The most frequent questions that we are asked about pre nups are: do I need a pre nup and will it be binding?
Do you need a pre nup?
Without a pre nup, the court has a very wide discretion when deciding a financial settlement on divorce, and takes into account a number of factors. We won’t go through all of those factors in this article, but it is important to understand that there is no set formula for deciding a financial outcome, and therefore, the decision made by one judge can be quite different to how another judge would determine a matter. We can advise you on the fair parameters for a settlement and likely outcome range, but there is always an element of uncertainty.
In addition, the legal costs in resolving a financial settlement can be significant, particularly if it cannot be negotiated and court input is necessary.
There is never a quick resolution when the court process is used. Typically, the court process can take 12 – 18 months from start to finish, sometimes longer. Those delays seem to be increasing.
In short, the court process is uncertain, expensive, and lengthy. It is best to avoid it where possible. While parties can try to resile from the terms of a pre nup on divorce such that court proceedings are required, the court will likely uphold the terms of the agreement provided certain criteria are met, which we set out below.
Pre nups are typically suitable:
1. For those who wish to enter into a second marriage and wish to protect their asset base for their own children;
2. Where there is an imbalance of wealth between the parties of the marriage, and commonly, where that wealth is inherited.
If you fall into either of these categories, or if you cannot decide if a pre nup would be beneficial to you, give us a call and we can help you to decide if a pre nup is right for you.
Are pre nups binding?
A pre nup will be upheld by the court if it is fair for it to do so.
While the court endeavours to protect couples’ autonomy in agreeing terms of an agreement (even where they are very different from what the court would have ordered without a pre nup in place) a pre nup will only be upheld if it is fair to do so. In order to be fair, a pre nup:
• Should not prejudice the reasonable needs of any children of the family.
• Should meet both parties’ reasonable needs. However, needs can be far more limited under a pre nup than a court might otherwise determine.
• Should have been entered into by each party under their own free will, without undue influence, fraud or duress.
• Should be understood by each party so they are aware of the terms and implications of the agreement. This does not mean that it is essential for each party to have legal advice, but it is more likely to be upheld if both parties have been advised.
However, a party may find it very difficult to argue that they should not be held to the terms of a pre nup because they declined to take legal advice. It may be appropriate for the person that is being protected by the pre nup to meet all or some of the less well-off party’s legal costs (see article on pre nup costs).
• Both parties should fully disclose their financial position. This will enable both parties to determine if they are happy with the terms of the agreement i.e without knowing what assets the other person has, they cannot know if they have a fair deal.
• The agreement should be entered into at least 21 days before the marriage.
Provided these criteria are met, the pre nup is likely to be binding. The existence of a pre nup helps both parties to the marriage know what their position is, and will help to avoid uncertainty, legal costs and stress in the event of divorce.