Jennifer Lopez has filed for divorce from Ben Affleck after two years of marriage. Sources say that the couple do not have a prenuptial agreement in place, despite being in marriages that have failed before.
With much media attention surrounding the matter, it leads us to consider a bigger question. How do HNWIs who did not put a prenuptial agreement in place protect their assets when separating? Nicky Hunter, Partner at Stowe Family Law, explains the significance of what such a relationship breakdown can mean for a couple’s assets. She also highlights why the lack of a prenup really matters and can prove so crucial.
Protecting their wealth is usually a primary concern for the ultra-wealthy, which is why reports that Jennifer Lopez and Ben Affleck did not sign a pre-marital agreement (or prenup) ahead of their marriage two years ago, have caused some surprise.
After ‘Bennifer’, announced their divorce recently after months of speculation, it was highly anticipated that they would have a watertight prenup in place, considering their reported combined worth of $550m, and that this marriage was Lopez’ fourth, and Affleck’s second.
If Lopez and Affleck did indeed choose to forgo a prenup, this could mean complications for their divorce settlement. Each of them came into their marriage with significant assets and children from previous relationships and, depending on the extent to which they may have combined or shared their individual assets with each other could lead to argument over whether they have become marital property.
Matrimonial or non-matrimonial assets?
Whether or not assets should be treated as matrimonial and non-matrimonial can complicate financial negotiations for any couple. Where UHNWs are involved, this can be amplified. Matrimonial assets are those that have been acquired during the marriage or used for joint purposes. Non-matrimonial are those that have been acquired before, or outside, of the marriage. In the case of Lopez and Affleck, given the relatively short duration of their marriage, there may have been less opportunity for the wealth to be fully combined than may happen in a longer relationship but the lack of prenup can cause uncertainty in many cases.
Prenups may not be considered ‘romantic’, but they can assist in a smoother division of assets when HNW individuals divorce because they can leave little room for argument about who owns, and who keeps, what.
Prenups in the UK
Marriage isn’t for everybody and for HNW couples who choose to not get married and keep their finances separate the general principle applies that each person will leave the relationship with the assets they brought into it, and they will share those they acquired jointly. When couples do want to get married, a prenup is a means of trying to achieve the same outcome for married couples in the event of a divorce, where the courts have more powers to divide assets up according to principles of fairness, sharing or needs. Common among celebrities and HNWs in the US for many years, they have grown in popularity and become increasingly used since 2010 when the UK Supreme Court upheld the terms of a pre-marital agreement in the case of Radmacher v Granatino.
Although not legally binding in England and Wales, the parties are likely to be held to the terms of their prenup if it can be shown to have been fairly entered into with the benefit of legal advice and it doesn’t leave either party with unmet financial needs. To a certain extent therefore, and particularly in the case of HNW marriages, they can be relied on to protect a financial portfolio of pre-marital assets in the event of a divorce. They clearly lay out the ownership of finances, property, and assets by each party at the time of the marriage, and what will happen to them in the event of divorce, as well as how assets built up jointly during the marriage will be divided. They are particularly popular amongst couples entering second, or third marriages, who may want to preserve assets they owned before the marriage, and safeguard inheritance for children from previous relationships.
When dividing assets on divorce, various factors are considered. The starting point is a 50/50 split of all the matrimonial assets, under what is known as the sharing principle. However, the sharing principle does not automatically apply to non-matrimonial assets and a financially weaker spouse may claim a share of the other spouses’ non-matrimonial assets by arguing either that they have a financial need for them, or that they have become matrimonial. A prenup, put in place before the marriage, will aim to restrict the scope for argument and in particular limit any claims against non-matrimonial assets by ensuring that specific decisions about how the assets will be divided in the event of divorce are agreed upon before the marriage takes place.
For HNW couples who are already married but want to have the same protection, a postnuptial agreement (postnup) could be suitable. However, it is essential these are drawn up before any discussions around separation or divorce, as this will nullify the agreement. Like prenups, postnups are not legally binding on the court, but will be treated in the same way and upheld if the terms are determined to be fair.
Advising HNW clients
Financial advisers and family law professionals should be very clear on the limitations of prenuptial agreements with HNW clients in England and Wales. However, when representing wealthy clients, they can be extremely useful for protecting assets in the event the relationship breaks down.
Where couples have complex and substantial assets, advisers and family law professionals must ensure there is full and frank financial disclosure otherwise the protection of the prenup may fail.
Furthermore, it is essential that prenups are revisited regularly. It is recommended that this is at least every five years, but should also be if any significant events occur, for example one party receives inheritance, or the couple have a child. This is to ensure that the prenup is reflective of changing circumstances and is more likely to be considered fair by a court.
Wealthy clients should always seek expert legal and financial advice when considering a prenup or a postnup.
Nicky Hunter is a Partner at Stowe Family Law
