More and more couples are choosing to take control and regulate what would happen financially if they were ever to divorce. Anyone entering a marriage with a significant disparity in wealth, a business to protect, or those (already married or not) expecting a gift or inheritance should consider carefully whether a pre/post-nup would offer the reassurance they need.
Since 2010, the law on pre-nups has been clarified and their weight has increased significantly. First of all, it is important to understand that such an agreement doesn’t have to happen before a wedding – a “post-nup” has exactly the same effect, so if an adjustment to wealth is going to happen during a marriage, such as parents passing on wealth or ownership of a family business, then an agreement can still be drawn up to protect it. It is important to get the agreement drawn up before the gift is made.
The court’s normal starting point on divorce is a 50/50 division of a couple’s assets. A properly entered into pre or post nuptial agreement changes this so the starting point becomes the terms of the agreement. This can make a huge difference to the outcome of a divorce.
Some common examples of where pre and post-nups are used are:
Gifts to the next generation: succession and inheritance tax planning
If you own a family business or have built up significant wealth and are thinking about handing on assets to the next generation as part of your inheritance tax planning, you may feel strongly about keeping the business in the family and could have concerns about potential claims of a spouse of one of your children which prevent you parting with your share tax-efficiently.
It is worth considering requiring your children to enter into a pre-nup (or a post-nup if they are already married when you plan to make the gift) with their partner/spouse before you adjust ownership.
The agreement can ring-fence the business from the assets shared on divorce, subject to the reasonable needs of the spouse being met, to minimise the impact of a divorce and protect the business for future generations.
Those with inherited wealth to protect
Within a divorce, only inheritance which has been received or is certainly going to be at the time of the divorce (i.e. the spouse is the beneficiary of a Will and the person has died) will be shared. This can give rise to what would morally be considered unfair settlements if one spouse has received their inheritance whilst the other has theirs to come, but is lucky enough to have healthy parents because any received and unprotected inheritance will be part of the pot divided between the couple.
To prevent that, inheritance should be kept separate from joint assets at the very least, but even then the divorce court has the power to share it to meet needs. A pre/post-nup can ring-fence the inheritance to minimise the prospect of it being shared on divorce.
Second marriages
The number of people getting married for the second time is on the up. For some couples, one or both of them may have built up significant assets or business interests before their second marriage and may want to preserve those to pass on to children from their first marriage.
If this second marriage breaks down, potentially all of the couple’s resources could be considered by the court when deciding on the financial settlement. This can include pension provision even in circumstances where second pre-marriage assets had already been shared and the pension retained after a first divorce. It is therefore advisable to enter into a pre or post-nup ring-fencing pre-acquired assets from what would be shared on divorce.
In order to be followed by a court, pre or post-nups must be entered into freely and with a full understanding of the terms of the agreement and the provision for a spouse within the agreement must be considered fair. It is therefore important to seek early independent legal advice from a solicitor with experience in this field.
For more information on inheritance, divorce, pre/post-nups and business assets in divorce, please see our videos:
- How is Significant Inherited Wealth Dealt with During Divorce?
- Pre and Post Nuptial Agreements for High Net Worth Individuals Explained
- What Happens to Your Business During a Divorce?
For advice, please contact our Family team.