Wealth protection with prenuptial and postnuptial agreements

Most people have heard of prenuptial agreements. However, the lesser known postnuptial agreement is equally useful to couples who may not have considered, or had an opportunity, to enter into a prenuptial agreement prior to the marriage.

Both prenuptial and postnuptial agreements are contractual agreements designed to set out the agreed financial framework for a settlement in the event of a divorce. They give individuals the means to shield themselves, in financial terms, in a future divorce.

When should a prenuptial or postnuptial agreement be a priority?

The most common reason for executing a prenuptial agreement is when one partner brings significantly more wealth or assets into the marriage than the other. The wealthier spouse would stand to be disproportionately affected by a future divorce in which assets are split equally. The execution of a prenuptial agreement enables them to ringfence those “non-matrimonial” assets that had been built up, or acquired, prior to the marriage.

There are other scenarios in which a prenuptial or postnuptial agreement is valuable, too.

When there is an expectation of future wealth

A prenuptial agreement can protect assets that do not exist at the time of the marriage but which are highly likely to be received in the future by one spouse through their career endeavours, their current investments or, most likely, via an accelerated family gift or an inheritance. A prenuptial agreement can be utilised to preserve future assets or future inherited wealth to ensure they are not treated as “matrimonial property” and potentially shareable upon a future separation or divorce.

To protect a business

Marital assets don’t just come in the form of money, property or pensions. If one partner entering a marriage is a business owner or has shares in a business (or is likely to receive shares in a business the future) then it is worth remembering that a business is also an asset that could be subjected to marital division in a future separation or divorce. A prenuptial agreement can be pivotal in protecting the interests of a family business and its employees to ensure that the non-business owning spouse cannot make financial claims against the business, which could put it in jeopardy.

Where there is an international element

One party to a marriage may hold dual nationality, have assets overseas or previously have been domiciled or habitually resident outside England and Wales. Sometimes as marriages evolve, the parties can make decisions to invest time and money overseas. A prenuptial agreement can help regulate which legal jurisdiction is to seize control of the divorce proceedings in the event of a future separation and can also assist in the determining of any assets held in another legal jurisdiction.

Are prenuptial and postnuptial agreements legal?

Prenuptial and postnuptial agreements are not enshrined in law in England and Wales as legally binding, but a landmark Supreme Court judgment in the case of Radmacher v Granatino in 2010 changed the way courts view them.

The judgment supported the freedom of the parties in that case to determine their own division of assets and gave prenuptial agreements additional but “decisive weight” when determining financial settlements within a divorce. Furthermore, the case established that where a prenuptial agreement existed, the court was unlikely to depart from the terms set out within it, provided certain conditions were met:

• The agreement must have been executed at least 21 days prior to the marriage (in the case of a prenuptial agreement)
• There must have been full disclosure of both parties’ financial circumstances
• There must not have been any coercion or duress of either party in entering into the agreement
• The agreement must be fair and have taken into account both parties’ needs, including housing
• Both parties must have taken independent legal advice before entering into the agreement.

Sensible or cynical?

It is a common misconception that prenuptial and postnuptial agreements are designed only for those with significant wealth. This is a myth and, unfortunately, one of the main reasons that so many couples choose not to enquire about one.

In addition, the unromantic nature of these agreements can sometimes be off-putting for couples. Some may believe that entering into such an agreement sets an expectation that the relationship will eventually fail. However, a prenuptial or postnuptial agreement can often cement the trust, reassurance and commitment between couples, demonstrating that the marriage is based on love and not on any expected gain by the financially weaker party.

A prenuptial or a postnuptial agreement also enables couples to collaboratively decide their own financial settlement with a level head, providing greater financial certainty and significantly reducing the future risk of costly and acrimonious court proceedings, which are often expensive, regardless of the value of the marital pot.

Individuals who are seeking to protect wealth, rarely regret entering into a prenuptial or a postnuptial agreement, although few can say the same in reverse. If you are reading this article right now, surely the right question to ask yourself is – can I afford not to have one?

The key benefits of prenuptial and postnuptial agreements

• Offers total financial transparency at the outset
• Enables individuals to ringfence pre-existing wealth
• Can protect individuals future wealth such as an inheritance
• Clearly defines what is perceived to be “matrimonial” and “non-matrimonial” property
• Can protect a party from taking on the other’s debt
• Can define arrangements for children – such as living arrangements, child maintenance and school fees etc
• Saves considerable legal costs in the event of a future financial dispute upon divorce.