Nuptial agreements can be entered into pre or post marriage. These documents can be an essential tool for estate planning as they may assist with ringfencing assets, protecting inherited wealth for future generations and discharging prior and legal rights. Nuptial agreements are particularly popular for those entering into second or subsequent marriages; where a party expects to inherit or be gifted family wealth; or where there are children of a previous relationship whom a party wishes to financially protect.
Enforceability
Whilst pre-nuptial agreements have never fully been tested in the Scottish courts, the courts appear reluctant to interfere with an individual’s right to contract. Nuptial agreements are considered to be binding under Scots Law provided that they are fair and reasonable at the time at which they are entered into. Like any other contract, they are also susceptible to challenge under any of the usual contractual grounds (extortion, fraud, facility and circumvention, undue influence, error and misrepresentation).
The fact that an agreement deviates from the likely division of parties’ finances which would otherwise be carried out does not give rise to an automatic inference that the agreement was not fair and reasonable at the time of it being entered into. It is recommended that such an agreement is entered into in plenty of time so that parties have a full opportunity to consider it. It is also helpful if both parties have received independent and separate legal advice regarding the terms and consequences of the nuptial agreement prior to signing.
Matrimonial property and conversion
The Family Law (Scotland) Act 1985 governs financial provision on divorce in Scotland. Matrimonial property means all property belonging to the parties or either of them which was acquired by them either jointly or individually during the marriage but before the ‘relevant date’ (usually the date of the parties’ separation), or a home which was acquired for use by the parties as a family home (even if purchased pre marriage) and the furniture or plenishings for such a home. Importantly, any inheritances or gifts from third parties are excluded from this definition.
Individuals find themselves in difficulties where a non matrimonial asset changes form during the marriage and is “converted” into matrimonial property. In those circumstances, arguments may still be made in relation to the source of funding for such an asset, but such arguments are discretionary and there is no guarantee of success
Conversion can often happen where funds are gifted or inherited and used to acquire new property; where business interests are restructured or where assets are transferred between spouses for tax planning purposes.
Most pre or post nuptial agreements are drafted with a particular eye on ensuring that only the net value of the matrimonial property which is acquired as a result of income and efforts of the parties during the marriage will ultimately be shared.
Prior and legal rights
Under the law of intestacy, a spouse has automatic rights to share in the deceased’s estate. Even where there is a will in place, a spouse would still be able to make a “legal rights” claim. A nuptial agreement can provide that in the event of the parties’ separation, neither party can claim prior or legal rights in the event of the other’s death prior to divorce.
Risk management
A private client advisor is ideally placed to signpost parties for whom a nuptial agreement could be appropriate. What makes for excellent estate planning or tax advice can often make terribly family law advice. From a risk management perspective, it is worth checking the position from a family law perspective before clients make any significant wealth planning decisions.
Contributor
Senior Solicitor
