Discussing financial matters with loved ones isn’t something most of us relish. It can be awkward at best, stressful at worst. Confronting the ‘what ifs’ in life is daunting and tends not to be near the top of the agenda, especially just post-marriage.

Alison McKee, who heads the family law team at Lindsays and has worked in the area for 15 years says that it should be. She has noted a significant recent rise in the number of post-nuptial agreements, similar to prenuptials – which are probably more familiar to many people – but which are made after a wedding or civil partnership has taken place. Like a prenup, they set out what should happen to a couple’s assets should they separate or divorce.

The agreement is legally enforceable in Scotland, as long as it’s fair and reasonable at the time it is entered, and having a postnup in place establishes certainty that splitting up will not involve later court action – with the accompanying financial and emotional strain. “Properly drafted, it means that both parties understand the implications of what they have entered into,” she says.

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In Scotland, assets that one partner owned before the marriage, has received as a gift or inherited afterwards are not included in the matrimonial pot, which is divided if they split, However, if the nature of the gift, inheritance or preexisting assets is changed by selling the asset or investing money received, an asset which was never intended to be shared between the couple can easily fall into the pot of matrimonial assets.

“We are also increasingly seeing situations where parents are gifting to their children during their lifetime for tax planning purposes so they should be considering who they are actually gifting to and who will benefit from the gift; that’s another instance where the child might want to look at whether an agreement needs to be put in place with their spouse to ensure that no matter what is done with that gift during the marriage, the gift or anything acquired with it will not become a matrimonial asset.”.

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The matrimonial pot

She explains: “Money received by the wife as an inheritance for example is not included as a matrimonial asset – but if it’s used as a deposit for a property the couple live in or to set up a business they both run it may be part of the matrimonial pot after all”.

Or, as is increasingly the case she says, one partner might establish a business while still single then change its structure after marriage, perhaps incorporating it or making the other partner a director, for completely legitimate tax planning reasons.

“Even if the business is built before the marriage, it may now be a matrimonial asset and part of any financial settlement on divorce,” she says. “Often people rarely consider the implications of making their spouse or partner a director or shareholder and if the relationship subsequently breaks down these can come as a big shock.”

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Confronting the myths

McKee believes that there are several misconceptions which should be dealt with regarding postnups, including the fact that they are principally for high net worth individuals; that they are not legally binding (they are) and that they imply a lack of confidence in the future of a relationship.

Take the first, for example: “Younger people are increasingly entrepreneurial and realise that their company should be protected. There is no longer the assumption that one partner is the principal money earner and the other stays at home,” she says.

“Both are likely to have careers and assets, and this leads to a more balanced conversation: a postnup agreement is far from being about one party controlling another; rather it’s about two people on an equal basis who want to be in control of their own finances."

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In the wider family

Parents of course can become involved, and farming is one common instance, says McKee. “Often by the time mum and dad are ready to hand over the family farm, or a portion of it, their children may well be already married. Although the gift itself is not a matrimonial asset, the way in which the farm is run may convert it to being so.

“If they gift or bequest a third to each son and one son gets divorced then their wife, who may have no interest in continuing in farming, may, have a claim against that third, and the farm may have to be sold or restructured in order to make that payout.

“In that case a postnuptial arrangement can protect the whole farm from any potential claim and people involved in this area of business tend to be very astute and aware of the possibility of this happening.”

McKee admits that the area of postnup agreements can be an emotive one – but stresses that much of the difficulty can be avoided by taking pre-emptive action.

“As in every area of family law there are many sensitive dynamics but it’s much better to have a sensible conversation at an early stage because if things go wrong and you find yourself in a separation or divorce, having that calm and rational conversation is infinitely more difficult to achieve.

“Much of the unhappiness and animosity arises from the fact that both parties suddenly find themselves on totally different pages regarding what they understood would happen with their finances should the marriage end.”

A new dynamic

There has been a general cultural change regarding the dynamics of family finances in recent years, points out McKee. “People are more inclined to discuss the day-to-day aspects: who’s paying what bill, do we have joint or separate current accounts, who’s booking holidays …?

“We now want to keep more control of our own finances. Interest in postnups has reflected that and the agreements don’t have to be harsh – in some postnups the assets do not have to be excluded from the matrimonial pot in their entirety but rather the agreement regulates how particular assets will be divided between the parties should they separate and the mechanism for achieving this. Nor do agreements have to deal with all assets and can be very specific to a particular asset.

“No one wants relationships to break down,” she adds. “The reality is, though that the clarity and transparency postnups introduce can create a more solid foundation for marital and family relationships rather than finding out when it’s too late and emotions are running high that there are differing expectations that can’t be reconciled, which can be infinitely more costly, both emotionally and financially”.

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Alison McKee, Partner and Head of Family Law at Lindsays, has over 20 years of experience and is accredited as a specialist in both Family Law and Child Law by the Law Society of Scotland.

Alison advises clients on all aspects of family law, including complex financial settlements in divorce and separation situations, preventative measures such as pre and post-nuptial agreements, cohabitation agreements and child matters including residence, contact and relocation.

She is fully trained and accredited in Collaborative Family Law and is a member of the Family Law Association, and Consensus, the Scottish Collaborative Family Lawyers Group

Alison will be happy to advise you on the best options for your particular circumstances.  If you would like to get in touch with Alison, please call her on 0141 302 8447 or email alisonmckee@lindsays.co.uk.

Lindsays is a Scottish firm of experienced lawyers who can provide expert, accessible and reliable legal advice for people and businesses. We support our clients at every stage of their journey through life in areas related to their family, work, property, business interests and retirement, and with any other issues that may crop up along the way.

Contact details for Alison McKee

T: 0141 302 8447

E: alisonmckee@lindsays.co.uk

W: www.lindsays.co.uk