Pre-nups are a financial agreement entered into by both people prior to getting married. In theory they protect the person bringing the most money into a relationship from losing that money in the event of a subsequent divorce.
In our experience parents who have gifted money to children are much keener on the idea of a pre-nup for their children, than the child themselves are on asking for one. The person getting married is probably a little less clear headed about the chance of divorce when in the throes of planning a wedding than the worried parents. It is also not an easy conversation for them to bring up with their fiancé. ‘I have booked the wedding venue, could we chat about you protecting my money if we divorce, oh and we are meeting the Vicar on Tuesday’.
Pre-nups are more common and accepted as standard in America but are becoming more widespread in the UK. The first thing to say is that they are a useful record of the starting intention if entered into by both parties with eyes wide open. Both parties should get independent legal advice before signing a pre-nup.
UK courts will take them into account but there is no way of guaranteeing that they will always be fully accepted in the event of divorce. The circumstances of the marriage, subsequent family and divorce will all come into play in a financial settlement.
They can be useful though to help multiple generations manage the passing on of money. There is a huge transfer of wealth going on between generations at the moment and it is expected to reach £1trillion in the next few years. The 2024 Autumn Statement changed much in the tax landscape and most of it pointed towards the need for wealthy people to ‘gift more, gift earlier’ as we have said before.
There are two main reasons why wealthy individuals struggle to do this. Firstly, the uncertainty of how much they will themselves need before they die. Secondly concern about the impact of giving large amounts of money to children and grandchildren early.
When you gift, there is the tripe threat of divorce, bankruptcy, and loss of capacity of the donee leading to loss of some or all of the gift.
Added to this is the fourth horse rider of the apocalypse, loss of vigour. It is well documented that large, early acquisition of money can lead younger generations to lose the need or appetite to work. This can spiral into a loss of identity, purpose, and mental health issues.
In this context a pre-nup can at least partially defend against one of the four risks of gifting. Trusts can help with the other three and someone between those two solutions lies a happy balance for most of our clients.