Marriage is often thought of as a contract of love, but in legal terms, it is also a financial contract. When two people marry, they enter into an agreement to share—not just their lives, but also their financial resources. In England and Wales, this sharing extends beyond the wealth accumulated during the marriage and, in some cases, can even include assets brought into the marriage.

Over time, as the fairness of this arrangement has been questioned—particularly by those with significant pre-marital wealth—courts have increasingly recognised the importance of prenuptial agreements. Just last week, the Court of Appeal, in a case in which this firm is instructed, heard arguments on the enforceability of nuptial agreements. While England and Wales remain one of the most generous jurisdictions when it comes to financial remedies on divorce, a well-drafted pre- or postnuptial agreement remains the best protection for non-marital wealth

However, many are reluctant to suggest such an agreement, fearing their partner’s reaction and the potential impact on what should be a joyous time. As a result, they often avoid the conversation altogether, relying on the hope that fairness and reasonableness will prevail if the marriage ends. Unfortunately, the reality is often different.

The Uncertainty of Divorce Settlements and Judicial Discretion

The divorce law system in England and Wales is discretionary, meaning that the division of assets is subject to the individual judge’s assessment of fairness. Courts have shifted over time in their approach to key factors, such as financial needs and contributions.

For instance, where financial needs (such as housing and income) are concerned, the courts have increasingly moved away from adjusting settlements based on one spouse’s greater financial contributions. This has led to frustration among wealthier spouses who mistakenly assume that their pre-marital assets or earnings will be fully protected. However, a recent case, Standish v Standish, signalled a shift, suggesting that courts should consider the origins of wealth and, where possible, reflect significant financial contributions in a settlement. While this may provide some reassurance, it is not a guaranteed safeguard especially as the decision is being challenged, and judicial discretion remains wide.

Is there a watertight alternative to a Prenup?

In short, no. However, there are steps that can help mitigate risk. The key is preparation and, in some cases, transparency.

Pre-Marital Wealth and trusts

If wealth exists before marriage, placing it in a discretionary trust can offer protection. However, the trust must serve a genuine purpose beyond merely shielding assets from a spouse’s claim. Courts can scrutinise and, in some cases, disregard or pierce the trust if they believe it is effectively a resource available to the settlor.

A trust established transparently with a clear purpose, such as providing for family members may be harder to challenge in a divorce. Early discussions with a future spouse about the trust’s purpose and intent can also help establish its legitimacy.

Inheritance and Wealth Received During Marriage

Generally, inheritance is considered non-matrimonial, meaning it is not automatically subject to sharing on divorce. However, how it is utilised during the marriage can change this. If inherited wealth is used to improve the family home, supplement household income, or buy joint assets, it can become part of the marital pot.

To protect inherited wealth, careful planning is essential. This might involve:

1. Receiving inheritance via a trust rather than as a direct transfer.
2. Delaying inheritance distributions (with tax considerations in mind).
3. Keeping inherited assets separate from marital finances. Though note that this may still result in it being considered as a financial resource in a needs based assessment.

Loans Instead of Gifts

When family wealth is transferred, it is often considered a gift, meaning it could be factored into a divorce settlement. However, structured as a loan, it may be ringfenced, though much depends on the nature and purpose of the loan.

Courts distinguish between soft loans (where repayment is unlikely) and hard loans (which have clear terms and expectations of repayment). To ensure a loan is treated as enforceable, it should be:

1. Documented with clear repayment terms.
2. Given for a specific purpose (e.g., property purchase, legal fees).
3. Treated as a genuine financial obligation rather than a family arrangement.

However, it is important to remember that a properly documented loan creates a legally binding contract that a family member could later enforce, so this approach requires careful consideration.

Financial Independence

Since courts focus on financial needs, one way to reduce exposure to a claim is to ensure that both spouses generate wealth during the marriage. This could involve:

Encouraging both parties to remain in employment.

Investing in assets (such as a rental property) that could provide financial security for the lower-earning spouse, reducing reliance on maintenance payments.

Potential Legal Reforms

There have been ongoing discussions about reforming divorce law in England and Wales to introduce a more formulaic approach to asset division, similar to systems in some European countries. If such reforms take place, they could offer clearer guidance on wealth protection. However, these proposals face opposition, and when or if they will be implemented remains uncertain. More information about this can be found by reference to the Divorce (Financial Provision) Bill [HL] - Parliamentary Bills - UK Parliament.

While there is no foolproof alternative to a nuptial agreement, careful planning can help mitigate risk. Trusts, structured inheritance planning, properly documented loans, and financial independence strategies can all play a role in protecting wealth. However, the law remains flexible, and without a clear agreement in place, financial outcomes in a divorce can be unpredictable.

For those serious about asset protection, seeking specialist legal and financial advice before marriage is essential. While it may not be the most romantic conversation, it could be one of the most important.