In Scotland, many people are familiar with prenuptial agreements for those about to get married. What is less well known is that, after marriage or entering into a civil partnership, it is possible to put in place a postnuptial agreement.
Postnuptial agreements are often used as part of succession planning or to provide some protection from financial claims on divorce, helping to preserve family wealth for future generations. Just as taking out car insurance does not mean you expect to have an accident, putting a postnuptial agreement in place does not mean you expect your relationship to end. If carefully prepared and entered into fairly, a postnuptial agreement can be a sensible and cost-effective way to plan ahead, helping to protect family wealth and business interests should circumstances change in the future.
They can be particularly valuable where significant assets, family businesses, rural estates or anticipated inheritances are involved, helping provide clarity and certainty for both spouses while supporting longer-term succession planning objectives.
What Happens Without a Postnuptial Agreement?
After you marry or enter into a civil partnership anything you acquire, including pension rights, is considered to be “matrimonial” or “partnership” property. This can include everything from vehicles and household possessions to shares in a business acquired during the marriage or civil partnership.
This only becomes relevant if the relationship breaks down. When parties separate, there is to be fair sharing of the net value of matrimonial or partnership property. Fair sharing usually means equal 50/50 sharing.
Gifts from third parties and inheritances, received after marriage, are not matrimonial or “partnership” property. Assets owned before the marriage, with the exception of a property bought as the family home, are also excluded. However, furniture and household contents used in the family home are matrimonial property even if purchased prior to marriage. Gifts between spouses are also considered matrimonial property.
What changes with a Postnuptial Agreement?
One of the most common reasons for entering into a postnuptial agreement is to exclude certain assets from being treated as matrimonial or partnership property and therefore subject to a claim in the event of a separation or divorce. This is known as “ring fencing”.
Provided a properly drafted agreement is in place, the effect will be that the asset that is ringfenced will remain separate property following separation and will not be subject to a claim on separation or divorce. The asset being protected in the postnuptial agreement, can be an anticipated future gift or inheritance.
Protecting Family Wealth Through Succession Planning
A postnuptial agreement can form an integral part of a family’s succession planning strategy. For example, a family may decide to bring someone into a long-established family business, farming partnership or other enterprise during the marriage. An agreement can help protect the new interest acquired during the marriage, from a potential claim by a spouse on death or divorce.
The inheritance tax changes unveiled in the October 2024 UK Government budget, and the increased focus on lifetime gifting as part of succession planning, have made postnuptial agreements an increasingly valuable tool for protecting family wealth. Where assets are gifted during an individual’s lifetime, a postnuptial agreement can help ensure those assets remain protected for the intended beneficiaries. Post-nuptial agreements can cover estates, farms, businesses, cash, shareholdings or interests, there is really no limit to what can be included.
Conversion into matrimonial property
It would be reasonable to ask: “if third party gifts and inheritances are not matrimonial property, why is a postnuptial agreement needed?”.
One of the key concepts the postnuptial agreement is intended to protect against is the conversion of an asset which is not matrimonial into matrimonial property. For example, if you were to receive a gift of £50,000 from your parents (not matrimonial property) and you then use it to purchase a new Land Rover, that car (as it was purchased during the marriage) would be matrimonial property. You would have taken what was initially a non-matrimonial asset and converted it into matrimonial property which is subject, as a starting point, to fair/equal sharing on divorce and potentially a claim by the spouse on death.
When should you consider a postnuptial agreement?
A postnuptial agreement is often most valuable when circumstances change during a marriage or civil partnership and there is a need to protect a newly acquired asset. You may wish to consider one if during your marriage you:
- Receive a significant inheritance or gift
- Are gifted land or property
- Acquire an interest in a family business
- Invest funds into a family business
- Are involved in a family business restructuring, such as a partnership converting to a limited company or a change in business ownership structure.
For example, consider someone who inherits £500,000 from his parents during the marriage and uses those funds to acquire a business interest or investment property. Without appropriate planning, the inherited funds would as a default be converted into matrimonial property. While arguments may be available to mitigate this, that is the default position.
If the individual had first entered into a postnuptial agreement, the £500,000 and any assets purchased with those funds could be ring-fenced and protected from a claim on divorce or death.
Protecting Assets for Future Generations
For many families, significant assets such as commercial enterprises, family businesses, rural estates, farming interests, investment portfolios and property holdings are intended to be passed down to future generations.
A postnuptial agreement can help protect those assets while providing clarity and certainty for both spouses. While no one likes to contemplate the possibility of divorce or death, planning ahead can help preserve family wealth and reduce the risk of future disputes. If you expect to receive a significant gift or inheritance, acquire an interest in a family business or reinvest a non-matrimonial asset, advice should be taken at an early stage. To discuss whether a post- nuptial agreement would be appropriate for you, please get in touch with the Gillespie Macandrew family law team.
