How do prenuptial agreements work?

A prenuptial agreement is a legal document entered into between two people in advance of their marriage. The agreement is a freely entered written contract which is a sensible way to ring fence  assets brought to a marriage. It ensures that in the unfortunate event of a  relationship breakdown, the ring-fenced assets are not included in the definition of matrimonial property as narrated in the Family Law (Scotland) Act 1985. It is common for  one partner in  the marriage who has pre-marital assets and wealth to protect, to seek expert legal advice in relation to a prenup.

However, it can also be the case that both parties to a marriage wish to protect assets and wealth. It is important that appropriate and specialist legal advice is sought to ensure that a prenuptial agreement accurately reflects the parties’ wishes prior to marriage.

Introduction to Prenuptial Agreements

A prenuptial agreement is, in its simplest terms, defined as a legal  agreement made by a couple before they marry and which narrates the ownership of their respective assets in the event of a relationship breakdown in the future.

A prenup has the purpose of clarifying ownership of assets in advance of marriage. It is a legal document that seeks to protect assets and wealth owned prior to marriage so that in the event of separation, there is less ambiguity about how assets are to be divided upon separation.

Is a Prenuptial Agreement legally binding?

In Scotland, a prenuptial agreement is legally binding, provided that certain criteria are met. These agreements allow couples to outline their financial arrangements and expectations in the event of a divorce. For the agreement to be enforceable, it must be fair and reasonable, with both parties fully disclosing their financial situations. While Scottish courts have the authority to scrutinise and potentially alter terms that are deemed unjust, a well-crafted and transparent prenuptial agreement can provide a legal framework for asset division and financial matters in accordance with the couple’s intentions.

Common reasons why couples choose to create a prenup

A party will commonly choose to enter into a prenuptial agreement where they have acquired assets and wealth prior to marriage which they wish to protect in the event of separation. It is a sensible way to protect business assets, the division of joint assets, assets separate to the relationship, or any other assets acquired before marriage. It can be beneficial to where one, or both, parties acquired assets from a previous marriage or, particularly, where either party has children from a previous relationship.

One partner may have significantly more assets and wealth than the other prior to marriage or alternatively, both parties may bring assets and wealth to a relationship which they wish to protect in the event of separation. Ultimately, the agreement helps both parties understand each other’s financial terms and crucially seeks to protect each party’s financial interests in the event of marriage breakdown.

Entering into a  prenuptial agreement is also commonly considered where a party has an interest in a family business and they wish to protect that wealth from a separation and divorce. A party may wish to avoid any impact on a business/company in which they have a significant role should they separate and divorce in the future.

Benefits of prenuptial agreements

Entering into a prenuptial agreement helps protect both parties’ assets in the event of a future divorce.

The main benefit to parties to entering into terms of a prenuptial agreement is that it provides the parties with certainty and clarity over how assets will be divided in the event of  their separation.

It is important when seeking specialist advice about entering into terms of a prenup agreement to be advised of what would happen on separation and divorce in the event that there was no prenuptial agreement in place.

Whilst matrimonial property is defined as property acquired during the marriage with the exception of gifts and inherited funds from a third party, it can become more complicated where property owned before marriage, gifted or inherited property, changes form during the marriage. In this situation, the property can become converted into matrimonial property. A prenuptial agreement can be drafted to meet the individual circumstances of the parties. Another benefit to pre-nuptial agreements is that it can provide protection for funds or assets anticipated in a future inheritance.

Entering into a prenuptial agreement can have the benefit of reducing conflict parties in the event of divorce and separation and helps to avoid protracted court proceedings. Separation and divorce is a challenging time both financially and emotionally for parties, it is worth taking measures that could avoid the agreement being challenged in court. Where parties have a prenuptial agreement in place, they can reduce conflict and legal expense in resolving the financial matters of their separation.

Common misconceptions about prenuptial agreements

In Scotland, prenuptial agreements are commonly entered into between couples in advance of their marriage. They are not just used in other jurisdictions e.g. the United States.

Prenuptial agreements are not just for wealthy individuals bringing significant assets to a marriage, it is for anyone who intends to protect their financial arrangements prior to marriage. They can be used to protect any assets owned prior to marriage, inheritance or gifts from third parties of whatever value to minimise uncertainty in the event of separation.

Where parties enter into terms of a prenuptial agreement in advance of marriage, it does not mean that there should be distrust in a relationship. Parties enter into a prenup from the starting point of transparency. They are both required to disclose their assets prior to signing the prenup. It is a strength in the parties’ relationship that they are able to discuss financial matters in advance of a marriage.

Who can create a prenuptial agreement?

A prenuptial agreement should be drafted by an experienced family law solicitor who can fully advise a party of the effect of an agreement, what should be included in an agreement and address any potential complexities. Consideration should also be given to the potential for a prenuptial agreement being challenged in the future.

What can be included in a prenup?

A typical prenuptial agreement will most commonly narrate the details of the parties entering into the agreement, their date of marriage and the specific assets they wish to protect from being included as matrimonial property in the event of separation. It is a means to avoid any financial issues in the unfortunate event of a divorce or separation. A prenuptial agreement will list ‘Separate Property’ held by each partner prior to marriage and narrate how the separate property is to be treated on separation, including where separate property is used during the period of marriage to partially fund property which could be deemed to be classed as matrimonial property.

How prenups are created and signed?

A prenuptial agreement should be drafted by an experienced solicitor. It is important that both parties seek separate and independent legal advice, this is to make certain that the agreement is not deemed unfair in court and holds parties to their agreement. A family law solicitor cannot draft a prenup on behalf of both parties, only one  party. One solicitor will draft the agreement and the other solicitor will discuss with the other party and make any revisions required until consensus is reached on its terms. It will thereafter be signed by both parties, ideally in the presence of their solicitors.

When a prenup takes effect?

A prenuptial agreement takes effect when it has been signed by both parties prior to their marriage . It is entered into in anticipation of marriage. The marriage must therefore take place for the prenuptial agreement to take effect and to make certain the couple’s assets are protected.

Can I get a prenuptial agreement for my second marriage?

Navigating the complexities of a second marriage often involves addressing financial considerations from a prior marriage. Pre-nuptial agreements play a crucial role in establishing a clear framework for asset division and financial responsibilities, providing a level of security for both partners. Additionally, post-nuptial agreements, designed after marriage, can be valuable in adapting to changing circumstances or addressing unforeseen financial developments.

Whether entering a marriage for the first time or embarking on a subsequent union, premarital agreements and post-nuptial agreements offer couples the opportunity to openly discuss and define their financial expectations.

Post-Nuptial Agreements

Post-nuptial agreements are the same as a prenuptial agreement with the only difference being it is entered into after the parties are married.

When to consider a postnuptial agreement?

A post-nuptial agreement is often considered where parties do not seek advice in sufficient time in advance of a wedding.

Where parties attempt to enter into a prenuptial agreement too close to the date of their wedding, they should be advised that this increases the chances of the prenuptial agreement being challenged, by a court, in the future on the basis that it was unfair or prejudicial to one party as they did not have a reasonable period of time to seek legal advice and consider its terms.

In these circumstances, a post-nuptial agreement can be entered into in the same terms as the parties would wish to narrate in a prenuptial agreement without the risk of it being challenged. It is important to be aware that there is an element of good faith required by the parties when considering entering into a post-nuptial agreement as the parties will already have married by the time of its signature.

A post-nuptial agreement can also be considered where circumstances change after getting married, even many years into the marriage. A common example is where a large sum of money is inherited from a third party which is to be used to partially or wholly fund a property purchase or reduce borrowings on a mortgage.

Civil partnership or nuptial agreements?

Deciding whether to enter into a prenuptial agreement or a civil partnership is a personal choice that depends on individual circumstances and preferences. A prenuptial agreement is typically associated with marriage and focuses on financial matters, providing a framework for asset division in the event of a divorce.

On the other hand, a civil partnership is a legal recognition of a relationship with rights and responsibilities similar to marriage but may not involve the same financial agreements. While both options work in the same way to establish parameters for a committed relationship, they operate differently. It’s essential to carefully consider the specific needs and goals of the individuals involved to determine which arrangement aligns best with their expectations and priorities.

How to create a postnuptial agreement?

A post-nuptial agreement should be drafted by an experienced  solicitor. It is important that both parties seek separate and independent legal advice. A family law solicitor cannot draft a post-nuptial agreement on behalf of both  partners, only one  partner. One solicitor will draft the agreement and the other solicitor will discuss with the other partner and make any revisions required until consensus is reached on its terms. It will thereafter be signed by both parties, ideally in the presence of their solicitor.

Prenuptial Agreements and Legal Advice

Whilst it may be tempting to ‘cut corners’ and draft prenuptial agreements by yourself to reduce legal fees which will be incurred when seeking specialist advice from a solicitor, this should be avoided. A party wishing to enter into terms of a prenup should not attempt to draft a prenup on their own or seek to rely on ready-made templates. A prenuptial agreement is a  legally binding document which should be carefully considered taking account of the individual circumstances of the parties. There is no ‘one size fits all’ formula which can be applied to entering into terms of a prenuptial agreement.

Drawbacks of Prenuptial Agreements

There are no drawbacks to entering into a prenuptial agreement other than the potential for the validity of the agreement to be challenged, by a court,in the future. However, this is where it is crucial that specialist legal advice is sought to ensure that there is limited scope for the agreement to be challenged. A properly drafted agreement which meets certain requirements when it is entered into, will very likely be upheld were it to be challenged in a Scottish Court.

In order to minimise the risk of a prenuptial agreement being challenged, it is crucial that:

• There is no pressure on parties to sign the agreement;
• Both parties have had the opportunity to take separate and independent legal advice before signing;
• The terms of the agreement must be fair and reasonable when it was entered into.

If you possess complex assets or financial ties linked to previous relationships, we can assist you in crafting a prenuptial or post-nuptial agreement tailored to your needs with our experienced family law team.

Harper Macleod and Prenuptial Agreements: Why Choose Us?

At Harper Macleod LLP, we have family lawyers based in all of our offices across Scotland – Glasgow, Edinburgh, Inverness, Elgin and Lerwick.

We have a team of experienced family lawyers, including lawyers who are accredited by the Law Society of Scotland in family law.