Nuptial agreements are becoming more commonplace in modern society and we certainly seem to be drafting more of them.
In this article we provide a definition of a pre-nup, why they are necessary and the process involved. We also highlight guidance on the use of pre-nups given by the courts during specific cases.
A ‘pre-nup’ is a document entered into before the marriage, and a post-nuptial agreement is entered into thereafter – both carry the same weight.
Prenups are an effective tool to be used alongside other planning, whether that’s inheritance tax planning and passing assets to the future generations, setting up a company or to protect future wealth.
The last couple of years have given practitioners a number of interesting pieces of reading, with the senior judiciary seeking to provide guidance in this area in 2023 and a string of cases that started to cement their place in our modern society, and more recently a couple of cases reminding us of their limitations.
As well as protecting wealth, pre-nups also serve to provide reassurance to the weaker financial party that their needs will be met and importantly, they take the tricky emotion out of financial discussions during the marriage – because everything is transparent at the outset.
Asset protection goes further than just drafting a good pre-nup, it also involves a consideration of how you manage money during your relationship, how you go about your everyday dealings and how you keep assets separate. As such, when setting up a business, careful consideration of how to structure shares, how to involve a spouse or partner in the set up or running of a business or whether it’s sensible to restructure in a certain way can all be really key.
Other decisions you might make with an accountant or financial adviser, such as:
The guiding principles have been with us a long time, since the Supreme Court case of Radmacher v Granatino in 2010, where it was stated that the ‘court will give effect to a nuptial agreement that is freely entered into by each party, with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to the hold the parties to the agreement.’
The more recent cases provide an encouragement well over a decade later, of the law to be applied and that they will be upheld, provided that certain steps are followed and that they are fundamentally fair.
They are also a useful reminder that pre-nups will serve to put the brakes on a needs-based claim, as a wider consideration of the case, even if they are not upheld in full and that the court in England and Wales ultimately retains wide discretion.
Pre-nups in England and Wales aren’t legally binding, but there is a clear encouragement from the judiciary that mature adults should be entitled to make decisions about their future without intervention. As such, they are not documents that should be entered into lightly, and even a failure to obtain legal advice may not be completely fatal – you have been warned.
Prenups require careful planning, both with the couple and the lawyers, to ensure that they meet the objectives of the family and are not solely designed to protect wealth. They should also have an eye to what the future needs of the family will be, and ensure that they give the opportunity to revisit with the evolution of the marriage.
The document must be freely entered into, without fraud or duress, both individuals ideally require independent legal advice and need to have exchanged financial disclosure. How can it be fair for you to give up rights, if you have no idea what you might have been entitled to after all?
In 2023, the senior judges appeared to attempt to give specific guidance on the use of pre-nups, which inevitably provides important guidance for practitioners when drafting and thinking about the bigger picture of a prenup.
In MN v AN the court upheld the prenuptial agreement. The court considered whether there were any circumstances to exclude or reduce the weight attached to the prenup. The court thought not. Secondly, the court asked whether the prenup provided for a fair result in light of all the statutory factors. The judge concluded that it did. The case also highlights that the notion that there will be no wedding if there is no pre-nup is not enough alone to give rise to undue pressure.
Also in 2023, Peel LJ in HD v WB provided a welcomed updated summary of the law and reiterated how prenups should be taken into account, but that even where they are to be upheld that needs may well ‘render it sufficiently unfair to justify a degree of court intervention’.
The existence of a prenup significantly put the brakes on a needs-based claim. This case served as a reminder that just because you regret signing a pre-nup, doesn’t mean that you will not expect to be held to it and if you then try and misrepresent the circumstances in the future.
The court also has the power to award costs, which in this case was payable from his needs-based award, the court warning he ‘cannot be insulated from the consequences of litigation’.
Alongside the clarification of the law on prenups, 2023 also gave us the case of Cummings v Fawn. Mostyn J reminds us that the court retains a wide discretion and underpinning all of this is needs, shortly before his retirement providing a helpful analogy about the range of future needs available being likened to book-ends.
After we started to get into the flow of pre-nups being upheld, in February 2024 we saw a stricter application of the needs issue. In ND v KD, the pre-nup wasn’t upheld, where the agreement was entered into just three days before the ceremony.
The court found the wife entered into the agreement as a result of undue pressure which was also fundamentally unfair and, failed to meet the wife or the child’s needs. This case involved assets in the region of £3m net, which is a stark difference from many of the other cases in this area in the tens of millions.
More recently in June, in AH v BH gave us an example of a case of a short marriage, where Mr Justice Peel departed from the prenuptial agreement, sharing the family home and ensuring that the wife’s needs were met. As such, whilst we have clear guidance on what the law is and judicial encouragement of their place in our current society, the courts are clear that prenups will be given heavy scrutiny.
At Ashfords, we frequently prepare pre-nups and provide wider asset protection advice. Instructing a family lawyer, alongside your private client and corporate lawyers, financial adviser or accountant, ensures the decisions made don’t inadvertently cause problems later, if your (or a child or business partner’s) relationship breaks down.
For further information, please contact our family team.
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