As the popularity of pre-nuptial agreements increases the private client team at Stephens Scown highlights the need to have a suitable Will in place.
What is a pre-nupital agreement?
This is an agreement entered into by a couple before they marry. The purpose of the agreement is to determine how the couple’s financial wealth should be split between them in the even that the marriage ends in divorce.
PNAs were given legal standing in 2010 following the Radmacher case. This case established that a pre-nuptial would have legal force providing the following conditions are met:-
1. Neither party has been put under undue influence to enter into the agreement;
2. Both parties have made a full disclosure of their financial resources;
3. Both parties receive independent legal advice about the agreement;
4. The court considers the terms of the agreement are fair to both parties at the time of the divorce.
Pre-nuptial agreements and wills
Whilst both parties know what they receive on divorce, a PNA cannot prevent a surviving spouse making a claim on the first spouse’s death if they consider adequate financial provision has not been made for them.
Of course, the parties may take an entirely different view on how their wealth should be distributed on death. Indeed, there are tax advantages of giving the surviving spouse a larger share of the estate. If the Will is structured correctly this may result in a significant inheritance tax saving for the next generation.
If, however, the terms of the PNA are to be followed on death, the Will should be drafted with this in mind.
A word of warning
If, what the surviving spouse receives is broadly equivalent to the PNA, they could still make a claim under what is known as the Inheritance (Provision for Family & Dependants) Act 1975. The claim would be made on the basis that adequate financial provision has not been made for them under the Will.
Would the pre-nuptial agreement act as a brake on any potential 1975 claim?
There is currently no case law on this point. The Court is bound to consider all of the relevant circumstances of any such claim.
A pre-nuptial agreement should also be relevant to what is known as the “divorce cross-check”. Under a 1975 Act claim this requires the Court to consider what the surviving spouse would have received if the marriage had ended by divorce instead of death.
What to think about when drafting pre-nuptial agreements and wills
If you have entered into a PNA and wish to limit the prospect of a claim against your estate being successful you should take the following into account.
- Marriage will automatically revoke your Will unless the Will was made in contemplation of your forthcoming marriage.
- If your pre-nuptial agreement stipulates the testamentary provisions that you and your new spouse are making for each other, ensure your Will reflects this. If this is not the case, the provision you make for your new spouse in your Will should be at least as generous as the terms of the PNA.
- Insofar as the PNA may influence any award under a 1975 Act claim, this is only likely to be the case if the requirements of the Radmacher case are met.
- Providing your spouse with a larger share of the family wealth may not be disastrous. If your Will is structured right it may even save future generations significant tax liabilities.