As Prince Harry announces his engagement to Meghan Markle, Charles Calkin, financial planner at James Hambro & Co., shares some thoughts on the tricky issue of asking for a prenuptial agreement.
An engagement is first and foremost an opportunity to celebrate. But once the euphoria has passed, it is vital to ensure that the realities of planning a wedding are matched by the practicalities of planning a marriage. A child or grandchild’s engagement can be very stressful for families for all sorts of reasons. The big question you ask is whether this is a relationship that will last. The statistics are encouraging. Couples are leaving it later to tie the knot, living together beforehand, and this seems to be having an impact on the prospects of them choosing the right partner for life.
For Harry's grandparents’ generation divorce was often not an option – the divorce rate across all ages in 1950 was just 2.8 marriages per thousand. In 1996, when his parents were divorced, it was 13.9 marriages per thousand, but by last year that had fallen to 8.5. Recently released data from the Office for National Statistics suggests the divorce trend is heading downwards – fewer marriages today will fail. Prince Harry is 33. The divorce rate for 30 to 34-year-old men last year was 13 per thousand of the married population. Twenty-one years ago, it was 30.2 per thousand of the married population.
Despite the downward trend, year on year the divorce numbers add up and there is still something close to a one-in-three chance of any marriage ending before the 20th wedding anniversary. For parents and grandparents passing hard-earned wealth down the generations, that presents a challenge. If you have given money that is intended ultimately to pass to your grandchildren, how will you feel if half of it disappears in a divorce settlement?
A prenuptial agreement is often the best way around this – the couple agree in advance with each other what will happen to any gifts should they divorce. What the couple accrue between them during their marriage is usually shared on divorce but large gifts you have made can be ring-fenced. Prenuptial agreements are becoming more common now and the courts are upholding them, which is giving confidence in the process to those making gifts.
A good lawyer will help you set up a prenuptial agreement – it is important to get proper advice (this is not something you can download from the internet!) You should also see your financial adviser as this might be part of your inheritance tax planning. Sorting a prenuptial agreement is easy. The trickier challenge is often asking for one. As these get more common this will get easier, but here are some tips:
1. Don’t put it off – I’ve known of anxious, procrastinating parents starting the conversation on the eve of the wedding, which is the worst possible moment! A prenuptial agreement should not be signed under duress if it is to be effective and there should be at least three clear weeks between the signing of the agreement and the ceremony.
2. Use the data – acknowledge that one in three marriages end in divorce ultimately to demonstrate that this is not a comment on their choice of life partner but on life and the challenges of marriage.
3. Set expectations – be clear about how much you are giving and what you would like it to be used for. Your child or grandchild may not accept the terms and therefore decline the gift, but it is important that they understand your expectations explicitly.
4. Don’t break your word – if you have offered a gift without conditions it is very hard to try to apply them retrospectively.
5. Include both partners – try to have the discussion with both partners so that you can be clear and transparent about your good intentions. Your lawyer will expect the other half to take legal advice independently and you should encourage this too. His or her parents may also want to contribute a substantial gift and may be relieved that the issue of prenuptial agreements has been raised!
6. Look ahead – a prenuptial agreement can consider future gifts that you might make or bequeath on your death. There should be no need to repeat the exercise for these, but you may need to keep this under review as circumstances and legal standards change – as do rules around IHT.
7. Share the love – while discussions are under way to discuss the agreement try to find ways to show that you welcome your new family member. Of course, if you don’t approve of the marriage that will be hard, but remember that this is your child or grandchild’s choice of partner and you must show respect! Ultimately, you want both to be happy and for your gifts to enhance their life together.