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Pre-nups - Why they make sense

18 March 2010

Picture a scene in your son or daughter’s kitchen. After a hard day’s work your offspring suddenly says to their spouse: “Darling, I know we are happily married and have no intention of ever divorcing but would you mind discussing what the financial split would be in the event that we ever do?”

It is difficult to imagine this line of conversation going well. Heated exchanges leading to smashed crockery would be more likely than a calm assessment of what would constitute a fair division of income and capital in a separation.

If, however, your child approached their spouse and said: “Mum and Dad are talking about me taking over the farm.  It has been in our family for three generations.  I know it’s a bit hard-nosed but before they transfer it to me they want us to sign an agreement saying that you won’t make a claim against the farm if we divorced.”

While still a potential minefield, handled sensitively this approach could result in a more constructive discussion focusing on the interests of the whole family - including future generations.

A few years ago it was widely believed that if your children were already married it was too late to try to encourage your son or daughter-in-law to enter into an agreement of this sort. And unless the property was already in trust, any disposition that you made was likely to be challenged in the courts.

Even if your children were not yet married and could broach the subject of a pre-nuptial agreement with their fiancée, there was no guarantee that these agreements would be upheld by the courts.

A landmark decision in Radmacher means that ‘pre-nups’ are now more likely to be upheld by the courts and perhaps, more importantly, that agreements can be made after the marriage (post-nuptial agreements) - particularly in relation to property that the couple has not yet acquired.

The advantage of post-nuptial agreements is that if there’s any lingering doubt about a pre-nup being upheld, it can be minimised by entering into a further agreement confirming the terms of the pre-nup after the wedding has taken place.

Both types of agreements require certain formalities.  The most important are that each party has to receive independent legal advice from separate firms of solicitors, and that there has to be complete disclosure of existing financial circumstances and, ideally, expectations, before the agreement is made.

In the case of a larger farm or farms which haven’t been valued for several years, it might be wise to go to the expense of a valuation so that the son or daughter-in-law knows exactly what they are agreeing to in the event of a marriage breakdown.

Generally speaking, the need for independent legal advice causes few problems these days.  More and more family lawyers are familiar with the structure of pre-nup, if not post-nup, agreements and are happy to advise on how the provision in the agreement differs from what a client might be entitled to in the event of an application to the court following divorce.  Instances of weddings being called off as a result of such advice seem to be mercifully rare.

Detailed financial disclosure can sometimes cause more headaches - although it is more likely to be embarrassment, rather than a desire to hide anything, which makes people reluctant to set out exact details of everything that they have and are likely to receive.

Pre-nuptial agreements must be negotiated and executed long in advance of the wedding so that there’s no suggestion that either party has been coerced into signing the agreement or threatened with the marriage being called off.  Either type of agreement must contain provision for major life events such as a new matrimonial home and the birth of children - and/or provide for reviews of the agreed provision following such events.

Given that unfair agreements will not be upheld, one which offers a spouse something practical - particularly somewhere to live while the children are dependent - is much more likely to be upheld than an agreement which attempts to give them nothing.

Even if no major life events occur, both types of agreement should be reviewed regularly - say every three years - with the benefit of legal advice.  This is not just a mechanism for generating work for two firms of lawyers.  The courts will only uphold agreements if they are fair in all the circumstances - and what may seem fair at the beginning of a marriage where there has been little or no joint contribution (for example, a house bought to the marriage by one party) may seem less fair after years of maintenance, decoration and upkeep.

In any event, having introduced the need for an agreement, the precise formalities can be introduced at a later date.

For further information on pre-nuptial or post-nuptial agreements contact James Muir-Little, Partner and Head of Family Law at Furley Page Solictors.
 

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