Why should I get a pre nuptial agreement?
Deciding to tie the knot is one of the biggest decisions a couple will make in their lifetimes and yet many will fail to ask themselves important questions before they embark upon this exciting journey together. Whilst no one wishes to entertain the prospect of his or her marriage breaking down it does not follow that this possibility should be ignored. The unfortunate reality is that divorce is a very expensive process and the wide discretion afforded to family judges can create uncertainty as to the outcome of a spouse’s financial claim. Thankfully, the recent Supreme Court decision of Radmacher v Granatino affords couples far more certainty if they take the prudent step of entering into a prenuptial agreement. Katherine Radmacher was a wealthy heiress who fought to uphold a prenuptial agreement entered into by her and her husband. The Court’s decision has set a clear principle that a prenuptial agreement will be enforceable in the UK provided that a) it is freely entered into by each party b) the parties have a full appreciation of its implications and c) it would not be unfair in the circumstances prevailing to hold the parties to the agreement. As a result of this long awaited decision more and more people are now appreciating the importance of securing an element of certainty as to how their wealth will be divided if the unexpected happens. I am sure that almost every reader of this article has a life insurance policy and/or a Will in place; a prenuptial agreement should not be viewed any differently. It is a very important and sensible protective measure and far preferable to the alternative of the matter being placed in the hands of the Court.
Working together to reach an agreement on financial matters before marriage is often considered unromantic but it should be viewed as an important forum for understanding one another’s wishes and expectations for the future before those futures become entwined. Take for example inheritance. Many people feel very strongly that they wish for their family assets to stay within the family. Often the family home, paintings or heirlooms will be passed down through generation after generation and will have a sentimental value far beyond their market value. On divorce these assets can form part of the “matrimonial pot” to be divided as the Court sees fit. There is nothing to stop the Court transferring the assets to the other spouse or ordering a sale and division of the proceeds. Indeed in a recent case, Robson v Robson, the Court ordered the sale of a stately home to enable a wife to obtain her share of the assets on divorce. This was ordered despite great resistance from the husband. A prenuptial agreement can protect inherited assets and importantly the Supreme Court stated in Radmacher that a term in an agreement that seeks to ringfence inherited wealth is likely to be recognised as fair.
Small or family run businesses can be particularly vulnerable upon divorce. The Court looks at each party’s net worth before determining how to divide the assets and it is likely that the value of a shareholding will be taken into consideration. If the company does not have adequate provisions in its articles of association then it is possible for the Court to order a transfer of shares to the other spouse. This is likely to be highly undesirable for the particular shareholder and for the company as a whole. Even where the appropriate restrictions on transfers are in place to prevent a transfer to the spouse there is still the problem that if the financial order on divorce is substantial the shareholder in question may feel they have no option but to consider selling or transferring shares elsewhere to raise the funds to, for example, pay a lump sum or rehouse. These difficulties could be avoided by a prenuptial agreement that ring fences company assets provided of course that care is taken to ensure that it is entered into correctly and the terms are fair.
Of course one of the most cited reasons for entering into a prenuptial agreement is to protect wealth that a person may have worked years and years to accumulate. As with inherited assets, the judges in Radmacher indicated that a term in a prenuptial agreement ring fencing premarital assets is likely to be fair. A prenuptial agreement in this situation can be very important in ensuring that a couple are marrying for the right reasons. Following her Supreme Court success, Katrin Radmacher quite rightly pointed out that she entered into the prenuptial agreement precisely because she wanted her marriage to be free from any suggestions that it was a marriage for money and expels the myth that prenuptial agreements are unromanic:
“I know some people think of prenuptial agreements as being unromantic, but for us it was meant to be a way of proving you are marrying only for love. It was a natural part of the marriage process.”
A primary concern for any parent is to provide for their children. A prenuptial agreement can therefore be particularly important in the case of second marriages because, if the marriage fails, the assets that it was intended to pass to the children from a first marriage may instead be expended in settling the financial claims relating to the second.
Nothing to lose?
Many couples feel there is no point in entering into a prenuptial agreement because they do not have sufficient assets. However the suggestion that prenuptial agreements are the preserve of the wealthy is a dangerous myth. If your future partner has any debt then over time this could become a joint matrimonial debt and it may be shared on divorce. A young savvy saver marrying someone who has accrued significant debts will be disappointed to see that their prudence may not be rewarded on divorce in the absence of an agreement. In addition a spouse may be surprised to find that money lent or gifted to them by a family member or friend may also be vulnerable on divorce. Such loans are commonplace in the current economic climate where young people struggle to get on the property ladder and turn to their parents for assistance. Whatever your circumstances the resounding message from the Supreme Court is that couples should be able to take steps to plan for what should happen in the event of marriage breakdown and can do so. However, there are of course important safeguards in place to ensure that such agreements do not create injustice and as such it is vital that legal advice is sought so that every step is taken to produce an agreement that is likely to be upheld by the Court.
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This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.