Keeping wealth in the family: Pre-nuptial agreements and wills
28 / 12 / 2018
The case of KA v MA (2018) highlights the role that pre-nuptial agreements have in preserving family wealth, confirming that when a pre-nuptial agreement is entered into, it is possible to move away from a starting point of equal division on divorce and instead look at financial need.
In Radmacher v Granatino (2010), the Supreme Court recognised that pre-nuptial agreements should be given effect in the UK provided they are: (i) freely entered into by each party, (ii) with full appreciation of the implications and (iii) it would not be unfair to hold the parties to their agreement in the circumstances.
The first two limbs of the test have generally been accepted as meaning there must be no undue influence, each party must have received independent legal advice and there must be financial disclosure. The difficulty comes with the third test on what would be “fair” and the Supreme Court deliberately did not give detailed guidance.
KA v MA specifically looks at the question of “needs” in the context of pre-nuptial agreements. Key questions are addressed including housing and maintenance needs. The result allows the party seeking to protect wealth, where there is a properly drafted pre-nuptial agreement, to move away from the starting point of equal division to one of need.
A pre-nuptial agreement may also dictate the minimum sum a surviving spouse should receive on death and a new pre/post-marital Will drafted to give effect to that. If executed before the marriage, the new Will should be expressed to be “in contemplation of marriage” as marriage will otherwise automatically revoke the Will. The new pre/post-marital Will can be drafted to financially protect the future spouse by providing her/him with an income for life whilst also preserving the family wealth for future generations. This can have the two-fold benefit of: (i) avoiding conflicts between the surviving spouse and family on how the estate will be distributed; and (ii) maximising the use of the inheritance tax (“IHT”) spouse exemption to allow the estate to benefit from 100% IHT relief. Without a new pre/post-marital Will, the estate will be distributed in accordance with the Intestacy Rules, a fixed set of rules which do not allow you to plan for the distribution of wealth to your spouse and family, or mitigate any IHT consequences, leaving your estate open to claims from unsatisfied parties.
Our Private Client and Family teams work closely together to provide asset preservation and wealth planning strategies in changes of circumstances such as marriage. Please contact either one of us, or your usual Wedlake Bell adviser, for further information.