Old Mill and Chubb Bulleid have come together to discuss the benefits of prenuptial agreements and why you should consider them if you’re entering into a marriage.

 

Are they just for celebrities?

 

Not at all. Prenuptial agreements are becoming increasingly popular and are not just for the very wealthy. With the increase in later-life or second marriages, more people are bringing their own independent wealth to the marriage and are seeking to protect that wealth for their own needs and for their children.

 

Why get a prenuptial agreement?

Upon entering into a marriage, it is the obvious intention of both parties that the marriage will endure for the rest of their joint lives.

 

In the unhappy event that those wishes are not fulfilled, a prenuptial agreement records what was agreed by both parties at the outset of their marriage. It can avoid costly, time-consuming litigation.

 

What are the advantages of entering into a pre-nuptial agreement?

 

Certainty

You can agree in advance which assets are to be shared and which assets are to be ring-fenced from the matrimonial finances.

 

Transparency

When drafting the agreement, both parties are required to exchange their financial disclosure. This means that you both know at the outset the approximate value of each other’s assets.

 

Cost effectiveness

The cost of drafting a prenuptial agreement is likely to be far less than the costs of litigation, should the marriage break down and the division of the matrimonial finances be disputed.

 

 

 

Flexibility

You and your partner have control of what is included within the agreement and can agree between you how your individual funds are to be protected. The agreement can, and should, be updated over time, taking into consideration changing circumstances.

 

Protection of existing or inherited wealth

When entering into a marriage, perhaps for the second time, you may well assume that the property that you bring to the marriage will remain yours. Under matrimonial law in England and Wales, the family home is presumed to be a matrimonial asset, to be shared between the parties. This can result in a former family home being sold and the sale proceeds being divided between the parties. The children from a previous relationship would no longer benefit from the full share of that property.

 

Protecting the family business

If one party’s needs cannot be met through the existing joint matrimonial finances, any other assets owned, including shares held in a family business, can be utilised by the court to meet those needs. When drafting a prenuptial agreement, all eventualities are considered, and the agreement sets out to protect both parties’ individual assets from being diverted.

 

Are prenuptial agreements binding?

The Court is likely to uphold a prenuptial agreement if the following conditions are met:

• The parties must have entered into the agreement freely.
• They must each have taken independent legal advice; and
• They must have full knowledge of each other’s financial assets.

 

They must also both have full understanding of the implications of the agreement. The court will not uphold an agreement that would be unfair at the time of the divorce.

 

If the correct procedure has been followed and if neither party will be left with their reasonable needs unmet, current case law provides that a prenuptial agreement will be upheld.

 

Am I too late to enter into a prenuptial agreement?

If you are already married or the wedding is imminent, you are likely to be too late for a prenuptial agreement. However, a postnuptial agreement can be entered into after the marriage has taken place, provided that it is not in contemplation of a separation.

You should view a prenuptial agreement as any other insurance policy. You do not purchase a house with an expectation that it will burn down, but you would always insure your house against that risk.

 

Should I have a financial planner at my meeting?

From a wealth management perspective, we would recommend inviting your financial planner to join the meeting to explain and discuss the assets being brought into the marriage.

 

The taxation position would be the same on assets distributed on a divorce and a prenuptial agreement. We would look at the ownership of the assets and the transfer or disposal of the assets when working out if any tax is due or not.

 

Financial areas you should be thinking about

 

Budgeting

• Budgeting going forward particularly if different spending approach (spender vs saver)
• Use of joint accounts/degree of separation maintained

 

Previous relations

• Children from previous marriages and how this should be accounted for in Wills/pension expression of wishes/trusts

 

Ability to utilise

• • Transfers between spouses are nil gain nil loss for Capital Gains Tax purposes
  • Two lots of ISA allowances
  • Two personal allowances
  • Two annual allowances for pension contributions (although these may be different depending on each partner’s income)
  • Marriage Allowance transfer available for personal tax
  • Inheritance Tax allowance automatically passes to spouse on the first partner’s death so a couple can have up to a £1m IHT threshold. Please note, this is subject to change in the upcoming October budget.
  • Spouses are automatically joint tenants for rental properties, so the income is split 50/50, but this can be altered using a form 17.
  • Share capital and business ownership can be split between two spouses

 

How can Old Mill and Chubb Bulleid help me with prenuptials?

Old Mill and Chubb Bulleid are committed to helping our clients plan for their futures and to protect themselves from as many of life’s obstacles along the way.

 

For more advice on the benefits of a prenuptial or postnuptial agreement, please contact family@chubb-bulleid.co.uk

 

For more advice on the financial benefits of a pre-nuptial or post-nuptial agreement, please contact enquiries@om.uk.