Prenups are often seen as the preserve of the very wealthy and the gossip pages of the tabloid press, but I would recommend you give consideration to a Prenup before you marry, or consider encouraging one for your children if you plan to gift wealth within the family.
Such agreements are increasingly encouraged by older generations as they look to pass on wealth to their children and grandchildren, but in a way that ensures that the wealth is protected in the event that things go wrong. Even though Prenups are not legally binding in England & Wales, they can carry significant weight if proper advice is taken about their preparation. Accordingly, they have been a key element of many families’ wealth management strategies for years.
Since 2000, the Family Courts have increasingly considered the ‘yardstick of equality’ as referred to by the Law Lords in the case of White. Prior to that landmark decision, the weaker financial party in a divorce could be limited to an award that simply met their reasonable needs. Any surplus (however significant) could be left with their spouse. This has frequently seen one party ending up with as little as 5% of the family wealth, even though their marriage had been long and had resulted in many children. After the White case, the Family Courts have been directed to consider why it would be fair for one party to be left, post-divorce, with much more than they actually needed. There may, of course, be very good reasons why such an outcome was fair, for example if a spouse was largely retaining wealth that they had inherited or been gifted by their family. In such a situation (where family wealth exists), a Prenup can bolster a party’s position considerably in the event of a divorce. Indeed, in some cases they could be pivotal in deflecting the argument that all assets should be shared.
One area that can help make divorce easier for all parties is ensuring equal knowledge of shared finances. In my experience, it is often shocking how many spouses (wives in particular) still have no real idea of their family’s wealth. Many highly educated people freely admit that they leave the financial side of their marriages to their spouse because they are ‘better at that sort of thing’. If that is the situation that has prevailed during a marriage, it can make it harder to get to the bottom of your family’s finances in a divorce. My advice would be to persuade your children to seek financial advice and ensure both parties are involved, as participating in the choice of financial adviser will allow one to choose someone in whom you personally have confidence.
In this context, having that ongoing relationship with a trusted adviser can be hugely beneficial and being involved in discussions about, and having knowledge of, the family finances will empower you if the worst were to happen. Not only will you have a friendly face to help you, but you will also have knowledge – both will be hugely reassuring.
Good financial advice is essential to help you to make the right choices and to consider the long-term implications for you. A qualified wealth planner can advise, and illustrate through cash flow modelling, the consequences of those choices so that you can make the best decisions for yourself and your family.
Relationships with family solicitors are often intense but relatively short-lived. A relationship with the right financial adviser is likely to be a much longer term relationship. If that relationship has started beforehand, it can provide support and reassurance not only during a crisis, but for long afterwards too.
Nicola Harries
Partner & Head of Family at Stevens & Bolton LLP
nicola.harries@stevens-bolton.com
