When you think of Prenuptial Agreements, (more commonly referred to as “prenups”), your mind may jump to the super-wealthy and celebrities.
The reality is quite different, and their use is on the rise.
In Scotland, they are becoming an increasingly common method for couples prior to marriage or a civil partnership to manage their finances and assets effectively. While they might seem far from romantic, they are a great way to ensure security and clarity for couples and their dependents in the event of a relationship breakdown. They can help make matters and the circumstances during a split that little bit easier by mitigating arguments about finances, assets and the division of them.
But, by their nature, they are often shrouded in secrecy, not considered favourably and little talked about outside of households themselves.
What are they, who uses them, how do they work, and what should they include?
What is a Prenuptial Agreement (prenup)?
Prenups are an agreement, made before marriage or a civil partnership, between a couple about what should happen to each parties’ assets if they separate, get divorced or dissolve their civil partnership. It is a formal written document prepared in advance of the marriage or civil partnership.
A prenup is generally prepared where there is a need to safeguard or ringfence wealth or assets built up before the marriage or civil partnership, or which has been gifted or inherited. It is also used if family are contributing funds to purchase an asset, e.g. a family home.
A couple can also enter into a postnuptial agreement, which can be similar to a prenup except their timing occurs after the marriage or civil partnership, perhaps because there was not enough time to prepare a prenup or where there is a need to protect additional or further assets which may have been acquired during the course of a marriage or civil partnership, particularly from gifts or inheritances and which might be used to purchase additional matrimonial property.
Confusingly, separation agreements to resolve the division of assets after a separation are sometimes also called post nuptial agreements, but in this article when we refer to postnuptial agreements we mean agreements to regulate how certain assets should be treated later if there is a subsequent separation.
Who might benefit from a prenup?
They are used by people in a whole range of circumstances, but we often see them deployed by :-
- those entering a second or subsequent marriage who have assets and wealth and who want to ensure that their children from a first marriage do not lose out on potential inheritance as a result of their new relationship breaking down
- entrepreneurs
- people with shares in a limited company
- those who may have a stake in a family business
- those who may have received an inheritance, large or small, and who feel that that wealth or assets should be considered separately to the couple’s ‘matrimonial’ assets which will be built up during the marriage or civil partnership
- those who have received gifts.
What is their legal standing – are they actually valid?
In Scotland, prenups are recognised as valid contracts. This is different to the situation in England and Wales, where they are not legally binding but are still given considerable weight in deciding cases.
Provided they are prepared and signed properly, Scottish courts are required to take a prenup into account when deciding financial provision and how to divide assets in a divorce or dissolution.
The courts are very unlikely to interfere with an arrangement made between the couple unless there is a very good reason to do so – such as the agreement not being entered into fairly, or one party entering the agreement without the appropriate capacity.
This means that if a prenup is properly prepared it will be very difficult to challenge in Scotland. This provides considerable protection and financial certainty for anyone going into a marriage or civil partnership.
What should they include?
There is no set format to what a prenup should include. They are deeply personal and based on the individual couple and their specific circumstances, assets and wealth.
They might simply state that someone’s assets or funds built up before marriage, inherited or gifted, will be treated separately in the event of separation, divorce, or dissolution regardless of what they do with those assets or funds during the marriage. These tend to ring fence premarital assets and can ringfence any interest or growth of those assets or any assets subsequently acquired from those assets.
However, the prenup can be as detailed as the parties like, stipulating arrangements about certain assets, financial support upon separation, who will keep specific pieces of furniture, school fees or even what happens to a shared pet, (which has given rise to the concept of ‘pet-nups’).
If a couple is not able to predict what they will have at the time of a hypothetical split, prenups can instead record principles of what should happen in the event of separation. For example, a couple could state that all property bought in the name of both during the marriage or civil partnership will be shared equally.
It is also possible to build in ‘review clauses’ so that the agreement is re-considered at the date of significant life events, such as the birth of a child or grandchild.
Top tips on approaching the process
Although prenups are gaining in popularity, they can still be a contentious topic and difficult to raise with a partner.
The key things to remember are:
- be open and honest with your partner and explain your reasoning. It is worth pointing out that they are just as important, fair and beneficial to them as they are for you
- all agreements will be made collaboratively. They can only be entered into if both parties agree
- talk to family members who may have gifted money to you or from whom you might be set to inherit. Although awkward, finding out from family members what their views and wishes are as to what should happen to the gift or future inheritance can be useful in determining how important a prenup could be for you and the wider family. This is relevant and important to both parties.
That said, postnuptial agreements can be agreed, prepared and signed during a marriage or civil partnership, so you do have other options should your situation change
- seek the advice of a lawyer. While conversations about prenups should be led by you and your partner, family lawyers have extensive experience in working with couples going through this process and will be able to help manage the process sensitively, ensure fairness while also ensuring both parties can understand the reason and requirements and get the most out of any agreement by protecting their wealth and assets. They will also be able to help ensure that safeguards to support the agreement’s validity are in place.
- keep your agreement updated, where appropriate. Your agreement should keep pace with changes in your circumstances. Regular reviews are key.
Our Scottish team of experienced Family Lawyers can advise you about the preparation of a prenuptial or postnuptial agreement to suit your individual circumstances.
