Susie and Tristan got engaged and were celebrating with family when an uncomfortable topic arose. Susie’s sister brought up a family scandal: her cousin had inherited a large sum from her parents, only to see her spouse claim half during their subsequent divorce.
This incident made Tristan reflect on how important it was to ensure their parents—and their hard-earned inheritances—were protected from similar situations. He suggested a prenup agreement to address these concerns. While Susie was initially hesitant, they eventually worked with solicitors to create a prenup agreement that safeguarded family inheritances and covered other important considerations. The agreement brought peace of mind to their families and reinforced their commitment to transparency and fairness.
Commentary:
One of the most common reasons for implementing a prenup agreement is to safeguard both historic and future inheritances. In some cases, this is prompted by concerns from other family members, while in others, it may be a requirement tied to family trusts or financial planning measures designed to optimise inheritance tax arrangements.
Protecting inheritance through a prenup agreement is often straightforward, as most people recognise that inherited assets carry significant emotional and financial importance. A well-drafted prenup agreement can specify that any assets inherited before or during the marriage remain separate and are not classified as marital assets. This clear delineation helps ensure that inheritances remain protected and distinct from marital assets.
However, there are some limitations to be aware of when attempting to safeguard inheritance through a prenup agreement:
- Commingling of assets: if inherited assets are mixed with marital funds or used jointly, the assets may lose their protected status and be viewed by the court as marital assets.
- Fairness at the time of divorce: Even if a prenup agreement clearly distinguishes between inherited and marital assets, courts may intervene if enforcing the agreement would lead to an unfair outcome. For example, if one party is left without adequate housing or financial support, the court may provide for some provision from proceeds tied to inherited assets or, in extreme cases, the inherited assets themselves.
To reduce the risk of such uncertainties, it is advisable to include maintenance provisions within the prenup agreement. These provisions can offer a level of financial security for the economically weaker party, making it more likely that the court will uphold the agreement in its entirety.