Modern-day prenups: A must-have for more than the ultra-wealthy
Increased significance of prenuptial agreements due to escalating inheritance taxes causing more couples to opt for them.
Prenuptial agreements, often thought to be exclusive to the ultra-rich, are increasingly common among everyday couples. Financial independence and changes in inheritance tax laws are making more people consider these legal agreements to protect their assets and future inheritances.
A recent study discovered that 90% of UK married or civil partnership couples lack a prenuptial agreement. Among the 22.7 million people without a prenup, 60% fall within the 18-34 age range, rising to 89% for those aged 35-54.
The practicality of prenups
In essence, a prenuptial agreement is a legal document both partners sign before marriage or a civil partnership. It outlines how assets such as property, businesses, trusts, savings, or debts will be divided if the relationship ends. The goal is to arrange matters during the honeymoon period so that there's a plan in place if things go south later.
While prenuptial agreements aren't legally binding, they hold substantial weight in court during asset division disagreements during a divorce. It is crucial to ensure the agreement is fair to both parties and any children, signed well in advance, and the parties involved seek independent legal advice.
For instance, if one person owns a property before marriage, the couple may want to stipulate that the property or a larger share of the property remains theirs if they separate. A couple may decide that any assets acquired together during the marriage or civil partnership should be divided equally. The agreement can be tailored to match a couple's unique circumstances.
Inheritance tax evolution
As we approach April 2027, changes to inheritance tax are on the horizon, making the protection of inherited wealth more crucial than ever.
The contemporary scenario
We've noticed an upward trend among younger couples who are thinking long-term and increasingly thinking of prenups to protect wealth and assets. Young clients often approach us when they own or will receive wealth from older generations, have successful businesses, or have received money from personal injury claims.
People are now less hesitant to discuss prenups, opting instead for financial practicality and caution. Older clients are also considering prenups more frequently. We often see couples entering second marriages looking to secure wealth for their children, and parents gifting shares or money towards property who wish to safeguard that wealth via an agreement.
In some cases, parents may offer a significant monetary gift, but on the condition that a prenup is signed.
If a couple is already married or in a civil partnership, a postnuptial agreement is an option. Many prenups transform into postnuptial agreements as it is important to review the agreements over time, as circumstances change.
We have observed a significant increase in demand for prenups over the past few years, driven by the concept becoming less taboo and couples paying closer attention to inheritance planning. A lawyer's role is to highlight the risks of not having a prenup in place.
While no couple wants to envision divorce, a prenup serves as both a shield for family wealth and assets and a compass through potential stormy waters ahead.
As inheritance tax changes and financial independence come to the forefront, we expect more couples to say "I do" with a prenup in hand.
Amy Harris is a Legal Director in the family team at Brabners Personal.
Insights:
- The popularity of prenups among younger generations, including millennials and Gen Z, is on the rise, with 47% of Gen Z (18–24) and 37% of those aged 25–49 viewing them favorably.
- Inherited assets could potentially lose their "non-matrimonial property" status in court, making prenups essential to protect these assets during divorce.
- National support for prenups has grown to 55%, a 13% increase in two years, indicating a cultural shift toward open financial planning in marriages.
- The preference for streamlined divorce processes is on the rise, with a 88% increase in couples opting for single-lawyer divorces in 2024. This trend suggests a desire for reduced conflict and costs.
- Partners of the 'brits' are finding prenuptial agreements increasingly important to protect their property, businesses, and inheritances, particularly as inheritance tax laws evolve.
- A study revealed that 90% of UK couples lack a prenup, with a higher percentage of those aged 18-54 missing out on this financial protection.
- In cases where one person owns property before marriage, a prenup can strategically outline that the property or a larger share remains theirs if the relationship ends.
- With an upsurge in demand for prenups and a shifting cultural outlook, more couples are opting to sign prenuptial agreements to safeguard their wealth during divorce and preserve a stable lifestyle.
