Romance and paperwork: how to protect your wealth when getting married
When it comes to romantic gestures, proposing the creation of a prenuptial agreement would not be considered among them. However, with divorce rates on the increase, it is becoming increasingly commonplace, and is seen as a sensible precaution to take in case happily ever after doesn’t come true.
It is a common misconception that prenuptial agreements are only for the very wealthy. This can be the case but often people enter into prenuptial agreements because there is a disparity in wealth between the parties. Sometimes, with the current law as it is, which tends to protect the less well off, the wealthier partner cannot see the benefit of getting married from an economic point of view. If the disparity is significant there may be concerns that the marriage may be more for money than love and if both parties sign, and both receive the assurance they need, these concerns should go away.
Concerns about the protection of wealth which may come into the marriage or which may have been acquired before the marriage also play a role: the hard-earned bachelor pad, the family inheritance, the status of children born to a first marriage. Entering into a premarital agreement can take the pressure off the couple and reassure them, which is why they are increasingly being used as a wealth planning tool in tandem with trust arrangements to protect inherited wealth and future generations.
As often happens with decisions surrounding weddings, sometimes it is the parents who are leading the way. Often it is the mother and father of the bride or groom who make the initial contact with a lawyer. Unlike their children, who may be seeing the world through rose-tinted glasses, parents often have concerns about the increase in divorce rates. Such parents have very often made gifts of property and funds which they would like to protect. If the parties themselves have not thought of entering into a prenuptial agreement, a sensitive and careful discussion should take place, including a meeting with the couple together. It should be emphasised that both parties can and should take independent legal advice and that it is the sincere hope of all concerned that this document be filed away and never referred to again. However, should the day come, it is reassuring to know that there is an agreement in place stating that the parties will engage in mediation in order to sort out any problems rather than expensive litigation.
Two parties, one contract
It is paramount that both parties are clear on the reasons behind the agreement and understand its implications. The agreement must also be fair to both parties and this should be dealt with at the outset. As it may take time to think through the agreement, it is always best to allow both parties plenty of time to consider and negotiate. Although the agreement may not take much time to draw up, perhaps only two or three weeks, the preparation should never be rushed. As a rule of thumb, the agreement should be finalised a minimum of 28 days before the wedding. This way, the paperwork can be out of sight and out of mind, allowing the couple to focus on the final wedding preparations. It also shows that there was no undue pressure to sign just before the wedding.
As with all contracts, both parties should seek independent legal advice. It is advisable to look for a lawyer from a specialist family law firm with significant experience in prenuptial agreements and, importantly, it should be someone they feel comfortable with. An experienced lawyer will be able to help to create the right style of agreement. This is especially important in countries such as Hong Kong and Singapore where nuptial agreements are still relatively new. Salutary tales from Australia will indicate that prenuptials there have in themselves created further litigation and therefore all care must be taken with their drafting. It is very unwise to try to DIY!
Both parties will each need to make sure that their respective financial positions are clear as the agreement may not be upheld by a court if financial disclosure is not correct or is incomplete. This does not mean that each party must present an extremely detailed account of their finances, but rather that both parties grasp the basics and fully understand what they are doing by entering into the agreement. Consideration of future plans – such as where the couple will live or whether they are likely to have children – will help to tailor the document to the particular situation. Here it can be beneficial to take a collaborative approach to prenuptial agreements, where a couple and their lawyers get together and talk things through.
We live in a globalised world
It is increasingly common for families to have assets in different countries. If this is the case, it will be necessary to consult lawyers in different jurisdictions to make sure that anything agreed in the prenuptial agreement can be enforced there. If so, more time should be allowed for the negotiations. In many countries around the world – in particular the United States, Russia, several countries in Europe, and Australia – prenuptial agreements are the norm. They are also recognised in China and many Asian countries. Some of these prenuptial agreements also deal with the parties' way of life during the marriage. In common-law countries such as England and Wales, Australia, and Hong Kong prenuptial agreements do not go that far – they only deal with how the parties should divide their assets following divorce. Prenuptial agreements do not generally specify what should happen if there are children, other than providing for their financial support.
Prenuptial agreements can be a sensible way to limit the potential for future disputes. Moreover, they are increasingly accepted for what they are: not a distrust of the other person, but a realistic recognition of the facts of life. Divorce is common and litigation costs can be so high that they can make a disproportionate hole in the family assets going forward. Prenuptial agreements could be thought of as insurance policies which you hope will never be needed, made in happier times and filed away, and in no way detracting from the joy of getting married.