Prenuptial Agreements
A prenuptial agreement provides certainty to couples entering into a marriage or civil partnership about how assets will be regulated in the event of the relationship breaking down. Prenuptial agreements can ring fence assets or category of assets acquired prior to the marriage or civil partnership, with those assets not ring-fenced by the agreement then being available for division in accordance with the usual rules governing division of assets.
A Prenuptial agreement is at its core an insurance policy. The hope and intention with a Prenuptial agreement, as with any other insurance policy, is that once taken out it will never be needed.
If you and your partner agree in principle that you want to enter into a Prenuptial agreement, the next question is what it will say. In Scotland, many Prenuptial agreements are simply intended to extend the protection already offered by our legislation to certain types of assets.
In Scotland, assets acquired prior to the marriage (except an asset acquired as a family home or furnishings within a family home) are not generally ‘in the pot’ for division on separation or divorce. The same applies to inherited assets or assets gifted from a third party. However, that protection only applies for so long as the asset remains in the same form. For example, if someone owned an investment flat prior to the marriage and still owned the same property at the time of separation, the investment flat would not form part of the pool of assets available for division. However, if that same investment flat had been sold during the course of the marriage so that a different flat could be acquired in the owner’s sole name, the new flat would be matrimonial property and its value would be available for division. The spouse who owned the flat might be able to argue that the non-marital source of funding for the new flat justifies the value of that asset being divided other than equally between the parties but that is a discretionary argument which might succeed, or it might not.
While in that example, there has been a very deliberate change in an asset, sometimes assets can fall into the pot unintentionally – one example of this might be the re-structuring of a business entity.
For that reason, many Scottish Prenuptial agreements will therefore look to not only confirm the protection which is to be afforded to assets which would be protected by law even without a Prenuptial agreement, but also to extend that protection to cover assets deriving from those categories of non-matrimonial property. Another common situation we see is with second marriages later in life where one spouse has worked hard building up a business prior to the marriage, and wishes to ensure that their children, rather than a new spouse who has had no involvement in the business, benefit from those pre-marital efforts if there is a separation.
In Scotland, we have specific provisions in our legislation to the effect that if spouses enter into an Agreement in respect of financial provision on divorce then it will be binding unless it is found to be unfair and unreasonable at the time it was entered into. While the Courts will not ignore the consequences of the Agreement for each party in such an analysis, the primary focus is upon the circumstances surrounding the entering into of the Agreement. Case law is clear that just because the terms of an Agreement result in an unfair division of the matrimonial property does not make the Agreement in of itself unfair and unreasonable.
