Pre-nuptial Agreements - no longer the realm of the UHNW and celebrities

by Irpreet Kohli

"Pre-nuptial agreements aren't binding so is there any point?"
"I'm already married so I guess I have to hand over 50% of my assets if I get divorced."

What is a pre-nuptial agreement?

I'm already married though - isn't it too late for a pre-nuptial agreement?

No it's not. Enter the "post-nup­tial agreement". This is a similar contract that is drawn up between a couple but when they are already married. Contrary to belief, post-nuptial agreements are drafted more frequently than pre-nuptial agreements due to their use as asset protection documents by individuals who, for example, are tax planning and structuring their assets, have recently received large sums of money or are looking to pass down wealth to the next generation.

When should I consider a pre-nuptial or a post-nuptial agreement?

You should speak to a family lawyer if any of the following situations apply to you or your clients:

• When one party to the marriage receives, or will soon receive, inheritance that they wish to protect from a relationship breakdown.
• When consideration is being given to tax structuring and the passing of wealth to the next generation. This is an ideal time to start a discussion about nuptial agreements as they can be presented to the next generation as a financial planning necessity, in the same way as wills and LPAs, rather than later being introduced in the more sensitive scenario of being something that is required due to a distrust of potential future spouses.
• When parties are beneficiaries of trusts, including when they are simply one of a class of discretionary beneficiaries, and there has been, or will be, distributions from the trust. This is particularly the case if those distributions are being 'mingled' with matrimonial assets.
• When parties have pre-acquired assets they have built up or received from a previous divorce that they would wish to ring-fence from any potential future relationship breakdown.

Are these agreements binding?

The Courts do retain the overriding ability to ultimately decide what the financial provision should be and this is to ensure that no individual would end up in a predicament of real need due to the unfair terms in a nuptial agreement.

Are there any guidelines to make these agreements more binding?

• Both parties should obtain independent legal advice on the terms of the agreement and each adviser should sign a confirmation that they have given advice which should be attached to the agreement.
• There should be appropriate material financial disclosure so each party knows and understands the financial background of the other before they agree to the financial settlement being proposed.
• Pre-nuptial agreements should be finalised and signed no later than 28 days before the date of the wedding. A post-nuptial agreement does not have a similar timescale but any agreement should be signed only after both parties have had sufficient time to digest and take advice on the terms of it.

Is it possible or necessary to have both a pre-nuptial agreement and a post-nuptial agreement?

"I don't really discuss a client's personal life so it is awkward to bring up these agreements"

If you are unsure about whether they are relevant to your client's particular circumstances, feel free to contact the Family Team at Freeths to have an initial call and we can let you have some initial thoughts.

Be ahead of the game and ensure that you and your clients have used every asset protection tool available to regulate and deal with their finances.

Contact:
www.freeths.co.uk