Prenuptial agreements: unromantic or a sensible insurance policy?

Prenuptial agreements are once again in the news thanks to Brooklyn Beckham and his heiress wife, Nicola Peltz, who reportedly signed one prior to their recent wedding. Although David and Victoria have a fortune estimated at £380 million, this is dwarfed by the estimated £1.3 billion wealth of Miss Peltz’s financier father.

Although we tend to think about them only in context of high net worth (HNW) and ultra-HNW international clients, prenuptial agreements can also a really useful tool in a lot of other circumstances, particularly if you have a client who is a young professional with a successful career, or for those clients who have family businesses or wealth that they wish to protect from a divorce.

With that in mind, we set out below some of the circumstances in which a prenuptial agreement could be helpful for couples tying the knot and why more clients might consider them as a sensible and pragmatic option.

1. Encourages open and honest discussions about finances from the outset

“I don’t know how much that cost – my partner handled our finances” and “they spend over and above our means” are comments that lawyers are fairly used to hearing in the context of financial matters. Anecdotal evidence suggests that many couples are simply not comfortable talking about their finances or find such conversations to be awkward and the source of tension. But where a prenuptial agreement is on the table, it forces clients to have these discussions at an early stage and may help to decrease the risk that finances become a battleground later on in the marriage (and a reason for it to break down).

2. Protect property or assets, including pensions, that one or both may have acquired or built up before the marriage

As it is now more common for people to get married later in life, they tend to bring a lot more into the marriage than previous generations, for whom many when they got married was the first time they had lived together.

As all assets are placed into a notional matrimonial pot for division upon divorce, there is the potential that any asset could be subject to a court order requiring that it is transferred to the soon to be ex-spouse, or divided between the pair of them. The fact that assets have been accumulated prior to the marriage can and do mean that they should not be shared but where there are insufficient assets to go around to meet both parties’ needs, there is a risk that assets of that nature cannot be ring-fenced from the divorce and will need to be dipped into.

3. Protect family wealth and business interests

A prenuptial agreement can also seek to protect family wealth and business interests that a client may expect to inherit or gain a share of in the future, and carve them out of any potential divorce proceedings. If you have a client who expects to inherit significant assets from their family, or whose family has a successful business that they may take an interest in, then it is definitely worth having a conversation with them about whether a prenuptial agreement could be appropriate.

4. Provide certainty

Agreeing how assets should be divided if the event of a divorce before the marriage takes place can be easier than negotiating once relations have turned sour. A prenuptial agreement can provide clients with some certainty as to what the outcome should be, rather than having to start from scratch when their relationship is at its worst.

5. Prevent costly legal fees and acrimony

Negotiating the division of assets when a marriage breaks down is often drawn out and, if litigation becomes necessary, costly. Although the thought of spending a few thousand pounds on a prenuptial agreement may be off-putting for some clients, the potential costs involved in litigation soon make these seem inconsequential.

Prenuptial agreements are popular and enforceable elsewhere in the world, and while they cannot oust the jurisdiction of the English court, they will be highly persuasive provided that they meet certain criteria.

Given how difficult going through a separation can be for clients, not just in terms of working out their financial arrangements post-divorce, but also in terms of the effect it has upon mental well-being, it makes sense to seek to try and limit that damage before it is caused through a prenuptial agreement.

Hannah Gumbrill-Ward is a Solicitor at Winckworth Sherwood