2020-10-01
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What is prenuptial agreement and do you need one?

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Posted by Justin Creed on 01 October 2020

Justin Creed - Family and Divorce Lawyer
Justin Creed Head of Family Law

Outline transcript

Welcome to our podcast on “Nuptial Agreements”.

This podcast is part of our family law series in which we will be sharing practical information about some of the common issues that arise for our clients.  

Here we answer some common questions about nuptial agreements with a typical scenario: Hannah is in her 40’s and widowed. She has assets of her own and an 11-year-old child, Truman. She has met a new partner, Ace and wants to get married. Ace has no assets. 

Hannah is concerned about how she can protect those assets she has in the event she and Ace were to divorce.

What can I do to protect my assets if I marry Ace, and it doesn’t work out?

You should consider a pre nuptial agreement. This is a legal agreement made between couples before they marry and sets out how their assets are to be divided between them if they later divorce.

What difference could a pre-nuptial agreement make?

Did you know that statistically, 42% of marriages will end in divorce and that 45- 49 is the most common age bracket for divorce? 

It would probably be helpful if I first explain the law dealing with the division of assets on divorce as it applies to England & Wales, before explaining how a prenuptial agreement works. 

The law is discretionary. This means in the absence of an agreement between the couple on how their assets are to be divided; a judge can be called upon to make a ruling. It will fall on that judge to decide a fair division based on a number of factors, such as the available assets, irrespective of where those assets have come from, the income of the couple involved, their needs, their ages, the length of the marriage, including pre-marriage cohabitation, the standard of living, and contributions made (not just financial). The first consideration is always given to children under 18. The conduct of the couple involved is rarely a relevant factor; nothing short of attempted murder will do!

In most cases, the judge is striving to meet the needs of the couple from what assets they have available, those needs at their most basic are for a home and income to live off

Does that mean the assets I have now could be shared with Ace if we divorced? 

Yes, it does potentially. The discretion of a judge is wide-ranging and can lead to uncertainty and the potential for emotionally draining and costly court proceedings. 

Judges have extensive distributive powers over the assets of a marriage, whether those are owned jointly or separately. Once a judge is required to make a ruling on the distribution of those assets, the couple will have lost control over what happens. Their financial futures will be in the hands of a third party whom they will have never met before and will never likely meet again. 

What can a prenuptial agreement do?

A prenuptial agreement can provide for clarity and certainty by setting out how say, you and Ace will go about sharing the assets you have in the event you were to divorce, whilst also protecting categories of assets from being distributed, such as what you own now. 

What should the prenuptial agreement include?

The agreement will need to set out which assets you and Ace own or will own in the event your marriage was to breakdown. It will reference what is matrimonial (or joint property), such as assets you and Ace will have acquired during your marriage or owned in your joint names, such as the marital home. The agreement will also reference what is non-marital or separate property. That separate property may be:

  • Assets you have owned before the marriage
  • Inherited assets
  • Gifts received by either you or Ace during the marriage

The general purpose of the agreement will be to make it clear how your joint property will be shared on divorce and how any separate property you both have, which will need to be properly described in the document, will be retained by whoever owns it. In other words, that separate property will not be shared on divorce.

You and Ace will have the freedom to decide what you wish to include in the document.

Will the prenuptial agreement be legally binding on us both?

The answer is that these agreements are not legally binding. 

The law is such that these agreements cannot override a judge’s discretionary powers to redistribute assets and income on divorce in the way I have mentioned already.

However, following a decision of the Supreme Court in 2010, the law states that “the court should give effect to a nuptial agreement that is freely entered into by each party with full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to the agreement”. 

But that does not mean they are binding. A judge will decide what weight to give prenuptial agreement as part of his or her discretionary power, in some cases that may be decisive weight.

So, provided you and Ace enter into the agreement of your own free will and not under pressure; you both understand the implications and what is intended by the agreement, for which you both should take independent legal advice and most importantly, it’s terms are fair at the time it is relied on, a judge may well hold you both to its terms. Fairness will be determined by ensuring the agreement meets the needs of you and Ace and any children, which as I have said at their basic is for a home and income to live off.

What if the agreement does not meet our needs? 

The court may not attach much or any weight to the agreement if it does not meet the needs of you both. In your case, if the agreement does not provide for Ace’s basic needs for a home and/or income, then you may be in difficulty if Ace were to challenge its terms in court. It is therefore vitally important that this is dealt with at the time the agreement is drafted, and this risk explained. Legal advice is vital.

Can the agreement be altered at all?

It should be borne in mind that circumstances change over the course of a marriage, and therefore a prenuptial agreement should be reviewed to ensure it would still carry weight in subsequent divorce proceedings. I would normally recommend reviewing the terms of the agreement after the birth of a child, if relevant, or after a period of time, say five years or the happening of any other agreed event. The terms of the agreement can then be altered to allow for the change in circumstance. Failure to review could mean the agreement carrying little or no weight at all in the future.

Should I have a prenuptial agreement?

Yes, you should since without one, the assets you have now could be shared with Ace at the discretion of a judge in the event you, and he were to divorce. At least with an agreement in place, properly drafted and set up in accordance with the legal requirements I have mentioned, you should have a strong case to retain you separate assets, including your inheritance, and not have to share them with Ace.

About the author

Justin Creed

Head of Family Law

Justin specialises in advising clients going through the personal difficulties of separation in terms of the financial issues and arrangements for children.

Justin Creed

Justin specialises in advising clients going through the personal difficulties of separation in terms of the financial issues and arrangements for children.

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