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Rules of engagement: Pre-nuptial agreements to preserve wealth

By Rosie Schumm

With the summer wedding season upon us, Rosie Schumm, partner at London law firm Forsters LLP, explains the importance of the preparation of pre-nuptial agreements before the big day to protect family wealth.

In recent years there have been four major developments in the evolution of nuptial agreements, known colloquially as 'pre-nups' (signed before the marriage) or 'post-nups' (signed after the marriage).

Firstly, the significant rise and demand for such agreements to protect family assets, often involving trusts and with connected jurisdictions apart from the UK, where there is a disparity in wealth between the marrying couple.

Secondly, the involvement of the wealthy parents of the bride or groom in the preparation of such agreements. The impetus often coming from the parents to get the document signed and adult children regularly using their strict 'family constitution' as the justification for such an agreement.

Thirdly, the increase in pre-nups before second marriages perhaps to try to protect the children from a previous marriage from the financial consequences of a second divorce.

Finally, the preparation of different types of agreement to formalise the changing shape of modern relationships. From cohabitation agreements for couples embarking on living together to pre-conception agreements for same-sex couples before they enter into a surrogacy arrangement.

The English courts have a very wide discretion to look at all of the circumstances of a marriage, without a pre-nup. The starting point would generally be a 50:50 division of the marital assets. Therefore, there is a real danger that wealth acquired prior to the marriage (or indeed inheritance obtained during the marriage) would be counted in this division if such an approach is justified in a particular case (for example, on the basis of needs). This is a sobering concept for ultra-high net worth families.

Agreeing a pre-nup before your own or your son/daughter's wedding day, tailor made to the particular circumstances, is more important than choosing the glamorous wedding venue or designer dress. Those may be short-lived, whereas a well drafted pre-nup prepared by a specialist family lawyer will hopefully endure and go some way in protecting the family fortune in years to come should the marriage come to an end. Such agreements can be given decisive or compelling weight by the court when deciding upon the division of marital assets on divorce. They are now an essential wealth protection step for high net worth families and an intrinsic part of wedding planning.

The Law Commission has recommended that pre-nups should be binding if they meet both parties' financial needs and comply with certain criteria, for example, both parties having received material financial disclosure and having obtained independent legal advice, and the agreement not having been signed less than 28 days before the wedding. In terms of this last criterion, it is important therefore that parties start negotiations as early as possible before the wedding day and consider entering into a post-nup if they have left too little time.

Of course, crystal-ball gazing is a difficult exercise at the start of any marriage. However, ultra-high net worth families who decide against pre-nups purely on the basis they are 'more trouble than they are worth', should be fully aware of what is at stake.

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