There is a common misconception that nuptial agreements are only useful for wealthy couples with a high value of assets. However, such agreements could be more valuable to those with limited assets who would require the assistance of the court in determining how those assets should be divided and would therefore negate the need for any costly litigation in the future.
During 2022, the Office for National Statistics show that a total of 246,897 marriages took place in England and Wales; and during that same year, there were 80,057 divorces.
Definitions of nuptial agreements
A pre-nuptial agreement is a legal agreement made between two parties before their marriage has taken place whereas a post-nuptial agreement is a legal agreement made between two individuals who are already married. For pre-nuptial, the agreement should be signed by both parties at least one calendar month prior to the marriage and for post-nuptial agreements the agreement should be signed as early as possible following the marriage.
A nuptial agreement will set out how a couple would wish their marital assets to be divided between them in the event they later separate or divorce. Some agreements may also detail the couple’s intentions in respect of how their finances are arranged during the course of their marriage and thereafter.
How does a nuptial agreement work?
The agreement will set out which party will own assets in the event of a future breakdown of the marriage. It should set out what assets are matrimonial and non-matrimonial and what assets are joint or separate property. An agreement can also make provision for any existing children of the family.
There are three main objectives to a nuptial agreement, which are: –
1. To enable the parties to have transparency as to their financial position prior to the marriage and to clarify how the parties intend to conduct their financial affairs during the marriage.
2. To provide certainty for couples who wish to formally agree how their assets should be divided in the event of a breakdown of the marriage.
3. To protect assets (such as non-matrimonial assets) from a later financial claim.
It is necessary for both parties to have all the material information to enable them to sign the agreement. It is recommended that the parties disclose all of their assets and income at the time of a nuptial agreement being prepared so the other respective party is fully aware of the implications of such agreement. Failure to do this at the outset can run the risk of a court disregarding the agreement.
Legal status of nuptial agreements
Nuptial agreements are not legally binding in England and Wales. This means that by entering into a nuptial agreement, you cannot override the court’s ability to decide how your finances should be divided on a divorce. However, when considering an application for financial remedy, the court must give appropriate weight to a nuptial agreement as a relevant circumstance of the case.
Following the Supreme Court decision in Radmacher v Granatino [2010] UKSC 42 in October 2010, the court will uphold a pre-nuptial agreement that is freely entered into by both parties with a full appreciation of its implications, unless in the circumstances it would not be fair to uphold the agreement. Provided that test is met, the court will give effect to a nuptial agreement and so you should expect to be held to its terms.
Although nuptial agreements at this point in time are not legally binding in English law, they are more readily considered and acknowledged by the court within any divorce proceedings if the court are satisfied that:-
i) There has been full and frank disclosure of each party’s financial assets.
ii) There has been no coercion by one party or the other.
iii) Each party must have independent legal advice.
iv) Each party must be fully aware of the type and nature of the document and be competent to be able to sign a nuptial agreement which will be confirmed by any solicitor instructed by the parties.
v) A court will usually give effect to a nuptial agreement if it is considered to have dealt with all eventualities and provided for the reasonable needs of the other party if the marriage breaks down.
Advantages of a nuptial agreement
The advantages of entering into a nuptial agreement include:
• Clarity. The parties can make it clear to one another that certain property belongs to them alone and will not be shared during the marriage or on any future divorce. Such property is often referred to by family lawyers as “non-matrimonial property”. The definition of non-matrimonial property is unclear in case law, but can be clearly defined in the nuptial agreement so that the parties are aware of the extent of each other’s non-matrimonial property and the value of any property they are giving up the rights to share.
• Certainty. The parties can agree at the outset of the marriage (or soon thereafter) how their finances will be divided if they later separate or divorce. This should save both the uncertainty, time and stress of litigating about your finances if you do later separate or divorce.
• Transparency. Parties should provide financial disclosure of their assets and income in the nuptial agreement, so they will both know at the outset of the marriage the value of each other’s assets.
• May save money. Whilst parties will incur legal fees for preparing and advising on the terms of the nuptial agreement, it is usually much less expensive to negotiate and draft a nuptial agreements than to litigate about the division of the finances should they later separate or divorce.
• Protection of assets. The parties can protect assets they may wish to “ringfence” from one another, such as an interest in a family business. If the nuptial agreement ringfences such property, the court is less likely to award a share of that property to the other party on any future divorce.
• Debt protection. If one party has significant debts, either now or in the future, the nuptial agreement can be used to protect the other party’s assets from being used to satisfy those debts. (This will also be the case with any debts they may have now or in the future.)
• Compensation for loss of career. The parties can agree that if, during the marriage, either party give up a potentially lucrative career to care for the family, that person should be entitled to a greater share of the assets on the breakdown of the marriage to reflect their loss of earning power going forward. It is often difficult to convince the court to award an element of “compensation” for loss of career, but provision for compensation in the nuptial agreement is likely to be upheld by the court.
• Minimises acrimony on divorce. Setting out how assets are to be divided on divorce in the nuptial agreement should lead to fewer arguments about finances should you later divorce and result in a more amicable relationship between the parties.
• Improves communication. Discussing financial issues can be one of the most difficult aspects of marriage. Dealing with this at the outset of the marriage can strengthen a relationship and support good communication in the marriage.
• Protection of business partners. For those with business interests, the nuptial agreement can protect that interest and prevent disruption to the business if the marriage breaks down in the future. This could prevent a situation whereby one party is awarded an interest in the business and has to participate in its running with family members or business partners.
• Provision on death. The nuptial agreement can set out what you wish to happen to your assets on your death. This can support the provision contained in your will and clarify what should happen to certain assets. For example, the inheritance prospects of children and grandchildren can be protected in the agreement.
• Freedom to agree your own terms. Parties may have a creative plan for dividing their assets if they divorce. A nuptial agreement provides couples with the freedom to agree their own terms without the court imposing a solution on them.
Disadvantages of a nuptial agreement
The disadvantages of entering into a nuptial agreement can include:
• Not legally binding. As mentioned above, a nuptial agreement will not necessarily be binding, as currently the court remains able to make financial orders on the breakdown of a marriage. The court will uphold a nuptial agreement that is freely entered into by each party with a full appreciation of its implications, unless in the circumstances it would not be fair to uphold the agreement. Therefore, you could spend considerable time, money and effort negotiating the terms of the nuptial agreement, but find it is not upheld by the court in any future divorce proceedings, though this will only happen if the court finds the agreement “unfair”.
• Difficulties making financial provision for children. A court considering financial claims on divorce will primarily be concerned with ensuring any child of the family is financially secure. The court is likely to be sceptical that arrangements drawn up years previously will be in the best interests of the child(ren). Making provision for future children is fraught with difficulties as the nuptial agreement cannot predict future circumstances. Any clauses dealing with child maintenance will be subject to review if the other parent questions the adequacy of the arrangements, because the jurisdiction of the Child Maintenance Service (CMS) cannot be ousted by agreement between the parents and a parent can apply to the CMS for a maintenance calculation at any time.
• Changes in circumstances. A nuptial agreement cannot predict what will happen during the marriage and significant changes in circumstances may occur. For example, the parties may have a child, lose their job or become incapacitated. Should circumstances change, a nuptial agreement that does not cover the changes will lose its relevance and is unlikely to be upheld by the court.
• Review. To increase the likelihood of a court upholding the terms of the nuptial agreement on the breakdown of the marriage, there should be a review clause that triggers a review of the terms on a significant change in circumstances, such as the birth of a child or bankruptcy. A review of the nuptial agreement will result in further time, legal fees and perhaps difficulties agreeing any changes that should be made to the agreement. As a review is likely to be made when there has been a significant change in circumstances, the timing of renegotiating the terms of the agreement may be awkward.
• Unromantic. Couples may find the concept of a pre-nuptial agreement setting out what will happen to their finances should the relationship fail rather unromantic at a time when they are in love and planning a wedding.
• Bad timing. Preparing for a marriage is stressful, and the added pressure of considering financial issues and negotiating the terms of a pre-nuptial agreement can put strain on a relationship.
• Parental influence. Sometimes the parents of the economically stronger party drive the nuptial agreement. A nuptial agreement can end up reflecting the parents’ wishes rather than those of the couple. This must not happen and the nuptial agreement must reflect the wishes of the couple only.
• Inheritance issues. If a party waives inheritance rights in the nuptial agreement and his or her spouse dies while they are still married (and did not provide properly for the other in a will) he or she may be in a precarious financial position.
• Legal fees. A nuptial agreement can save a significant amount of money if there are later divorce and financial proceedings, but if the marriage survives, the legal fees spent in drafting and negotiating the terms of the nuptial agreement will effectively have been wasted.
If you are thinking you may benefit from entering into a nuptial agreement and are unsure what steps to take next, then call us on 0151 236 8871 or email info@morecrofts.co.uk.