What is a pre-nuptial agreement?
Where two people are thinking of getting married or entering into a civil partnership, they may wish to enter a pre-nuptial agreement if they have pre-marital assets that they wish own individually rather than jointly. The pre-nuptial agreement determines what will happen to the assets in the event that the relationship ends.
Why enter into a pre-nuptial agreement?
Everyone has their own reasons for entering into a pre-nuptial agreement. It may be that you and your proposed spouse simply like to be as organised as possible with your finances. Entering into a pre-nuptial agreement does not mean you are more likely to get divorced. A pre-nuptial agreement might be particularly beneficial where:
- one of you has substantially greater capital or income than the other
- one or both of you wishes to protect assets you owned prior to the marriage, including inheritances or family trusts
- it would be beneficial to define what is considered to be ‘matrimonial property’ or ‘non-matrimonial property’, for example in relation to business assets owned by one of you prior to the marriage
- one or both of you has children from a previous marriage or relationship and wishes to protect assets for the purposes of inheritance planning
- one or both of you has a connection with, or property in, another jurisdiction
Are pre-nuptials agreements binding?
In England and Wales pre-nuptial agreements are not strictly binding in the event of a later divorce, but the terms of a pre-nuptial agreement may be decisive in the event of a dispute that is dealt with by the court. Courts will not however enforce a pre-nuptial agreement if it is deemed unfair on one party.
In other countries, pre-nuptial agreements may be binding provided certain requirements are met, and where there is an international element, our expert family law team can advise you on how to proceed.
To ensure that a court does not look at a pre-nuptial agreement as being unfair, you and your future partner will have to disclose your financial circumstances in full. Our expert family team can help you negotiate the terms of the agreement. It is good practice to finalise the agreement in good time before the wedding or civil partnership ceremony (ideally a minimum of 21 days prior to the ceremony), so that neither of you feels undue pressure to agree to anything. It can take time to deal with financial disclosure, negotiations and legal advice, so it is important to plan in advance. If your finances, or those of your proposed spouse or civil partner, are complex (for example involving trusts, or international assets) then further time will be needed.
Agreements are generally less likely to be considered to be unfair if they are recent, or if circumstances have not changed since the agreement was entered into, and if both people knew exactly what they were agreeing when the agreement was made, both legally and financially, without any undue pressure being applied. It is common to build in provision for the agreement to be reviewed, either after a period of time has elapsed (say three or five years), or when a specified ‘trigger’ event occurs, for example the birth of a child, or if either you or your spouse were to have health issues that impact on your earning capacity.
Even though pre-nuptial agreements are not always binding, you should not enter into a pre-nuptial agreement unless you intend to be bound by the terms of that agreement.
In order to make pre-nuptial agreements more likely to be upheld by a court, the following need to be accounted for:
- both parties need to taken independent financial advice
- both parties must have provided full financial disclosure
- there should be no undue pressure on ay of the parties to the agreement
- there should be no fraud or misrepresentation by either party
- the agreement should be witnesses by independent witnesses
- legal requirements were followed when entering into the agreement.
What can a Pre-Nuptial Agreement Include?
A pre-nuptial agreement can cover almost anything you need it to cover, however the main items are generally financial.
Some of the matters you may wish to consider are what will happen to:
- the family home
- property given, inherited, derived from trusts during the marriage
- jointly held assets
- pre-marriage assets
- income and pensions accrued during the marriage
In addition you may wish to consider practical arrangements if the marriage ends:
- will there be maintenance paid or received
- when you should review the agreement
- the confidentiality of the agreement
- agreement for children pre-and post marriage
- arrangements in the event of the death of either one of you.
It is not possible to restrict financial provision for children.
A pre-nuptial agreement is entered into on the assumption that there will be a marriage or civil partnership. The agreement will only come into force when the marriage or civil partnership takes place.
What happens if we have children?
A pre-nuptial agreement cannot prejudice the interests of any children in your family. It is common to build in provision for a review of the agreement if and when you have children, so that the children’s needs can be considered and assessed at that time, with possible changes made to any expectations of the adults.
In the event of a divorce, if the court is asked to intervene in financial arrangements its first consideration is always any children involved. If the court considers that an agreement made by the adults may adversely affect their children, for example by restricting any expectations of a lifestyle they would otherwise have had, it is likely to consider that it is not fair to uphold the agreement in the circumstances. It is not possible to contract out of giving financial support to or for a child.
What are the advantages and disadvantages of a pre-nuptial agreement?
A pre-nuptial agreement can give more certainty as to financial arrangements in the event that you divorce, provided the agreement is entered into in accordance with the suggested steps as to legal advice and disclosure, and represents a fair arrangement for both parties. It can be an effective way to protect assets that you may have had prior to the marriage, particularly if you, for example, wish to protect assets for the purpose of an inheritance for any children of a prior marriage or relationship.
However, because the court will always have jurisdiction in the event of a divorce, entering into a pre-nuptial agreement can sometimes provide a false sense of security. If there is a divorce, and you cannot reach agreement as to how finances can be dealt with, and one of you no longer wishes to proceed in accordance with the terms of the pre-nuptial agreement, the issues may need to be determined by the court although where the court considers the pre-nuptial agreement to have been ‘fair’, it may make an order reflecting the terms of the agreement, see: What will happen if one party no longer wishes to be bound by the terms of a pre-nuptial agreement?
There is little advantage in agreeing terms that will be unfair to one party, particularly if that party has been placed under pressure to agree those unfair terms, hasn’t had independent legal advice or doesn’t have sufficient information (financial disclosure) to make an informed decision on whether to enter into the agreement. In those circumstances the court would be unlikely to consider the agreement to be ‘fair’, although there have been cases where all of the recommended steps haven’t been followed but a pre-nuptial agreement has still been upheld by the court. Often this will turn on the extent to which the party who no longer agrees with the terms understood what they were agreeing to.
Circumstances can change, and in the event of a dispute the court will look at your circumstances as they are at the time the agreement is being considered by the court. What may have been fair at the time of the agreement might not be considered fair if your or your spouse’s circumstances have changed significantly, for example you have had children and one of you has a reduced earning capacity, or one of you has suffered ill health, and the agreement hasn’t provided for those changes either in its original form or by an amended agreement. For this reason it is sensible to include provision in the agreement for there to be either regular reviews, or reviews in the event of certain events occurring.