Nuptial agreements

A pre or post nup is a voluntary agreement in which a couple defines what should happen if a relationship fails. They can give greater confidence to enter into a marriage or civil partnership, and for those already married, autonomy and control over their assets.

Usually nuptial agreements will define the assets that the couple agree as being their ‘separate property’, and therefore not subject to sharing on divorce. Other assets, often but not always including the family home, are ‘joint property’. The agreement will then set out how joint property is to be shared and any additional provision that may be required. Each agreement is bespoke to the couples’ circumstances.

Yes, provided they are properly executed there is no legal difference between a pre nup and a post nup.

As the law in England & Wales does not yet formally recognise these agreements the Court retains discretion to deviate from their terms. However, in recent years these agreements have been considered more often by the courts, and judges have placed greater emphasis on respecting the autonomy of the individual.

Since a 2010 Supreme Court ruling parties entering into a properly drafted and executed nuptial agreement (see below for the requirements) should intend to be bound by its terms. Where a Court does deviate from the terms of an agreement, it should do so only to the extent that is required to ensure needs are met, and to reflect overall fairness.

• Where assets have been, or are being, transferred to younger generations. Without a nuptial agreement in place any money transferred could be considered as matrimonial and shared on divorce.
• Where a client is making a financial contribution towards an asset held by someone else. Most commonly this occurs where a parent loans or gifts a child money for the purchase of a house. In that circumstance the nuptial agreement can record the loan or gift and protect the client’s investment.
• Where a couple are entering into marriage or a civil partnership with a clear disparity in their personal wealth and/or incomes.
• As part of estate and tax planning, and when considering what future inheritances a family may receive to ensure those inherited assets are protected on divorce.
• At the time of any changes to the couples’ financial planning, for example by way of a transfer of assets between spouses to maximise tax efficiency, or when one spouse receives an inheritance.
• To protect future inheritances or lifetime gifts intended for children from a previous relationship.
• At the time of any significant financial event, for example the sale or flotation of a business, to define whether an asset is considered as matrimonial or not (either in whole or in part).
• As part of any business restructuring, most commonly where a spouse is to change their status in a company and/or receive or re-classify a shareholding.
• To address any significant life changes, for example the birth of a child or an agreement that one party should take time away from work to raise a child or children. A nuptial agreement can provide certainty to a spouse who might make a decision to the detriment of their own personal financial security to benefit the well-being of the family as a whole.

Whilst a nuptial agreement can deal with assets anywhere in the world, it will be drafted in accordance with the laws of England & Wales. Clients with international assets and connections will be advised to consider separate advice in those other jurisdictions. It is also possible for the couple to agree that any divorce would be dealt with in this jurisdiction.

It is recognised that the ‘gold standard’ for a nuptial agreement is to meet the criteria set out by the Law Commission in 2014. Where that is the case, the nuptial agreement will be classified as a Qualifying Nuptial Agreement (QNA).

Where a QNA meets both parties’ needs and those of any children it should be treated as binding. This will limit the courts’ powers such that orders should not be made that are inconsistent with the terms of the agreement.

For an agreement to be treated as a QNA:

• The couple must first have disclosed their respective financial positions to each other;
• Both parties must have received independent legal advice about the terms of the agreement;
• Neither party should be under duress to execute the agreement;
• The agreement should be contractually valid and executed as a deed; and
• The agreement should not be entered into less than 28 days before the wedding/civil partnership. In the alternative a post-nup can be signed after the wedding/civil partnership.

A cohabitation agreement is used for couples who are not married or in a civil partnership. Regardless of the length of a cohabitating relationship, the law in this jurisdiction does not currently afford any legal financial rights upon the separation of cohabitees. The idea of a ‘common law wife/husband’ is a myth.

There are however ways in which an individual can acquire an interest in property or assets owned by another individual. With cohabiting couples this most often occurs where one person makes a financial contribution to the purchase or maintenance of a property owned by the other. There are also limited claims that can be made on behalf of a child of unmarried parents.

For these reasons, and whilst they do not have the same legal status as nuptial agreements, it is wise for an unmarried, cohabiting client to seek advice in the circumstances set out above.

We look holistically at our client’s needs, including protections that can be put in place. We are always willing to have an initial conversation with you to discuss how a nuptial or cohabitation agreement may be of benefit.

Our team has significant experience drafting nuptial and cohabitation agreements for clients from all backgrounds, and at all financial levels. We can also assist in communicating the benefit of these documents to your spouse or partner. It is also common for us to work alongside financial advisors, wealth managers, private banks and family offices to ensure a nuptial agreement will complement existing tax planning. The costs of an agreement will vary depending on its complexity, but it is almost always a fraction of the value of the assets you may be looking to protect. The use of nuptial agreements continues to increase as part of sensible planning for your family life and financial security.