A nuptial agreement can refer to a pre-nuptial agreement (‘pre-nup’) which is entered into before a marriage and post-nuptial agreement (‘post-nup’) which is entered into after the marriage. Nuptial agreements before or during a civil partnership are referred to as pre or post-civil partnership agreements.
It has been just over ten years since the UK Supreme Court decision in Radmacher v Granatino. In these years the approach to pre-nuptial agreements has changed from being a certain romance damper following the excitement of a proposal and planning the wedding or civil partnership to a sensible step towards certainty and financial transparency.
Pre and post-nuptial agreements will set out what the parties have agreed in terms of the provision that will be made for each party if they were to separate. This can include provisions for income and capital.
When considering a financial claim on divorce a pre-nuptial agreement is a relevant circumstance for a judge to take into consideration. No nuptial agreement can override the current divorce legislation or prevent the judge from being asked to decide on the appropriate division of assets on divorce. This means that a pre-nuptial agreement cannot stop one person applying to the court for financial provision from the other.
However, a pre-nuptial agreement will have a substantial impact on the judge’s decision in many cases and the court should give effect to a pre-nuptial agreement that is “freely entered into by each party with a full appreciation of its implications unless in the circumstances it would be not be fair to hold the parties to their agreement”.
Freely entered into means that both parties must enter into it of their own free will, without any mistake, duress, undue influence, misrepresentation or pressure from each other or anyone else. It is important that both parties have sufficient time to consider the terms of the agreement and receive advice about the effect of those terms.
Full appreciation of the implications of the agreement requires both parties to be in possession of all the information relevant to their decision to sign the agreement. There should be full particulars of each other’s financial circumstances with financial disclosure and specialist family law advice before signing the agreement.
It must be fair to hold both parties to the agreement in the circumstances that arise at the time of the divorce. The Supreme Court was clear that it is not fair for an agreement to prejudice the reasonable requirements of any children of the family. However, the court also acknowledged that adults’ autonomy should be respected and it is “paternalistic” and “patronising” to override the terms of an agreement simply on the basis that the court knows best.
The court found that there was nothing inherently wrong in ring-fencing some of the assets of one party, particularly when this comes from a gift or inheritance. However, the longer a marriage lasts, the greater the chance it may not be fair to hold the parties to its terms because of unforeseen changes in the future. If the effects of the agreement would leave one party with less than his or her needs, where the other party is comfortably provided for, this is likely to be considered unfair. If needs are adequately covered in the provision set out in a nuptial agreement, then a prohibition on further sharing of the assets is likely to be upheld. Therefore having advice from a specialist family law solicitor at the time of entering into the agreement is imperative to make sure it takes into account the court’s likely approach when formulating the agreement’s terms.
The advantages of entering into a pre or post nuptial agreement include:
1. Clarity and transparency – the couple can be certain which property belongs to one person alone and will not be shared during the marriage. As such, both parties will be clear about the other’s finances and this can improve communication about financial issues now and in the future.
2. Freedom to agree the terms – parties can agree their own terms on a financial agreement without the court imposing a solution on them. This gives parties the freedom to come up with a creative, bespoke plan for dividing their assets if they were to divorce.
3. Certainty – an agreement can save the uncertainty, time, stress and cost of litigating about finances if a couple were to separate or divorce at a later date.
4. Protection of assets – a couple may wish to ‘ring-fence’ some assets from the other such as inherited assets, gifts from a third party or property acquired before the marriage. An agreement can also be used to protect assets if one party has significant debts or acquires them in the future and can prevent the other person’s assets from being used to satisfy the other’s debts.
Our Family Finance team has accredited family law specialists with many years of experience advising couples including issues relating to finances and children. If you would like advice about nuptial agreements please contact us on 020 3440 8000 or by email to Charlotte.Kay@tvedwards.com.