Wealth Protection

Wealth Protection FAQs

• How should a property be owned?

  How a property’s legal ownership should be held is very much a personal question for the parties seeking to purchase a property together. A property can be held in a variety of ways and it is important to establish what the parties’ intentions are.  Is it to be owned in one of their sole names or jointly?  If jointly, is it to be held as joint tenants or tenants in common?

  As joint tenants, each co-owner holds an equal interest in the property, i.e. they own it equally. Should one of the parties pass away, their share automatically passes to the surviving co-owner. Most married couples tend to hold their property as joint tenants. However, this is not compulsory. Either tenant can independently sever the joint tenancy agreement at any point without the consent of the other by serving a Notice of Severance in accordance with Section 36(2) of the Law of Property Act 1925. Should this happen, the property is then held as tenants in common.

  As tenants in common, each co-owner owns a specific share of the property. This can be split in any way that the parties wish, e.g. 50/50, 70/30, 80/20 etc. You can outline the shares in a Declaration of Trust or the TR1 and this is advisable. If one of the tenants in common passes away then their share will pass to the beneficiary(ies) names in their Will or under the Rules of Intestacy (if there is no Will). In other words, their share will go to whoever they wish and not the co-owner of the property.

  Couples who have made unequal contributions to the deposit and / or repayments are advised to hold their property as tenants in common specifically recording in what shares the property is held in.

• My parents are contributing £100,000 towards the purchase price of my property with my partner – can I protect this?

  In the event that one party’s parents (or other family member) are contributing a significant amount to the purchase price of the property then the advice would be to record this in a Declaration of Trust. A Declaration of Trust is a legally binding document which confirms the true ownership of a property in the proportions contributed by each party as opposed to just the legal title which may not match the beneficial interests The Declaration of Trust will be noted at the Land Registry alerting future purchasers that the registered owner is not alone in owning the property.  Contributions from parents can also be protected by way of a legal charge or a loan agreement.

• What happens if we separate? Will my parents receive their contribution to the purchase of the property back?

  The answer depends upon whether the parents’ contribution is protected. As above, if the contribution is protected in a Declaration of Trust then the way in which the property is owned is clearly recorded and the parents’ interest will be protected.  Similarly, if there is a loan agreement or a charge against the property, the contribution is protected.  If none of these things have been put in place and the property is owned by the parties, it is less likely that the money will be protected in the event of separation.

• What is a prenuptial agreement?

  A prenuptial agreement, or prenup, is a written document entered into by a couple prior to their marriage or civil partnership that sets out what their assets and income are and how those assets and income should be divided if they decide to divorce or dissolve their civil partnership in the future.

• How common are prenuptial agreements?

  According to the Marriage Foundation, one in five couples enter into a prenuptial agreement. Prenuptial agreements have become increasingly commonplace over the last ten years.

• Do I need a solicitor for a prenuptial agreement?

  Yes, a prenuptial agreement will need to be drafted by an experienced family lawyer. A couple entering into a prenuptial agreement should take independent legal advice to ensure that they fully understand the content of the agreement and its implications. A family lawyer can also advise you on the pros and cons of entering into a prenuptial agreement and whether it is right for you and your family.

• Are prenuptial agreements legally binding?

  Prenuptial agreements are not 100% legally binding in England and Wales.

  However, as a result of the leading case of Radmacher -v- Granatino [2010]  prenups are more likely to be upheld than not. This means that they are highly persuasive to the Family Court on divorce or dissolution.

  In Radmacher -v- Granatino [2010], the Supreme Court held that a court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement.

  The Law Commission’s Matrimonial Property, Needs and Agreements report dated 27 February 2014 went on to say that if the following applies, then the presumption is that the terms should be upheld unless it would not be fair to do so: 

  • The pre-nuptial agreement is contractually valid.
  • The pre-nuptial agreement was signed at least 28 days before the wedding.
  • Both parties have made full disclosure and had legal advice.
  • The pre-nuptial agreement does not prejudice any children and it meets needs.

• When should I get a prenuptial agreement?

  Ideally, a prenuptial agreement should be signed at least 28 days before the wedding but, the sooner the better. Ideally, discussions regarding prenuptial agreement should start at least a year before the wedding to give the parties time to negotiate if needs be and to refine the terms. It is also preferable to have them signed and completed well before the wedding so that they don’t interfere with planning for the wedding itself.

• Do prenuptial agreements expire?

  A prenuptial agreement will not expire unless the document contains a clause terminating the agreement after a specific period.

• What is the difference between a cohabitation agreement and a prenuptial agreement?

  A prenuptial agreement is only applicable to couples that intend to marry or enter into a civil partnership. In contrast, couples entering into a cohabitation agreement generally do not plan on getting married or entering a civil partnership.

• Who should get a prenuptial agreement?

  There are many reasons why couples choose to enter into a prenuptial agreement such as:

  • A disparity in wealth between the couple.
  • To protect assets for their children from a previous marriage or civil partnership. 
  • There are assets in other jurisdictions.
  • To protect expected future inheritance.
  • To protect assets brought into the marriage or civil partnership.
  • A person has been through a divorce previously and wants to avoid costly litigation.

• Why is a prenuptial agreement a good idea?

  There are five key advantages to getting a prenup:

  • Certainty — the couple can make sure they agree on what would happen upon divorce or dissolution to create greater certainty.
  • Transparency — the couple will have to provide some financial disclosure to the other prior to entering into the prenuptial agreement and will therefore be aware of the assets, income and liabilities of the other at the outset of the marriage or civil partnership which ensures that there is a good understanding of the other person’s finances. This also helps your lawyer advise you whether the agreement is fair and reasonable.
  • Cost effective — figures from the 2021 Census from the Office for National Statistics reveals that nearly half of all marriages end in divorce. The legal process involved with divorce and dissolution can be expensive. While there are some costs to pay upfront with the drafting of a prenuptial agreement, couples usually spend much less on legal fees at the other end of the process as the terms have already been agreed. 
  • Protect assets — couples can protect assets from one another, including, inheritance already received or likely to receive, gifts from third parties, family heirlooms, property acquired prior to the marriage, any business interests (e.g. shares in a family business) and potentially pensions. Similarly, they can protect their debt from the other. 
  • Reduce acrimony and litigation — a prenuptial agreement should remove or reduce arguments about finances following separation and encourage a smoother and more amicable separation, which would be particularly beneficial to any children of the family.

• What are the disadvantages of a prenuptial agreement?

  For most people the advantages of entering into a prenuptial agreement will outweigh the disadvantages, however there are considerations:

  • Perception — prenuptial agreements are often viewed as unromantic or ‘tempting fate’. However, prenuptial agreements are an effective wealth protection tool and, in reality, are no different from an insurance policy. 
  • Risk of uncertainty — there is no guarantee that a prenuptial agreement will definitely be upheld on divorce. For example if the terms of a prenuptial agreement would produce an unfair outcome then the court may dismiss or vary the terms. However, it is important to remember that if guidance is followed and the agreement is fair then it is more likely to be upheld upon divorce than not.
    
    Many couples choose to have a review clause in their prenuptial agreement which requires them to revisit the terms of the agreement every few years or in the event of a specific event e.g., the birth of a child, relocating abroad or chronic illness. By reviewing the terms of the agreement, the couple help to ensure that the agreement remains fair and would meet their needs. However, if changes to the agreement are needed then it will result in further legal fees and potentially uncomfortable conversations if the couple struggle to agree on changes. 
  • Timing — some people are concerned that entering into a prenuptial agreement ahead of their marriage or civil partnership will be stressful and time-consuming in what already is a very busy time. However, instructing an experienced family lawyer who specialises in prenups can help to make the process as smooth and simple as possible.