It is fair to say that we are living through a time of uncertainty. The pound has fallen against the dollar following the resignation of Prime Minister Liz Truss. Alongside a cost of living crisis and the sharp rise of inflation, the economic landscape of the UK is rather bleak.
On a happier note, coronavirus restrictions have been lifted for some time and the limitations on guest attendance at weddings has been removed. Engaged couples can now proceed to plan their weddings for their families and guests to attend. Wedding planning is usually approached with meticulous detail, but perhaps thought should also extend to putting in place a prenuptial agreement.
What is a prenuptial agreement?
A prenuptial agreement, or prenup, is an agreement entered into by a couple in advance of and in contemplation of their marriage taking place. In essence, it involves negotiating financial settlement on divorce ahead of getting married to provide peace of mind.
What happens if you divorce without a prenuptial agreement?
If a couple divorce in Scotland without having an agreement in place, the law provides that the net value of their matrimonial property should be shared fairly between them. Generally, all of the assets of the couple that are acquired from their own income and efforts during the marriage and in existence as at the date of separation will be considered matrimonial property.
One important exception to this is if one party has been gifted assets from a third party or has inherited property. The principle of fair sharing usually means equal division, unless special circumstances justifying a departure from equal sharing exist.
When can pre-matrimonial assets be considered matrimonial property?
This can happen if pre-matrimonial assets have been converted or used to acquire an asset during the marriage. This can lead to one party making a source of funds argument to state that the value of the assets that were contributed from pre-marriage funds should be excluded from the matrimonial property and, therefore, not subject to fair sharing between the parties.
Sometimes negotiations involving source of funds arguments can be quite protracted, particularly when it is difficult to ascertain the pre-marriage value of the asset. A source of funds argument is also discretionary and therefore there is no guarantee that full credit would be given for any sums brought into the marriage.
A pre-nuptial agreement can be used to ensure clarity in circumstances like the above.
The agreement would usually identify the assets owned by each party prior to the marriage and will “ring fence” those assets so that they do not form part of the matrimonial property. This will be the case regardless of whether that asset is sold, reinvested or altered in any way.
The agreement can also set out how the property will be divided between the parties in the event of separation and can provide for things like:
- the occupation or transfer of the family home
- payment of aliment / periodical allowance
- a capital sum
- provision of a car and
- payment of school fees.
What are other benefits of a prenuptial agreement?
A prenuptial agreement is a useful tool not only to protect assets owned pre-marriage, but also to ensure that property is divided and that financial provision takes place upon separation in line with parties’ intentions.
The agreement can be drafted to meet the individual circumstances of the couple. It therefore provides protection and surety of how finances would be regulated if a couple were to separate.
Who would benefit from a prenup?
If one person is expecting to inherit funds during a marriage, then it would be a good idea to put a pre-nuptial agreement in place. As explained above, if the inherited funds are invested or changed in any way during the marriage, they will be regarded as matrimonial property. The pre-nuptial agreement can be used to ring fence those assets to ensure that they do not become part of the matrimonial property. This will be a much quicker, more certain and more cost effective option than advancing a source of funds argument upon separation.
A pre-nuptial agreement may also be useful if one of the spouses already has significant assets. If they have children from a previous marriage, one party may want to ensure that the property that they intend to pass on to their children is protected. In that case, advice on estate planning would also be sensible.
As businesses established during a marriage will constitute matrimonial property, a pre-nuptial agreement may be helpful to ensure that a business is protected from a claim made by a spouse upon separation. This may be particularly important if there are other business partners associated with the business as it will provide clarity that the business is insulated from the fall-out of a relationship breakdown. A pre-nuptial agreement can also ring fence a business which, although established before the marriage, could become part of the matrimonial property if a significant change (for example, incorporation) occurs during the marriage.
What if you are already married?
If you are already married and decide that you would like to ring fence certain assets or regulate your finances in case of separation, then you could enter into a post-nuptial agreement.
What is a post-nuptial agreement?
This is a legal agreement made between individuals who are already married.
It operates and is treated in the same way a pre-nuptial agreement; it excludes certain property from matrimonial property and regulates how property will be dealt with post-separation.
If you have any questions about putting an agreement in place, our experienced Family Law team would be happy to help.
Debbie Reekie, Senior Associate & Solicitor Advocate: email@example.com / 0141 221 8012