Like most insurances we purchase, we hope we will never have to use it, but we insure ourselves against something going wrong. A Prenuptial Agreement is no different and is just another form of insurance like travel, health, or car insurance.
Entering into a prenup is not about distrust or predicting failure, but about financial planning and protection.
What is a Prenuptial Agreement?
A Prenuptial Agreement (also known as a “prenup”) is a legally binding contract entered into by a couple before marriage. The primary purpose of a prenup is to allow couples to select and control many of the legal rights they acquire upon marrying, and to specify how their assets, property, debts, and financial responsibilities will be divided in the event of a divorce or separation.
Without a valid prenup, the starting point for the division of assets in a divorce or dissolution is an equal split, however courts have discretion to depart from the starting point.
Who can enter into a Prenuptial Agreement?
An agreement can be entered into by any couple (including same sex couples) prior to getting married.
Can civil partners enter into a prenup?
Couples who are entering into a Civil Partnership can enter into a Pre-Civil Partnership Agreement.
A Pre-Civil Partnership Agreement is similar to a prenup and outlines what should happen if the partnership is dissolved or the couple separates in the future.
Both Prenups and Pre-Civil Agreements are binding contracts entered into by a couple before their union, whether it’s a marriage or civil partnership.
Should all couples have prenups?
Prenuptial Agreements are not just for the rich and famous, or people with significant assets. They can be beneficial for couples of all financial backgrounds. Here are some examples of couples who could benefit from entering into a prenup:
- Individuals who are likely to receive family wealth, heirlooms, or future inheritances.
- Couples entering second or subsequent marriages who wish to protect any assets or property from their previous marriage.
- Older individuals who have accumulated significant pre-marital assets or property.
- A couple where one partner earns substantially more than the other. A prenup can clarify financial responsibilities and expectations.
- Entrepreneurs and existing business owners who wish to safeguard their business interests in the case of divorce.
- Couples with significant debt who wish to protect themselves from being liable for the other’s pre-existing debts.
Is a prenup, a red flag?
In most cases prenups are positive for both parties as they provide for protection, practical future planning, and financial transparency.
However, red flags and warning signs should arise in the following circumstances:
- When there is a lack or refusal of financial disclosure by one party.
- When a Prenup is produced shortly before the wedding or civil partnership ceremony.
- When a person is rushed into signing a Prenuptial Agreement without enough time to review.
- When one party is dissuading the other from obtaining professional advice.
- When the language used in the Prenup is unclear or confusing, and can be interpreted in multiple ways.
- When threats, abuse or force are used to sign the Prenup.
- When one party will not negotiate on the terms of the agreement.
- When the terms of the agreement are unfair, one-sided, or heavily favour one party.
Is there an alternative to a Prenup?
An alternative to a Prenup is a Postnuptial Agreement, or “Postnup.” This document functions similarly to a prenup but is used by couples who are already married.
It can be implemented at any point during a marriage and defines who owns what and what happens to assets if the marriage ends in divorce.
Postnups are often used when one partner receives a large sum of money, such as an inheritance, or when the couple decides they need financial and legal protection as their assets grow.
For unmarried couples who live together, a Cohabitation Agreement can work similarly to a prenuptial agreement.
What assets can Prenuptial Agreements protect?
Prenuptial Agreements can protect the following assets:
- Premarital assets and property owned by each spouse before the marriage.
- Assets received from a settlement under a previous divorce.
- Inheritances or gifts received by one spouse during the marriage.
- Business interests or intellectual property owned by one spouse. A prenup can ring fence a business from being affected by the breakdown of the marriage and protect its ownership.
- Pensions or shares owned by either spouse.
Are prenups legally binding in the UK
Prenups are not automatically legally binding in the United Kingdom, but they can be given significant weight by a court if certain conditions are met when the agreement is created. For a prenup to be considered enforceable by the courts, the following conditions should be met:
- There should be full financial disclosure by both parties at the time of entering the prenup.
- The terms should be fair and reasonable, and not unfairly disadvantage one party.
- Each party should obtain independent legal advice before signing the prenup.
- The agreement must be entered into voluntarily and free of any duress, coercion, or pressure.
- It is a good idea that the prenup is signed well in advance of the wedding or civil partnership ceremony. It is recommended that the agreement is signed at least 28 days before the wedding or civil partnership date.
In a 2023 case the court upheld a prenuptial agreement that provided for each party to retain any assets they accumulated before they met.
The pros and cons of prenuptial agreement.
Having a prenup offers several benefits including:
- Asset protection – A prenup safeguards assets in case of divorce, especially where one party has significant wealth before the marriage.
- Less stress & conflict – It can reduce stress and conflict during divorce, as there is clarity on asset division.
- Certainty– Both parties know from the outset how assets will be divided if the marriage breaks down.
- Debt protection – Having a prenup can offer financial security by protecting one party from the other’s debts and liabilities that were incurred prior to the marriage or civil partnership.
The disadvantages of having a prenup may include the following:
- For some having a prenup may be regarded as unromantic and discussing the idea can create tension and may be perceived as a lack of trust or commitment in the relationship.
- Whilst prenups in England and Wales are given “decisive weight”, they are not automatically legally binding and can be challenged.
- For a prenup to remain fair and effective they require regular updates.
- The creation of a prenup is an additional expense for the couple.
How do I ask for a Prenup?
Key steps in asking for a Prenup include raising the issue in enough time for discussion, reflection, and receipt of professional advice.
- Identify the specific reasons why you want a prenup. This could be due to significant pre-marital assets, children from previous marriages, owning a business, or receiving a large inheritance or gift.
- Focus on the benefits of a prenup for both parties. Highlight how it can bring peace of mind, clarity, protection for both, and ensure a smoother separation in the event of divorce.
- Emphasise financial transparency. Discuss how a prenup can help you both understand each other’s financial situation, expectations, and goals – encouraging a more open and transparent relationship.
- Be patient, empathetic, flexible, and open to finding a mutually beneficial solution.
- Choose the right time. You may want to wait until you have been married for a significant period, or after a significant life event.
- Discuss the options for the review and revision of the prenup. Prenups should be reviewed and revised periodically to ensure that they remain relevant and fair.
- Be prepared to listen and compromise.
Can Prenuptial Agreements be updated?
It is strongly recommended to regularly review and update a prenuptial agreement for marriage to ensure it is legally effective, and remains aligned with the couple’s current circumstances and wishes.
Prenuptial Agreements should be updated when a significant life event occurs such as the birth of a child, illness, receipt of a significant asset such as an inheritance, or loss of employment.
Updating an agreement every 3-5 years helps maintain fairness and clarity for both parties.
How much does a Prenup cost?
The cost of an agreement in the UK can vary significantly depending on the complexity of the financial circumstances and assets involved. Several factors can influence the cost of a prenup including the value of the assets involved, and whether expert advice is required from a third party such as a financial or pension expert.
For many, the cost of a prenup is considered an investment compared to the cost of a potential court battle upon divorce.
What happens if you don’t have a prenup?
If you don’t have a Prenup, the division of assets is determined by the courts under English law.
The law relating to the division of assets in divorce is very complex. One of the main reasons for this is that a Judge has a great deal of flexibility and discretion to make whatever order is deemed to be a fair divorce settlement on the particular facts of each case.
The law merely provides a list of what factors the Judge must consider when deciding the division of assets on divorce. This list is contained in Section 25 of the Matrimonial Causes Act 1973 (or “s25 MCA 1973” for short). That is why, even if you provide the identical set of facts to 3 different Judges, each of them may order a different asset division and divorce settlement outcome. However, broadly the outcomes should be within an approximate range and not completely different from a similar case.
In determining how to apply the section 25 factors, a Judge will have fairness as its overarching objective, and will apply the factors according to the principles of “needs”, “sharing” and “compensation”. It is likely that fairness will be seen to suggest an equal division of all the matrimonial assets with first consideration going to any minor children and their carer.