The increasing divorce rate, particularly in longer marriages, has now reached 43.6%. This shift is not surprising, especially as the law has evolved, strengthening the enforceability of pre-nups and making them harder to challenge over time. As a result, more couples are considering entering into a nuptial agreement to protect their wealth or assets brought into a marriage.
Whilst it may appear to be an unromantic topic to discuss prior to your wedding day or, even after marriage, it’s important to plan for all eventualities that may arise if you have wealth, assets or even inheritance that you wish to protect. Given the recent Autumn Budget announcements, it may become even more prevalent that families and/or businesses will want to enable their children/family members to inherit sooner than might previously have been anticipated because of wider financial planning considerations, and it is important to consider the benefits of a nuptial agreement with a family lawyer at the earliest opportunity.
In this article, we will explain the benefits of a nuptial agreement and examine some key considerations for those entering into such agreements, with a focus on wealth protection for prenuptial agreements.
Understanding pre and post nuptial agreements
A prenuptial agreement is made by a couple before getting married or entering into a civil partnership. They offer a form of wealth protection that allows you to protect assets accumulated before marriage, during marriage and even after separation. They can also identify what should happen to certain assets in the event you go on to have children and to protect their financial futures.
A postnuptial agreement works in much the same way, but it is entered into after a couple is already married or in a civil partnership. There are various reasons why a couple may have a postnuptial agreement. For example, (i) one party may receive assets post marriage which were not anticipated, (ii) they want to confirm the information in the prenup still stands if their circumstances have changed in any way (e.g. after having children), and (iii) they might have moved to the UK from a country outside the UK and want an agreement that mirrors what has already been obtained.
Key elements to include in your agreement:
The aim of the agreement is to set out what will happen to both solely and jointly owned assets and can include agreements about:
- Personal property – personal belongings of value such as art or jewellery.
- Savings and/or investments- balances in any savings/investment portfolios are ring fenced.
- Inheritance – ensuring inherited assets remain separate.
- Pensions -the agreement can define how pension pots will be distributed.
- Business Assets – provision for dividing business assets and what happens upon sale or transfer of these assets.
- Debts – who is to be responsible for pre-marital debt and clarify what happens to debts accrued during the marriage.
- Maintenance – whether one party will assist the other party financially for a set period of time whilst they become financially independent following separation.
The growing importance of wealth protection in marriage
Whilst a nuptial agreement may seem unromantic, couples can choose to regulate and control what will happen with their assets in the event of separation with less conflict and distress. A nuptial agreement can also reflect the reality of modern-day marriages, especially for those who might have married later in life and have already accrued significant wealth, pensions, and assets. In such cases, wealth protection becomes crucial, as an equal distribution of assets may not be suitable or fair to both parties.
An agreement can clearly define assets that are to be ring-fenced, providing wealth protection for prenuptial agreements and enabling both parties to have autonomy over their future financial destiny rather than leaving it for a court to decide in the event of separation.
What happens if you don’t have a pre or post nuptial agreement?
If you do not have a nuptial agreement in place and your marriage ends in divorce this can leave both parties vulnerable and lead to unpredictable outcomes. Here are some examples of what might happen:
Court controlled division of assets
In a long marriage, the presumption is that there should be an equal division of the matrimonial assets, and therefore, if one party has brought considerable wealth into the relationship and not protected this by virtue of a nuptial agreement those assets are subject to distribution by the courts.
Increased legal disputes
Having a nuptial agreement can ensure the parties have an element of certainty over what might happen to their finances in the event of divorce. However, in absence of an agreement, this can cause drawn out and lengthy court proceedings which can cause ongoing animosity and increased legal fees. Consequently reducing the matrimonial wealth available to the parties and more than likely minimising any chance of maintaining an amicable relationship moving forward.
Risk to personal assets and wealth
In absence of an agreement business assets, personal wealth (such as inheritance/investments etc) are all available for distribution and can all be deemed ‘matrimonial property’ unless specifically defined otherwise in a nuptial agreement.
Greater financial uncertainty
A nuptial agreement enables both parties to have an element of autonomy over their financial futures, but in absence of an agreement, both parties are set to lose a lot more given that a decision regarding their finances could be taken out of their hands after much has been spent on legal fees trying to resolve matters.
The role of financial planning in pre and post-nuptial agreements
At the same time as preparing a nuptial agreement, it is important to take advice from a financial planner because certain assets can attribute tax and may require additional conversations with wider third parties to be involved. For example, family members may need to be involved and take advice where lifetime gifts and/or inheritances are given as part of wider estate planning. The same goes for businesses and ensuring that the future of the business and any shareholders/directors are protected. Wealth protection should be a key consideration in such cases, especially if the business or assets are intended to be ring-fenced.
There is also a misconception that a nuptial agreement which is enforceable in one country will also be enforceable in any other country. However, different countries are subject to different divorce laws and it is therefore important you take separate legal advice from an international lawyer if the agreement has any chance of being upheld in another jurisdiction. Wealth protection for prenuptial agreements is especially relevant in cross-border cases where different legal systems may impact the enforcement of asset protection strategies.
How can Goughs help?
At Goughs, we can explain the options for protecting your wealth by virtue of a nuptial agreement, and the advantages, disadvantages of such agreements. However, it is worth saying that most couples would say that they did not regret having a nuptial agreement in place. If you would like more information, please contact us to arrange a 30 minute free consultation today.
