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With the significant inheritance tax changes announced in the last Budget, many are now turning to lifetime gifting as a solution to mitigating IHT liability.
And from a tax planning perspective, lifetime gifting to pass on assets can be beneficial.
But how do you make sure these assets are protected in the event of divorce?
We asked Matt Clemence, Head of the Family Team at Kerseys Solicitors to set out the basis of pre and post nuptial agreements and how they can be used to protect assets.
What is a pre-nup?
A pre-nup is an agreement made between two individuals before their marriage has taken place. It usually sets out how the couple would like to divide their property, and other assets should they later separate or divorce.
Alternatively, a post-nuptial agreement is made between individuals who are already married and sets out exactly the same as a pre-nup. But a post-nup can be really effective when there is a significant change in one or both parties’ financial circumstances during the marriage.
It’s worth noting here too that civil partners contemplating a civil partnership can also enter into pre and post nuptial agreements and they operate in exactly the same way.
Both pre-nup and post-nup agreements can ring-fence and protect specific assets from being divided in divorce, including: –
- Pre-marital assets: Anything owned by one person before the marriage, such as property, savings and investments.
- Inheritance and family wealth: Assets gifted or inherited, like a family business or heirlooms can be protected for future generations.
- Business Assets: Interest in a business can be defined as separate property, ensuring that a divorce does not disrupt its operation or ownership
- Trusts: Interests in family trusts can be ring-fenced to prevent them being considered a matrimonial asset.
- Assets for children: For second marriages particularly, a nuptial agreement can protect assets intended for children from a previous relationship.
- Future assets: An agreement can also cover how assets acquired during the marriage can be handled, such as a significant expected inheritance.
Are pre-nups a legal document?
Whilst pre and post nuptial agreements are not currently binding in England and Wales, the case of Radmacher back in 2009 essentially paved the way for Courts to apply significant weighting to nuptial agreements, when considering how to divide a party’s assets.
To increase the chances of a Court upholding the pre or post nuptial agreement though, certain procedural safeguards must be met:
- Independent legal advice: Each party must obtain independent legal advice from their own Solicitors before signing the document. This makes sure both parties understand the implications of the agreement.
- Full and frank financial disclosure: Both parties must honestly and transparently disclose all their assets, income and liabilities. Deliberately hiding assets can invalidate the Agreement.
- Freely entered: The Agreement must be entered into voluntarily, without any undue pressure or coercion. For prenups, this includes signing the Agreement well in advance of the wedding date – a minimum of 28 days is recommended.
- Fairness: The Courts overriding concern is fairness. If the Agreement is deemed significantly unfair or does not meet the reasonable financial needs of one of the parties or any children, a Judge can set it aside.
- Made as a Deed: The document must be in writing and correctly executed as a Deed, including being witnessed.
Statistically, there’s been a sharp uptake in the number of couples that are entering into pre and post-nuptial agreements – with an estimated 20% of couples putting one in place.
A well drafted and carefully considered nuptial agreement will undoubtedly minimise acrimony on divorce. Avoiding long drawn-out and often costly Court applications that can have a detrimental effect on the parties’ ongoing relationship, especially where children are involved.
It’s worth remembering that even with a valid nuptial agreement, a UK Court’s primary concern in divorce settlement is to ensure the reasonable financial needs of both parties and any children are met. A Judge will ignore or alter an agreement if it would cause undue hardship to one spouse.
Matt is Head of the Family Team at Kerseys Solicitors in Ipswich and has over 25 years of experience dealing with family law related matters.
To find out more about nuptial agreements and how they could benefit you or your family, you can contact Matt Clemence at Kerseys Solicitors by calling 01473 213311 or email matt.clemence@kerseys.co.uk
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