Following the landmark decision in the Radmacher case in the Supreme Court, the use of pre-nuptial and post-nuptial arrangements will increase and they have become a vital tool in the area of wealth planning, not just for our divorce clients.
Although court decisions cannot make law and these sorts of arrangement do not have the weight of being enshrined in an Act of Parliament, the fact that it was the Supreme Court which made the decision means that, if these arrangements follow particular principles, they will generally be held to be binding.
The Court said that there is “nothing inherently unfair for people to seek to protect existing property going into a marriage, if there was good justification for doing this, for example obligations towards existing family members”.
- Nuptial trusts – these are made after marriage and won’t provide protection against divorce. One party can apply to the court to vary such a trust.
- Non-nuptial trusts – these are made before the parties get married and they might provide the necessary protection. The court cannot vary the terms of the trust but it can treat the trust as a resource of one of the parties.
For them to provide the necessary protection for the beneficiaries of the trust, they must:
- Have clear letters of wishes that set out the intention of the trust to protect the family wealth for future generations
- Expressly exclude spouses
- Be carefully administered. The historical operation of the trust is a key factor in how it will be treated.
- Pre-nuptial – an agreement made between 2 parties who intend to marry setting out what will happen to their assets upon permanent separation.
- Post-nuptial – an agreement made between 2 married parties dealing with provision for maintenance, children and property division in the event of their marriage breaking down
It is more desirable to have a pre-nuptial agreement than a post-nuptial agreement but if the post-nuptial agreement can show that there has been an existing intention by the parties to reserve assets, then it could be successful.
All agreements signed after 20th October 2010 (the date of the Radmacher decision) will be assumed to be binding but those and all agreements which predated the decision should be reviewed and redrafted regularly so that they are kept up to date.
Pre and post-nuptial agreements are better than trusts but a combination can be used.
Examples of how they can be used for wealth planning
- Where we make Wills for parents of children with unsuitable partners, we will recommend that our clients’ children enter into one regarding their expected inheritance.
- Where our clients wish to pass down company shares through Family Investment Companies or other arrangements
- Where we have a client who is a beneficiary or potential beneficiary of a trust or who has an anticipated future inheritance of tax efficient gifts from their family, particularly where there is a legacy that is intended to pass down several generations
- Where we have clients who are married and one receives a large inheritance or something specifically intended to remain in the family
This information refers to the law of England & Wales only, which from time to time changes. In particular, tax information changes annually. It is not a substitute for professional advice, which is up to date and specific to your needs. This information is a summary of the provisions relating to nuptial agreements for wealth planning and cannot cover every aspect of their operation. It represents our understanding of current legislation in England and Wales but should not be relied upon as an authoritative statement of law nor as constituting advice. We would advise that legal advice be sought in every circumstance.
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