What are pre-nuptial and post-nuptial agreements? What are their advantages and disadvantages?

What are pre-nuptial and post-nuptial agreements? What are their advantages and disadvantages? Part 2

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As family lawyers we help families at three points in their lives:

  • at the outset when all is happy and well with prenuptial agreements and cohabitation (sometimes called living together) agreements to record how assets are to be treated in the event of a breakdown in their relationship;
  • during the relationship/marriage if a big life-changing event takes place with post-nuptial agreements and cohabitation agreements; and
  • when the relationship has broken down when people often wish they had greater thought to the impact of separation/divorce/dissolution on their assets and had entered into a nuptial agreement to protect their position and avoid uncertainty.

The Family Court has wide-ranging powers and people are often shocked to learn that assets that they thought had been protected through other mechanisms could, in fact, form part of the matrimonial pot e.g. trusts, companies, inheritances, assets held in their sole name, assets held offshore etc.

In our first blog post in this series we covered Everything you need to know, and more about Pre-nuptial and Post-nuptial agreements, here I’ve set out the key points in relation to nuptial agreements which we hope will highlight why professionals and individuals should consider whether a nuptial agreement should be entered into.

There are two types of nuptial agreements:

  1. Pre-nuptial agreements – made before the parties enter into a legally binding marriage/civil partnership; and
  2. Post-nuptial agreements – made after the parties are legally married/become civil partners.

The court has confirmed in case law that the prenuptial agreement and post-nuptial agreements are to be treated in the same way and accordingly the same principles apply.

Pre-Nuptial Agreements (pre-nups):

A pre-nup is a legal agreement between two people prior to getting married or entering into a civil partnership. These agreements are tapered to the couple?s individual circumstances. The agreement will detail the ownership of belongings (including money, assets, property, inherited assets, trust assets etc) and how these will be divided upon the breakdown of the marriage. Pre-nuptial agreements are insurance policies, but as the laws presently stand they are not legally binding and enforceable as a contract. However, following the case of Radmacher v Granatino (2010) they are now given significant weight in the event of divorce unless the terms agreed are considered to be unfair.

Post-Nuptial Agreements (post-nup):

A post-nup is a legal agreement made between a couple that are already legally married/in a civil partnership. These agreements set out how the couples’ assets are to be divided between them should they separate or divorce or dissolve the relationship. It is always sensible to consider whether a pre-nup should be revisited and/or where no such agreement exists a post-nup agreement should be considered in the event of a big life-changing event such as the birth of a child, gifts, inheritances, new businesses, trust structures to record with clarity what is to happen in the event that the relationship were to breakdown.

When should an individual consider the need for a nuptial agreement?

Finances can be an emotive subject and nuptial agreements can provide peace of mind. Individuals should consider the need for a nuptial agreement when:

  1. Getting married or entering into a civil partnership;
  2. Buying a property even where they are entering into a trust deed;
  3. Setting up a company (not least to protect the business and the other shareholders);
  4. Protecting inherited wealth and safeguarding future inheritance;
  5. Becoming a beneficiary of a trust;
  6. Expats;
  7. Protecting trust assets (perhaps even making it a prerequisite of remaining a beneficiary);
  8. Protecting a spouse’s interests in assets in the event of another party being made bankrupt;
  9. Receiving gifts;
  10. Ringfencing assets;
  11. Protecting health insurance pay-outs to meet needs;
  12. Providing certainty;
  13. Protecting third party interests in assets (i.e. gifted family assets, companies, properties, pensions); and
  14. To protect a spouse where one party dies prematurely to avoid the negative consequences where Wills may be out of date or to avoid the impact of the rules of intestacy where there is no valid Will.

Necessary steps to give them as much weight as possible to a nuptial agreement on divorce

Nuptial agreements must be contractually valid and executed as a deed.

There is a three-stage fairness test in respect of nuptial agreements:

  1. The agreement must be freely entered into without undue influence or pressure;
  2. The parties must have a full appreciation of the implications of the agreement – full and frank disclosure will need to have been provided; and
  3. It must be fair to hold the parties to their agreement in the prevailing circumstances.

Early preparation is key. It is advisable to start negotiation not less than 3-6 months before wedding/civil partnership is celebrated because it is recommended that nuptial agreements be made more than 28 days (although draft legislation is suggesting 21) before the ceremony, although if time doesn’t permit there are ways to address this with a view to them agreeing to a post-nuptial agreement in the same terms.
Further, both parties must have provided each other with full and frank financial disclosure, and it received independent legal advice in respect of the agreement. We see far too many people having the stress of resolving what can be challenging issues when they should be focussing on the preparation for their ‘big day’.

Advantages of Nuptial Agreements:

  1. Protects assets – including inherited wealth, interests in businesses, gifts, heirlooms, properties etc.
  2. Provides certainty e.g. in relation to how needs could be met, maintenance etc and what should happen on death to ensure the parties are not reliant on what may or may not be in a Will.
  3. Transparency which can avoid later arguments over visceral issues – you also get to discuss what should happen and what is seen as fair in an objective way, not from a position of potential hurt and pain where the emotional impact of separation is clouding your judgement.
  4. Avoids potential liabilities – the other parties’ assets are more likely to be protected should the other party have significant debts that they cannot pay.
  5. Parties can agree their own terms – but bear in mind agreements that are seen to favour one party significantly more or are unfair are not likely to be upheld by the court.
  6. Cost-benefit – it is significantly less expensive to negotiate and draft a nuptial agreement than embark upon expensive financial proceedings on divorce.
  7. Improves communication and can encourage an open an honest dialogue – by discussing financial issues at the outset of the marriage, it can strengthen the relationship and promote communication during the marriage.
  8. Minimises acrimony upon separation as the terms of separation are settled and the couple have already modelled how the separation should be dealt with.
  9. Freedom of choice as to what to include in the agreement rather than having the terms imposed.
  10. You can choose a process which enables the parties to sit around the table to discuss what is important to them. The collaborative model/mediation/round table meetings where there can be a dialogue is far better than negotiation by letter.

Disadvantages of Nuptial Agreements:

  1. They are not – as the law presently stands – legally binding, although that may change
  2. Unromantic – some individuals are upset and opposed in principle to nuptial agreements as they do not wish to think about the marriage ending when it has just begun (we insure our homes without wanting them to burn down!)
  3. Poorly drafted, they can penalise the economically weaker party – over time assets can increase or decrease in value, leaving one party significantly weaker than the other.
  4. Changes in circumstances – the more that time passes, the less effective nuptial agreements maybe: review clauses and post-nuptial agreements could be used.
  5. Stress – preparing for marriages are indeed a stressful time. When adding financial issues on top of this it can put strain on the relationship: early preparation is vital.
  6. Vulnerability – some parties may be financially weaker than the other. This can be exploited by the other party should the weaker party agree to clauses without knowing the full implications (and although fairness is an essential ingredient can the weaker party afford to challenge the agreement in court).
  7. Legal fees – whilst nuptial agreements will be significantly less expensive than contested financial proceedings, there will be a cost when drafting and negotiating the terms of the nuptial agreements and they need to be properly thought through if they are to achieve what’s intended.
  8. Far too many law firms still see the process as a contentious process wanting the best deal for their client rather than a fair outcome which ensures the agreement has the best chance of being upheld. After all the parties are about to marry and trust and confidence is implied in the relationship!

Kate Elliott is head of our award-winning team of specialist family lawyers in Horsham. To speak with Kate, or a member of the Horsham team, about your specific requirements surrounding pre-nuptial or post-nuptial agreements please contact us.

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