PRE-NUPTIAL AGREEMENTS:

WHY THEY’RE NOT JUST FOR CELEBRITIES

Following last month’s news that Bill and Melinda Gates are set to divorce after 27 years of marriage, with no reported nuptial agreements in place (neither pre nor post-nup). Leading private client lawyer, Tanya Roberts of Collyer Bristow offers advice to advisers working with entrepreneurs and HNWIs on why pre-nuptial agreements should be an essential part of marriage planning in 2021.

As we emerge from the pandemic, pre-nuptual agreements (pre-nups) are certainly a timely topic: postponed weddings have meant that there has been an increased demand for venues and, with this, has come an increased desire for prenups between pre-marital couples. When a high profile divorce hits the press, a renewed interest in the subject is always sparked. The Gates’ divorce begs the question as to whether the couple actually had a pre-nup in place. Recent speculation indicates that they did not.

WHAT ARE THEY?

Pre-nups are often entered into when there is a disparity of wealth between couples. This may be because there is a pre-existing disparity in wealth between the two parties or, alternatively, because one of the parties is likely to inherit significant wealth in the future. For high-networth (HNW) individuals pre-nuptial agreements are now much more commonplace.

A key requirement of a pre-nup is that it must be fair. By nature, pre-nups are complicated to draft as the whole purpose of the agreement is to restrict the terms of settlement but the agreement must also be considered “fair” enough to have weight. This is the balancing act that experienced family lawyers have to master when advising and drafting these documents.

Pre-nuptial agreements are especially common in a second marriage. This is often because both parties may have wealth they want to earmark for their children from previous marriages.

Some parties may want a pre-nup in place to provide a safety net in case the marriage is short and ultimately goes wrong. Parties may be less concerned if the marriage is to last longer. Others want to provide for different scenarios. For instance, a short marriage with no children, a short marriage with children, a longer marriage with no children and so on. Often therefore these documents provide for a range of settlement figures. Some also provide for review clauses.

WHAT DO THEY DO?

The purpose of a pre-nup is to agree to a fair financial settlement between a couple in the event they should file for divorce. It seeks to protect any pre-acquired assets such as inheritance, businesses or property and will also seek to deal with any future inheritance. In England, the jurisdiction of the court cannot be ‘ousted’. This means that one party cannot stop the other party from trying to ask the court to intervene. The documents however, if drafted correctly and if procedurally sound, are likely to be given significant weight by the court and, accordingly, should be treated by the parties as being likely to bind them.

Put simply, pre-nuptial agreements help to provide security, clarity, and certainty in the future, for both parties.

Benefits of a nuptial agreement:

• Certainty and clarity for the future and financial transparency. • More control to the parties to decide a settlement in the future instead of the court.

• Less acrimony and expensive legal fees if the marriage breaks down.

• The ability to preserve family wealth for future generations and protect inheritance, or future inheritance.

• The ability to protect a pre- acquired business.

• The ability to protect assets for the benefit of existing children.

• An invaluable tool for wealth planning.

• A fair provision for the economically weaker party in the event of marital breakdown.

• Reassurance for both parties and certainty about the financial consequences of divorce.

Are there particular requirements?

Whilst nuptial agreements are not binding on the courts, they are likely to be upheld if certain requirements have been met. Providing the requirements are met, the parties can be reasonably certain that the agreement will be upheld by the English court.

The requirements:

• That the pre-nup is fair.

• That it is signed at least 28 days before.

• That there has been full and frank financial disclosure.

• That there has been no duress.

• That they have each had independent legal advice.

Ideally parties should start thinking about the pre-nup at least 3-4 months before the wedding date to allow enough time for any negotiations. The earlier the agreement is signed, the better. It should be signed at least 28 days before the wedding. In the event that it is signed within the 28-day period, a post-nuptial agreement may also be advised. There are several risks involved with leaving the pre-nuptial agreement discussions until too close to the wedding date. Firstly, it can be the source of tension if it left to the 11th hour. Secondly there may be arguments of duress if it is ever tested in court and thirdly the nearer the wedding (less than 28 days) the higher the chance it will be considered less weighty.

It is essential that both parties obtain independent legal advice and provide full disclosure of their wealth. The party with the wealth should agree to pay the other party’s costs. The solicitor will clearly explain the law on nuptial agreements and how to structure an agreement to suit needs, for example separating certain assets, how jointly owned property will be divided or/and providing specific financial provision on divorce. This may include taking advice from other jurisdictions relevant to the circumstances of the matter. Often there are connections with other jurisdictions and there may need to be pre-nups in more than one place.

We are seeing many more pre-nups in England. For many years, there has been a “taboo” surrounding the idea but more recently, family lawyers are being called to draft more and more pre-nuptial agreements. For advisers and financial planners working with HNW individuals and their families, these should be looked upon as the norm.

About Tanya Roberts

Tanya Roberts is a Partner specialising in Family and Divorce at Collyer Bristow. She has significant experience acting for both international and UK clients on family law matters and all financial aspects of relationship breakdown, including divorce, cohabitation, pre and post nuptial agreements and same sex relationships.