PRE-NUPTIALS AND FINANCIAL AGREEMENTS

Financial agreements (also known colloquially as ‘pre-nups’) are not for everyone – however they can be useful:

  • As a risk management tool for couples seeking to pre-arrange how they will divide their property if they separate at a later time – it basically allows a private agreement to be formalised and precludes the later involvement of the Family Court. Therefore having such an agreement can save a significant sum of money, including the costs associated with property settlement negotiations or litigation if the parties separate. It can be compared to income protection insurance or life insurance.
  • For separated couples seeking to finalise their obligations to each other in the context of spousal maintenance (and in conjunction with a Court ordered agreement as to a property settlement). Unlike court orders in the context of spousal maintenance, a financial agreement can permanently finalise spousal maintenance obligations.

Areas where they can be particularly useful include:

  • “Second timer’s” – mature couples where they have been previously married and thatare entering into new relationships who have significant assets and whilst they are not planning to have children together they may have children (including adult children) from previous relationships for whom they need to protect future inheritances.
  • “The children of the wealthy” – young couples who are likely to be gifted or inherit significant wealth from parents.
  • Relationships where there are significant differences between what each party is bringing in to the relationship.

Financial Agreements are not simple. Especially when used as a risk management tool at the beginning or during the course of a relationship. There must be absolute strict compliance with the legislation and absolutely no hint of pressure or duress. This also means that the parties must have provided each other with full and complete disclosure of their financial circumstances in much the same way that they would do in the event of litigation. Further, in some circumstances, for example with young couples the Agreements have a natural lifespan; their usefulness reducing when circumstances of a relationship change (such as the birth of children).

Each party to the Financial Agreement must have obtained independent legal advice independently of the other, as to effect of the agreement on the rights of that party; and the advantages and disadvantages, at the time that the advice was provided. There must be an exchange of legal certificates confirming this advice was provided.

People with complex business structures need to take particular care that they consider potential problems under any commercial contract with third parties. They also need to seek specialised tax advice as to the revenue implications including stamp duty and tax. Other structures or documents may need to be reviewed as an overall financial planning or succession strategy.