Pre-nuptial agreements, the reserve of celebrities or a practical solution to ring-fencing assets?
Rarely does a month go by without stories in our media of celebrity marriage, divorce or Pre-Nuptial Agreements. The question of whether Pre-Nuptial Agreements are just for celebrities or the “mega-rich” is often on the minds of modern-day couples.
Historically Pre-Nuptial agreements, formally known as the Anti-Nuptial Marriage Contracts, were widely used by the wealthy. Traditionally when marrying, wives surrendered their right to moveable property and the right to administer their heritable property to their husbands. However, with the introduction of the Married Woman’s Property (Scotland) Act 1881, abolished a husband’s right to administer his wife’s heritable property, the use of Pre-Nuptial agreements in Scotland, began to decline.
In recent years there has been a revival in the use of Pre-Nuptial Agreement in Scotland. If a couple do choose to enter into a Pre-Nuptial agreement in Scotland they should always be advised by their respective Solicitors that Pre-Nuptial agreements are not watertight. In addition to the usual circumstances where a contract can be reduced (i.e. coercion, misrepresentation or lack of capacity) the Family Law legislation specifically provides for the setting aside or variation of a Pre-Nuptial agreements. The legislation provides the court with the powers to set aside a Pre-Nuptial agreement where the agreement or any term of the agreement, was “not fair and reasonable at the time it was entered into”. Subsequent case law, however, has established that the courts will not set aside an agreement lightly.
In cases where one spouse is looking to have a Pre-Nuptial agreement set aside, the onus is very much on that spouse to establish that the agreement was not fair and reasonable. Each case will turn on its own facts and circumstances. Circumstances which have given rise to a successful application to have the agreement set aside are, for example, where incorrect or incomplete financial information at the time the agreement was executed was provided by one party or both parties have not obtained independent legal advice. In considering case law it is clear that the most successful Pre-Nuptial agreements seek only to ring-fence pre-matrimonial assets or property derived from pre-matrimonial assets, as opposed to agreements which look to deal with the specific financial provision on divorce and the discharging of any right to claim financial provision.
Who should consider entering into a Pre-Nuptial Agreement?
There is little doubt that Pre-Nuptial agreements are as romantic as petrol station forecourt flowers on 14th February, but we would always advise clients who have significant pre-marital assets or family businesses to consider entering a Pre-Nuptial agreement. As the average age of those who marry for the first time steadily increases and as society changes and the number of people having second or even third marriages rises, more and more parties enter into a marriage having already accumulated significant moveable and heritable property. Prospective spouses may also have to consider preserving pre-established assets for children from previous relationships. Whilst Scots Law is clear that property acquired before marriage is not deemed matrimonial property and will not be subject to division on divorce, courts will always give consideration to an individual’s “resources” and thus pre-established assets can be brought into contention.
Those who operate family businesses also need to be aware that changes to pre-marital family businesses during the marriage can convert non- matrimonial assets into matrimonial assets. Increasing a company’s share issue, re-structuring a partnership or reinvesting profits from a business into new ventures can all have the effect of changing a non-matrimonial asset into matrimonial assets which your spouse is entitled to make a claim on on divorce. The best way to protect your pre-marital assets, including family businesses, is to enter into a Pre-Nuptial agreement which ring-fences these assets and any profits derived from that business.
For expert family law advice on Pre-nuptial Agreements contact firstname.lastname@example.org or call for an appointment on 01463 239 393.