For those who have current or future wealth to protect or who are marrying for the second or third time perhaps, arranging a prenuptial agreement could be an essential part of the “wedmin” leading up to the big day.
In this short guide, we outline 10 questions we often get asked to help dispel some of the myths around nuptial agreements in England and Wales.
For those who have current or future wealth to protect or who are marrying for the second or third time perhaps, arranging a prenuptial agreement could be an essential part of the “wedmin” leading up to the big day.
In this short guide, we outline 10 questions we often get asked to help dispel some of the myths around nuptial agreements in England and Wales.
1. What is a prenup?
It is an agreement which makes provision for the division of a couple’s assets and income in the event of a divorce. The alternative is allowing the divorce court to exercise its full discretion in determining how such wealth should be apportioned, both as to capital assets and income. Accredited members of the press and others can sit in on family law hearings and, in certain circumstances, report on such cases. If one or both parties is in the public eye or has significant wealth, media interest will always be heightened. A prenup will help a couple keep their divorce and financial affairs private.
2. Are prenups worth the paper they are written on?
Yes. While prenups are not legally binding without the approval of the court , case law confirms that agreements which are entered into freely and with a full understanding of the implications should be upheld, unless it would be not be fair to hold the parties to their agreement. Provided certain safeguards and needs are met, the parties are likely to be held to the terms of their agreement.
3. What are the key benefits of having an agreement in place?
Prenups can provide some certainty and reduce the potential for legal argument at the time of the divorce and keep the details private. A person who has generated significant wealth before the marriage may well want to ring-fence that wealth. Someone with a high earning capacity may want to cap the maintenance provision to be made to the other party in the event of a divorce.
If a couple is prepared to be realistic and fair, these agreements are effectively a financial planning tool which helps to ensure a more predictable resolution of the financial terms of a divorce. This can be particularly important for individuals who have a high earning capacity for a short period in their careers, eg professional athletes and footballers. They may want to protect and ring fence the assets they have built up during their peak (often before marriage) to provide financial security once their sporting/playing career comes to an end.
4. What are the cons and pitfalls?
Nuptial agreements are sometimes difficult to broach (they are not exactly romantic documents) and can take time to negotiate. The couple will each need to give full financial disclosure to the other, so accountants, financial advisors and agents and/or managers can be involved. These agreements require full and frank discussions and can flush out uncomfortable differences in a couple’s expectations and values.
5. What would the agreement contain?
Each agreement is tailored to individual circumstances and is a unique document. The agreement can deal with the division of both assets and income, or some agreements deal only with asset division and leave income to be dealt with at the time of divorce.
Prenups should never try and contract out of making proper financial for any children of the family.
The agreement may set out how assets are to be held and managed during the marriage, for example, whether a joint account will be opened, the accumulation of any income over expenditure, how property is to be held etc.
A review clause may well be included in the prenup to reflect possible changing circumstances such as the arrival of a child or children, the receipt of wealth from one side of the family, a move to live in another country (which may uphold prenups without any room for argument) etc. Some prenups may stipulate a review once 5 years have passed and then at 10 years and if no such review takes place, then the original terms continue.
6. Do lawyers need to be involved?
The involvement of lawyers in the negotiations will depend on the individuals concerned; some may want to do the negotiations themselves and take the agreement to the lawyers, whilst others may leave it to the lawyers entirely. The lawyers will draw up the draft agreement, advise on its terms and then negotiate any necessary amendments.
7. Confidentiality
This will be a major consideration for most clients who will want to ensure that the negotiations and the agreement itself remain private and confidential at all times. Most prenups should contain a clause to the effect that should the marriage break down and should there be a dispute as to the terms of the prenup, then they will opt for either mediation or arbitration to keep the terms of any dispute private and away from any form of publication.
8. How long do agreements take to negotiate?
This can depend, but a couple should allow as much time as possible. The current Law Commission’s recommendations are that agreements should be entered into at least 28 days before the wedding to avoid any suggestion that it was signed ‘under duress’. It is important to start the discussions well in advance of the wedding to ensure sufficient time for the agreement to be negotiated, considered and signed.
9. What is the cost of an agreement?
Costs can range from £5,000, plus VAT and any disbursements upwards provided that the terms are agreed early and there is little negotiation. The more complex the finances and/or lack of early agreement mean that the cost is likely to increase. Also, if the parties have different nationalities and/or plan to live abroad, it may be necessary to take the necessary advice in the country of the nationalities/possible residence concerned. However, the costs of signing a fair prenup before the marriage takes place, are likely to be tiny in comparison with what can happen in the event of a contested divorce and the costs of arguing all the way to the conclusion of a trial.
10. If the couple move abroad, will the agreement be valid?
Not necessarily. An English prenup will not necessarily be upheld by a foreign court. It is not possible to have one global prenuptial agreement, entered into in one country, recognised worldwide but if that agreement contains a clause that wherever a divorce may take place, the parties will respect the original deal they struck in the prenup, then it is likely to have a bearing on the determination of the overseas court.
If a couple or individual moves abroad after their marriage, it is essential that they take legal advice in the country to which they move. They may be advised to enter into a post nuptial agreement. (ie: a contract similar to a prenup but which they enter into at any time after they marry and which seeks to determine what the financial arrangements should be on divorce.)
