What is a Pre-Nuptial Agreement and what are the benefits?

A Pre-Nuptial Agreement (also known as an Ante-Nuptial or Pre-Marital Agreement) is a formal written agreement between two partners prior to their marriage.

The purpose of a Pre-Nuptial Agreement is to document what will happen to the parties’ respective assets should the marriage come to an end. Currently in England and Wales, Pre-Nuptial Agreements are not automatically legally binding. As a result, the Court reserves the ultimate right to decide how the parties’ assets are to be divided on divorce.

However, following the Supreme Court decision in Radmacher v Granatino in 2010, the Court will usually afford decisive weight and uphold a Pre-Nuptial Agreement that is freely entered into by both parties with a full appreciation of its implications (unless it would be fundamentally unfair to hold the parties to such an agreement). Provided that test is met therefore, the Court is likely to give effect to a Pre-Nuptial Agreement.

Advantages

The main advantages of entering into a pre-nuptial agreement are as follows:

1. Clarity. You and your partner can make it clear to one another that certain property belongs to you alone and that it will not be shared on any future divorce. Such property is often referred to by family lawyers as "non-matrimonial property".
2. Certainty. You and your partner have the freedom to agree at the outset of your marriage how your finances will be divided if you later separate or divorce. This should save you both the uncertainty, time and stress of litigating about the matrimonial finances if you do later separate.
3. May save money. Whilst you and your partner will incur legal fees for the preparation and drafting of the Pre-Nuptial Agreement, it is usually much cheaper to negotiate and draft a Pre-Nuptial Agreement than it is to litigate over the division of the matrimonial finances.
4. Protection of assets. You and your partner can agree to "ringfence" sentimental assets such as family heirlooms, an interest in a family business or gifts received from a third party. If the Pre-Nuptial Agreement seeks to ring-fence such property, the Court is less likely to award a share of that property to the other party on any future divorce.
5. Minimises acrimony on divorce. Setting out how assets are to be divided on divorce should lead to fewer arguments about finances, and result in a more amicable relationship between you and your partner during the divorce process.
6. Protection of business partners. You or your partner may have an interest in a family or small private business. The Pre-Nuptial Agreement can protect that interest, and prevent disruption to the business in the event that the marriage breaks down.

Checklist

There are a number of requirements that must be adhered to when entering into a Pre-Nuptial Agreement.

In particular, the Court will look at whether you and your partner entered into the agreement on your own free will, and without any pressure from each other or anyone else. It will also be important to show that you and your partner had sufficient time to consider the terms of the agreement, and that you each received independent legal advice on its provisions.

We have created a checklist below therefore to help ensure that your Pre-Nuptial Agreement has the best chance of being upheld:

1. All assets and property must be disclosed by both parties and annexed to the agreement in a Schedule.
2. Both parties must confirm that they understand the terms of the agreement, and that they wish to be bound by them.
3. Each party must receive independent legal advice on the terms of the agreement.
4. The Pre-Nuptial Agreement should be signed at least 21 days before the wedding.
5. The Agreement must be entered into freely by the parties and neither party must have been placed under duress or suffered undue influence.
6. The terms of the Agreement must be ‘reasonably fair’.

“Fairness” in the context of Prenuptial Agreements may sound counter-intuitive, given that the purpose of such an Agreement is usually to protect one party’s pre-acquired wealth. At the time of writing there has not been a great deal of litigation which has challenged and considered what is meant by the concept of fairness, but generally speaking it is taken to mean that both parties should be able to meet the needs’ of themselves and the children of the family. “Needs” is a concept which is usually considered in light of the available assets. The greater the value of the matrimonial assets therefore, the more generously needs are likely to be interpreted by the Court.

If you are considering entering into a Pre-Nuptial Agreement, or would like further advice about the potential benefits or detriments of entering into such an agreement, please do not hesitate to contact a member of the Family Team on 01603 610911.