Pre-nups work - but at what cost

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19 November 2010

The well-publicised ruling of the Supreme Court in Radmacher means that pre-marital agreements, commonly known as pre-nups, are now more likely to be upheld on divorce, and so they will inevitably become more commonplace.  For people who wish to have some certainty about what would happen to their assets in the event of divorce, and particularly those who want to protect family assets, legal advisers may now recommend having one.  They are not however for everyone.

What did Radmacher say?

The judgment given by the Supreme Court, which must now be followed by the lower courts, introduces for the first time a presumption as to how the assets should be divided in the event of divorce; namely that the terms of pre-nups should be followed unless they are manifestly unfair.  What this means is that, provided the terms of the pre-nup meets the basic needs of the parties and any children they have, a court is likely to uphold the terms in the event of divorce.

This is a radical shift in the law.  There is now a recognition by the courts that people should be allowed to decide how their financial affairs are organised on separation.  Provided there is no coercion by one party of the other and each of the couple understand the implications of the agreement they signed, the court will respect the terms and will not exercise their power to overrule it. 

Who might benefit from a pre-nup?

People are increasingly taking advice about pre-nups. That is partly because they are commonplace in most other countries, but also because of inflation in English divorce settlements. Anyone who has or is likely to have assets which exceed basic needs may at least want to consider such an agreement if they wish to protect those assets against future claims.  However, there are certain circumstances where a pre-nup may be particularly appropriate; for example for those:

(a)                 who are marrying for the second time and wish to preserve assets for the benefit of their children from the first marriage;

(b)                 who wish to protect inherited wealth including a family business, trust or landholding;

(c)                 who have accumulated substantial assets before the marriage and wish to ring-fence those in the event of future separation; or

(d)                 who have offshore assets or connections, in which case an agreement may be strongly advisable.

For these people, provided the pre-nup meets the basic needs of their spouse and any children, such an agreement is now a realistic and valuable means of providing some security and certainty if the marriage goes wrong – but only of course if the other party is willing to sign.

What about post-nups?

An agreement signed after a marriage is just as good as one signed before; if of course you can both agree to sign one.

Good pre-nup, Bad pre-nup

There is a world of difference between an agreement which sets out a fair financial settlement in the event that the marriage goes wrong, and one that attempts to hold the spouse in the weaker financial position to an unfair bargain in which only the bare minimum of needs will be met.

An agreement which attempts to strike an unfair settlement is less likely to be upheld, quite apart from the damage that it may do to a relationship. By contrast, for many people an agreement which meets needs fully, while at the same time protecting family or inherited assets, will seem fair.

Not for everyone?

Although these agreements are becoming increasingly common, many people see them as undermining the institution of marriage. There is often a difference of moral perspective between older couples (perhaps divorced before) who see a common interest in having a pre-nup, and younger couples marrying for the first time.  One should not underestimate the tension and unhappiness that can be caused by raising the subject of a pre-nup in the months leading up to a wedding.

For this reason, it is essential that any discussions about a possible pre-nup should be started  well in advance.  Many of our clients have found the subject more palatable if it is discussed and agreed as part of a wider review of financial planning and the making of Wills, possibly with gifts of assets between spouses at the outset so that there is some reciprocity.

And if the other party won't sign? The remedy if you feel that strongly about it is not to get married at all; or to believe in your vows and go ahead anyway.

For further information, please contact Catherine Hallam on +44(0) 117  939 2245 or on catherine.hallam@burges-salmon.com or Tom Boyce on +44(0) 117 902 7710 or on thomas.boyce@burges-salmon.com  

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