Nuptial agreements - what is a prenup and are they legally binding?

Nuptial agreements are becoming increasingly common and are no longer just for high net worth individuals. As divorce rates rise year-on-year, couples are understandably looking to future-proof their wealth and nuptial agreements are an important consideration in financial planning.

What are nuptial agreements used for?

• To ring-fence pre-relationship assets so that they are not shared on divorce.
• To ring-fence assets generated during the marriage so that they are not shared on divorce.
• To protect future inheritances and gifts.
• To ensure the future of dynastic assets, like farms.
• To protect business interests and relationships.
• To regulate the treatment of income, particularly from family trusts.
• To save costs and heartache in the event of a divorce.

Importantly, nuptial agreements can be as broad or as narrow as the couple wants. They can encompass the division of all of their assets on separation or divorce, or they can cover a distinct asset. For example, if one of the couple receives an inheritance during the marriage, they can enter into a post-nuptial agreement just covering the inheritance.

Are nuptial agreements legally binding?

Nuptial agreements are not automatically legally binding as the Family Court retains a broad discretion to make orders upon divorce. However, the Court should uphold a nuptial agreement if it passes a three-stage test:

• The agreement must be freely entered into by each party;
• They must each fully understand the implications of the agreement; and
• In the circumstances at the time of the divorce, it must be fair.

Fairness is the most subjective criterion. ‘What is fair’ is the million-pound (and sometimes multi-million-pound) question.  Each case is decided on its own facts, and what is fair to one judge might, to another, be quite beyond the pale.  At the very least, the agreement must meet the ‘needs’ of the economically weaker party. ‘Needs’ covers income needs, housing needs, capital needs and so on. They are looked at through the lens of the standard of living enjoyed during the marriage, and it is important to take legal advice as to how ‘fair’ the proposed nuptial agreement may be deemed.

To maximise the chances of being upheld, the agreement must satisfy the following criteria:

• It must be contractually valid and be validly executed as a deed – there must be no mistake, misrepresentation, fraud, duress or undue influence.

• Financial disclosure – financial disclosure must be exchanges so that the couple are making an informed decision. The economically weaker party, in particular, must have a material understanding of the potential value of the claims they are giving up.

• Independent legal advice – both parties must take independent legal advice from separate solicitors before entering into the agreement.

• The 28-day rule – in the case of pre-nuptial agreements, the agreement must be signed at least 28 days prior to the wedding. This does not apply to post-nuptial agreements.

• It must not prejudice any children – if the agreement makes insufficient financial provision for children, it will fail.

• Both parties’ needs must be met – “needs” includes housing and income. 

• Be regularly reviewed over time – nuptial agreements weaken over time as life events happen. For example, if the agreement was put in place in the couples 20s and now in their 40s, they have three children, different wealth positions and different health positions, it would likely be unfair to hold them to an agreement that is 20 years old. To future-proof the agreement, it must be regularly reviewed and updated if necessary. We recommend this is done as part of your annual review with your financial adviser.

Are prenups worth it?

In short, yes. If the correct process is followed and the criteria is met to give the agreements as much weight as possible, they are the best way to protect wealth and inheritance on separation and divorce (other than not getting married, of course). There are many benefits:

• The Courts are regularly upholding properly entered into nuptial agreements and this is only expected to increase.

• There is an up-front cost to nuptial agreements, but this is far less than the costs of a contentious divorce.

• They provide clarity and transparency up-front as to the treatment of assets and how they should be divided upon separation and divorce, allowing for open communication and confidence during the marriage, and far less acrimony upon divorce.

• They promote autonomy and can protect against certain issues, such as one party accruing significant debt, one party giving up their career to look after the children etc.

• Assets can be protected, such as inheritance, family businesses, heirlooms and pre-marriage property.

Who should have a nuptial agreement?

Anyone who:

• Might be getting married later in life, who has accumulated significant wealth and who wants to limit their partner’s claims in the event of a divorce.

• Is already married and did not get round to signing a pre-nup before the wedding.

• Might own or have a significant stake in a private business, to ensure that the future of the business is safeguarded from any claims on divorce.

• Is likely to inherit significant assets from wealthy parents, who might themselves be keen to ensure that any children-in-law do not benefit from their wealth in the event of a divorce.

• Has inherited, or is likely to inherit, dynastic assets such as a farm, to safeguard against claims on divorce bringing about the break-up of the farm.

• Has been through a messy and expensive divorce already, and who wants to try to agree everything now, so that in the event of a divorce everything goes through smoothly and with less heartache.

• Who wants to buy as much certainty as possible for any future divorce and save costs.

• Is currently going through a rocky period in their marriage and would like some security.

• Is separating from their partner but is not yet ready to divorce. An agreement can be put in place in the meantime to regulate the division of finances. This is often referred to as a ‘separation agreement’.

Why do I need a lawyer?

The law in this area is particularly complex and uncertain, and, as above, there are numerous hoops to jump through to future-proof a nuptial agreement as much as possible.  It is therefore important to take specialist legal advice to guide you through the process seamlessly, particularly if you are in the midst of planning a wedding.

It is important that you understand exactly the risks in your particular case, the parameters of what the court might consider fair and to fully understand what you are agreeing to give up.

We at DMH Stallard LLP have a team of specialist family lawyers who regularly advise upon nuptial agreements. If you would like to talk to one of our expert lawyers, please email us or call us on +44(0)3333 231580.