‘Tis the season to be…careful

Christmas is not only the season for merriment, it’s also a time to take stock, write Rosie Schumm and Dickon Ceadel

“All I want for Christmas is You”. Mariah Carey is not alone in expressing such romantic sentiment over the festive and New Year period. This time of year is a popular time for couples to make commitments to each other and take their relationship to the next level, whether it be a marriage proposal or deciding to move in together. However, from a practical perspective couples should also consider the risks of making such commitments without first securing the legal protection afforded by a pre-nuptial agreement or cohabitation agreement.

Relationships are changing nowadays so it’s certainly worth considering a cohabitation agreement. The number of couples cohabiting in the UK have doubled in number, as have the numbers of children living with unmarried parents. By 2030, it is predicted that one in four couples will be cohabiting. However, in England and Wales the law for cohabiting couples has not kept up with this seismic social shift. Scottish law gives couples who have separated after a period of cohabitation the ability to ask the court to award them compensation for financial disadvantages suffered or advantages retained following a split. In England and Wales cohabitees have far fewer rights and obligations than couples who are married. The number of years they have been together is irrelevant.

In spite of this, more than a quarter of people still incorrectly believe that unmarried couples have the same legal protection to those who are married – the so-called ‘common law marriage myth’. This myth must be dispelled. The reality is that if unmarried couples separate there will be no clear legal apparatus to determine what will happen, rather a patchwork quilt of speculative, complex and costly claims. That is, unless they have a cohabitation agreement.

A cohabitation agreement can be prepared either before or once a couple move in together. If a couple have negotiated and signed such an agreement, then their assets should be divided in accordance with its terms. Couples can agree how their household finances will operate during their relationship, who owns what and in what proportion, and how a property, its contents, personal belongings, savings and other assets should be split if the relationship breaks down. This promotes certainty for both parties and fosters personal autonomy. In addition, it can avoid or flush out misunderstandings about what each party’s intentions are.

The English Courts have wide-ranging powers to carve up parties’ finances on divorce, and take into account all of the circumstances of a marriage. Though the starting point would generally be a 50:50 division of the marital assets, the huge discretion afforded to judges means that there is a real danger that wealth acquired prior to the marriage (or indeed inheritance obtained during the marriage) could also be ‘attacked’ if a judge felt such an approach was justified in a particular case in order to achieve a ‘fair’ result. This is a sobering concept, particularly for ultra-high net worth families.

As a result, agreeing a prenup, tailor-made to the particular circumstances, is arguably far more important than a tailor made designer dress. Whilst the dress may never be worn again, a well drafted prenup prepared by a specialist family lawyer will hopefully endure could go some way to protect the family fortune in years to come should the marriage come to an end. They are now an essential wealth protection step for high net worth families and an intrinsic part of wedding planning.

Pre-nuptial agreements can be given decisive or compelling weight by the court when deciding upon the division of marital assets on divorce. The Law Commission has recommended that prenups should be binding if they meet both parties’ financial needs and comply with certain criteria. For example, both parties having received material financial disclosure and having obtained independent legal advice, and the agreement not having been signed less than 28 days before the wedding. In terms of this last criterion, it is important therefore that parties start negotiations as early as possible before the wedding day and consider entering into a postnup if they have left too little time.