What is a pre-nuptial agreement?
A pre-nuptial agreement is an arrangement entered into by a couple before marriage to determine how assets are to be divided if they were to separate or divorce. Pre-nuptial agreements are usually used to protect assets acquired prior to the marriage. For example, family businesses, property and inheritances. They can also address practical aspects of what happens during a relationship and after separation.
Is the agreement bullet-proof?
Although not automatically binding in Auckland and Auckland, pre-nuptial agreements are given significant weight and there is an expectation that a Court will follow them, so long as:
- Both people entered into it of their own free will;
- No undue pressure was put on them, for example “we will have to cancel the wedding and lose our deposits if you don’t sign”;
- Having all the information material to their decision to enter into the agreement, this means knowing what each person has already and is likely to have in the future, intending that the pre-nuptial agreement should be followed if the marriage ends; and
- It is considered to be ‘fair’ to hold the parties to the agreement.
What can a pre-nuptial agreement include?
The financially stronger person will have an idea of the assets they want to protect within the agreement and their reasons for doing so. This might be a property, inheritance, investments or other assets which might have been generated or acquired before the relationship started. The aim of the agreement may be to try and protect these assets in the event the relationship ends (so long as it achieves a fair outcome). What may seem fair after a very short relationship is unlikely to be seen in the same way after a long relationship.
Marriage is a lifelong commitment, and it is important to think of the effects of the agreement, not just in the present, but in the medium to long-term as well.
It is sensible not only to see the terms of a pre-nuptial agreement as a legal commitment but also as a document that should be returned to throughout the marriage, to ensure it is up to date and reflects both people’s wishes.
As relationships develop, circumstances and needs change and the agreement ought to consider the implications of long and happy marriages where the financially stronger person dies. Does the agreement provide for the spouse left grieving? The implications of one person losing their inheritance rights might have severe implications on their surviving spouse, and any children left in their care.
One way to address these concerns is to include a review clause that lists events which trigger a review of the agreement. For example, at the birth of a child, the inability of one person to work for medical reasons, and at other incidents that are likely to change the shape of the marriage or finances. Regular reviews provide the opportunity to discuss how the terms of the agreement may need to be amended to suit a change in circumstances. The more up to date the agreement is, the more likely the Court will also be to uphold it.
Alternatively, a sunset clause can be included to state that the agreement will come to an end at a certain time or after a specific event occurring, such as the birth of a child.
If the parties are considering living abroad after getting married or entering a civil partnership, it will be important to include a jurisdiction clause that specifies which country will have jurisdiction to deal with the divorce. If a move abroad is likely, it may be necessary to take advice on the impact of the relationship ending in that country before the agreement is signed.
What should you avoid?
Carefully consider what you want to achieve with the agreement and focus on striking a balance between embarking on a life-long commitment with the person you love and protecting assets.
Try and avoid taking an aggressive stance which may leave the other party feeling unfairly treated or without a say. For example, clauses that leave the other person with ‘nothing’. Sometimes, in an effort to protect all of their assets, one party can opt for an unknowingly aggressive stance to ensure that the other person does not leave with anything not theirs. This can lead to harsh and unrealistic clauses that will cause more negotiation and unnecessary delays to the signing of the agreement.
Talk through any issues so that you both have a shared vision of what the agreement will contain and the outline of what is agreed before a lawyer drafts the agreement.
The collaborative law model, supported by Resolution, offers a different approach where you and your lawyers meet as a four (and potentially with a counsellor/Family Consultant) to discuss how to achieve your respective goals. Communication is vital, and relationships can suffer if the approach to agreeing a pre-nuptial agreement has been too late, too aggressive or overly driven by lawyers who think they are doing the best for their client. It is important to seek legal advice but be open about what the issues are as a pre-nuptial agreement is a big legal and emotional commitment with permanent implications.
Solutions to focus on in the agreement
The primary focus should be on fairly meeting the needs of each person and any children should you separate. Needs are based on the living standards you enjoyed during the marriage which can be appropriately maintained after separation. These may be different, as one household becomes two, but the Court will try to ensure a fair balance.
On this basis, plan flexibly for what would be a realistic financial division in a way that will still protect the assets that are the main focus of the agreement. This may involve offsetting particular assets to reach a fair outcome. A pre-nuptial agreement offers greater flexibility and creativity than financial division during divorce proceedings.
Timing is also important, the agreement should be signed at least 28 days prior to the ceremony to ensure that neither party feels undue pressure to sign the agreement. Otherwise, you can sign it after the marriage making it a post-nuptial agreement. This is identical to a pre-nuptial agreement in all but name, merely indicating that the agreement was signed after the marriage.
To speak to a pre-nuptial agreement specialist please contact our team.
Daniel Thanekar is a Paralegal in our Tunbridge Wells Office.
