Knowledge Hub

Join the Conversation!

Impartial and independent, ThoughtLeaders4 Private Client Knowledge Hub hosts cutting edge industry content and insight.

Email to submit content.

The Role of Nuptial Agreements in Long Term Planning for HNW Clients

Date: 23/11/2023 Type: Articles Topic: Private Client | Investment and HNWI’s |

Any family law practitioner will be all too familiar with the late call from a prospective client, or indeed one of their advisors, with mere weeks left before a wedding, asking for advice on a nuptial agreement. The wider perception of nuptial agreements is certainly still one of them being a ‘pressure purchase’. All too often they are an afterthought which undermines their complexity but also the thought that needs to go into them from the client’s perspective. This ideology applies not just to the clients themselves, but frequently to professional advisors working in the private client sphere. I would suggest that this is an outdated mindset which fails to recognise the countless scenarios in which a nuptial agreement can assist, and it is a mindset that we as practitioners will need to work to change.


How can nuptial agreements be used in planning for HNW individuals?

Whilst it may seem an obvious point, nuptial agreements can provide significant benefits to HNW clients looking to embark on marriage. Although the point may be obvious to family lawyers it is often not as apparent to advisors in other private client spheres. Frequently an Independent Financial Advisor, Investment Manager or Accountant will dismiss nuptial agreements as ‘not binding’ or will look to put in place other structures to protect wealth without a true understanding of the family law system. Anecdotally I would suggest that the number of nuptial agreements signed each year continues to rise, but also that this remains a needle in the haystack of HNW individuals who marry and indeed are already married.  

So, what can be done? The key is certainly in building relationships with colleagues working in the private wealth sector to ensure that there is a better appreciation for the benefits of nuptial agreements and an ‘open door’ policy which encourages dialogue.

Nuptial agreements can also be used in more nuanced ways, primarily as a protective measure. I have set out two examples below but there are many.

  1. Protecting the business

David and Ian are the two Directors of a successful small business. David’s wife has assisted the business for some time with some administration work and five years ago David transferred 10 of his 50 to his wife so that she could receive dividends. Ian has the other 50 shares. Ian has just got engaged and his fiancée has started working full time for the business. Ian wants to transfer 10 of his shares to his fiancée on their marriage. The company’s corporate lawyer has advised that a shareholder’s agreement is drawn up, as the shares for David’s wife and Ian’s fiancée should be class B shares only. David and Ian have also agreed that as part of the shareholders agreement and nuptial agreement their spouses should sell their shares back should either ever divorce and so Ian is going to sign a pre-nuptial agreement and David a post-nuptial agreement.

This forward-thinking planning provides David and Ian with security that should either of them divorce a mechanism is in place to ensure the company is not adversely affected. It ensures they are not left with a potentially embittered shareholder and also ensures the expectation that they will buy back the 10 shares from their ex-spouse.

  1. The Family Trust

The matriarch of a family business has spent her career cultivating wealth and is now looking at benefitting her children and grandchildren. She considers setting up a Trust appointing her long-term business partner and a professional Trustee to deal with the running of the Trust. Some of her children already manage elements of the family business, some do not. The client is concerned that should a beneficiary divorce the Trust may be dragged into the negotiations. The Trustees are also concerned that they have duties to act in the best interests of all beneficiaries, and that making distributions which could sign post the Trust as a resource for a divorcing beneficiary may land them in hot water. The settlor therefore makes it a condition that the beneficiaries should enter into a nuptial agreement before Trustees make any distributions.

Whilst the existence of a nuptial agreement would not place a Trust entirely out of the reach of the Family Court, an indication that Trust resources are separate property, with the benefit of legal advice on both sides, would make clear the parties intentions.


Having the difficult conversation

The frequent stumbling block is raising the need for a nuptial agreement with a client. They can be seen as an unromantic or self-interested request from the party holding or acquiring wealth. To my mind the best way to overcome this is to look at a nuptial agreement not as something which seeks to restrict what would be provided on divorce, but as something that can ensure that needs will be met. This can in fact be of reassurance to the financially weaker spouse who may be worried about being left ‘high and dry’.

More recently I have used the case of HD v WB [2023] EWFC 2 as a demonstration of the court’s current approach to nuptial agreements. Not only does Mr Justice Peel give some helpful and concise summaries of the evolution of the law, but the logic of his decision can easily be extrapolated and applied to clients in a range of circumstances. This case demonstrates the courts reluctance to act paternalistically and override the autonomy of parties, whilst also ensuring fairness in meeting needs. Whilst it would assist to have more reported cases involving assets ending in fewer zeros, colleagues seem receptive to the approach and rationale of this case.

There are other ways of assisting a financial advisor, or corporate lawyer, or accountant (the list goes on), in raising the need for a nuptial agreement with a client.

  1. Blame the lawyers.

As family lawyers we should be encouraging the preparation of more nuptial agreements and stating that it is on the advice of a solicitor removes the personal element from the financially stronger party.

  1. Blame the parents.

Frequently wealth is being passed down generations as part of a wider tax planning exercise. Again, removing the personal element from the financially stronger party can assist.

  1. Focus on meeting needs, rather than restricting claims.

Nuptial agreements can provide reassurance to a spouse who is worried what may happen on divorce. Will I be housed? Will the school fees be paid?

  1. Discuss nuptial agreements as part of the wider planning process.

Alarm bells more frequently ring where a nuptial agreement is raised immediately after or just before a significant event (e.g., just before a business sale or just after receipt of an inter-generational gift). Including a discussion about nuptial agreements as part of a client’s annual portfolio review, or at the time of dealing with their tax return, can turn the issue into part of the planning process.


The benefits of a holistic approach

It is us as practitioners who need to develop points of practice around the use of nuptial agreements. The 2014 Law Commission Report (Law Com No 343, Matrimonial Needs and Agreements) helpfully set the ‘gold standard’ in identifying the requirements of a ‘Qualifying Nuptial Agreement’. However, the Government have not formally provided a response to this report and have now announced a further Law Commission report looking at a wholesale review of the Matrimonial Causes Act 1973. We cannot therefore expect any changes to the law for some time.

HNW clients can have a range of needs spanning across several facets of the private wealth sphere. Undoubtedly those clients are best served and supported by a team of professionals who are unified. Nuptial agreements work best where the family practitioner understands the longer-term plans for the client’s investment portfolio, or the reason for the restructure of the client’s business interests, or the plans for a family Trust. For those of us working with nuptial agreements regularly there are significant benefits in building these teams around a client to ensure outcomes that meet the required objectives and will stand the test of time.

Increasing the use of nuptial agreements as part of the longer-term planning process for HNW clients will, over time, change perceptions around the use of these agreements and better serve clients.




Sean Hilton - Stevens & Bolton LLP
slide left
Our Private Client Community Partners
slide right