At the turn of the Millennium, pre-nuptial agreements were still considered to be a cold and calculating manoeuvre which took a lot of the romance out of a marriage and presented it as resembling a business transaction.
Increasingly this perception has changed and today, people view pre-nuptial agreements as a necessary means of safeguarding wealth and protecting loved ones, and a common-sense settlement which removes a lot of potential stress and anxiety should it be needed in the future.
There are, however, still people who need to be convinced by the merits of the pre-nuptial agreement, and there remains a number of misconceptions about when they should be used, so in this article we will discuss the benefits of pre-nuptial agreements and outline the common circumstances in which they are put in place.
What is a pre-nuptial agreement?
A pre-nuptial agreement is a legal document that is prepared prior to a marriage which documents the assets each partner has brought into a marriage together with any anticipated future assets such as inheritance. It plans for how these assets and other wealth, or debts, accrued before or during the marriage will be distributed, in the event of separation and eventual divorce.
Rather than pre-empting problems with a marriage, this is now viewed as an effective tool in financial planning, much as you put plans in place with a will and with pensions. Couples can also prepare a post-nuptial agreement, which follows the same format and objectives, but is put in place after a marriage has taken place or replaces an existing pre-nuptial agreement which requires changes to it.
Ultimately people need to protect their future wealth and put plans in place for passing assets on to future generations. A pre-nuptial agreement can be used to bring clarity to what are marital and non-marital assets, and hence how these will be divided upon separation.
As well as providing transparency from the outset, this prevents conflict and misunderstanding, and further emotional turmoil, in the unfortunate event that the marriage breaks down in the future. In the UK, pre-nuptial agreements are not automatically legally binding, but providing they are fair and willingly agreed by both parties, will commonly be upheld by family courts during divorce proceedings.
The benefits of a pre-nuptial agreement
- Reassurance – In addition to protecting wealth, a pre-nuptial agreement can also provide reassurance for one partner who may not have brought wealth into the marriage or who has a lower income, or both. A weaker financial partner can seek assurance via a pre-nuptial agreement that their needs will be met should the marriage break down, and this removes potential conflict should this discussion need to be had when emotions are high.
- Control – A pre-nuptial agreement provides autonomy and ensures a couple can shape how assets and wealth are divided , rather than leaving these in the hands of the courts.
- Advice – By creating a pre-nuptial agreement, a couple can take legal and financial advice to ensure they are making valid and sensible decisions, and have clarity over the possible implications of these decisions.
- Tensions – Providing transparency over financial arrangements often removes possible strain and pressure from a marriage and enables the relationship to prosper without underlying tension. Couples are encouraged to discuss their finances openly when making a pre-nuptial agreement so that expectations are clear and trust can be developed.
- Protecting wealth – If one partner brings significant wealth into a marriage, such as property or a successful business, this can be protected by a pre-nuptial agreement.
- Conflict – A pre-nuptial agreement provides clarity and sets out the financial picture in clear terms. This removes conflict at an already emotional time, which could lead to lengthy and costly disputes and legal proceedings.
- Flexibility – There is no set criteria for what a pre-nuptial agreement should contain, and while legal advice can guide a couple in what it is sensible and valid to include, the couple can tailor the agreement to suit their circumstances.
When is the best time to consider a pre-nuptial agreement?
In order to give the agreement the most significant legal weight, a pre-nuptial agreement must be freely entered into by both parties, i.e. without fraud or duress, they must both receive independent legal advice and there has to be full financial disclosure from both parties.
You should carefully plan when to use a pre-nuptial agreement as they won’t suit every couple entering into a marriage. They should be designed to meet the needs of a family first and foremost and not just used to protect wealth. But the most common circumstances in which a pre-nuptial agreement would be beneficial include one or more of these:
- Where a couple have a large disparity in income or wealth, or both.
- Where a partner wishes to protect a family inheritance already received, or which is expected to be received.
- Where one or both parties have significant assets, such as savings or property.
- Where one partner has established a successful business prior to the marriage.
- Where one partner owns a property that the other partner is moving into upon marriage.
- Where assets are owned internationally in multiple jurisdictions.
- Where one partner has children from a previous relationship and wishes to ringfence wealth or assets specifically for their future benefit.
Whatever reasons you have for considering a pre-nuptial agreement, it should be discussed and arranged well in advance of the marriage, in order that there is full transparency, room for discussion and that the ultimate agreement is fair and considered.
It is advised that a pre-nuptial agreement is made no later than four weeks before a marriage takes place.
If you are considering a pre-nuptial agreement and require advice on how to proceed, contact our team of specialist family law solicitors at Consilia Legal.