Pre-Nuptial Agreements: everything you need to know…

by Daniel Sanders, 01 October 2018

You may think that the term ‘pre-nuptial agreement’ only applies to Americans, celebrities and billionaires.

This isn’t the case. In fact, the subject is currently being discussed in the UK press as Princess Eugenie has decided against one. It’s all around us, but what exactly affects us?

Daniel Sanders, Partner and Head of the Family team at Steele Raymond, has heard it all before. Here he separates facts from fiction…

In your words, what is a pre-nuptial agreement?

It is a contract, made between two people intending to get married, and is designed to govern the preservation and/or division of their assets in the event that their marriage should break down. It’s pre-planning for what would happen in the event of a divorce. It’s a ‘divorce negotiation’ at the start of a relationship, instead of waiting until the relationship ends.

Who would need such an agreement?

In the case of a divorce, lawyers typically focus on ‘who needs what’ which covers housing provision, making sure any children are looked after and trying to ensure day-to-day needs are being met. Once those needs are met, is there an excess ‘pool’ of assets? It’s those cases that have these ‘extras’ that benefit most from a pre-nuptial agreement. Both parties can agree to protect or share that excess wealth.

Are there any examples as to when an agreement is needed?

Yes. When there are assets that have come through family generations, and are usually embedded in trusts and commonly referred to as inherited wealth. One of the parties may have outside pressure (for example from grandparents or parents) to protect those assets. These can include inherited jewellery, a plot of land, business interests or financial stocks.

Does a pre-nuptial agreement benefit one of the couple in a situation where children are involved?

Every case is different. Most people think that having children after marriage changes the agreement significantly – when most decide to get married, children aren’t even thought about! The pre-nuptial agreement should provide for certainty and take account of the relevant circumstances of the couple as they stand, including necessarily what provision is required for children and that can indirectly benefit the main carer. Much will depend on the financial make-up of the agreement and an assessment of who, if anyone, holds the greater financial power between the couple. But many things can change the wealth of a relationship; businesses booming, lottery wins, bankruptcies, unknown inheritances – positive and negative changes. This is why it’s extremely important to ‘update’ and review when there are significant changes. It’s a document that should evolve – not just sit there.

Do you ever discuss children at the first pre-nuptial agreement meeting?

Yes, absolutely. We have an open and frank discussion about it. You can try and make provisions for the future, maintenance from income in the event that children arrive, assuming that the couple’s financial situations haven’t markedly changed. It would be ordinary, however, to provide for a review clause in the agreement to cover such a change of circumstances, as it may impact on the provisions entered into before marriage and children.

It’s called a PRE-nuptial agreement, but if you are already married, can you still enter into one? What is it then called?

It’s called a post-nuptial agreement! In some cases, couples might not be ready or willing to enter into a pre-nuptial agreement, or realise at the last minute that they haven’t entered into one. In cases where it is too near the wedding date, I would suggest that it is too late for an effective pre-nuptial agreement and that they should focus instead fully on the wedding – and come back to me after the event and enter into a post-nuptial agreement. In law there is no difference between the two; ‘pre-nups’ just get more publicity, as they are more common. They are however exactly the same. They still cover the same aspects (wealth and assets and what is to happen in the future).

So it’s not too late for anyone. It’s a very emotional (and some might say pessimistic) area of law. Talking divorce with a happy couple that aren’t even married yet! Do you have to take a very diplomatic stance?

Yes. Pre-nups and post-nups are very business-like. People don’t really want to be dealing with that just before a marriage. I think there needs to be more education on what is actually involved in a pre-nup – a 2010 case  clarified  the law relating to pre-nuptial agreements and is a great modern ‘guide’ that lawyers should refer to. It can also be a ‘template’ to ensure that lawyers are taking the correct steps to give the pre-nup full effect and weight. Couples may discuss a few points at home and decide that they need a lawyer; but it’s more than that – it’s the negotiation of a contract between two people, which takes some time to complete.

Could you elaborate?

Yes – some couples may not realise that they need to be separately advised, that’s why it is good that both lawyers have a good working relationship. Yes – this is a commercial transaction, a contract between two people, but there needs to be a degree of sensitivity too. With all cases, until you get to know your client, you don’t know what their situation is or about the way their relationship works. There is a need for lawyers to be very mindful about the relationship of trust between couples embarking upon marriage and a pre-nuptial agreement. At the same time, lawyers should ensure that what a party wishes to achieve in executing a pre-nuptial agreement is realistic as against the prevailing law and this requires delicate yet decisive attention.

Bias aside, how important is a pre-nuptial agreement?

It’s very clear that there is an advantage to having a pre-nuptial agreement where there is excess wealth – you can then enter into a discussion about what’s to happen in the event of divorce. That said, the law is increasingly recognising the rights of individuals to enter into agreements and contracts with each other. And so it follows that in most other classic situations that involve a mortgaged house, modest incomes and perhaps some other reasonable assets – this is difficult to pre-plan in a pre-nup and may not be worthwhile as the agreement will be geared towards assessing how those resources should be allocated to meet needs and that is a very subjective matter. In a nutshell – the bigger money cases, be it income or assets or cases with unusual assets, would benefit more from a pre-nuptial agreement.

Finally, What do you enjoy most about working with pre-nuptial agreements?

They are a shift in the traditional work that family lawyers do and which is based around divorce and separation, the financial settlements arising from those circumstances and dealing with disputes between parents about arrangements or issues concerning their children; these are typically contentious areas of law whereas dealing with pre-nuptial and post-nuptial agreements is more tailored to a different mind and skill set with a clear and unconditional requirement for collaboration in order to make it a success. They are very different to the adversarial approach taken in court cases. It’s a case of ‘rolling up the sleeves’ and working collaboratively with the all parties involved – to achieve something for a couple embarking on a life together. It’s a practical and creative exercise that I enjoy working on to ensure the outcome fits within the parameters of the law and, importantly, makes both parties happy which is not something which family lawyers often see in their traditional work. I enjoy the variety and outcome that properly constructed pre-nuptial agreements provide; it’s refreshing and an area of law I anticipate will become more publicised and popular in years to come.

For further information in respect of pre-nuptial agreements please contact a member of the Family team at Steele Raymond or please contact Daniel Sanders on (01202) 983999 or email danielsanders@steeleraymond.co.uk.

 

 

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Daniel Sanders

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