Do I need a prenuptial agreement?

For anyone marrying with significant assets or inheritance prospects, a prenuptial agreement is essential to protect them. Where certain requirements are met, its terms can be decisive.

For a newly engaged couple, it naturally feels far from romantic to think about a possible divorce or an unedifying argument about money. However, advisers and parents should encourage engaged couples to view a prenuptial agreement as the contractual equivalent to being prepared for bad weather while hoping for sunshine.

Prenuptial agreements give couples the best chance of autonomy about how they regulate their finances on divorce, providing certainty for each spouse and reducing the potential of stressful, costly litigation. For the economically stronger partner, it is a crucial tool for protecting assets brought into the marriage, and ringfencing inheritances or business interests.

How to raise the topic?

Suggesting a prenuptial agreement to one’s fiancé(e) is a sensitive topic. It forces a couple to contemplate a marriage breakdown, whilst they are excitedly planning for their wedding and future.

Often the need for an agreement comes not from either partner but from parents, a business partner, or a shareholders’ agreement – which helpfully depersonalises the request, since it is not one party instigating it out of doubt about the other’s motives or of the marriage’s longevity.

Are prenuptial agreements binding?

Prenuptial agreements are not yet binding in England and Wales. Upon marriage breakdown, a Judge is not compelled to uphold a prenuptial agreement and must consider factors including children’s welfare, the earning capacity, financial resources and needs of each spouse, as well as the family’s historic standard of living before the breakdown of the marriage.

But, agreements are increasingly upheld if certain requirements are met, following the landmark Supreme Court decision in 2010 of Radmacher v Granatino, which held that a prenuptial agreement will have “magnetic importance” when considering the other factors.

How to ensure the agreement is watertight?

For a Judge to give weight to the prenuptial agreement, the agreement must be entered into freely, with both parties fully understanding the implications. It must also be fair at the time of the divorce. There should be proper financial disclosure, separate legal representation, and no vitiating factors such as duress, fraud or misrepresentation at play.

Is the prenuptial agreement “fair”?

The current precedent is that a prenuptial agreement can fairly protect against a ‘sharing’ argument on divorce – which as a starting point provides for matrimonial property to be divided equally – but not against a ‘needs’ argument (which allows non-matrimonial assets to be impinged upon if an equal division of the matrimonial assets would not meet a party’s needs). If the economically weaker party’s “needs” are unmet, the agreement will not be upheld in full, so expert advice on how a court assesses “needs” is essential.

However, even where not upheld in full, an agreement is more likely to ensure a Judge assesses “needs” at the lower end of their discretionary band. A recent case compared this range to a bookshelf: one end represents a comfortable lifestyle, the other a spartan lifestyle covering little more than essentials. If an agreement leaves a party below that lower end, it would be considered unfair. Though a court would only adjust it enough to bring them just above that threshold, not further.

Tips arising from recent case law – puddles to avoid stepping in

As more prenuptial and postnuptial agreements have been upheld by the courts and the court has recognised that couples wish to have greater autonomy over their financial affairs, case law has built on the conditions set out above and constantly evolves. It is essential that both parties take independent legal advice from an expert family lawyer when negotiating and signing an agreement.

Full financial disclosure – an unclouded asset schedule

Full and frank financial disclosure is essential to any prenuptial or postnuptial agreement. Without it, an agreement will be at greater risk of attack: the economically weaker party needs to understand what they are relinquishing a possible claim to. Recently, the Court of Appeal did not uphold a prenuptial agreement because the wife had failed to disclose 73% of her wealth. Where an individual does not hold substantial assets at the time of entering into a prenuptial agreement, but expects to during the marriage, this too should be disclosed. The fuller the disclosure, the stronger the agreement.

Pressure systems

In another recent landmark case relating to a postnuptial agreement, the court refused to uphold an agreement after finding the husband had exerted undue pressure and coercive control, isolating the wife from legal advice so that she agreed to terms she wouldn’t have otherwise accepted. This led to the wife being awarded £230.78m, understood to be the third largest divorce settlement in English legal history – demonstrating the importance of ensuring that an agreement is properly entered into with independent legal advice for both parties.

The court will scrutinise how an agreement was reached to ensure it was entered into freely. Parties should seek expert legal advice once they become engaged – time pressure, and signing an agreement shortly before a wedding, may lead to an agreement not being upheld.

Cross-border elements

Rules governing prenuptial agreements and marriage contracts vary by jurisdiction and can be complex. International couples who have assets in, ties to, or plans to spend time living in England should seek English family law advice as soon as possible when planning a wedding.

Conclusion – protection in case it pours

Entering into a strong pre- or post-nuptial agreement means that you are prepared for the worst, while hoping for the best, so that if marriage breakdown happens, you have your umbrella ready to protect you from the storm.

Kate and Ellie’s article was originally published in Tatler.