Couples who set up declarations of trust or prenuptial agreements when buying a home together can find they are worthless if they get divorced, warn lawyers.
Prenups, especially DIY ones based on templates available online, can be thrown out by courts due to even a single mistake so they need to be properly drafted.
Declarations of trust record how much each person has contributed to the purchase of a property and should receive in the event of separation, and these are legally valid before marriage but not afterwards, according to law firm Nockolds.
Buying property as a couple: Beware making legal agreements that won’t stand up
‘The squeeze on disposable incomes is leading many couples to resort to DIY prenups or rely on declarations of trust, which are often unenforceable in the courts,’ says principal associate Francesca Davey.
The warning comes after Labour announced plans to give cohabiting couples new property rights if they win the next election.
Prenups need to be completely watertight to be valid
A properly considered and drafted prenup should stand up to challenge and be binding, and courts will want to hold people to them where they are done correctly, according to Davey.
But her firm Nockolds is seeing an increasing number of agreements either downloaded from the internet or drawn up by solicitors without expertise in matrimonial law.
‘Prenups can be unenforceable for a variety of reasons – if assets are overlooked, unaffordable penalty clauses are included, or they are not regularly reviewed by both parties,’ she says.
‘A single mistake in a contract can render the rest of the document void. It is not the job of the courts to fill in the blanks or correct errors. It is therefore important that prenups are completely watertight from the outset.’
Francesca Davey: Punitive clauses intended to punish unfaithful spouses can render an entire prenup unenforceable
Davey says she frequently encounters the following mistakes and omissions.
Punitive clauses, intended to punish unfaithful spouses: ‘These are usually not enforced by the courts and the inclusion of such clauses, depending on how they are drafted, could even render the entire prenup unenforceable.’
Omission of assets: ‘Prenups should cover all assets not just the matrimonial home and business assets, for example.
‘It is common to see prenups which exclude pension funds and debts, for example. Omitting assets could leave the prenup unenforceable.’
Omission of a review clause: ‘The validity of prenuptial agreements declines over time. They should be reviewed and reaffirmed by both parties every five to 10 years with the involvement of a solicitor with expertise in matrimonial law.
‘Reviews cannot be undertaken informally but must be in accordance with a clause drafted into the agreement. The omission of such a clause and/or the failure to regularly review and reaffirm the prenup can render it void.’
Consideration of overseas assets: ‘UK-based couples are increasingly likely to have assets in foreign jurisdictions.
‘In many cases, even when prenups include these assets, they neglect to specify whether matrimonial law of England and Wales or that of the foreign jurisdiction should apply.
‘This can mean that any ruling made in the UK is not upheld by foreign courts, which has become more likely in EU countries post-Brexit.’
Antonia Mee, partner at Burgess Mee Family Law, says prenuptial agreements are not binding in England and Wales, and courts retain the power to decide on the division of assets, income and pensions at the time of divorce.
Irpreet Kohli: If used properly, prenuptial and postnuptial agreements can be a valuable wealth planning tool
The weight afforded to a prenup will depend on a number of factors, she explains.
‘At the time the parties sign it, they should both give financial disclosure of all their assets and income and they should take independent legal advice on the document.
‘Ideally, they should sign it at least 28 days before the wedding (although this is not absolutely necessary) and there should be no duress.
‘The agreement must be fair. If these conditions are in place and the needs of both parties and any children of the family are met by the terms of the prenup, then the court is far more likely to uphold it on divorce.’
Meanwhile, Irpreet Kohli, family law partner at Freeths, warns there is a potentially damaging misconception that prenuptial agreements and postnuptial agreements – those drawn up after marriage – will not be binding.
‘They are binding if the circumstances are right, the agreements are properly drawn up by experienced lawyers to ensure a fair outcome and the parties know what are signing up to – both in terms of the assets and also the impact of the agreement,’ she explains.
‘If used properly, prenuptial and postnuptial agreements can be a valuable wealth planning tool.’
Declarations of trust are void after marriage
Couples often sign declarations of trust when buying property together before getting married, says Francesca Davey of Nockolds.
‘It is often wrongly assumed that these documents carry over once couples get married. They are overridden by matrimonial law, which means they are usually worthless in a divorce court.’
They are legally valid before marriage, and many couples have declarations during their marriage too for tax reasons, adds Davey.
‘But if it came to the couple splitting up their assets would not be automatically divided in accordance with the ownership as set out in the declaration of trust. The only way to pre-determine how your assets are split on a divorce is with a nuptial agreement.’
Antonia Mee of Burgess Mee says: ‘If the property is the family home the declaration of trust will be disregarded by the family court.
‘The family home has a special characteristic in family law. Notwithstanding that one party may have contributed more financially to the purchase of the property or holds a larger share of it on paper, the starting point will be a 50/50 split of the net equity on divorce.
‘One party may get a larger share if they “need” it, for example their mortgage capacity is lower than the other party and they need a larger deposit for a new home.’
Antonia Mee: The family home has a special characteristic in family law. Even if one party contributed more financially to the purchase or holds a larger share on paper, the starting point will be a 50/50 split on divorce
What might Labour plans mean for cohabiting couples
‘Cohabitation is now more popular than marriage, particularly in same-sex relationships and it is right that there should be a better understanding of what rights cohabitees have over their finances,’ says Francesca Davey.
‘The current lack of clear rules is one that can be detrimental to anyone separating after cohabiting.’
The laws at present have grey areas that mean you can get involved in very expensive litigation very quickly, she cautions.
‘One partner contributing financially to a property they live in, but are not the named legal owner of, could result in them claiming ownership of half the property, or it could result in them having no claim at all and losing their investment.
‘Reform has been called for over several years, with an opt-out protocol for cohabitees being suggested, but this raises issues about what determining circumstances in a relationship would trigger the protocol to be enforced.’
Many people believe ‘common law marriages’ create rights for unmarried couples similar to those of married couples, says Irpreet Kohli of Freeths.
‘In short, they do not and unmarried couples can live together for many years, only to discover this on separation.
‘The conversation to rectify this has once again been brought to the fore by the Labour Party who have pledged to reform the law in relation to cohabitees – a suggestion welcomed by family lawyers.’
Kirsty Morris, a partner at Burgess Mee, says Labour’s suggestion it would reform cohabitation laws should be welcome news for many couples who choose to live together and not marry.
‘At the moment there’s a risk of financial hardship when non-married couples split up because they do not have any financial claims against each other arising from the relationship.
‘However, having laws in place to allow one person to receive financial support from their former partner will help prevent this.’
