This note gives an overview of what "Pre and Post-Nups" are, and the practicalities involved in obtaining one.
Many clients are now seeking advice before they marry or enter into a civil partnership about whether there are steps they could take to protect their assets in the event of future separation, and an increasing number are signing what are commonly referred to as Marital Agreements. There have in recent years been both legal and social changes which are making these agreements more common in England.
For those who do not want to go as far as a Marital Agreement, there are other legal steps that should be considered on marriage, and they are also explained below.
What is a Marital Agreement?
A Pre or Post-Marital Agreement ("PMA") is a term commonly used to refer to a document entered into before or after marriage or civil partnership with the primary objective of influencing the terms of a financial settlement in the event of future divorce or dissolution.
A PMA can also be used to agree how property should be held during marriage or partnership, and to express intentions about what will happen to property in the event of the death of a spouse.
Are Marital Agreements binding in England?
A PMA is not a binding contract. Under English law, in the event of divorce or dissolution proceedings, the court retains discretion and power to impose a financial settlement dividing assets and a PMA cannot override the court’s ultimate discretion.
However, English courts have recently made a number of decisions in which the outcome of the financial settlement has been strongly influenced by the terms of a PMA.
Where a couple’s assets exceed the resources required to meet needs, provided that the terms of the settlement are not manifestly unfair and the agreement has been properly entered into, there is a strong likelihood that the terms of the PMA will determine the settlement. There is a possibility that the law will change in the future as a Law Commission Report due to be published in 2013 is widely expected to recommend that "qualifying" marital agreements are made binding.
A PMA is however unlikely to be followed on divorce or dissolution if the assets are modest, because the assets and income that are available will be required to meet needs, particularly the needs of children. If one party had been unfairly encouraged to consent to an agreement, a court is also unlikely to follow it.
What has changed to make people want these agreements?
Financial settlements on divorce and dissolution have become more expensive for the spouse in the stronger financial position in recent years. Two trends have caused this inflation:
- The starting point of an equal division of capital; and
- Higher levels of maintenance payable by high-earners.
In the past financial settlements were more commonly worked out on the basis of the "reasonable requirements" of the less well-off spouse, rather than an entitlement to a share of capital or income.
Who might benefit from a Marital Agreement?
The people who are most likely to want to enter into a PMA, and who are most likely to benefit from one, are those:
- Who are marrying or entering into a partnership for the second time, where one or both of the parties want to preserve assets for children from their first marriage or partnership;
- Who wish to protect inherited wealth;
- Who have accumulated substantial assets before the marriage or partnership and wish those assets to be ring-fenced in the event of a future divorce or dissolution; or
- Who have connections with another country, or who have assets outside the UK.
Where there is a substantial imbalance of wealth between the parties, it follows that the party in the weaker financial position will have less interest in entering into such an agreement.
What clauses go in a Marital Agreement?
There is no standard format. The contents of the document depend upon the assets and the objectives.
The types of PMA that we negotiate most regularly are agreements:
- which seek to limit financial provision to "reasonable requirements" rather than a share of assets or income;
- setting out which assets will be treated as "marital assets" for division in the event of divorce, and which ones will be "non-marital assets" to be left out of account; or
- which ring-fence particular assets such as shares in a company or property held in a family for generations.
To have the greatest chance of influencing the outcome of a future financial settlement, it is strongly recommended that the following steps are taken when a PMA is negotiated:
- There must be an exchange of financial information so that both parties know the background to the document that they are being asked to sign;
- Each party should have independent advice from a solicitor. This is normally achieved by the parties agreeing in advance what form they want the agreement to take. The document is drawn up by one solicitor, and the other party takes advice from another solicitor about the terms of the agreement before it is signed.
An agreement which is entered into at the last minute, under pressure, is unlikely to carry the same weight as an agreement that has been negotiated and signed well in advance.
It is therefore strongly recommended that the process is started well before the marriage or partnership takes place; ideally, at least a month before.
If one of the parties to the marriage has a connection with another country, we may recommend that the primary contract should be drawn up in that country, possibly with a supplemental contract in England.
In mainland Europe it is standard to have a pre-marital contract. The contract will determine the matrimonial property regime that will apply during the marriage, on divorce, and on death. Broadly the choice is between "separation of property" in which each spouse owns their own property independently, and "community of property" in which there is a presumption that property in the marriage will be shared.
If there are connections with multiple jurisdictions, we may recommend a series of contracts to ensure that the desired result is achieved, to cover the possibility of residence and/or divorce or death in another country.
Outcome on death of a spouse - making new Wills
Under English law, getting married or entering into a civil partnership will automatically revoke any existing Will.
It is therefore essential that both spouses should, on or immediately before marriage, make a new Will.
The terms of a Will can however be overturned under the Inheritance (Provision for Family and Dependants) Act 1975, if the Will does not make proper financial provision for the surviving spouse.
A PMA can also be used to attempt to influence the outcome of claims on death under that Act.
A word of caution
Marital Agreements are not for everyone. They require a frank discussion about the possibility of a future separation, just at the time when everything is being prepared for the marriage or civil partnership. They also require a commitment to disclosing financial circumstances to the other spouse.
Discussion about a possible PMA should therefore be started in good time, in order to establish whether both parties are willing to go ahead.
What are the alternatives?
In the broadest terms, the alternatives to a PMA which might be considered are:
- not getting married or entering into a partnership at all (the legal rights of people who live together are still very limited under English law);
- in any event, making a Will to determine the outcome on death;
- keeping property separate; and
- in some circumstances corporate or trust structures may also provide a degree of control.