediation with a neutral expert family lawyer who is trained as a mediator or with expert family lawyers who know each other and work well together) can save much stress and cost in due course if the marriage does break down, but it can be filed away and more or less forgotten about once drawn up.

If you have any questions or concerns about prenups or any other family query, please contact Emma Harte.