Once you are married, the law provides that everything that you, or your spouse, acquire (with some exceptions) in the course of the marriage or partnership is considered to be “matrimonial property”. Matrimonial property is to be shared fairly, which usually means equally, in the event of divorce. Marriage also brings with it certain automatic rights of inheritance in your spouse’s estate: to cash, property and house contents. The law applies equally to civil partnerships.
Excluded from matrimonial property is anything that is acquired prior to the marriage (although note an exception is a home purchased for use as a family home); anything received by way of gift from third parties; and anything received by way of inheritance.
However, people’s wealth rarely remains static.
Property and assets are sold and new assets acquired in their place. Share portfolios are managed, with underlying shares and investments bought and sold.
Funds are invested into improvements to heritable property that is matrimonial property and into paying off secured borrowings on such properties. Businesses restructure or reorganise, such as on merger or re-capitalisation, or for tax reasons.
New business Partnerships may be created when individuals exit and/or are brought in.
Pre-marital or family wealth may be transferred into a business that is created during marriage.
In all of these circumstances, what was deemed to be non-matrimonial wealth and therefore out of the matrimonial pot for sharing, converts into matrimonial property, because it does not remain in its original form when it had been owned pre-marriage or received as part of gift or inheritance.
The result is that the value in the replacement or changed assets can then be claimed against in any divorce. There are arguments to be had to try to persuade a Court that the other spouse should not be entitled to share in their value, but whether those arguments will be successful is entirely down to the discretion of the Court and there are no guarantees.
For those looking to protect pre-marriage or family wealth which they may receive during marriage by way of gift or inheritance, Pre-Nuptial Agreements can give them the best possible prospect of protection. Such Agreements are also commonly sought out by those who are entering into second marriages and wish to preserve their wealth for the children they already have; and those who are looking to bring a spouse into their business.
Of paramount importance is that such Agreements are drafted properly. It is widely recognised that they should be robust to any future challenge, provided three tests are met:
- Each party has full and proper independent legal advice;
- There is no pressure to sign (and usually this means that ideally, if possible, the process of trying to agree the terms of a Pre-Nuptial Agreement should begin around six, but no less than three months, prior to any impending wedding); and
- The terms of the Agreement should be fair and reasonable at the time it is entered into.
Because the ethos behind the legislation that deals with financial provision on divorce is that assets which derive from the income or efforts of the parties during the marriage (or Civil Partnership) should be shared fairly between couples, it will often be considered fair and reasonable, and therefore uncontroversial, to look to protect wealth that derives from pre-marriage assets and family or third party gifts or inheritance.
The recent case of M (C) v M (M) 2021 Sc Edin 31 is a rare example of an Agreement such as this coming under the scrutiny of a Scottish court; and ultimately being set aside. The case is described as an extreme one and it very much highlights the risk of not having an Agreement prepared properly and satisfying the necessary tests.
In this particular case, the relationship between the spouses was found to be an abusive one. The husband was vulnerable and unwell, suffering from depression. In the course of the relationship, the wife exerted significant control over him. It was clear on the face of the Agreement that it would lead to a very unequal division of the wealth that both spouses had contributed to equally. The husband, although he did take some legal advice, did not have full and proper advice on whether the Agreement was fair and reasonable or what he might be awarded by way of financial provision. The husband did not understand the true effect of the Agreement. The wife knew it was grossly unfair, allowed him to enter into it and she took advantage of him.
All specialist Family Law Solicitors advising on and preparing such Agreements, should be well aware of the expected criteria. The fact that they are, might explain why, notwithstanding that a significant number of such Agreements are entered into each year, they do so rarely come before the Courts under challenge.